10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-13848

CONCORD EFS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	04-2462252
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

2525 Horizon Lake Drive, Suite 120, Memphis, Tennessee	38133
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code:

(901) 371-8000

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.33 1/3 Par Value

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x  No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2002 was $15,196,256,249.

The number of shares of the registrant’s common stock outstanding as of March 10, 2003 was 486,467,630.

DOCUMENTS INCORPORATED BY REFERENCE

Filings made by companies with the Securities and Exchange Commission (SEC) sometimes “incorporate information by reference.” This means that the company is referring you to information that either was previously filed or will be filed with the SEC, and this information is considered to be part of the document you are reading. The following materials are incorporated by reference into this annual report on Form 10-K:

• Information contained in our Annual Report to Stockholders for the fiscal year ended December 31, 2002 is incorporated by reference in response to Items 1, 5, 6, 7, 7a, and 8.

• Information contained in our Proxy Statement to be filed for the Annual Meeting of Stockholders to be held on May 22, 2003 is incorporated herein by reference in response to Items 10, 11, and 12.

FORWARD-LOOKING STATEMENTS

This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth in this paragraph. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plans, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers or renewal of customer contracts on less favorable terms, (iv) increasing competition and its effect on our margins, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) information theft, (xiv) susceptibility to merchant fraud and credit and fraud risk of entities we sponsor into networks, (xv) changes in card association fees or products, (xvi) automated teller machine market saturation or restrictions on surcharging, (xvii) rules and regulations governing financial institutions and other networks and changes in such rules and regulations, (xviii) the timing and extent of changes in interest rates, (xix) volatility of the price of our common stock, and (xx) litigation risks. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.5 to this annual report on Form 10-K for a more detailed discussion of the foregoing and other factors.

INDUSTRY SOURCES

Unless otherwise noted, the industry information provided in this annual report on Form 10-K, including the industry rankings, is based upon information contained in the following industry publications:

• Thomson Financial’s EFT Data Book 2003 Edition, for share of point of sale personal identification number (PIN)-secured debit transactions processed, share of PIN-secured debit payment transactions, and share of total number of automated teller machines (ATMs) in the United States as of March 2002,

• Thomson Financial’s EFT Data Book 2003 Edition, for share of acquired PIN-secured debit payment transactions, based on 2001 transactions,

• Thomson Financial’s EFT Data Book 2003 Edition, for share of PIN-secured and signature debit payment transactions, based on 2001 transactions,

• Thomson Financial’s 2003 Card Industry Directory, for share of ATMs processed as of March 2002,

• The Nilson Report, Issue 758, for share of dollar purchase volume of credit and signature debit card payments, based on 2001 transactions, and

• The Nilson Report, Issue 761, for share of U.S. consumer payments made with cash and checks, based on 2002 projections.

We believe these publications contain the most current industry information published on the matters referenced, as of the date of this annual report on Form 10-K.

CONCORD EFS, INC.

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Item 1.	BUSINESS	1
Item 2.	PROPERTIES	10
Item 3.	LEGAL PROCEEDINGS	11
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13
Item 5.	MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	13
Item 6.	SELECTED FINANCIAL DATA	13
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
Item 7a.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	13
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	14
Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	14
Item 11.	EXECUTIVE COMPENSATION	14
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	14
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	14
Item 14.	CONTROLS AND PROCEDURES	18
Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	19

PART I

Item 1.     BUSINESS

Overview

Concord EFS, Inc. (Concord), a leading electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, we acquire, route, authorize, capture, and settle virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. In 2002 we processed approximately 10.8 billion transactions.

We organize our business into segments based upon the different products and services that we offer to the different industries we serve. In the fiscal year ended December 31, 2002 we had two segments—Network Services, which provides automated teller machine (ATM) processing, debit card processing, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies. As a result of our recently announced strategy of developing our risk management services, we expect to organize a new segment during the 2003 fiscal year. Our new Risk Management Services segment is expected to provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction.

Our development over the past ten years has been characterized by vertical expansion of our electronic transaction processing services. We began by providing merchants with services for various stages in an electronic transaction, including terminal equipment supply, transaction processing, transaction settlement, and funds movement. Next, we added products and services for financial institutions related to the cards that initiate the electronic transactions, such as card processing and authorization services and a payments network with a national debit brand. Most recently, we expanded our services into closely related areas that add value to our core services, such as risk management services provided at the point of account opening, the point of deposit, and the point of sale. This vertical integration allows us to offer a wide-ranging package of services to our customers, to maintain a higher level of quality at all points in the transaction flow, to capture multiple fees for certain transactions, to identify specific needs for new products and services, and to more easily distribute new products and services.

The potential revenue benefit of our vertical integration and our network ownership can be illustrated by a debit payment transaction in which a personal identification number (PIN) is used for identification (a PIN-secured debit transaction). In a situation in which a PIN-secured debit transaction uses our debit network and we are both the acquiring payment processor for the merchant and the debit card processor for the financial institution, we receive (1) a fee from the merchant for acquiring the transaction, (2) a network acquirer fee from the merchant for accessing our network, (3) a fee from the card issuing financial institution for running the transaction through our network switch, and (4) a fee from the card issuer for obtaining the authorization. There are other possible configurations of transactions that result in our receiving one, two, or three fees for a transaction, depending on the role we play.

A key component of our vertical integration is our ownership of Concord EFS National Bank (f/k/a EFS National Bank), which allows us to directly perform services and functions that are part of the electronic transaction process but which by law may be provided only by financial institutions. We believe that our ownership of Concord EFS National Bank provides us with a number of advantages: (1) we are a member of the credit card associations and debit networks and therefore do not have to pay another financial institution to sponsor us on behalf of our merchants and retail ATM deployers; (2) we settle our transactions directly through the Federal Reserve and thus do not have to pay a third-party vendor; (3) we perform services such as automated clearing house (ACH) and wire transfer internally and therefore do not have to pay another financial institution for such services; and (4) we manage the deposit accounts for our stored value payroll card and thus do not have to pay another financial institution for such services.

Services

Network Services.    Network Services provides the systems and processing that allow financial institutions to offer their customers access to their deposit accounts at ATMs and POS locations. Our network access services include transaction switching and settlement, plus related support services to our customers. We operate the network switch for the combined STAR_sm, MAC_®, and Cash Station^® debit networks that connects over 1.2 million ATMs and POS locations that accept debit cards issued by our member financial institutions. In addition, we provide ATM processing and monitoring, transaction routing and authorization via credit card

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associations and debit networks, and card management, authorization, and fraud protection for PIN-secured debit and signature debit cards. In 2002 we processed approximately 3.0 billion PIN-secured debit payment transactions and approximately 3.3 billion ATM and other transactions.

Our debit network has been built primarily through the acquisition of a number of regional debit networks, giving us a non-bankcard association, coast-to-coast debit network. In 1999, through our acquisition of Electronic Payment Services, Inc. (n/k/a Concord Corporate Services, Inc.), we acquired the MAC network, which is concentrated in the Mid-Atlantic and Northeastern United States. In 2000, through our acquisition of Cash Station, Inc., we acquired the Cash Station network, which is concentrated in the Midwest. In February 2001 we acquired Star Systems, Inc. (STAR), whose network spanned the Western, Southwestern, and Southeastern United States. As a result of these acquisitions, as of December 31, 2002, our estimated 6,200 financial institution customers deployed over 241,000 ATMs nationwide that carried at least one of our brands (STAR, MAC, or Cash Station).

We currently operate our debit network services under three different brand names: STAR, MAC, and Cash Station. We intend to consolidate all of our brands under the STAR brand name by 2004. We believe this will add to the name recognition of STAR as a coast-to-coast debit brand.

Through the approximately 1.0 million branded POS locations connected to our combined network, we believe that in 2002 we switched approximately 56% of the total United States PIN-secured debit transactions at the point of sale. In addition, we believe that the approximately 241,000 ATMs connected to our combined network represented approximately 64% of the total number of ATMs in the United States in 2002. We believe that owning a large coast-to-coast debit network allows us to offer a wide-ranging package of services, to identify specific needs for new products and services, and to more easily distribute new products and services.

We provide our Network Services customers with the following services.

• STAR Network Access—We operate a central “switch” which is connected by a telecommunications network to thousands of financial institutions, merchants, payment processors, ATM processors, and card processors that participate in the STAR network. When one of these participants acquires a STAR transaction, it sends the transaction to the network switch which in turn routes the transaction to the appropriate participant for authorization. To be routed through the STAR network switch, a transaction must be initiated with a card carrying the STAR mark at an ATM or POS terminal also displaying the STAR mark.

• ATM Processing—We provide the systems and software for our customers to outsource to us ATM operations that support a variety of financial transactions, including cash withdrawals, transfers between accounts, deposits, balance inquiries, and purchases of alternate media such as tickets. ATM processing services include managing and monitoring the telecommunications networks that connect the ATMs that we process with our computer systems and with the credit, debit, and electronic benefits transfer (EBT) gateways connected to us. We route transactions to the appropriate network for authorization and then relay this information back to the terminal to complete the transaction.

• Card Processing—We provide the systems and software for our customers to outsource to us the maintenance of cardholder account and balance information that allows us to authorize transactions and report on cardholder activity to the financial institution. We provide card management, authorization, and fraud protection services for STAR PIN-secured debit cards and VISA and MasterCard signature debit cards. We also provide card management services for a variety of stored value cards.

We generate revenue in connection with each of these services. Revenue for STAR network access services consists of per transaction fees paid by merchants for accessing the STAR network, per transaction fees paid by card issuing financial institutions for routing transactions through the STAR network switch, and monthly connection fees paid by processors and merchants that connect directly to the switch. Revenue for ATM processing services consists of monthly connection fees for ATM processing and monitoring, plus per transaction fees for acquiring and routing transactions from the ATMs we process. Revenue for card processing services consists of monthly fees per debit card record paid by card issuers for managing the cardholder files, plus transaction fees whenever we authorize transactions on behalf of the card issuers.

In March 2002 we acquired The Logix Companies, LLC, an electronic transaction processor based in Longmont, Colorado. Through this transaction, we acquired EFTLogix, Inc., an entity that provides financial institutions, retailers, and independent sales

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organizations with ATM processing and merchant processing services. In May 2002 we acquired Core Data Resources, Inc. (n/k/a Concord Processing LP), an electronic transaction processor based in Amarillo, Texas. Concord Processing provides ATM processing and related services to financial institutions, retailers, and independent sales organizations nationwide.

In January 2003 we announced that we had entered into a non-binding letter of intent to acquire the Credit Union 24^® Network, an ATM and POS network owned by credit unions and based in Tallahassee, Florida. In March 2003 the parties terminated discussions with respect to this transaction.

Payment Services.    Payment Services provides the systems and processing that allow retail clients to accept virtually any type of electronic payment, including all card types—credit, debit, EBT, prepaid, and proprietary cards—as well as a variety of check-based options. We provide POS processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies. In 2002 we processed approximately 4.5 billion of these payment transactions. Our services are generally turn-key, providing merchants with POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and debit networks (such as STAR, Pulse, and NYCE).

We have benefited from the shift in payments from cash and checks to credit cards, debit cards, and EBT. We have also realized growth in transactions as a result of our merchants expanding into additional locations and the growth in our independent sales organization partners. We believe our end-to-end product has provided us with numerous advantages, including a wide-ranging service offering, better control over costs, improved performance due to the ability to maintain a higher level of quality at all points in the transaction flow, and a better position both to identify specific needs for new products and services and to distribute new products and services. We believe we were one of the leading providers of payment services to the grocery and petroleum industries as of December 31, 2002.

As a fully integrated transaction processor, we are able to provide our Payment Services customers with the following services:

• POS Processing—We provide the systems and software for POS applications that support a variety of non-cash payment types, including credit, debit, EBT, check authorization, electronic check conversion, and gift cards. We connect to all major credit card associations, debit networks, and magnetic-stripe EBT programs, allowing us to route transactions to the appropriate network for authorization and then relay this information back to the terminal to complete the transaction.

• Settlement Services—We aggregate transaction information for merchant-level settlement and reporting. The credit card associations and debit networks settle with our subsidiary Concord EFS National Bank, and through Concord EFS National Bank, we move funds from the associations and networks to merchants’ banks via wire and ACH transfers.

• Related Services—We have volume purchasing arrangements with equipment vendors, and we sell and lease POS terminal equipment. We also provide terminal maintenance through a terminal deployment center. Through our subsidiary Concord EFS National Bank, we provide bank sponsorship into credit card associations and debit networks.

Revenue from Payment Services includes gross discount fees charged to merchants, which are a percentage of the dollar amount of each credit card transaction we process, as well as a flat fee per credit card transaction. The balance of Payment Services revenue is derived from debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory.

Early in 2000 we completed two acquisitions in the Payment Services area. In February 2000 we acquired Virtual Cyber Systems, Inc. (n/k/a Concord Emerging Technologies, Inc.), an Internet software development company, and in January 2000 we acquired National Payment Systems Inc. d/b/a Card Payment Systems, a New York-based reseller of payment processing services. Card Payment Systems provides card-based payment processing services to independent sales organizations, which in turn sell those services to merchants. Effective January 1, 2003, Card Payment Systems began doing business as Concord Payment Systems.

Through our March 2002 acquisition of The Logix Companies, we acquired CheckLogix, Inc., a corporation that provides financial institutions, retailers, and independent sales organizations with electronic check conversion and authentication services.

As part of our effort to consolidate our insured depository operations and terminate local deposit taking and lending activities, EFS Federal Savings Bank, another subsidiary, was merged into EFS National Bank in August 2002.

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Risk Management Services.    As a result of our recently announced strategy of developing our risk management services, we expect to organize a new segment during the 2003 fiscal year. Our new Risk Management Services segment is expected to provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction.

The Risk Management Services segment is expected to combine products that are currently part of our Network Services and Payment Services segments:

• Deposit Risk Management—We believe that Primary Payment Systems, Inc., a company in which we hold an 85% ownership interest, is an industry leader in deposit account fraud detection systems. Our deposit and payment risk management products provide the financial services and retail industries with tools to reduce deposit account, payment, and securities account fraud and its related expense. These products include (1) front-end tools to help identify fraudulent deposit accounts before they are opened and activated by screening new banking customer relationships via connections to multiple data sources and proprietary analytic software and (2) a shared repository of deposit account status information which allows participating financial institutions and retailers to validate the account on which a check is written before accepting it for deposit, payment, or cash back.

• Identification Validation—IDLogix, acquired in conjunction with our acquisition of The Logix Companies in 2002, is an age validation and document verification service based on proprietary software for reading the encoding on government-issued identification. Currently used primarily at the point of sale for verifying identification in age-restricted sales such as alcohol and tobacco, IDLogix also has applications for validating government-issued identification documents in the public sector.

We expect that revenue from Risk Management Services will include transaction fees for identity screening and account status inquiries and hardware, maintenance, and software license fees for identification validation services.

Operations by Business Segment

“Note P—Operations by Business Segment” on pages 71 to 73 of our Annual Report to Stockholders for the fiscal year ended December 31, 2002 (Annual Report to Stockholders) contains information about the relative contribution of our Network Services and Payment Services segments to our earnings and is incorporated herein by reference.

Strategy

We believe that the increasing use of credit, debit, and other electronic payment cards will continue to present us with growth opportunities. Our current growth strategy is to leverage our network infrastructure and connectivity to service the increasing number of cash and check transactions that are converting to electronic form and to leverage our vertical integration to maximize our revenue opportunity for each transaction. We have developed and continue to pursue the following initiatives to improve our competitive position and increase our share of the transaction processing services business:

• Focus on markets with high growth potential in the use of electronic payment cards.    In 2002 cash and checks accounted for approximately 66% of payments made at the point of sale, which we believe represents significant opportunity to grow electronic transactions. We target markets in which the use of cash and checks has historically been high, such as supermarkets, gas stations, quick service restaurants, and government service providers, and markets with the most to gain from a systematic reduction in checks, such as financial institutions.

• Provide a fully integrated range of services.    We believe that our vertically integrated structure allows us to be a highly competitive provider of electronic payment processing services. By providing a wide range of relevant services, we are able to customize service offerings, to offer competitive prices, and to maintain high performance levels by controlling quality at each point in the transaction flow. Our integrated services also provide cross-selling opportunities within and between our various business segments, allowing us to capitalize on the complete revenue opportunity with each of our customers. In addition, we seek to cross-sell STAR POS debit acceptance to our merchant customers and to cross-sell payment processing to our financial institution customers with merchant relationships.

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• Develop new products and services to meet market needs.    We strive to offer our customers new payment alternatives and other products that will help them reduce their costs or improve revenues. Examples include proprietary gift cards, which are value-added services to increase sales; a check acceptance risk management service, which is designed to reduce fraud losses from checks presented for deposit or payment; an identification validation service, which is designed to authenticate driver’s licenses in age-related retail sales and other security applications; and a stored value payroll card which is designed to reduce the number of payroll checks and related costs. All of these new products leverage our debit network infrastructure and create opportunities to cross-sell services among our various customer bases.

• Seek selective acquisitions.    We continue to look for opportunities to grow our business through selective acquisitions that will allow us to increase our customer base, increase profitable transaction volume, add new technology, and/or reduce costs. For example, the acquisition of Core Data Resources enabled us to increase our number of processed ATMs and ATM transaction volume. In addition, our acquisition of Logix provided new technology and emerging products that are being used to penetrate new industry segments and to cross-sell to current customers.

Marketing and Customers

We market our services and products on a nationwide basis to financial institutions, supermarkets, gas stations, convenience stores, restaurants, retailers, trucking companies, and government service providers. We sell both directly through our internal sales force and indirectly through independent sales organizations and their representatives, and we market our services through advertising in industry and trade publications, direct mail, telemarketing, and participation in trade shows. We also promote the STAR brand to consumers via billboards, signs, flyers, and radio and newspaper advertising. As of December 31, 2002, our sales force included 279 corporate salespeople selling directly to small, medium, and large companies and 1,160 third party independent sales organizations and agent banks selling to smaller merchants.

For Network Services, we seek to penetrate the financial institution market and expand the STAR network by offering flexible and integrated services, new products that increase financial institution revenue, broad geographic coverage, and value-added services such as consumer research and industry white papers.

For Payment Services, we seek to penetrate our selected markets by using our in-house industry expertise to target companies within selected industries and by using the extensive market penetration of independent sales organizations to further extend our sales reach into small, independent firms nationwide. Our in-house sales force is organized so that specialized salespeople focus on key customer industry lines, such as the petroleum, supermarket, major retail, and restaurant industries. Generally, independent sales organizations purchase our payment processing services from us at a wholesale rate and resell the services to merchants.

In January 2002 we increased our internal sales force when we acquired H & F Services, Inc., an independent sales organization that sold payment services products and services to small- and medium-sized merchants. Prior to the acquisition, we purchased merchant contracts from H & F Services. The acquisition was intended to establish control over this sales channel with product, pricing, compensation, and productivity initiatives. Since the acquisition, the former H & F Services salespeople have continued to focus on selling Payment Services products and services to small- to medium-sized merchants.

As an integrated services provider, we have natural cross-selling opportunities within our customer base. For example, we have opportunities to increase revenue and profits by cross-selling services within our business segments, such as selling our ATM processing and debit card processing to financial institution participants in the STAR network and selling debit card acceptance and gift cards to our merchant customers. In addition, we seek to cross-sell services across our business segments, such as selling retail ATM processing and identification validation services to our merchant customers and selling payment processing and agent bank services to our financial institution customers with merchant relationships.

Our customers are among the leaders in their industries. As of December 31, 2002, our Network Services customers included some of the largest financial institutions in the United States, and as of that date, our Payment Services customers included some of the largest restaurant chains and retailers as well as many prominent petroleum companies. No single customer of ours accounts for a material portion of our revenue. We have a number of significant customer contracts in our Network Services segment that by their

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terms terminate on December 31, 2004. We are actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are not renewed or are renewed on less favorable terms than the current terms, there may be an adverse effect on our business, operating results, and financial condition. In addition, the loss of several of these large customers could have an additional adverse effect on our business, operating results, and financial condition due to the interdependency of participants in the STAR network. The loss of a significant number of STAR-branded cards, ATMs, or POS terminals could cause other financial institutions or merchants to evaluate their contractual participation in the STAR network.

Competition

The businesses of electronic payment processing and settlement, ATM processing, debit card processing, and debit network access services are all highly competitive. Our principal competitors include national and major regional banks, local processing banks, non-bank processors, and other independent service organizations, some of which have substantially greater capital and technological, management, and marketing resources than we have. We also compete with other electronic payment processing organizations and debit networks.

In our Network Services segment, management estimates that:

• as of March 2002, the three largest ATM processors, of which we believe that we were the largest, drove approximately 26% of total ATMs in the United States,

• as of March 2002, the three largest regional debit networks, of which we believe that we were the largest, processed approximately 80% of all PIN-secured debit payment transactions, and

• in 2001, VISA and MasterCard collectively processed over 70% of total annual debit payment transactions (both PIN-secured and signature debit transactions) in the United States.

In our Payment Services segment, management estimates that:

• in 2001, the three largest acquirers of PIN-secured debit payment transactions, of which we believe that we were the largest, accounted for approximately 52% of all PIN-secured debit payment transactions and

• in 2001, the three largest bank card acquirers, which we believe that we were not among, processed approximately 65% of the total dollar volume of credit and signature debit card payments.

There can be no assurance that we will continue to be able to compete successfully with such competitors.

While we compete with VISA and MasterCard in our Network Services business, at the same time our Payment Services business relies on VISA and MasterCard for the authority to process transactions in the VISA and MasterCard systems. Moreover, VISA and MasterCard have existing products and rules that could make it difficult for us to compete against them, which could further increase VISA’s and MasterCard’s power in the debit network access portion of the Network Services business.

The competitive pricing pressures resulting from an increase in competition could adversely affect our margins and may have an adverse effect on our business, operating results, and financial condition.

Across all of our segments, we compete in terms of product, scale, price, speed, and flexibility in customizing systems to meet the particular needs of customers. In Network Services, we believe that we are one of the few processors that operates a coast-to-coast debit network, permitting us to offer comprehensive debit transaction processing services. In Payment Services, we believe that we are one of the few fully integrated suppliers of a broad range of hardware, processing, banking, and data compilation services for use in transactions at retail locations.

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Supervision and Regulation

We and our subsidiaries are subject to a number of federal and state laws. We are both a financial holding company and a bank holding company registered with the Federal Reserve under the Bank Holding Company Act of 1956, as amended, which is administered by the Federal Reserve. As a financial holding company, we are subject to the Bank Holding Company Act, which generally prohibits us from:

• directly or indirectly engaging in any activities other than banking, managing, or controlling banks and certain other activities that the Federal Reserve has approved as financial in nature, incidental to such a financial activity, or complementary to a financial activity and

• acquiring, directly or indirectly, ownership or control of more than 5% of any class of voting shares of any company that is engaged in activities other than activities that the Federal Reserve has approved as financial in nature, incidental to such a financial activity, or complementary to a financial activity, with certain exceptions.

For us to qualify as a financial holding company, our depository institution subsidiary needs to have at least a “satisfactory” Community Reinvestment Act rating on its most recent examination, and we are required to certify that our depository institution subsidiary is well capitalized and well managed. If our depository institution subsidiary ceases to be well capitalized or well managed, we are required to enter into an agreement with the Federal Reserve to bring the depository institution into compliance with applicable capital and management requirements.

We are required to file with the Federal Reserve an annual report and such additional information as the Federal Reserve may require. We also are required to obtain the prior approval of the Federal Reserve before acquiring more than 5% of any class of voting stock of any bank that is not already controlled by us. The Federal Reserve may examine our records and each of our subsidiaries’ records, including a review of our capital adequacy in relation to guidelines issued by the Federal Reserve. The Federal Reserve requires minimum capital levels as measured by three ratios: total capital to risk-weighted assets, tier one capital to risk-weighted assets, and tier one capital to average total assets. If the level of capital is deemed to be inadequate, the Federal Reserve may restrict our future expansion and operations and take certain other enforcement actions. The Federal Reserve possesses cease and desist powers over us if, among other things, our actions or actions of our subsidiaries represent unsafe or unsound practices or violations of law.

Federal law also regulates transactions among us and our affiliates, including the amount of loans or investments that our banking affiliate, Concord EFS National Bank, may make to non-bank affiliates and the amount of advances that Concord EFS National Bank may make to third parties collateralized by an affiliate’s securities. In addition, various federal and state laws and regulations regulate the operations of Concord EFS National Bank, including laws and regulations requiring reserves against deposits, limiting the nature and pricing of loans, and restricting investments and other activities. Concord EFS National Bank also is limited in the amount of dividends that it may declare. Prior regulatory approval must be obtained before declaring any dividends if the amount of capital, surplus, and retained earnings is below certain statutory limits.

Concord EFS National Bank also is generally prohibited from engaging in certain tie-in arrangements, including conditioning the availability or price of its products or services on the customer also obtaining products or services from the affiliate or providing credit, property, or services to an affiliate.

As a national bank, Concord EFS National Bank operates under the rules and regulations of the Office of the Comptroller of the Currency, which is its primary regulator. Concord EFS National Bank is also a member of the Federal Reserve System and is therefore subject to certain provisions of the Federal Reserve Act. The Federal Deposit Insurance Corporation insures the domestic deposits of Concord EFS National Bank. The bank also is subject to periodic examination by, and must make regularly scheduled reports of financial condition to, its regulatory agencies.

Our electronic funds transfer (EFT) services sold to financial institutions are regulated by certain state and federal banking laws. Material changes in federal or state regulation could increase our cost of providing EFT services, change the competitive environment, or otherwise adversely affect us. We are not aware of any such change that is pending.

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We also are affected by various state and federal financial privacy laws, including the financial privacy provisions of the Gramm-Leach-Bliley Act (the GLB Act) and various fair credit reporting laws. These laws are most likely to affect our businesses that involve the sharing of identifiable consumer information. The GLB Act and regulations generally require financial institutions to disclose their practices for gathering and disclosing nonpublic personal information regarding consumers. Consumers also have the right to opt out of certain types of information sharing. We have limited dealings with consumers through our Payment Services and Network Services businesses. However, certain consumer financial information that we receive may be subject to limitations on reuse and redisclosure under the GLB Act. Additionally, pending legislation at the state and federal levels may further restrict our information gathering and disclosure practices. Although the GLB Act and other privacy laws have not had a material impact on our business to date, existing and potential future privacy laws may limit our ability to develop new products and services that make use of certain data gathered through our Network Services, Payment Services, and Risk Management Services businesses.

In addition to regulation by federal and state laws and governmental agencies, we are subject to the rules and regulations of the various credit card associations and debit networks, including requirements for equity capital commensurate with transaction processing dollar volume.

Executive Officers of the Registrant

The following table sets forth certain information concerning our executive officers as of March 10, 2003:

Name	Age	Position(s)
Dan M. Palmer	59	Director and Co-Chief Executive Officer
Bond R. Isaacson	45	Director and Co-Chief Executive Officer
Edward A. Labry III	40	Director and President
J. Richard Buchignani	54	Director, Vice Chairman, General Counsel, and Secretary
P. Norman Bennett	52	Senior Vice President, Treasury
Vickie L. Brown	48	Senior Vice President
Ronald V. Congemi	55	Senior Vice President and President of Network Services
Donald J. Devine Jr.	46	Senior Vice President and Chief Compliance Officer
Paul W. Finch Jr.	39	Senior Vice President and President of Risk Management Services
Edward T. Haslam	50	Senior Vice President, Chief Financial Officer, and Treasurer
E. Miles Kilburn	40	Senior Vice President of Business Strategy and Corporate Development
Steve A. Lynch	42	Senior Vice President and Chief Information Officer
Christopher S. Reckert	40	Senior Vice President, Chief Marketing Officer, and President of Payment Services

Dan M. Palmer has been a director of Concord since May 1987 and was named Chief Executive Officer of Concord in 1990 and Co-Chief Executive Officer in February 2003. In 1982 Mr. Palmer founded Union Planters National Bank’s Electronic Fleet Systems operation, which was acquired by Concord in 1985. Mr. Palmer served as Chairman of Concord’s Board of Directors from 1991 to February 2003.

Bond R. Isaacson joined Concord in September 2002 as Executive Vice President and became Co-Chief Executive Officer and director of Concord in February 2003. Prior to Concord, Mr. Isaacson was Payments Executive for Bank of America Corporation, which he joined in 2001. Previously, he held various senior positions at Visa USA, including Executive Vice President of Sales and Integrated Solutions and President of e-Visa, Visa’s Internet division. Prior to joining Visa, Mr. Isaacson held various senior positions at IBM Corporation, including Financial Services Marketing Executive. Mr. Isaacson serves as an advisor to Touch Credit Corp.

Edward A. Labry III has been a director of Concord since September 1993. Mr. Labry joined Concord in 1985, became Chief Marketing Officer in 1990, and was named President of Concord in 1994.

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J. Richard Buchignani has been a director of Concord since August 1992. Mr. Buchignani joined Concord in September 2002 as Vice Chairman and General Counsel and became Assistant Secretary in October 2002 and Secretary in February 2003. Prior to joining Concord, Mr. Buchignani was a partner in the Memphis, Tennessee office of the law firm of Wyatt, Tarrant & Combs, LLP, one of the law firms that provides legal services to Concord.

P. Norman Bennett joined Concord in April 2002 and was named Senior Vice President, Treasury in October 2002. Prior to joining Concord, Mr. Bennett was a partner in the Memphis, Tennessee office of the accounting firm of Ernst & Young LLP, the accounting firm that provides auditing and other services to Concord.

Vickie L. Brown joined Concord in 1979, was named Senior Vice President in 1991, and previously served in various financial and operations positions with Concord.

Ronald V. Congemi joined Concord in February 2001 and was named Senior Vice President and President of Network Services of Concord in May 2001. Mr. Congemi has been President of STAR since its inception in 1984. Mr. Congemi served as a director of Concord from February 2001 through November 2002.

Donald J. Devine Jr. joined Concord in February 1999 as Vice President, Enterprise Services and was named Senior Vice President and Chief Compliance Officer in 2003. Previously, Mr. Devine was Chief Auditor of Electronic Payment Services, which he joined in 1994.

Paul W. Finch Jr. joined Concord in January 2003 as Senior Vice President and President of Risk Management Services. Previously, Mr. Finch was with eFunds Corporation, serving at various times as Executive Vice President of Systems and Operations, Senior Vice President of Global Operations, Vice President of the Management Solution Group, and Vice President and General Manager, Clearing Systems and Services.

Edward T. Haslam joined Concord in February 1999, became Chief Financial Officer in April 2000, and became Senior Vice President and Treasurer in May 2001. At various times, Mr. Haslam has served as Chief Operating Officer, Chief Financial Officer, Chief Accounting Officer, and Executive Vice President of Electronic Payment Services, which he joined in 1994.

E. Miles Kilburn joined Concord in February 2001 and was named Senior Vice President of Business Strategy and Corporate Development in May 2001. Prior to joining Concord, Mr. Kilburn served as Group Executive Vice President and Chief Financial Officer of STAR, having joined STAR in 1995 as Senior Vice President and Counsel.

Steve A. Lynch joined Concord in February 1999, became Chief Information Officer in April 2000, and became Senior Vice President in May 2001. Previously, Mr. Lynch served as Senior Vice President, Technology of Electronic Payment Services, which he joined in 1997.

Christopher S. Reckert joined Concord in June 1995 and became President of Payment Services in December 2002. Previously, Mr. Reckert served as Senior Vice President and Chief Marketing Officer and as Senior Vice President, Sales of Concord.

No Foreign Operations; Seasonality

All of our revenue is generated and all of our assets are located in the United States.

Portions of our business are seasonal. In the fourth quarter, Network Services and Payment Services revenue increases due to increased transaction volume during the holiday shopping period.

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Employees

As of December 31, 2002, we employed 2,640 full and part-time personnel, including 735 data processing and technical employees, 1,310 in operations, and 595 in sales and administration. None of our employees are represented by a labor union. We consider our employee relations to be satisfactory.

Availability of Reports on Our Website

Through our Internet website www.concordefs.com, we make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

Item 2.     PROPERTIES

The following table sets forth certain information concerning our principal facilities as of December 31, 2002:

Location	Area in Square Feet	Description / Business Segment	Lease Expiration (if applicable)
Amarillo, TX	21,839	Offices, Data Processing Center, and Operations, Network Services	March 31, 2007
Bartlett, TN	19,160	Distribution Center and Warehouse, Payment Services	October 15, 2004
Bartlett, TN	6,480	Operations and Warehouse, Payment Services	August 15, 2004
Carrollton, TX	4,906	Offices, Data Processing Center, and Operations, Network Services	April 30, 2004
Centennial, CO	3,480	Offices and Operations, Payment Services	January 31, 2006
Chicago, IL	21,719	Offices, Network Services	December 31, 2007
Colorado Springs, CO	4,597	Offices and Operations, Payment Services	February 28, 2006
Cordova, TN	48,119	Customer Service Center, Payment Services	December 31, 2006
Elk Grove, IL	18,300	Offices and Operations, Payment Services	May 31, 2005
Longmont, CO	3,899	Offices, Payment Services	May 31, 2006
Maitland, FL	119,589	Offices and Data Processing Center, Network Services	August 31, 2011
Maitland, FL	63,259	Offices and Operations, Network Services	May 31, 2003
Maitland, FL	30,792	Offices and Operations, Network Services	June 30, 2003
Marietta, GA	100,000	Offices and Data Processing Center, Payment Services	November 30, 2005
Memphis, TN	43,375	Current Corporate Headquarters, Offices, Data Processing Center, and Operations, Payment Services	September 30, 2003

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Location	Area in Square Feet	Description / Business Segment	Lease Expiration (if applicable)
Memphis, TN	11,535	Offices and Operations, Payment Services	September 30, 2003
Mesa, AZ	5,848	Offices, Payment Services	October 31, 2003
New York, NY	10,000	Offices, Payment Services	January 31, 2009
New York, NY	4,500	Offices and Operations, Network Services	August 31, 2004
North Olmsted, OH	36,627	Offices and Sales Office, Network Services	December 31, 2003
Petaluma, CA	8,132	Offices and Operations, Network Services	May 31, 2003
San Diego, CA	19,544	Offices and Operations, Network Services	February 28, 2003
Scottsdale, AZ	17,978	Offices and Operations, Network Services	December 31, 2005
Shelby Oaks, TN	14,525	Offices, Payment Services	December 31, 2003
Wilmington, DE	107,500	Corporate Offices, Offices, and Operations, Network Services	May 21, 2005
Wilmington, DE	70,000	Offices, Data Processing Center, and Operations, Network Services	Not Applicable

We are in the process of building a new corporate headquarters in Memphis, Tennessee pursuant to a lease arrangement with an initial term of seven years.

We believe all of the listed facilities were suitable and adequate for our businesses as of December 31, 2002. However, we periodically review our space requirements and may acquire new space to meet the needs of our businesses or consolidate and dispose of or sublet facilities that are no longer required.

Item 3.     LEGAL PROCEEDINGS

From time to time we are involved in various litigation matters arising out of the conduct of our business. The following table lists certain information with respect to the purported securities fraud class action lawsuit and the purported stockholder derivative actions pending as of March 24, 2003 against us and certain officers and certain directors of ours:

Name of Proceeding	Filing Date+	Type of Case
In re Concord EFS, Inc. Derivative Litigation	September 9, 2002*	Derivative
In re Concord EFS, Inc. Securities Litigation	September 6, 2002**	Securities Fraud
In re Concord EFS, Inc. Derivative Litigation	September 13, 2002**	Derivative

⁺ For consolidated matters, the filing date represents the date on which the first component case was filed.

* Pending in Tennessee state court in Memphis (Circuit Court)

** Pending in the United States District Court for the Western District of Tennessee

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The lawsuits raise allegations relating to our financial performance between March 2001 and September 2002, changes in the price of our common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although these matters are in the preliminary stages, we believe that the claims against us and our directors and officers are without merit and intend to vigorously defend against all claims.

Three lawsuits similar to those listed above have been voluntarily dismissed. The securities fraud lawsuit filed by Colbert Birnet, LP on September 12, 2002 in the United States District Court for the Western District of Tennessee was voluntarily dismissed on November 21, 2002; the derivative lawsuit filed by Dan Miller on October 24, 2002 in Delaware state court in New Castle County (Chancery Court) was voluntarily dismissed on January 23, 2003; and the derivative lawsuit filed by Michael McClay on November 12, 2002 in Delaware state court in New Castle County (Chancery Court) was voluntarily dismissed on January 23, 2003.

A purported class action complaint was filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis on or about March 24, 2003 by Joe Perritt. The defendants in that action are certain of our officers and directors. The complaint generally alleges a breach of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaint seeks class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. The defendants have until on or about April 22, 2003 to respond to the complaint. Although this matter is in the very preliminary stages, we believe that the claims against our officers and directors are without merit and we intend to vigorously contest these claims.

Separately, on June 11, 2002, Walter E. Ryan and Ryco Development, Inc. filed a purported class action lawsuit against EFS National Bank, Concord, and John Doe Corporations in the United States District Court for the Western District of Tennessee. The plaintiffs allege that we changed fees and charges without providing the requisite notice, charged merchants for transactions that never occurred, and failed to route payments in accordance with the plaintiffs’ instructions. The plaintiffs allege fraud, breach of contract, conversion, and causes of action under the Tennessee Consumer Protection Act and the Racketeer Influenced and Corrupt Organizations Act (RICO). The class plaintiffs seek to certify consists of all merchant customers of EFS National Bank, Concord, or John Doe Corporations, who were subject to charges that were not fully disclosed on their statements, charges for transactions which the merchant never undertook, and/or charges in excess of the amount agreed upon in their contracts. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and other relief. We have moved to dismiss all claims, but the court has not yet ruled on the motion. Although this matter is in the preliminary stages, we believe that the claims against us are without merit and intend to vigorously defend against all claims.

On September 30, 2002, Nancy Canning filed a purported class action lawsuit against Concord in New Jersey state court. The plaintiff alleges that we wrongfully allowed and facilitated surcharges on EBT withdrawals at ATMs within our network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act, negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. We moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A.  44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and breach of contract should be dismissed without prejudice, but the court denied our motion to dismiss as to the negligence claim. Although this matter is in the preliminary stages, we believe that the claims against us are without merit and intend to vigorously defend against all claims.

On October 31,1996, Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997, Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a subsidiary of ours, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages

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experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002, CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim. The motion has been fully briefed, and the court heard oral argument on January 10, 2003. The court has not yet ruled on the motion. We believe that the claims against us are without merit and intend to continue to vigorously defend against all claims.

We are also a party to various routine lawsuits arising out of the conduct of our business, none of which is expected to have a material adverse effect upon our financial condition or results of operations.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders in the fourth quarter of fiscal 2002.

PART II

Item 5.     MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market Price of and Dividends on Our Common Stock and Related Stockholder Matters

Information included under the caption “Market Value” on page 2 of our Annual Report to Stockholders is incorporated herein by reference.

Recent Issuances of Unregistered Securities

In January 2000, in connection with the acquisition of Card Payment Systems, we issued approximately 12.5 million shares of our common stock, $0.33 ¹/3 par value per share, to the two former stockholders of Card Payment Services in a transaction not registered under the Securities Act. The transaction was exempt from registration under Section 4(2) of the Securities Act. The unregistered shares have not been subsequently registered.

In February 2001, in connection with the acquisition of STAR, we issued approximately 48.0 million shares of our common stock, $0.33 ¹/3 par value per share, to the former stockholders of STAR in a transaction not registered under the Securities Act. The transaction was exempt from registration under Section 4(2) of the Securities Act. A majority of the unregistered shares were subsequently registered and resold in a transaction in June of 2001.

Item 6.     SELECTED FINANCIAL DATA

Information included under the caption “Financial Highlights” on page 3 of our Annual Report to Stockholders is incorporated herein by reference.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information included under the caption “Management’s Discussion & Analysis of Financial Condition and Results of Operations” on pages 20 to 35 of our Annual Report to Stockholders is incorporated herein by reference.

Item 7a.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information included under the caption “Management’s Discussion & Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” on pages 34 to 35 of our Annual Report to Stockholders is incorporated herein by reference.

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent auditors and consolidated financial statements set forth below are included on pages 36 to 80 of our Annual Report to Stockholders and are incorporated herein by reference:

• Report of Independent Auditors

• Consolidated Balance Sheets as of December 31, 2002 and 2001

• Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000

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• Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001, and 2000

• Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000

• Notes to Consolidated Financial Statements as of December 31, 2002

Quarterly results of operations for the years ended December 31, 2002 and 2001 under the caption “Note T—Quarterly Financial Results (Unaudited)” on pages 78 to 79 of our Annual Report to Stockholders are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information included under the captions “Election of Directors,” “Committees; Attendance,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2003 (Proxy Statement) is incorporated herein by reference. See also the section captioned “Executive Officers of the Registrant” in Part I of this annual report on Form 10-K.

Item 11.     EXECUTIVE COMPENSATION

Information included under the captions “Compensation of Directors,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report on Executive Compensation,” and “Five Year Cumulative Stockholder Return” in our Proxy Statement is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information included under the captions “Securities Authorized for Issuance under Equity Compensation Plans” and “Beneficial Ownership of Common Stock” in our Proxy Statement is incorporated herein by reference.

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Employment Agreements

In February 1998 we entered into five-year incentive agreements, which expired on February 25, 2003, with each of Dan M. Palmer, our Co-Chief Executive Officer and director, and Edward A. Labry III, our President and director. Each incentive agreement provides for a base salary with annual reviews ($775,000 for 2002), for a bonus opportunity equal to 50% of base salary with growth in earnings per share being a significant factor in awarding the bonuses, and for option grants of 1,125,000 shares per year. In addition, each incentive agreement provides for a one-time option grant and the opportunity for up to three additional grants if the price of our common stock reaches specified levels for specified periods of time. Due to the performance of our common stock, each of Mr. Palmer and Mr. Labry have received four option grants (totaling options to purchase 3,937,500 shares) pursuant to his respective incentive agreement.

Each of these incentive agreements contains a change in control provision. Under the agreements, a change in control occurs if any person becomes the beneficial owner of 50% or more of the combined voting power of our then outstanding voting securities, if our stockholders approve a plan to liquidate Concord, or if we sell or dispose of all or substantially all of our assets. Upon a change in control, the agreements provide that the full bonus potential under the agreements will be paid for the year in which the change in control occurs, and all stock options granted before the change in control become fully and immediately exercisable. In addition, Mr. Palmer’s and Mr. Labry’s obligations under the non-competition, non-solicitation, and confidentiality provisions of the agreements are shortened to a period of six months following a change in control.

For 2002 each of Mr. Palmer and Mr. Labry voluntarily modified the terms of each of the incentive agreements to reduce to 900,000 the number of options granted pursuant to each of the agreements to facilitate the granting of options to our other key employees. In March 2002 each of Mr. Palmer and Mr. Labry was granted a bonus of $367,500 with respect to 2002.

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In September 2002 our Co-Chief Executive Officer, Bond R. Isaacson, joined Concord as Executive Vice President. Pursuant to the terms of his offer letter, Mr. Isaacson received a signing bonus of $500,000 and was granted an option to purchase 400,000 shares of our common stock. The offer letter provides that Mr. Isaacson is to receive an annual salary of $500,000 and that he will receive a bonus of $600,000 in May 2003 and a bonus of $600,000 in May 2004. In the offer letter, we also agreed to grant Mr. Isaacson a bonus of $500,000 for each listed large financial institution with which he renews or extends our relationship and an additional $2,000,000 bonus if Mr. Isaacson extends or renews our relationship with a certain number of the listed financial institutions. Mr. Isaacson’s offer letter provides that he is to be eligible to participate in our health care plan, 401(k) plan, and senior executive retirement savings plan. We also agreed to reimburse Mr. Isaacson for all relocation costs.

In connection with our acquisition of STAR, we entered into an agreement with STAR and Ronald V. Congemi, who currently serves as our Senior Vice President and President of Network Services. Under the agreement, Mr. Congemi agreed to remain at STAR through the closing of the transaction with us and agreed to various other provisions, including confidentiality and non-competition provisions, and we agreed to pay Mr. Congemi $600,000 in cash and to grant Mr. Congemi an option to purchase 400,000 shares of our common stock. The options granted were pursuant to the terms of our 1993 Incentive Stock Option Plan, as amended; have a ten-year term; have an exercise price equal to the fair market value of our stock on February 1, 2001; and vest with respect to 25% of the shares subject to the option each year as long as Mr. Congemi remains employed by us or any of our subsidiaries.

In October 2002 we entered into an agreement with Edward T. Haslam, our Senior Vice President, Chief Financial Officer, and Treasurer. Under the agreement, we agreed to postpone until February 2003 the decision regarding relocating the Chief Financial Officer position to Memphis, Tennessee, and Mr. Haslam agreed to deliver a 2003 detailed financial plan and to transition his knowledge regarding our monthly close process, our monthly and quarterly financial reporting, our 2003 business plan, and our overall business and financial model. The agreement provides that if Mr. Haslam terminates his employment with us or if we decide to transition the Chief Financial Officer position to Memphis, Tennessee, Mr. Haslam will work through our 2003 annual meeting of stockholders (Annual Meeting) to transition any remaining Chief Financial Officer duties to the new Chief Financial Officer. In addition, the agreement provides that if Mr. Haslam leaves for any reason, he is to receive a bonus equal to six months of his salary, payable on the date of the Annual Meeting; he is to receive his salary and benefits for one year following the date of the Annual Meeting; and his unvested stock options will be eligible to vest for one year following the Annual Meeting.

In February 2003 we entered into an agreement amending our October 2002 agreement with Mr. Haslam. The amendment provides that in the event that, on or before May 30, 2003, Mr. Haslam gives us notice that he intends to terminate his employment or we give Mr. Haslam notice that we have decided to transition the Chief Financial Officer position to Memphis, Tennessee, Mr. Haslam is to continue to work through July 31, 2003 to transition Chief Financial Officer duties to the new Chief Financial Officer. If such notice is given or received, then Mr. Haslam is to receive a bonus equal to six months of his salary, payable no later than July 31, 2003; Mr. Haslam is to receive his salary and benefits through July 31, 2004; Mr. Haslam’s unvested stock options will continue to be eligible to vest through July 31, 2004; and Mr. Haslam will have an additional 90 days after July 31, 2004 to exercise all vested options.

In April 2002 P. Norman Bennett, our Senior Vice President, Treasury, joined Concord. Pursuant to his offer letter, Mr. Bennett is to receive an annual salary of $150,000 and was granted an option to purchase 25,000 shares of our common stock pursuant to the terms of our 1993 Incentive Stock Option Plan. In addition, the offer letter provides that, upon board approval, Mr. Bennett is to be eligible for a bonus in the amount of $40,000 to $60,000 in 2003 based on his overall job performance.

In September 2002 one of our directors, J. Richard Buchignani, joined Concord as Vice Chairman and General Counsel. Pursuant to the terms of his offer letter, Mr. Buchignani is to receive an annual salary of $275,000 and was granted an option to purchase 25,000 shares of our common stock. In addition, the offer letter provides that Mr. Buchignani is to be eligible to participate in our annual bonus program consistent with members of our executive management staff and be eligible to participate in our 2002 Stock Option Plan, our health care plan, our 401(k) plan, and our senior executive retirement savings plan. The offer letter provides that upon termination, death, disability, change of control, or change of position or location, we will pay Mr. Buchignani or one or more of his designated beneficiaries one year’s salary. Pursuant to the offer letter, Mr. Buchignani’s unvested options will be eligible to vest during the one-year period following any such event.

In January 2003 we entered into a three-year agreement with Paul W. Finch Jr., who currently serves as our Senior Vice President and President of Risk Management Services. Under this agreement, Mr. Finch agreed to various provisions, including confidentiality and non-competition provisions, and we agreed to pay Mr. Finch $275,000 per year, consider Mr. Finch eligible to

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receive an annual incentive bonus in accordance with our annual executive bonus program, and grant Mr. Finch an option to purchase 100,000 shares of our common stock. The options granted were pursuant to the terms of our 2002 Stock Option Plan; have a ten-year term; have an exercise price equal to the fair market value of our stock at the time of grant; and vest with respect to 25% of the shares subject to the option each year as long as Mr. Finch remains employed by us. The agreement provides that if Mr. Finch’s employment is terminated without cause, he is entitled to (i) a pro rata target annual bonus for the portion of the bonus period ending on the date of termination of employment, (ii) other employee benefits to which he is entitled upon termination of employment in accordance with our plans and programs, (iii) payment equal to his base salary for the remainder of the initial term of the agreement, (iv) payment equal to the average annual bonus earned by Mr. Finch during the employment period, and (v) continuation of his participation in our group health and life insurance for one year.

In connection with our acquisition of STAR, we entered into an agreement with STAR and E. Miles Kilburn, who currently serves as our Senior Vice President of Business Strategy and Corporate Development. Under this agreement, Mr. Kilburn agreed to remain at STAR through the closing of the transaction with us and agreed to various other provisions, including confidentiality and non-competition provisions, and we agreed to pay Mr. Kilburn $300,000 in cash and to grant Mr. Kilburn an option to purchase 200,000 shares of our common stock. The options granted were pursuant to the same terms as those granted to Mr. Congemi (described above). Under a February 2003 amendment to this agreement, we agreed to pay Mr. Kilburn a base salary plus commissions of one-twelfth of the estimated first year’s net revenue resulting from new business generated by him from corporate alliances with third party processors, networks, and software providers to financial institutions, with such commissions accruing only after the first $350,000 of estimated net revenue generated by Mr. Kilburn. The amendment also provides that if Mr. Kilburn voluntarily terminates his employment on or after March 1, 2004, we will pay Mr. Kilburn one-year’s base salary, and his unvested options will be eligible to vest during the one-year period following such termination and be exercisable until 90 days thereafter. If Mr. Kilburn voluntarily terminates his employment before March 1, 2004, he is not entitled to one-year’s base salary or the continued vesting of his options for the one-year period.

Loans

In October 2001 Concord entered into personal loan agreements with each of Dan M. Palmer, who is our Co-Chief Executive Officer and director, and Edward A. Labry III, who is our President and director. Pursuant to these agreements, Concord loaned $13,297,500 to each of Mr. Palmer and Mr. Labry. The loans were full recourse to each of Mr. Palmer and Mr. Labry. The loans had a term of 30 days with a provision for extension and an interest rate of 3.31%, but the actual interest rate paid by each of Messieurs Palmer and Labry was equal to 4.5%. Each of Mr. Palmer and Mr. Labry repaid the entire outstanding principal and all accrued interest on his loan by December 3, 2001.

In 2001 EFS Federal Savings Bank, a former subsidiary of ours, made a home mortgage loan to E. Miles Kilburn, our Senior Vice President of Business Strategy and Corporate Development, in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. The loan was in the principal amount of $644,000 and carried an interest rate of 6.5%. The loan did not involve more than the normal risk of collectability or present other unfavorable features. The loan was paid in full in June 2002.

Legal and Investment Banking Services

Bingham McCutchen LLP (f/k/a Bingham Dana LLP ) is one of the firms that provided legal services to us during 2002. Until December 31, 2001, Richard M. Harter, one of our directors, was a partner in that firm, and he now serves as of counsel to that firm. Bingham McCutchen LLP no longer provides legal services to us.

Wyatt, Tarrant & Combs, LLP is another one of the firms that provided legal services to us during 2002. Until September 2002, J. Richard Buchignani, our Vice Chairman, General Counsel, and Secretary and a director, was a partner in that firm. During 2003 we plan to continue to use legal services provided by Wyatt, Tarrant & Combs, LLP.

During 2002 William Blair & Company, L.L.C. received stock brokerage fees in connection with the execution of our common stock repurchase plan. Richard P. Kiphart, the chairman of our board of directors, is the Head of Corporate Finance and a principal at William Blair & Company, L.L.C., and as of December 31, 2002, certain principals (including Mr. Kiphart) of that firm beneficially owned an aggregate of 13,343,761 shares of our common stock. We intend to use the investment banking and brokerage services of William Blair & Company, L.L.C. during 2003.

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During 2002 Morgan Keegan & Company, Inc. (Morgan Keegan), a registered broker dealer, executed purchases and sales of fixed income securities for us that, in par value of securities, totaled approximately $254.9 million in purchases and $260.0 million in sales. During 2002 Morgan Keegan also acted as an agent on our behalf in connection with our repurchase of 4,000,000 shares of our common stock, for which Morgan Keegan earned an aggregate commission of approximately $160,000. During 2001 and 2000 we also executed trades with Morgan Keegan for fixed income securities. In June 2001 Morgan Keegan was an underwriter with respect to 10% of the 8.9 million shares of common stock (17.8 million shares after the impact of our September 2001 stock split) sold by us in our June 2001 public offering for net aggregate proceeds of approximately $420.6 million. Morgan Keegan’s underwriting fee on our shares was approximately $1.8 million. Benjamin C. Labry, the brother of our President and director Edward A. Labry III, is a Morgan Keegan employee whom we believe shares in the commissions earned by Morgan Keegan in connection with the transactions Morgan Keegan executes for us. Morgan Keegan declined to quantify for us the amount that Mr. Benjamin Labry received in connection with the transactions Morgan Keegan executed for us in 2002, but we believe that the amount may be in excess of $60,000. Morgan Keegan was one of several broker-dealers utilized by us in 2002.

Other Transactions

Simultaneous with our purchase of the site for our new corporate headquarters in July 2002, Dan M. Palmer, who is our Co-Chief Executive Officer and director, and Edward A. Labry III, who is our President and director, purchased approximately 39.1 acres of land located adjacent to the site of our new corporate headquarters in Memphis, Tennessee (the Land). At the same time, we entered into a certain Option to Purchase Agreement with Messieurs Palmer and Labry relating to the Land. Under the agreement, Messieurs Palmer and Labry granted us the option to purchase the Land at any time prior to July 17, 2007 and a right of first refusal with respect to the Land for an additional five years commencing on July 17, 2007. In consideration for the option, we paid Messieurs Palmer and Labry collectively $1,000. The agreement provides us with the right to determine the purchase price, subject to the right of Messieurs Palmer and Labry to object. In the event that we are unable to agree on a purchase price with Messieurs Palmer and Labry, the agreement provides that the purchase price will be determined by third-party appraisal in a specified manner.

On November 22, 2002 we gave notice to Messieurs Palmer and Labry of the exercise of our option to purchase the Land, and on December 30, 2002, we purchased the Land for $2,940,358, which represents the amount that Messieurs Palmer and Labry paid for the land, including transaction costs.

In connection with the purchase of land described above, we purchased an additional parcel of land from Mr. Palmer and Mr. Labry on December 30, 2002 for $55,315, which represents the amount that Mr. Palmer and Mr. Labry paid for the additional parcel of land, including transaction costs.

Our board of directors has authorized the expenditure of up to $500,000 per year on chartered air services from DP Air, LLC (d/b/a PalmAir). Dan M. Palmer, who is our Co-Chief Executive Officer and a director, owns a 99% interest in PalmAir. During 2002, 2001 and 2000 we paid PalmAir $483,089, $137,065 and $132,950, respectively, for chartered air travel services at rates that were not in excess of those charged by comparable third-party vendors. We plan to continue to use such services in similar amounts during 2003.

During 2002 we paid HogWild—Real Memphis Barbeque, LLC (d/b/a HogWild) approximately $44,000 for food catering services, and in 2003, we plan to continue to use such services in similar amounts. Edward A. Labry III, our President and director, owned a ten percent interest in HogWild until March 2002.

During 2002 Margaret Hoyt was employed by our subsidiary H & F Services, Inc. as a sales representative and earned a base salary of $6,000 and commissions of $153,675 based on sales, pursuant to a commission plan commensurate with that of other H & F Services, Inc. sales representatives. In 2002 Ms. Hoyt was granted options to purchase 10,000 shares of our common stock at an exercise price of $32.90 per share and 5,000 shares of our common stock at an exercise price of $13.70 per share. Ms. Hoyt is the sister of Edward A. Labry III, who is our President and director. Effective January 1, 2003, Ms. Hoyt was transferred from our subsidiary H & F Services, Inc. to our subsidiary Concord EFS Financial Services, Inc.

During 2002 Gary G. Arnold was President of Virtual Cyber Systems, Inc., a subsidiary of ours, and earned a base salary of $158,510 and a bonus of $40,000. In 2002 Mr. Arnold was granted options to purchase 50,000 shares of our common stock with an exercise price of $33.35 per share and 25,000 shares of our common stock at an exercise price of $13.70 per share. Mr. Arnold is the half-brother of our Co-Chief Executive Officer and director, Dan M. Palmer.

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During 2002 Donna A. Howard was an account manager at EFS Transportation Services, Inc., a subsidiary of ours, and earned a base salary of $41,385 and a bonus of $9,000. In 2002 Ms. Howard was granted options to purchase 7,000 shares of our common stock at an exercise price of $33.35 per share and 3,500 shares of our common stock at an exercise price of $13.70 per share. Ms. Howard is the daughter of our Co-Chief Executive Officer and director, Dan M. Palmer.

During 2002 Timothy P. Millette was Manager of Shipping and Receiving at EFS National Bank, a subsidiary of ours, and earned a base salary of $48,670 and a bonus of $1,500. In 2002 Mr. Millette was granted options to purchase 5,000 shares of our common stock at an exercise price of $33.35 per share and 2,500 shares of our common stock at an exercise price of $13.70 per share. Mr. Millette is the son-in-law of our Co-Chief Executive Officer and director, Dan M. Palmer.

Pay Systems of America, Inc.

Douglas C. Altenbern, one of our directors, owns approximately 16% of the outstanding stock of Payroll Company, Inc., and his son owns 11%. In addition, his son-in-law, the president of Payroll Company, owns 26% of its outstanding stock. In March 2001 Payroll Company purchased from us all of the issued and outstanding common stock of Pay Systems of America, Inc. for $2,200,000, of which $800,000 was paid at closing and an additional $1,400,000 was to be paid pursuant to the terms of a promissory note unconditionally guaranteed by Mr. Altenbern and bearing interest at a rate of six percent per year.

In connection with the closing of the sale of Pay Systems of America, we agreed to adjust the $700,000 payment due in March 2003 under the promissory note to the extent that the revenue of Pay Systems of America decreased due to the loss of a certain customer. Because Pay Systems of America ultimately sustained revenue losses greater than $700,000 due to the loss of that customer, the amount ultimately paid to us pursuant to the promissory note was $700,000 plus interest. Payroll Company paid the entire outstanding balance under the note, together with all outstanding accrued interest, in the first quarter of 2002.

We are a guarantor of two lease agreements entered into by Pay Systems of America. The landlords have not released us from our obligations under these lease agreements, and Payroll Company and Mr. Altenbern have guaranteed the obligations of Pay Systems of America and have agreed to indemnify and hold us harmless from all losses, costs, and damages as a result of Pay Systems of America’s failure to perform all of its obligations under these lease agreements.

The agreement pursuant to which Payroll Company purchased the outstanding common stock of Pay Systems of America provides that we or our affiliates will provide certain transition services for Pay Systems of America. Pursuant to the agreement and in consideration for the purchase price paid thereunder, during 2002 we (i) provided without any additional charge certain processing services for funds transfer for direct deposit of payroll checks for customers of Pay Systems of America, (ii) provided certain depository services, and (iii) provided without charge certain processing services. We expect to continue to provide these services, the cost of which is immaterial to us, to Pay Systems of America during 2003.

Virtual Cyber Systems, Inc.

In February 2000 we exchanged 84,889 shares of our common stock for all of the outstanding shares of Virtual Cyber Systems, Inc., an Internet software development company, and paid $377,759 in cash to Virtual Cyber Systems’ option holders to cash out their options. Prior to the transaction, Gary G. Arnold owned all of the outstanding shares of Virtual Cyber Systems. Mr. Arnold is the half-brother of our Co-Chief Executive Officer and director Dan M. Palmer. In connection with the acquisition, we repaid the $877,207 and $80,352 that Virtual Cyber Systems owed to Mr. Palmer and Mr. Arnold, respectively. Notwithstanding that the transaction was not material to us, we engaged William Blair & Company, L.L.C., an investment banking firm, to render its opinion as to the fairness of the transaction, in light of the related-party nature of the transaction. Prior to executing the stock purchase agreement with Virtual Cyber Systems, we did receive such opinion to the effect that the amount of transaction consideration to be paid to Mr. Arnold and the optionholders was fair, from a financial point of view, to us.

Item 14.     CONTROLS AND PROCEDURES

Based on their evaluation as of a date within 90 days prior to the filing of this annual report on Form 10-K, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-

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14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. As of the date of this annual report on Form 10-K, there have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1.    FINANCIAL STATEMENTS

The following financial statements are incorporated by reference from pages 36 to 80 of our Annual Report to Stockholders for the fiscal year ended December 31, 2002, as provided in Item 8 above:

• Report of Independent Auditors

• Consolidated Balance Sheets as of December 31, 2002 and 2001

• Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000

• Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001, and 2000

• Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000

• Notes to Consolidated Financial Statements as of December 31, 2002

Quarterly results of operations for the years ended December 31, 2002 and 2001 under the caption “Note T—Quarterly Financial Results (Unaudited)” on pages 78 to 79 of our Annual Report to Stockholders are incorporated herein by reference.

2.    FINANCIAL STATEMENT SCHEDULES

All financial statement schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

3.    EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K AND PARAGRAPH (C) BELOW

See response to Item 15(c) below.

(b) Reports on Form 8-K

None.

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(c) Exhibits

Exhibit No.		Description
2.1		Agreement and Plan of Merger among Concord EFS, Inc., CEFT, Inc., and Electronic Payment Services, Inc., dated as of November 20, 1998, is incorporated herein by reference to Exhibit 2.1 to the current report on Form 8-K (File No. 000-13848), filed on March 10, 1999.
2.2		Agreement and Plan of Merger among Concord EFS, Inc., Orion Acquisition Corp., and Star Systems, Inc., dated as of October 6, 2000, is incorporated herein by reference to Exhibit 10 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 14, 2000.
3.1		Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2		Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1		Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) is incorporated herein by reference to Exhibit I to Concord’s proxy statement for the annual meeting of stockholders held on May 20, 1999, filed on April 9, 1999.
10.2		Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) is incorporated herein by reference to Exhibit 10.1 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on May 9, 2002.
10.3		Electronic Payment Services, Inc. 1995 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 99.1 to Concord’s registration statement on Form S-8 (File No. 333-74213), filed on March 10, 1999.
10.4		Star Systems, Inc. 2000 Equity Incentive Plan is incorporated herein by reference to Exhibit 99.1 to Concord’s registration statement on Form S-8 (File No. 333-56066), filed on February 23, 2001.
10.5		Concord EFS, Inc. 2002 Stock Option Plan is incorporated herein by reference to Appendix A to Concord’s proxy statement for the annual meeting of stockholders held on May 23, 2002, filed on April 8, 2002.
10.6	*	Incentive Agreement between Concord EFS, Inc. and Dan M. Palmer, dated as of February 26, 1998, is incorporated herein by reference to Exhibit 10.3 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 1, 1999.
10.7	*	Incentive Agreement between Concord EFS, Inc. and Edward A. Labry III, dated as of February 26, 1998, is incorporated herein by reference to Exhibit 10.2 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 1, 1999.
10.8	*	Employment Agreement between H&S Holding Company (renamed Star Systems, Inc.) and Ronald V. Congemi, dated as of March 1, 1999, and amendment thereto among Star Systems, Inc., Concord EFS, Inc., and Ronald V. Congemi, dated October 6, 2000, are incorporated herein by reference to Exhibit 10.6 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 2, 2001.
10.9	*	Star Nonqualified Deferred Compensation Plan, effective as of January 1, 2000, is incorporated herein by reference to Exhibit 10.8 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 2, 2001.
10.10		Stock Purchase and Sale Agreement between Payroll Company, Inc. and Concord EFS, Inc., dated March 30, 2001, is incorporated herein by reference to Exhibit 10.9 to Amendment No. 1 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on June 18, 2001.
10.11	*	Split-Dollar Agreement among Concord EFS, Inc., Ross N. Cohen, and Ronald V. Congemi, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.10 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.12	*	Amended and Restated Split-Dollar Agreement between Concord EFS, Inc. and Edward T. Haslam, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.11 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.

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Exhibit No.		Description
10.13	*	Amended and Restated Split-Dollar Agreement among Concord EFS, Inc., J. Richard Buchignani, Benjamin C. Labry, and Edward A. Labry III, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.12 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.14	*	Amended and Restated Split-Dollar Agreement among Concord EFS, Inc., Thomas R. Renfro, Gary G. Arnold, and Danny M. Palmer, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.13 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.15	*	Amended and Restated Split-Dollar Agreement between Concord EFS, Inc. and Christopher S. Reckert, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.14 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.16		Master Agreement, dated as of July 12, 2002, among Concord EFS, Inc., Electronic Payment Services, Inc., Star Systems, LLC, certain subsidiaries of Concord EFS, Inc. that may become a party to such agreement, Atlantic Financial Group, Ltd., certain financial institutions, and SunTrust Bank is incorporated herein by reference to Exhibit 10.1 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.17		Master Lease Agreement, dated as of July 12, 2002, among Atlantic Financial Group, Ltd., Concord EFS, Inc., and certain subsidiaries of Concord EFS, Inc. is incorporated herein by reference to Exhibit 10.2 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.18		Construction Agency Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and Concord EFS, Inc. is incorporated herein by reference to Exhibit 10.3 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.19		Loan Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and SunTrust Bank is incorporated herein by reference to Exhibit 10.4 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.20		Guaranty Agreement, dated as of July 12, 2002, from Concord EFS, Inc. to Atlantic Financial Group, Ltd. and certain financial institutions is incorporated herein by reference to Exhibit 10.5 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.21	*	Letter agreement, dated September 11, 2002, between Concord EFS, Inc. and J. Richard Buchignani is incorporated herein by reference to Exhibit 10.6 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.22	*	Letter agreement, dated August 30, 2002, between Concord EFS, Inc. and Bond Isaacson, including the accompanying Sign-On Bonus Re-Pay Agreement, dated November 9, 2002, between Concord EFS, Inc. and Bond Isaacson is incorporated herein by reference to Exhibit 10.7 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002. (Confidential material appearing in this document was omitted and filed separately with the Securities and Exchange Commission in accordance with the Securities and Exchange Act of 1934, as amended, and 17 C.F.R. 240.24b-2 and 200.80. Omitted information was replaced with asterisks.)
10.23		Option to Purchase Agreement, dated as of July 17, 2002, among Dan M. Palmer, Edward A. Labry III, and Concord EFS, Inc. and related letters dated November 22, 2002 and December 20, 2002, from Concord EFS, Inc. to Dan M. Palmer and Edward A. Labry III
10.24	*	Employment Agreement, dated as of January 21, 2003, between Concord EFS, Inc. and Paul W. Finch Jr.
10.25	*	Letter agreement, dated October 2, 2002, between Concord EFS, Inc. and Edward T. Haslam
10.26	*	Amendment to Employment Agreement Dated October 2, 2002, effective February 26, 2003, between Concord EFS, Inc. and Edward T. Haslam
10.27	*	Employment Agreement, dated as of March 1, 1999, between H&S Holding Company (renamed Star Systems, Inc.) and E. Miles Kilburn and first and second amendments thereto among Star Systems, Inc., Concord EFS, Inc., and E. Miles Kilburn, dated October 6, 2000 and February 1, 2003
10.28	*	Letter agreement, dated April 29, 2002, between Concord EFS, Inc. and P. Norman Bennett

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Exhibit No.		Description
10.29	*	UnumProvident Advantage I Long Term Care Insurance Specimen Contract, together with a policy schedule for each named executive officer participating in this plan
10.30	*	Unum Income Series Individual Income Protection Insurance, together with a coverage summary for each named executive officer participating in this plan
10.31		Bridge Loan Agreement Letter of Guarantee and Stock Option Pledge, dated October 22, 2001, between Concord EFS, Inc. and Dan M. Palmer
10.32		Bridge Loan Agreement Letter of Guarantee and Stock Option Pledge, dated October 22, 2001, between Concord EFS, Inc. and Edward A. Labry III
11		Statement Regarding Computation of Per Share Earnings is incorporated herein by reference to Concord’s Annual Report to Stockholders for the year ended December 31, 2002, filed herewith as Exhibit 13, Notes to Consolidated Financial Statements, Note N.
13		Annual Report to Stockholders for the year ended December 31, 2002
21		List of Subsidiaries
23.1		Consent of Ernst & Young LLP
23.2		Consent of Deloitte & Touche LLP
99.1		Opinion of Deloitte & Touche LLP (Star Systems, Inc. year ended December 31, 2000)
99.2		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.5		Cautionary Statements

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K pursuant to Item 15(c) of this report.

(d) Financial Statement Schedules

All financial statement schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CONCORD EFS, INC.
By:	/s/    DAN M. PALMER
Date:	Dan M. Palmer Co-Chief Executive Officer March 27, 2003

CONCORD EFS, INC.
By:	/s/    BOND R. ISAACSON
Date:	Bond R. Isaacson Co-Chief Executive Officer March 27, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    DAN M. PALMER         Dan M. Palmer	Director and Co-Chief Executive Officer (Principal Executive Officer)	March 27, 2003
/S/    BOND R. ISAACSON         Bond R. Isaacson	Director and Co-Chief Executive Officer (Principal Executive Officer)	March 27, 2003
/S/    EDWARD T. HASLAM         Edward T. Haslam	Senior Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)	March 27, 2003
/S/    DOUGLAS C. ALTENBERN         Douglas C. Altenbern	Director	March 27, 2003
/S/    J. RICHARD BUCHIGNANI         J. Richard Buchignani	Director	March 27, 2003
/S/    RICHARD M. HARTER         Richard M. Harter	Director	March 27, 2003
/S/    RICHARD P. KIPHART         Richard P. Kiphart	Director	March 27, 2003
/S/    EDWARD A. LABRY III         Edward A. Labry III	Director	March 27, 2003
/S/    JERRY D. MOONEY         Jerry D. Mooney	Director	March 27, 2003
/S/    SHIRLEY C. RAINES         Shirley C. Raines	Director	March 27, 2003
/S/    GEORGE F. RAYMOND         George F. Raymond	Director	March 27, 2003
/S/    ARTHUR N. SEESSEL         Arthur N. Seessel	Director	March 27, 2003
/S/    PAUL L. WHITTINGTON         Paul L. Whittington	Director	March 27, 2003

CERTIFICATION

I, Dan M. Palmer, certify that:

1.    I have reviewed this annual report on Form 10-K of Concord EFS, Inc. (the “registrant”);

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

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

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.    The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date    March 27, 2003

By	/S/ DAN M. PALMER
	Dan M. Palmer Co-Chief Executive Officer

CERTIFICATION

I, Bond R. Isaacson, certify that:

1.    I have reviewed this annual report on Form 10-K of Concord EFS, Inc. (the “registrant”);

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

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

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.    The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date    March 27, 2003

By	/S/ BOND R. ISAACSON
	Bond R. Isaacson Co-Chief Executive Officer

CERTIFICATION

I, Edward T. Haslam, certify that:

1.    I have reviewed this annual report on Form 10-K of Concord EFS, Inc. (the “registrant”);

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

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

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.    The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date    March 27, 2003

By	/S/ EDWARD T. HASLAM
	Edward T. Haslam Chief Financial Officer

CONCORD EFS, INC.

LISTING OF EXHIBITS

Exhibit No.		Description
2.1		Agreement and Plan of Merger among Concord EFS, Inc., CEFT, Inc., and Electronic Payment Services, Inc., dated as of November 20, 1998, is incorporated herein by reference to Exhibit 2.1 to the current report on Form 8-K (File No. 000-13848), filed on March 10, 1999.
2.2		Agreement and Plan of Merger among Concord EFS, Inc., Orion Acquisition Corp., and Star Systems, Inc., dated as of October 6, 2000, is incorporated herein by reference to Exhibit 10 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 14, 2000.
3.1		Restated Certificate of Incorporation of Concord EFS, Inc. is incorporated herein by reference to Exhibit 4.1 to Concord’s registration statement on Form S-8 (File No. 333-90678), filed on June 18, 2002.
3.2		Amended and Restated Bylaws of Concord EFS, Inc. are incorporated herein by reference to Exhibit 4.2 to Concord’s registration statement on Form S-8 (File No. 333-74215), filed on March 10, 1999.
10.1		Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) is incorporated herein by reference to Exhibit I to Concord’s proxy statement for the annual meeting of stockholders held on May 20, 1999, filed on April 9, 1999.
10.2		Amendment, dated November 16, 2000, to Concord EFS, Inc. 1993 Incentive Stock Option Plan (Second 1999 Restatement) is incorporated herein by reference to Exhibit 10.1 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on May 9, 2002.
10.3		Electronic Payment Services, Inc. 1995 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 99.1 to Concord’s registration statement on Form S-8 (File No. 333-74213), filed on March 10, 1999.
10.4		Star Systems, Inc. 2000 Equity Incentive Plan is incorporated herein by reference to Exhibit 99.1 to Concord’s registration statement on Form S-8 (File No. 333-56066), filed on February 23, 2001.
10.5		Concord EFS, Inc. 2002 Stock Option Plan is incorporated herein by reference to Appendix A to Concord’s proxy statement for the annual meeting of stockholders held on May 23, 2002, filed on April 8, 2002.
10.6	*	Incentive Agreement between Concord EFS, Inc. and Dan M. Palmer, dated as of February 26, 1998, is incorporated herein by reference to Exhibit 10.3 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 1, 1999.
10.7	*	Incentive Agreement between Concord EFS, Inc. and Edward A. Labry III, dated as of February 26, 1998, is incorporated herein by reference to Exhibit 10.2 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 1, 1999.
10.8	*	Employment Agreement between H&S Holding Company (renamed Star Systems, Inc.) and Ronald V. Congemi, dated as of March 1, 1999, and amendment thereto among Star Systems, Inc., Concord EFS, Inc., and Ronald V. Congemi, dated October 6, 2000, are incorporated herein by reference to Exhibit 10.6 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 2, 2001.
10.9	*	Star Nonqualified Deferred Compensation Plan, effective as of January 1, 2000, is incorporated herein by reference to Exhibit 10.8 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on April 2, 2001.
10.10		Stock Purchase and Sale Agreement between Payroll Company, Inc. and Concord EFS, Inc., dated March 30, 2001, is incorporated herein by reference to Exhibit 10.9 to Amendment No. 1 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on June 18, 2001.
10.11	*	Split-Dollar Agreement among Concord EFS, Inc., Ross N. Cohen, and Ronald V. Congemi, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.10 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.12	*	Amended and Restated Split-Dollar Agreement between Concord EFS, Inc. and Edward T. Haslam, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.11 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.

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Exhibit No.		Description
10.13	*	Amended and Restated Split-Dollar Agreement among Concord EFS, Inc., J. Richard Buchignani, Benjamin C. Labry, and Edward A. Labry III, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.12 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.14	*	Amended and Restated Split-Dollar Agreement among Concord EFS, Inc., Thomas R. Renfro, Gary G. Arnold, and Danny M. Palmer, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.13 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.15	*	Amended and Restated Split-Dollar Agreement between Concord EFS, Inc. and Christopher S. Reckert, dated August 1, 2001, is incorporated herein by reference to Exhibit 10.14 to Concord’s annual report on Form 10-K (File No. 000-13848), filed on February 26, 2002.
10.16		Master Agreement, dated as of July 12, 2002, among Concord EFS, Inc., Electronic Payment Services, Inc., Star Systems, LLC, certain subsidiaries of Concord EFS, Inc. that may become a party to such agreement, Atlantic Financial Group, Ltd., certain financial institutions, and SunTrust Bank is incorporated herein by reference to Exhibit 10.1 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.17		Master Lease Agreement, dated as of July 12, 2002, among Atlantic Financial Group, Ltd., Concord EFS, Inc., and certain subsidiaries of Concord EFS, Inc. is incorporated herein by reference to Exhibit 10.2 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.18		Construction Agency Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and Concord EFS, Inc. is incorporated herein by reference to Exhibit 10.3 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.19		Loan Agreement, dated as of July 12, 2002, between Atlantic Financial Group, Ltd. and SunTrust Bank is incorporated herein by reference to Exhibit 10.4 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.20		Guaranty Agreement, dated as of July 12, 2002, from Concord EFS, Inc. to Atlantic Financial Group, Ltd. and certain financial institutions is incorporated herein by reference to Exhibit 10.5 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.21	*	Letter agreement, dated September 11, 2002, between Concord EFS, Inc. and J. Richard Buchignani is incorporated herein by reference to Exhibit 10.6 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002.
10.22	*	Letter agreement, dated August 30, 2002, between Concord EFS, Inc. and Bond Isaacson, including the accompanying Sign-On Bonus Re-Pay Agreement, dated November 9, 2002, between Concord EFS, Inc. and Bond Isaacson is incorporated herein by reference to Exhibit 10.7 to Concord’s quarterly report on Form 10-Q (File No. 000-13848), filed on November 13, 2002. (Confidential material appearing in this document was omitted and filed separately with the Securities and Exchange Commission in accordance with the Securities and Exchange Act of 1934, as amended, and 17 C.F.R. 240.24b-2 and 200.80. Omitted information was replaced with asterisks.)
10.23		Option to Purchase Agreement, dated as of July 17, 2002, among Dan M. Palmer, Edward A. Labry III, and Concord EFS, Inc. and related letters dated November 22, 2002 and December 20, 2002, from Concord EFS, Inc. to Dan M. Palmer and Edward A. Labry III
10.24	*	Employment Agreement, dated as of January 21, 2003, between Concord EFS, Inc. and Paul W. Finch Jr.
10.25	*	Letter agreement, dated October 2, 2002, between Concord EFS, Inc. and Edward T. Haslam
10.26	*	Amendment to Employment Agreement Dated October 2, 2002, effective February 26, 2003, between Concord EFS, Inc. and Edward T. Haslam
10.27	*	Employment Agreement, dated as of March 1, 1999, between H&S Holding Company (renamed Star Systems, Inc.) and E. Miles Kilburn and first and second amendments thereto among Star Systems, Inc., Concord EFS, Inc., and E. Miles Kilburn, dated October 6, 2000 and February 1, 2003
10.28	*	Letter agreement, dated April 29, 2002, between Concord EFS, Inc. and P. Norman Bennett

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Exhibit No.		Description
10.29	*	UnumProvident Advantage I Long Term Care Insurance Specimen Contract, together with a policy schedule for each named executive officer participating in this plan
10.30	*	Unum Income Series Individual Income Protection Insurance, together with a coverage summary for each named executive officer participating in this plan
10.31		Bridge Loan Agreement Letter of Guarantee and Stock Option Pledge, dated October 22, 2001, between Concord EFS, Inc. and Dan M. Palmer
10.32		Bridge Loan Agreement Letter of Guarantee and Stock Option Pledge, dated October 22, 2001, between Concord EFS, Inc. and Edward A. Labry III
11		Statement Regarding Computation of Per Share Earnings is incorporated herein by reference to Concord’s Annual Report to Stockholders for the year ended December 31, 2002, filed herewith as Exhibit 13, Notes to Consolidated Financial Statements, Note N.
13		Annual Report to Stockholders for the year ended December 31, 2002
21		List of Subsidiaries
23.1		Consent of Ernst & Young LLP
23.2		Consent of Deloitte & Touche LLP
99.1		Opinion of Deloitte & Touche LLP (Star Systems, Inc. year ended December 31, 2000)
99.2		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3		Certification of Co-Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.5		Cautionary Statements

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K pursuant to Item 15(c) of this report.

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EX-10.23

EXHIBIT 10.23

Shelby County, Tennessee

OPTION TO PURCHASE AGREEMENT

THIS OPTION TO PURCHASE AGREEMENT (this “Agreement”), is made as of this 17^th day of July 2002, by and between DAN PALMER AND EDWARD A. LABRY III, jointly and severally, individuals having an address of 2525 Horizon Lake Drive, Memphis, TN 38133 (collectively, together with their respective heirs, permitted assigns and/or designee(s), referred to herein as the “Optionor”) and CONCORD EFS, INC., a Delaware corporation with offices at 1100 Carr Road, Wilmington, Delaware 19809 (together with its permitted successors, assigns and/or designee(s), “Optionee”).

BACKGROUND

A.  Optionor, contemporaneously with the execution of this Agreement, is purchasing:

i.    An approximately 37.609 acre parcel of ground located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, together with any improvements constructed thereon and all easements, rights and privileges appurtenant thereto (collectively, the “Reaves Land”), which constitutes a portion of an approximately 62.363 acre parcel, consisting of the following five (5) Shelby County tax parcels; (i) district 2, block 7, parcel 298, (ii) district 2, block 7, parcel 115, (iii) district 2, block 7, parcel 244, (iv) district 2, block 7, parcel 270, and (v) district 2, block 7, parcel 271 (collectively, the “Reaves Tract”) as more particularly described on Exhibit A-1 attached hereto; and

ii.    An approximately 1.496 acre parcel of ground contiguous to the Reaves Land located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, together with any improvements constructed thereon and all easements, rights and privileges appurtenant thereto (collectively, the “Appling Land”, and together with the Reaves Land, the “Land”), which constitutes a portion of an approximately 3.624 acre parcel, also designated as the following Shelby County tax parcel: district 2, block 7, parcel 296 (collectively the “Appling Tract”, and collectively with the Reaves Tract, the “Tracts”) as more particularly described on Exhibit A-2 attached hereto.

B.  Optionee, contemporaneously with the execution of this Agreement, is purchasing the balance of the Tracts (collectively the “Concord Land”) consisting of (i) an approximately 24.754 acre parcel of the Reaves Tract and (ii) an approximately 2.128 acre parcel of the Appling Tract, both as more particularly described on Exhibit A-3 attached hereto. Optionee will be constructing an approximately 180,000 square foot headquarters office (including warehouse space) and data center, together with appurtenant parking and related improvements, on the Concord Land.

C.  Optionor wishes to grant unto Optionee the option to purchase the Land together with licenses, approvals and warranties, if any, relating thereto (collectively, the “Intangible

Property”; and together with the Land, the “Property”) upon the terms and conditions set forth herein, and Optionee wishes to accept such option to purchase.

TERMS

NOW, THEREFORE, Optionor, for and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby grants unto Optionee the option to purchase the Property on the terms hereinafter set forth.

1. Grant of Option.

Optionor hereby irrevocably grants unto Optionee and Optionee hereby accepts from Optionor, the exclusive and irrevocable right and option (the “Option”) to purchase the Property upon the terms and conditions set forth herein.

2. Consideration for Option.

In consideration for the Option granted herein, Optionee has, among other things, simultaneous with the execution hereof, paid to Optionor the sum of One Thousand Dollars and no/100 ($1,000.00) (the “Option Payment”), receipt of which is hereby acknowledged by Optionor.

3. Term; Exercise of Option.

Optionee shall have the right to exercise the Option at any time on or after the date of this Agreement for a period of five (5) years from the date hereof (the “Option Period”). It is hereby acknowledged and agreed that the Option hereby granted constitutes a present and absolute grant of the Option as of the date hereof. Optionee shall exercise the Option by delivering written notice thereof (the “Exercise Notice”) to Optionor, which notice shall specify (a) Optionee’s initial determination of the Purchase Price (as defined below), and (b) the date (the “Closing Date”) on which settlement hereunder shall occur (the “Closing”); provided, however, that the Closing Date shall be no fewer than thirty (30) days after the date of the Exercise Notice and no later than sixty (60) days after the Option Period or, if later, 60 days after the Revocation Period (hereinafter defined). The Closing shall be held at the offices of the Smith & Smith Law Firm, 4917 William Arnold Road, Memphis, Tennessee, 38117, or at such other location as the parties may mutually agree upon. Upon Optionee’s exercise of the Option as above provided, this Agreement will automatically become an agreement by Optionor to sell and convey the Property to Optionee and an agreement by Optionee to purchase the Property from Optionor, in each case upon the terms and conditions set forth herein.

4. Right of First Refusal.

In addition to the foregoing rights, Optionor hereby grant Optionee a right of first refusal for an additional five (5) years commencing immediately upon the expiration of the Option Period to acquire the Property from Optionor in the event Optionor wishes to sell the Property to an unrelated third party (the “ROFR”). The foregoing ROFR shall not apply to (a) any sale or transfer of the Property to an affiliate of Optionor, (b) any foreclosure sale or deed in lieu of

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foreclosure transaction, (c) a transfer of the Property from one partner of Optionor to another partner of Optionor (provided that the acquiring partner did not become a partner for the purpose of circumventing the ROFR), (d) a transfer of the Property to an Agency as part of a tax reduction or tax abatement program in which Optionor leases the Property back from an Agency and then subleases to a tenant, (e) a sale of the Property to the appropriate condemning authority pursuant to eminent domain or under threat of eminent domain, or (f) if Optionor creates a security interest in or transfers security title to the Property as collateral for a loan. The foregoing ROFR shall be exercisable only as against Optionor and shall not be exercisable as against any subsequent owner of the Property (except following an exempted transfer under clauses (a), (c), (d) or (f) above). Subject to the exceptions set forth above, in the event Optionor receives or obtains a written offer to purchase the Property (an “Offer”), Optionor shall forward a copy of the Offer to Optionee within two (2) Business Days of Optionor’s receipt of the Offer. Optionee shall have a period of ten (10) Business Days after receipt of the Offer to match the Offer. If Optionee sends Optionor written notice matching the Offer, then this will automatically become an agreement by Optionor to sell and convey the Property to Optionee and an agreement by Optionee to purchase the Property from Optionor, in each case upon the terms and conditions set forth herein. If Optionee fails to match the Offer in writing within such ten (10) day period, time being of the essence, Optionee shall be deemed to have rejected the Offer and thereupon Optionor shall be free to sell the Property to any third party within 210 days at a price which is not less than 95% of the price set forth in the Offer (and otherwise on terms, taken as a whole, not materially more favorable to the buyer than those offered to Optionee). In the event Optionor (x) does not sell the Property within 210 days or (y) wishes to sell the Property at a price which is less than 95% of the price set forth in the Offer (or on materially better terms to the buyer), Optionor shall first be required to, in the case of (x) again offer the Property to Optionee in accordance with this Section 4 before selling the Property to a third party or in the case of (y) offer the Property to Optionee at such new price (and on such better terms) in accordance with the foregoing procedures (except that the time period for acceptance by Optionee of the new offer shall be five (5) Business Days) prior to selling the Property at such price (or any lower price) and/or on such improved terms to any third party. In the event Optionee fails to match the Offer by Optionor as aforesaid and thereafter Optionor sells the Property to a third party within 210 days or in the event of any sale or transfer of the Property under clauses (b), or (e) above, the ROFR shall automatically terminate and Optionee shall have no further ROFR with respect to the Property. The ROFR shall automatically expire (if not sooner terminated in accordance herewith) on the 10th anniversary of the Closing.

5. Purchase Price.

The purchase price for the Property (the “Purchase Price”) shall be the Fair Market Value for the Property as of the date of Optionee’s Exercise Notice. For purposes of this Agreement, “Fair Market Value” shall mean the value of the Property determined in accordance with the following procedures:

A.    FMV Notice. The Fair Market Value shall initially be determined by Optionee in its reasonable discretion, and as communicated to Optionor in Optionee’s Exercise Notice. Optionor shall advise Optionee in writing if it accepts Optionee’s determination of the Fair Market Value (such notice, the “FMV Response Notice”’) within fifteen (15) days of Optionor’s receipt of the Exercise Notice from Optionee (“Optionor’s Review Period”). In the event

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Optionor fails to timely accept in writing such value proposed by Optionee, then such proposal shall be deemed rejected, and Optionor and Optionee shall, for a period of thirty (30) days after the end of Optionor’s Review Period (the “Negotiation Period”), negotiate in good faith to try to reach agreement upon the Fair Market Value, using their reasonable good faith efforts.

B.    FMV Deadlock. In the event Optionor and Optionee are unable to agree as to the Fair Market Value of the Property by the end of the Negotiation Period (the “FMV Deadlock Date”), then each party shall appoint an appraiser within ten (10) Business Days after the FMV Deadlock Date; the two appraisers thus appointed shall within ten (10) additional Business Days appoint a third appraiser for the purpose of determining the Fair Market Value of the Property; and the three appraisers so selected shall be instructed to complete their respective appraisals of the Property and deliver the results of the same, in writing, not later than sixty (60) days after the FMV Deadlock Date. The average of the three appraisals (subject to the qualifications set forth below) shall be the Fair Market Value for the Property and, thereby, the Purchase Price; provided, however, in the event that any (but not more than one) appraisal submitted by an appraiser varies five percent (5%) or more from the average of all three appraisals, then such appraisal shall not be used and the Fair Market Value shall be determined on the basis of the average of the other two appraisals. Further, in the event that the highest and lowest appraisal each varies five percent (5%) or more from the average of all three appraisals, or if fewer than all three of the required appraisals shall have been received by Optionor and Optionee, in writing, within sixty (60) days after the FMV Deadlock Date, then, in either such case, the Fair Market Value shall be determined in accordance with the following procedure: (1) if all three of the required appraisals are timely received but there is a five percent (5%) or greater variance of both the highest and lowest thereof with the average of all three as aforesaid, then the Fair Market Value shall equal the average of (i) the middle appraisal amount, and (ii) the Fair Market Value as determined by the then highest ranking officer that is not an affiliate of either Optionor or Optionee of the local chapter of the American Institute of Real Estate Appraisers (“AIREA”) or any successor organization thereof (in any such case, an “AIREA Officer”); or (2) if fewer than all three of the required appraisals shall have been timely received, then the Fair Market Value shall equal the average of (i) the average of the amount(s) of each appraisal that was timely received, and (ii) the amount of the Fair Market Value as determined by the then highest ranking (and unaffiliated) AIREA Officer or any successor organization thereof (except that if only one appraisal is received, there shall be a panel of at least two unaffiliated AIREA Officers which shall make the determination required in this clause (ii)). In all cases, each appraiser selected by a party, and each appraiser selected by an appraiser, must be an “MAI” qualified and licensed appraiser or must otherwise be a member in good standing of the local AIREA, and must not be affiliated with either party. Each party will pay the cost of its own appraiser and both parties will share equally the costs of the third appraiser and of any AIREA Officer. For the purposes of this Agreement, “Business Day” shall mean those days of the week which are not a Saturday or Sunday, or New Year’s Day, President’s Day, Martin Luther King Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day or Christmas Day (on the days the foregoing holidays are generally observed).

C.    Binding Effect. The Purchase Price as determined in accordance with the foregoing procedure shall be binding on the parties and shall be payable by Optionee to Optionor at the Closing. Notwithstanding the foregoing, Optionee shall be permitted to revoke its exercise of the Option, for any reason or for no reason at all, provided that it sends Optionor written

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notice of such revocation not later than the date which is ten (10) days immediately following the final determination of the Purchase Price (the “Revocation Period”). Notwithstanding any of the foregoing to the contrary, in the event the Closing Date provided in the Exercise Notice would occur prior to the expiration of the Revocation Period and Purchaser does not revoke its exercise, such Closing Date shall automatically be extended to any Business Day designated by Purchaser which is not more than 60 days after the end of the Revocation Period).

6. Covenants, Representations and Warranties of Optionor.

Each Optionor hereby covenants, represents and warrants to Optionee as follows:

A.    Authority. Each Optionor is an individual with the legal capacity to enter into this Agreement and to consummate the transactions contemplated hereby. No consents of any third party are required in connection with Optionor’s performance hereunder. This Agreement constitutes the authorized, valid and legally binding obligations of Optionor enforceable in accordance with its terms.

B.    No Violation of Agreements or Applicable Laws. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under any agreement of Optionor or any instrument to which Optionor is a party or by which Optionor is bound, or any order, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, or any applicable law, rule or regulation applicable to Optionor or the Property (collectively, “Applicable Laws”). No order, consent, approval or authorization of any court or governmental department, commission, board, bureau, agency or instrumentality is necessary for the execution, delivery and performance of this Agreement, except for such orders, consents, approvals or authorizations which have been obtained.

C.    Recording. Optionor has not taken and will not take any action that will or may affect Optionor’s title to the Property except for the Permitted Exceptions (hereinafter defined).

D.    Title. Optionor has and shall at all times maintain good and marketable fee simple title to the Property subject to no leases, mortgages, liens, pledges, encumbrances, easements, restrictions or other matters of any kind except, (1) future utility easements necessary to service the Land and the Concord Land (as opposed to any other property) and which are approved in writing by Optionee, (2) liens for real estate taxes which are not yet due and payable, (3) mortgage liens, provided Optionee has consented in writing thereto, which consent will not be unreasonably withheld, conditioned or delayed, provided that such mortgage liens are expressly made subject to this Agreement and provide that the same shall be released upon the payment of the lesser of (a) the outstanding indebtedness for which the mortgage lien is security; and (b) the Purchase Price, and (4) the matters listed on Exhibit B hereto (“Additional Permitted Exceptions”, and collectively with clauses (1), (2) and (3), “Permitted Exceptions”).

E.    Litigation and Labor Disputes. There are no actions, suits or proceedings pending, or to the knowledge of Optionor, threatened, against or affecting Optionor or the Property before any court or before any governmental or administrative body or agency, which if

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determined adversely to Optionor or the Property, individually or in the aggregate, would have a material adverse effect on Optionor’s ability to perform its obligations hereunder. Optionor is not a party to any labor dispute.

F. Environmental Matters.

i.        To the best of Optionor’s knowledge, the Property is in compliance with Environmental Laws (as defined below). To the best of Optionor’s knowledge, Optionor has obtained, or will obtain, and is in compliance with all licenses, permits, certificates, authorizations, consents, approvals or other grants of authority which are required (collectively, “Environmental Permits”) with respect to the ownership, use, occupancy or operation of the Property under any Applicable Law pertaining to human health or safety, Hazardous Substances (as defined below) or the environment, including but not limited to, pollution or protection of the environment (collectively, “Environmental Laws”).

ii.        To the best of Optionor’s knowledge, no hazardous or toxic substances, materials or wastes, pollutants or contaminants, including, without limitation, petroleum and petroleum products, asbestos and PCBs (as defined below) (collectively, “Hazardous Substances”) have been released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape or threatened to release (each, a “Release”) on, at, under, above, through or from the Property in violation of applicable Environmental Laws or in a manner which requires or could require investigation, remediation or any other response action or could result in liability under applicable Environmental Laws. Optionor has no knowledge of any Release of a Hazardous Substance and Optionor has not received any notification of a Release of a Hazardous Substance pursuant to any Environmental Law with respect to the Property.

iii.        The Property is not listed or, to Optionor’s knowledge, proposed for listing on the National Priority List promulgated pursuant to the Comprehensive Environmental Compensation Liability Act of 1980, as amended (“CERCLA”), nor is it listed on the Comprehensive Environmental Response Compensation Liability Information System (“CERCLIS”) or on any state list of sites requiring environmental investigation or clean-up.

iv.        Optionor has not received, and, to Optionor’s knowledge, no one else has received any request for information, notice of claim, demand or other notification that it is or may be potentially responsible with respect to any investigation or clean-up of Hazardous Substance Releases at or from the Property.

v.        To the best of Optionor’s knowledge, no polychlorinatcd biphenyls (“PCBs”) are or have been present at the Property and no underground or aboveground storage tanks are or have been present at the Property.

G.         Tax Returns and Payments. Optionor has filed and at all times while this Agreement is in effect will continue to file all tax returns required by Applicable Laws to be filed by it and has paid (and will hereafter pay) all taxes, assessments and other governmental charges levied upon it or on any of its properties, assets, income or franchises which are due and payable, other than those presently payable without penalty or interest.

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The representations and warranties contained herein shall survive for a period of one (1) year from the date of Closing.

7. Conveyance of Title.

At Closing, Optionor shall convey to Optionee, or its designee, by special warranty deed in form satisfactory to Optionee (the “Deed”), good and marketable fee simple title to the Property, free and clear of all leases, mortgages, liens, pledges, encumbrances, easements, restrictions and other matters, except the Permitted Exceptions (but excluding any monetary liens) and title will be insurable as such in the amount of the Purchase Price by a title insurance company selected by Optionee at such company’s regular rates pursuant to an ALTA 1970 owner’s policy (as amended). At Closing, Optionor shall provide such affidavits and indemnities as may be necessary for Optionee’s title insurance company to provide affirmative coverage against mechanic’s liens or claims and parties in possession, if any, and to issue the aforementioned non-imputation endorsement.

8. Expenses of Closing; Prorations.

A.        Appointments. Except as otherwise specifically provided below, all expenses and obligations relating to the operation of the Property (including, without limitation, real estate taxes and any common area and maintenance expenses arising from the Declarations of Covenants, Conditions and Restrictions for Goodlett Farms Corporate Park, including costs for maintaining the Goodlett Farms Parkway Median Strip) shall be pro rated between Optionor and Optionee as of midnight of the day preceding the Closing Date. Whether amounts are allocable for the above purposes for the period before or after Closing shall be determined in accordance with generally accepted accounting principles using the accrual method. In furtherance of the foregoing:

i.         Taxes. All real estate taxes, charges and assessments affecting the Property shall be pro rated on a per diem basis as of midnight of the day preceding the Closing Date, disregarding any discount or penalty (unless taxes were paid at the discounted rate) and on the basis of the fiscal year of the authority levying the same. If any of the same have not been finally assessed as of the Closing Date for the current fiscal year of the taxing authority, then the same shall be adjusted at Closing based upon the most recently issued bills therefor, and shall be re-adjusted immediately when and if final bills are issued; but if on the Closing Date the Property shall be affected by any special assessment, then all unpaid installments of such assessment shall be paid and discharged by Optionor prior to or at Closing. The foregoing obligations shall survive Closing.

ii.         Transfer Taxes. At Closing, Optionee shall pay for any and all state, city, county and municipal realty transfer taxes payable in connection with the conveyance of the Property at Closing and the consummation of the transactions contemplated hereby but not any “roll-back” or other taxes, if any, relating to any preferential tax treatment of the Property on or prior to the Closing Date.

iii.       Utilities. Charges, if any, for water, electricity, sewer rental, gas and all other utilities to the Property titled in the name of Optionor shall be pro rated on a per diem basis

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as of midnight of the day preceding the Closing Date, disregarding any discount or penalty and on the basis of the fiscal year or billing period of the authority, utility or other person levying or charging for the same. If the consumption of any of the foregoing is measured by meters, then in lieu of apportionment as aforesaid Optionor shall, not earlier than the day preceding the Closing Date, obtain a reading of each such meter and Optionor shall pay all charges thereunder through the date of the meter readings. If there is no such meter or if the bills for any of the foregoing have not been issued prior to the Closing Date, the charges therefor shall be adjusted at the Closing on the basis of charges for the prior period for which bills were issued and shall be further adjusted when the bills for the current period are issued. The foregoing obligations shall survive Closing. Optionor and Optionee shall cooperate to cause the transfer of the Property’s utility accounts from Optionor and Optionee.

B.         Expenses. Each party will pay all its own expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, (i) all costs and expenses stated herein to be borne by a party, and (ii) all of their respective accounting, legal and appraisal fees. Optionee, in addition to its other expenses, shall pay for (x) all recording charges incident to the recording of the deed for the Property, and (y) all title insurance premiums and survey expenses.

9. Closing Obligations of Optionor.

At the Closing, and as a condition precedent to Optionee’s obligation to pay the Purchase Price, Optionor shall deliver to Optionee the following:

A.         The Deed;

B.         A General Assignment (if applicable) in form reasonably satisfactory to Optionee pursuant to which Optionor shall assign to Optionee all of Optionor’s right, title and interest in and to all Intangible Property including, without limitation, all approvals, permits, licenses, warranties, guaranties, plans, specifications and other agreements relating to the Property;

C.         Such other instruments of conveyance or transfer as Optionee may reasonably request in order to effect more fully the transactions contemplated by this Agreement;

D.         Such certificates, affidavits and other documents as Optionee’s title insurance company shall reasonably request to insure title;

E.         Originals of all permits, approvals, licenses, drawings, specifications, warranties, contracts as well as any other documentation in the possession of or owned by Optionor, if any, which could reasonably be used by Optionee in connection with Optionee’s ownership of the Property;

F.         An affidavit of Optionor in a form satisfying the requirements of the regulations promulgated under Section 1445 of Internal Revenue Code of 1986, as amended, or any successor provision and stating that Optionor is not a foreign person ; and

G.         A certificate addressed to Optionee, recertifying and remaking all of the representations and warranties of Optionor contained herein as of the date of Closing.

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10. Taxes and Assessments.

So long as this Agreement is in effect, Optionor shall pay not later than five (5) days prior to the date when penalties and interest will accrue, all real estate taxes, assessments, water and sewer rents and similar annual charges attributable to the Property and Optionor shall provide Optionee with evidence of such payment within ten (10) days after the date paid.

11. Brokers and Salesmen.

Optionor and Optionee each represent and warrant to the other that they have not dealt with any real estate broker, salesman, agent or finder in connection with the Option to purchase the Property. Each party agrees to indemnify, defend and save the other harmless from the claims or demands of any real estate broker, salesman, or agent or finder claiming to have dealt with the indemnifying party. Such indemnity shall include, without limitation, the payment of all costs, expenses and reasonable attorney’s fees incurred or expended in the defense of such claims or demands, whether or not legal action or suit shall be commenced in defense thereof. The terms of this Paragraph shall survive the Closing indefinitely.

12. Default.

A.         Optionor’s Default. In the event of a failure by Optionor to perform and comply with any of the terms and provisions of this Agreement, Optionee shall have all rights and remedies at law or in equity including, without limitation, the following rights: (i) to rescind its exercise of the Option and receive a refund of the Purchase Price, if then paid, (ii) to seek specific performance of Optionor’s obligations under this Agreement, or (iii) to declare Optionor in default and bring one or more actions for damages. If Optionor’s default is the failure to deliver title to the Property as required hereunder, Optionee shall have the option to take such title as Optionor can give but with an abatement of the Purchase Price equal to the aggregate amount required to be paid in order to remove, cure or otherwise compensate Optionee for all liens and encumbrances which are not Permitted Exceptions.

B.         Optionee’s Default. If Optionee exercises the Option (and has not timely revoked such exercise in accordance herewith) and all conditions precedent to Closing hereunder have been satisfied or waived by Optionee in writing, and Optionee thereafter fails or refuses to perform its obligations hereunder upon Closing, Optionor shall have all rights and remedies available at law or in equity.

13. Insurance.

Optionor shall give prompt written notice to Optionee of any claims against Optionor relating in any manner to the Property. Optionee shall at all times during the Option Period maintain in full force and effect, liability insurance in commercially reasonable amounts and with reputable insurers.

14. Eminent Domain.

In the event Optionor or Optionee receives any notice of any condemnation proceedings or other proceedings in the nature of eminent domain affecting the Property, it will forthwith

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send a copy of such notice to the other. If, in Optionee’s sole discretion, it determines that any condemnation or taking will have a material adverse effect on Optionee’s intended use of the Property (a “Total Taking”), then, in such event, Optionee shall have the right to cancel any previous exercise of the Option. In the event of any condemnation or taking where Optionee has not then exercised the Option, Optionor shall be entitled to all condemnation awards and proceeds. Except as expressly set forth in this Paragraph 13, no taking or condemnation shall in any way affect, nullify or impair Optionee’s rights hereunder.

15. Additional Covenants of Optionor.

From and after the date hereof and at all times prior to the end of the Option Period, Optionor shall:

A.         maintain the Property substantially in the condition as it exists on the date hereof and not construct any improvements thereon;

B.         provide Optionee with prompt written notice of any notice, inquiry, complaint or request for information received from any governmental authority with respect to the Property including, without limitation, any investigation or request for information regarding any environmental claim or condition or any alleged violation of any Applicable Laws, including, without limitation, Environmental Laws.

C.         not sell, transfer, lease, pledge, hypothecate or otherwise encumber any direct or indirect interest in the Property or any portion thereof or any direct or indirect interest of Optionor therein except for the Permitted Exceptions.

D.         not enter into any service or other contracts which are not cancelable upon thirty (30) days or less notice without penalty or which would be binding on Optionee after Closing, in either case without the prior written consent of Optionee.

E.         notify Optionee in writing promptly after it becomes aware of any factor or circumstance which makes any representation or warranty herein untrue or misleading in any material respect or jeopardizes or impairs Optionor’s ability to perform any covenant or agreement herein contained.

16. Notices.

All notices or other communications hereunder shall be in writing, may be given and received by legal counsel and shall be deemed to have been given only (i) if hand delivered, then if and when delivered to the respective parties at the below addresses (or at such other address as a party may hereafter designate for itself by notice to the other party as required hereby), (ii) if sent by a nationally recognized overnight courier service, then on the next business day after deposit with such courier (provided next business day service is selected and the courier service provides confirmation of the delivery of the notice); (iii) if mailed by certified or registered mail, return receipt requested, then on the third (3rd) business day following the date on which such communication is deposited in the United States mails provided the U.S. Postal Service provides confirmation of the delivery of the notice (if not a P.O. box); or (iv) by fax with printed confirmation of receipt, then as of the date of the fax transmission provided that an original is also sent to the intended addressee by one of the methods of notice set forth in clauses (i)-(iii), in each case addressed to the respective parties at the below addresses (or at such other

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address as a party may hereafter designate for itself by notice to the other party as required hereby).

If to Optionee:	Concord EFS, Inc. 1100 Carr Road Wilmington, DE 19809 Attn: Edward T. Haslam Fax number: 302.791.8764 Telephone number: 302.791.8082
	With a required copy to:
	Dechert 1717 Arch Street 4000 Bell Atlantic Tower Philadelphia, PA 19103-2793 Attn: Glenn D. Blumenfeld, Esq. Fax number: 215.994.2222 Telephone number: 215.994.2957
	If to Optionor: Dan M. Palmer and Edward A. Labry III 2525 Horizon Lake Drive Memphis, TN 38133 Attn: Dan M. Palmer Fax number: 901-381-5575 Telephone number: 901-371-8011
	With a required copy to:
	Smith & Smith Law Firm 4917 William Arnold Road Memphis, TN 38117 Attn: Jim Smith Fax number: 901.680.9289 Telephone number: 901.683.0223

Either party may from time to time change the address to which notice under this Agreement shall be given to such party, upon five days’ prior written notice to the other party in accordance with the terms hereof.

17. Recording.

On the date of this Agreement, Optionor and Optionee shall execute a memorandum of this Agreement in the form of Exhibit C attached hereto (the “Memorandum of Option to Purchase”) and shall cause such Memorandum of Option to Purchase to be recorded in the public records of Shelby County, Tennessee. In the event the Option is not exercised by Optionee by the end of the Option Period, Optionee shall, at Optionor’s request, execute a termination of option in recordable form.

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18. Indemnity.

Optionor shall indemnify, defend and save Optionee harmless from and against any and all suits, claims, causes of action, damages and costs (including reasonable attorneys fees and court costs) arising out of any breach of this Agreement by Optionor including, without limitation, any breach of any covenant, representation or warranty. The foregoing indemnity shall survive Closing hereunder for a period of one (1) year and one (1) day after the Option Period.

19. No Partnership or Joint Venture.

Nothing within this Agreement, nor any act of either party pursuant hereto shall be deemed to constitute the parties as partners or joint venturers with regard to the Property, and neither party shall hold itself out as being the partner or joint venturer of or with the other party.

20. Entire Agreement.

This Agreement, together with the Exhibits hereto, contains the entire agreement of the parties with regard to the subject matter hereof and may not be modified or amended except in writing.

21. Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee (but not including the choice of law provisions thereof).

22. Successors and Assigns.

Subject to Paragraph 14 (C) above and all other provisions of this Agreement providing that Optionor shall not transfer the Property, this Agreement shall inure to the benefit of and be binding upon Optionor and Optionee and their respective permitted successors and assigns. Optionee may, without Optionor’s consent or approval, assign this Agreement by one or more successive assignments to any entity that acquires Optionee’s business at the Concord Land (including any merger or acquisition of all or substantially all of the stock or assets of Optionee) and the Concord Land. Upon any such assignment the assignee shall have all the rights and obligations of Optionee hereunder and Optionee shall thereupon, automatically and without the execution of further instruments or documents, be relieved and released of and from all obligations hereunder. Optionee also may designate a nominee to take title to the Property at Closing without Optionor’s consent or approval.

23. Covenants Running with the Land.

All of the covenants, agreements, conditions and undertakings in this Agreement shall be construed as covenants running with the Land until Closing.

24. Severability and Construction.

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If any provision of this Agreement is invalid or unenforceable for any reason, all other provisions of this Agreement shall be and remain in full force and effect. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply the presumption that the terms hereof be more strictly construed against one party, it being acknowledged and agreed that both Optionor and Optionee are sophisticated parties, have been represented by counsel and have participated in the arms-length negotiation and preparation of this Agreement.

25. Further Assurances.

The parties shall execute, acknowledge and deliver to each other such additional assurances and documents as the other may reasonably request to effectuate the purposes of this Agreement.

26.         Nonmerger. In the event Optionee holds at Closing any other interest in or title to the Property or any portion thereof, the acquisition of fee title shall not effect a merger of title unless such intent is expressly stated in the Deed to the Property accepted by Optionee.

[SIGNATURES ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have duly executed these presents as of the day and year first aforesaid.

OPTIONOR:

DAN M. PALMER

/s/ Dan M. Palmer

EDWARD A. LABRY III

/s/ Edward A. Labry III

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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State                     of   Tennesse                :

                                                                     :             ss

County of   Shelby                                     :

On the 9th day of July, 2002, before me, subscriber, a Notary Public in and for the State and County aforesaid, personally appeared and acknowledged himself to be DAN M. PALMER, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires: November 29, 2004

/s/ James M. Smith

Notary Public

State                     of   Tennessee              :

                                                                     :             ss

County of   Shelby                                    :

On the 9th day of July, 2002, before me, subscriber, a Notary Public in and for the State and County aforesaid, personally appeared and acknowledged himself to be EDWARD A. LABRY, III, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires: November 29, 2004

/s/ James M. Smith

Notary Public

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OPTIONEE: CONCORD EFS, INC., a Delaware corporation
By:	/s/    Edward T. Haslam
	Name:    Edward T. Haslam Title:      Chief Financial Officer

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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State                     of   Delaware                :

                                                                    :            ss

County of   New Castle                             :

On the 17^th day of July, 2002, before me, subscriber, a Notary Public in and for the State and County aforesaid, personally appeared Edward T. Haslam who acknowledged himself to be Chief Financial Officer of CONCORD EFS, INC., a Delaware corporation, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the Company by himself as such officer.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires: May 31, 2003

/s/    Debra S. Kerr        

Notary Public

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SCHEDULE OF EXHIBITS

EXHIBIT A-1	Description of Reaves Tract
EXHIBIT A-2	Description of Appling Tract
EXHIBIT A-3	Description of Concord Land
EXHIBIT B	Additional Permitted Exceptions
EXHIBIT C	Form of Memorandum of Option to Purchase

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EXHIBIT A-1

DESCRIPTION OF REAVES TRACT

Exhibit A

Legal Description

BEING A SURVEY OF PART OF THE SAM N. REAVES, JR., TRUSTEE PROPERTY AS RECORDED IN INSTRUMENT AA-6492 AND PART OF TRACTS 2, 3, 4, AND 5 OF THE SAM REAVES TRUSTEE PROPERTY AS RECORDED IN INSTRUMENT BN-2392 ALSO BEING PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 133, PAGE 17 AND PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST, FIRST ADDITION P.D. AS RECORDED IN PLAT BOOK 145, PAGE 26, ALL OF RECORD IN THE SHELBY COUNTY REGISTER’S OFFICE, LOCATED IN SHELBY COUNTY, TENNESSEE AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE SOUTHEAST LINE OF GOODLETT FARMS PARKWAY (RIGHT-OF-WAY VARIES), SAID POINT BEING THE NORTHEAST CORNER OF THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MEMPHIS AND COUNTY OF SHELBY, TENNESSEE PROPERTY (FN-6431) AND THE PROPERTY SHOWN ON THE FINAL PLAT FOR PHASE 6 OF THE GOODLETT FARMS EAST P.D. AS RECORDED IN PLAT BOOK 155, PAGE 24 AT SAID REGISTER’S OFFICE, THENCE ALONG THE SOUTHEAST LINE OF SAID GOODLETT FARMS PARKWAY FOLLOWING A 858.42 FOOT RADIUS CURVE TO THE LEFT AN ARC DISTANCE OF 170.97 FEET (CHORD N76°01’55”E 170.69 FEET) TO A POINT ON THE CENTERLINE OF A PROPOSED ROAD; THENCE S23°22’41”E ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 154.04 FEET TO THE POINT OF CURVATURE; THENCE CONTINUING ALONG THE CENTERLINE OF SAID PROPOSED ROAD FOLLOWING A 500.00 FOOT RADIUS CURVE TO THE LEFT AN ARC DISTANCE OF 659.27 FEET (CHORD S61°09’04”E 612.54 FEET) TO THE POINT OF TANGENCY; THENCE N81°04’32”E AND CONTINUING ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 618.23 FEET TO THE POINT OF CURVATURE; THENCE CONTINUING ALONG THE CENTERLINE OF SAID PROPOSED ROAD FOLLOWING A 500.00 FOOT RADIUS CURVE TO THE LEFT AN ARC DISTANCE OF 666.90 FEET (CHORD N42°51’55”E 618.55 FEET) TO THE POINT OF TANGENCY; THENCE N4°39’18”E AND CONTINUING ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 220.51 FEET TO A POINT ON THE SOUTH LINE OF THE APPLING ASSOCIATES PROPERTY (AS-8454); THENCE S85°46’44”E ALONG THE SOUTH LINE OF THE SAID APPLING ASSOCIATES PROPERTY A DISTANCE OF 678.04 FEET TO A POINT ON THE CENTERLINE OF GARRETT RIDGE ROAD (OLD APPLING ROAD); THENCE S4°00’05”W ALONG THE CENTERLINE OF SAID GARRETT RIDGE ROAD A DISTANCE OF 67.46 FEET TO A POINT; THENCE S4°10’19”W AND CONTINUING ALONG THE CENTERLINE OF SAID GARRETT RIDGE ROAD A DISTANCE OF 509.99 FEET TO A POINT; THENCE N85°04’08”W ACROSS GARRETT RIDGE ROAD AND ALONG THE NORTH LINE OF THE JIMMIE HOOKER ET UT. AND

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BERTHA HOOKER PROPERTY (DG-0654) A DISTANCE OF 226.20 FEET TO THE NORTHWEST CORNER OF THE SAID HOOKER PROPERTY; THENCE S4°28’07”W ALONG THE WEST LINE OF THE SAID HOOKER PROPERTY, THE WEST OF THE JIMMIE TAYLOR AND WIFE IDA TAYLOR PROPERTY (F6-1952) AND THE WEST LINE OF THE VEESTER WASHINGTON PROPERTY (CD-9230) A DISTANCE OF 227.65 FEET TO A FOUND PIPE AT THE SOUTHWEST CORNER OF THE SAID WASHINGTON PROPERTY; THENCE S86°14’09”E ALONG THE SOUTH LINE OF THE SAID WASHINGTON PROPERTY A DISTANCE OF 202.36 FEET TO A POINT ON THE EAST LINE OF GARRETT RIDGE ROAD (25.00 FEET WEST OF THE CENTERLINE); THENCE S4°10’19”W ALONG THE WEST LINE OF SAID GARRETT RIDGE ROAD A DISTANCE OF 272.00 FEET TO A POINT ON THE NORTH LINE OF DEXTER ROAD (25.00 FEET NORTH OF THE CENTERLINE); THENCE N85°38’07”W ALONG THE NORTH LINE OF SAID DEXTER ROAD A DISTANCE OF 152.40 FEET TO A POINT; THENCE N89°06’19”W AND CONTINUING ALONG THE NORTH LINE OF SAID DEXTER ROAD A DISTANCE OF 94.00 FEET TO A POINT; THENCE S89°42’08”W AND CONTINUING ALONG THE NORTH LINE OF SAID DEXTER ROAD A DISTANCE OF 13.00 FEET TO THE SOUTHEAST CORNER OF THE EVERETT LEON GARRETT PROPERTY (AP-7350); THENCE N2°03’25”E ALONG THE EAST LINE OF THE SAID GARRETT PROPERTY A DISTANCE OF 150.01 FEET TO THE NORTHEAST CORNER OF THE SAID GARRETT PROPERTY; THENCE S89°51’31”W ALONG THE NORTH LINE OF THE SAID GARRETT PROPERTY A DISTANCE OF 100.00 FEET TO A FOUND PIPE; THENCE S84°40’44”W AND CONTINUING ALONG THE NORTH LINE OF THE SAID GARRETT PROPERTY A DISTANCE OF 48.60 FEET TO THE NORTHEAST CORNER OF THE JOHN BUCHANAN AND WIFE DOROTHY M. BUCHANAN PROPERTY; THENCE S80°31’59”W ALONG THE SOUTHERN MOST NORTH LINE OF THE SAID BUCHANAN PROPERTY A DISTANCE OF 51.47 FEET TO A POINT ON THE WESTERN MOST EAST LINE OF THE SAID BUCHANAN PROPERTY; THENCE N3°48’09”E ALONG THE WESTERN MOST EAST LINE OF THE BUCHANAN PROPERTY A DISTANCE OF 50.00 FEET TO A FOUND PIPE AT THE NORTHERN MOST NORTHEAST CORNER OF THE SAID BUCHANAN PROPERTY; THENCE S79°23’25”W ALONG THE NORTHERN MOST NORTH LINE OF THE SAID BUCHANAN PROPERTY A DISTANCE OF 23.00 FEET TO THE NORTHEAST CORNER OF THE ALLIE MONE DEAN PROPERTY (HD-6741); THENCE S74°30’54”W ALONG THE NORTH LINE OF THE DEAN PROPERTY A DISTANCE OF 75.00 FEET TO THE NORTHEAST CORNER OF THE BEVERLY AND ABERBELL JONES PROPERTY (TAX ID # D02-07-00122); THENCE S64°54’51”W ALONG THE NORTH LINE OF THE SAID JONES PROPERTY A DISTANCE OF 223.00 FEET TO THE NORTHEAST CORNER OF THE STANLEY WRIGHT PROPERTY (GJ-2223); THENCE S59°26’56”W ALONG THE NORTH LINE OF THE SAID WRIGHT PROPERTY A DISTANCE OF 75.00 FEET TO A THE NORTHWEST CORNER OF THE SAID WRIGHT PROPERTY; THENCE S4°l9’56”W ALONG THE WEST LINE OF THE SAID WRIGHT PROPERTY A DISTANCE OF 200.00 FEET TO A POINT ON THE NORTH LINE OF SAID DEXTER ROAD; THENCE S57°41’56”W ALONG THE NORTH LINE OF SAID DEXTER ROAD A DISTANCE OF 30.80 FEET TO A POINT; THENCE N85°22’00”W ALONG THE NORTH LINE OF THE JENNIE PINSON PROPERTY (R4-8927) AND ALONG THE NORTH LINE OF LOT 2 OF THE PINSON SUBDIVISION (PLAT BOOK 32, PAGE 44) A DISTANCE OF 679.20 FEET TO A FOUND PIPE; THENCE S4°57’51”W A

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DISTANCE OF 37.61 FEET TO FOUND PIPE; THENCE N86°15’35”W AND CONTINUING ALONG THE NORTH LINE OF SAID LOT 2 AND ALONG THE NORTH LINE OF THE B.P. AND R.V. ROGERS PROPERTY (TAX ID # D02-07-G00001C) A DISTANCE OF 803.33 FEET THE SOUTHEAST CORNER OF THE SAID INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MEMPHIS AND COUNTY OF SHELBY, TENNESSEE PROPERTY (FN-6431); THENCE N3°31’48”W ALONG THE EAST LINE OF THE SAID BOARD PROPERTY A DISTANCE OF 849.64 FEET TO THE POINT OF BEGINNING AND CONTAINING 1,640,871 SQUARE FEET, OR 37.669 ACRES.

TOGETHER WITH A PARCEL BEING A SURVEY OF PART OF THE APPLING ASSOCIATES PROPERTY AS RECORDED IN INSTRUMENT AS-8454 ALSO BEING PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 133, PAGE 17 AND PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST, FIRST ADDITION P.D. AS RECORDED IN PLAT BOOK 145, PAGE 26, ALL OF RECORD IN THE SHELBY COUNTY REGISTER’S OFFICE, LOCATED IN SHELBY COUNTY, TENNESSEE AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT A FOUND IRON PIN AT THE SOUTHWEST CORNER OF THE PROPERTY SHOWN ON THE FINAL PLAT FOR PHASE 7 OF THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 160, PAGE 32 AT SAID REGISTER’S OFFICE; THENCE S84°50’42”E ALONG THE SOUTH LINE OF SAID PHASE 7 AND ALONG THE EASTERLY EXTENSION OF THE SOUTH LINE OF SAID PHASE 7 A DISTANCE OF 1135.68 FEET TO THE POINT OF BEGINNING; THENCE S84°50’42”E AND CONTINUING ALONG THE EASTERLY EXTENSION OF THE SOUTH LINE OF SAID PHASE 7 A DISTANCE OF 677.05 FEET TO A POINT ON THE CENTERLINE OF GARRETT RIDGE ROAD (OLD APPLING ROAD); THENCE S4°00’05”W ALONG THE CENTERLINE OF SAID GARRETT RIDGE ROAD A DISTANCE 87.99 FEET TO THE SOUTHEAST CORNER OF THE SAID APPLING ASSOCIATES PROPERTY; THENCE N85°46’44”W ALONG THE SOUTH LINE OF THE SAID APPLING ASSOCIATES PROPERTY A DISTANCE OF 678.04 FEET TO A POINT ON THE CENTERLINE OF A PROPOSED ROAD; THENCE N4°39’18”E ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 99.03 FEET TO THE POINT OF BEGINNING AND CONTAINING 63,352 SQUARE FEET, OR 1.454 ACRES.

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EXHIBIT A-2

DESCRIPTION OF APPLING TRACT

BEING A SURVEY OF PART OF APPLING ASSOCIATES PROPERTY AS RECORDED IN INSTRUMENT AS-8454 ALSO BEING PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 133, PAGE 17 BOTH OF RECORD IN THE SHELBY COUNTY REGISTER’S OFFICE, LOCATED IN SHELBY COUNTY, TENNESSEE AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT A FOUND IRON PIN AT THE SOUTHWEST CORNER OF THE PROPERTY SHOWN ON THE FINAL PLAT FOR PHASE 7 OF THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 160, PAGE 32 AT SAID REGISTER’S OFFICE; THENCE S84º50’42”E ALONG THE SOUTH LINE OF SAID PHASE 7 A DISTANCE OF 282.43 FEET TO THE POINT OF BEGINNING; THENCE S84º50’42”E AND CONTINUING ALONG THE SOUTH LINE OF SAID PHASE 7 A DISTANCE OF 853.25 FEET TO A POINT ON THE CENTERLINE OF A PROPOSED ROAD; THENCE S4º39’18”W ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 99.03 FEET TO THE POINT ON THE SOUTH LINE OF THE SAID APPLING ASSOCIATES PROPERTY; THENCE N85º46’44” W ALONG THE SOUTH LINE OF THE SAID APPLING ASSOCIATES PROPERTY A DISTANCE OF 851.96 FEET TO THE SOUTHWEST CORNER OF THE SAID APPLING ASSOCIATES PROPERTY; THENCE N4º00’15”E ALONG THE WEST LINE OF THE SAID APPLING ASSOCIATES PROPERTY A DISTANCE OF 112.93 FEET TO THE POINT OF BEGINNING AND CONTAINING 90,351 SQUARE FEET, OR 2.074 ACRES.

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EXHIBIT A-3

DESCRIPTION OF CONCORD LAND

BEING A SURVEY OF PART OF THE SAM N. REAVES, JR., TRUSTEE PROPERTY AS RECORDED IN INSTRUMENT AA-6492 AND PART OF TRACTS 2, 3, 4, AND 5 OF THE SAM REAVES TRUSTEE PROPERTY AS RECORDED IN INSTRUMENT BN-2392 ALSO BEING PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 133, PAGE 17 AND PART OF THE PROPERTY SHOWN ON THE OUTLINE PLAN FOR THE GOODLETT FARMS EAST, FIRST ADDITION P.D. AS RECORDED IN PLAT BOOK 145, PAGE 26, ALL OF RECORD IN THE SHELBY COUNTY REGISTER’S OFFICE, LOCATED IN SHELBY COUNTY, TENNESSEE AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT A FOUND IRON PIN AT THE SOUTHWEST CORNER OF THE PROPERTY SHOWN ON THE FINAL PLAT FOR PHASE 7 OF THE GOODLETT FARMS EAST PLANNED DEVELOPMENT AS RECORDED IN PLAT BOOK 160, PAGE 32 AT SAID REGISTER’S OFFICE; THENCE S84°50’42”E ALONG THE SOUTH LINE OF SAID PHASE 7 A DISTANCE OF 282.43 FEET TO A POINT ON THE WEST LINE OF THE APPLING ASSOCIATES PROPERTY (AS-8454); THENCE S4°00’15”W ALONG THE WEST LINE OF THE SAID APPLING ASSOCIATES PROPERTY AS DISTANCE OF 112.93 FEET TO THE SOUTHWEST CORNER OF THE SAID APPLING ASSOCIATES PROPERTY; THENCE S85°46’44”E ALONG THE SOUTH LINE OF THE SAID APPLING ASSOCIATES PROPERTY A DISTANCE OF 851.96 FEET TO A POINT ON THE CENTERLINE OF A PROPOSED ROAD; THENCE S4°39’18”W ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 220.51 FEET TO THE POINT OF CURVATURE; THENCE CONTINUING ALONG THE CENTERLINE OF SAID PROPOSED ROAD FOLLOWING A 500.00 FOOT RADIUS CURVE TO THE RIGHT AN ARC DISTANCE OF 666.90 FEET (CHORD S42°51’55”W 618.55 FEET) TO THE POINT OF TANGENCY; THENCE S81°04’32”W ALONG THE CENTERLINE OF SAID PROPOSED ROAD A DISTANCE OF 618.23 FEET TO THE POINT OF CURVATURE; THENCE ALONG THE CENTERLINE OF SAID PROPOSED ROAD FOLLOWING A 500.00 FOOT RADIUS CURVE TO THE RIGHT AN ARC DISTANCE OF 659.27 FEET (CHORD N61°09’04”W 612.54 FEET) TO THE POINT OF TANGENCY; THENCE N23°22’41”W AND CONTINUING ALONG THE CENTERLINE OF THE SAID PROPOSED ROAD A DISTANCE OF 154.04 FEET TO A POINT ON THE SOUTHEAST LINE OF GOODLETT FARMS PARKWAY (RIGHT-OF-WAY VARIES); THENCE ALONG THE SOUTHEAST LINE OF SAID GOODLETT FARMS PARKWAY FOLLOWING A 858.42 FOOT RADIUS CURVE TO THE LEFT AN ARC DISTANCE OF 773.23 FEET (CHORD N44°31’16”E 747.36 FEET) TO THE POINT OF BEGINNING AND CONTAINING 1,078,283 SQUARE FEET, OR 24.754 ACRES.

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EXHIBIT B

ADDITIONAL PERMITTED EXCEPTIONS

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EXHIBIT B

Permitted Exceptions – Reaves Tract

1. The lien of the following general and special taxes for the year or years specified and subsequent years: 2002 Shelby County taxes, liens, but not yet due or payable.

2. Subdivision restrictions, building lines and easements of record in Plat Book 46, Page 28; Plat Book 55, Page 25; Plat Book 96, Page 7; Plat Book 99, Page 13; Plat Book 133, Page 17; Plat Book 145, page 26 and Plat Book 155, Page 34, in the Register’s Office of Shelby County, Tennessee,

3. Easements of record in Book 1531, Page 153; Book 1675, Page 352; Book 3543, Page 55 and Book 3883, Page 331, in the aforesaid Register’s Office.

4. 8’ utility easement across southeast portion (no record easement found), as shown on aforesaid survey.

5. Declaration of Covenants, Conditions and restrictions Application to Goodlett Farms Corporate Park of record at Instrument No. AM 1121, as amended at instrument No. AU 8897, in the aforesaid Register’s Office.

Reaves

EXHIBIT B

Permitted Exceptions – Appling Tract

1. The lien of the following general and special taxes for the year or years specified and subsequent years: 2002 Shelby County taxes, liens, but not yet due or payable.

2. Subdivision restrictions, building lines and easements of record in Plat Book 46, Page 28; Plat Book 55, Page 25; Plat Book 96, Page 7; Plat Book 99, Page 13; Plat Book 133, Page 17; in the Register’s Office of Shelby County, Tennessee,

3. Declaration of Covenants, Conditions and restrictions Application to Goodlertt Farms Corporate Park of record at Instrument No. AM 1121, as amended at Instrument No. AU 8897, in the aforesaid Register’s Office.

Appling

EXHIBIT C

FORM OF MEMORANDUM OF OPTION TO PURCHASE

This document prepared by:

Dechert

1717 Arch Street

4000 Bell Atlantic Tower

Philadelphia, PA 19103

Attn: Glenn D. Blumenfeld, Esq.

MEMORANDUM OF OPTION TO PURCHASE

by and between

DAN M. PALMER AND EDWARD A. LABRY III

collectively as Optionor

and

CONCORD EFS, INC.

as Optionee

MEMORANDUM OF OPTION TO PURCHASE

This Memorandum of Option to Purchase (this “Memorandum”) is made and entered into as of this         day of July, 2002, by and between DAN PALMER AND EDWARD A. LABRY III, individuals having an address of 2525 Horizon Lake Drive, Memphis, TN 38133 (each, an “Optionor” and collectively, together with their respective heirs, permitted assigns and/or designee(s), “Optionor”) and CONCORD EFS, a Delaware corporation, with offices at 1100 Carr Road, Wilmington, Delaware 19809 (together with its permitted successors, assigns and/or designee(s), “Optionee”).

BACKGROUND

A.    Optionor, contemporaneously with the execution of this Agreement, is purchasing:

i.    An approximately 37.609 acre parcel of ground located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, together with improvements constructed thereon and all easements, rights and privileges appurtenant thereto (collectively, the “Reaves Land”), which constitutes a portion of an approximately 62.363 acre parcel, consisting of the following five (5) Shelby County tax parcels; (i) district 2, block 7, parcel 298, (ii) district 2, block 7, parcel 115, (iii) district 2, block 7, parcel 244, (iv) district 2, block 7, parcel 270, and (v) district 2, block 7, parcel 271 (collectively, the “Reaves Tract”) as more particularly described on Exhibit A-1 attached hereto; and

ii.    An approximately 1.496 acre parcel of ground located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, together improvements constructed thereon and all easements, right and privileges appurtenant thereto (collectively, the “Appling Land”, and together with the Reaves Land, the “Land”), which constitutes a portion of an approximately 3.624 acre parcel, also designated as the following Shelby County tax parcel: district 2, block 7, parcel 296 (collectively the “Appling Tract”,and collectively with the Reaves Tract, the “Tracts”) as more particularly described on Exhibit A-2 attached hereto.

B.    Optionee, contemporaneously with the execution of this Agreement, is purchasing the balance of the Tracts (collectively the “Concord Land”) consisting of (i) an approximately 24.754 acre parcel of the Reaves Tract and (ii) an approximately 2.128 acre parcel of the Appling Tract(collectively, subparagraphs (i) and (ii) are referred to as the “Concord Land”), both as more particularly described on Exhibit A-3 attached hereto. Thereupon, Optionee will be constructing an approximately 180,000 square foot headquarters office (including warehouse space) and data center, together with appurtenant parking.

C.    Optionor wishes to grant unto Optionee an option to purchase (the “Option”) followed by a right of first refusal to purchase (the “ROFR”) the Land together with all furnishings, fixtures and equipment, if any, located thereon or used in connection therewith (collectively, the “Personalty”), and all intangible rights relating to the foregoing, and all

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permits, licenses, approvals and warranties, if any, relating thereto (collectively, the “Intangible Property”; and together with the Land and the Personalty, the “Property”) upon the terms and conditions set forth herein, and Optionee wishes to accept such option to purchase.

TERMS OF OPTION

1. The Agreement provides that the Option shall be exercised by Optionee, if at all, by written notice to be delivered to Optionor not later than five (5) years after the date hereof, and the ROFR shall be exercised, if at all, during a period commencing immediately upon the expiration of the five (5)-year Option period, until the date that is ten (10) years after the date hereof.

2. The purchase price for the Property and the other terms of sale under the Option and the ROFR are set forth in the Agreement.

3. This Memorandum is recorded to give notice of the Option and the ROFR and nothing contained herein shall be deemed to modify, change, supersede, limit or abridge any term or condition of the Agreement.

All of the terms and conditions of the Agreement are incorporated herein by reference as though set forth fully herein.

[SIGNATURES ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as of the day and year first above written.

OPTIONOR:

DAN M. PALMER

EDWARD A. LABRY III

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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                                          of                                    :

                                                                                  :             ss

County of                                                                 :

On the day      of                     , 2002, before me, subscriber, a Notary Public in and for the                      and County aforesaid, personally appeared and acknowledged himself to be DAN M. PALMER, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires:

    Notary Public

                                          of                                  :

                                                                                :             ss

County of                                                               :

On the      day of                     , 2002, before me, subscriber, a Notary Public in and for the                      and County aforesaid, personally appeared and acknowledged himself to be EDWARD A. LABRY, III, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires:

    Notary Public

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OPTIONEE: CONCORD EFS, INC., a Delaware corporation
BY:
	Name:     Title:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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                                          of                                 :

                                                                              :             ss

County of                                                              :

On the      day of                 , 2002, before me, subscriber, a Notary Public in and for the                  and County aforesaid, personally appeared                      who acknowledged himself to be                      of CONCORD EFS, INC., a Delaware corporation, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the Company by himself as such officer.

WITNESS my hand and seal the day and year aforesaid

[Notarial Seal]

My Commission Expires:

    Notary Public

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EXHIBIT A-l

to Memorandum of Option to Purchase

Description of the Reaves Land

EXHIBIT A-2

to Memorandum of Option to Purchase

Description of Appling Land

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EXHIBIT A-3

to Memorandum of Option to Purchase

Description of Concord Land

CONCORD EFS, INC.

1100 Carr Road

Wilmington, DE 19809

November 22, 2002

VIA FAX AND FEDEX

Dan M. Palmer and Edward A Labry III

2525 Horizon Lake Drive

Memphis, TN 38133

Attn: Dan M. Palmer

Fax: 901.381.5575

Re:    Exercise Notice for Purchase Option for Reaves Land and Appling Land

Dear Messrs. Palmer and Labry:

Pursuant to the terms of a certain Option to Purchase Agreement, dated as of July 17, 2002 (the “Option Agreement”) by and between Dan Palmer and Edward A. Labry III (collectively, “Optionor”), on the one hand, and Concord EFS, Inc., a Delaware corporation (“Optionee”) on the other hand, Optionor granted Optionee an option to purchase an approximately 37.669 acre parcel of ground located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, as such property is more fully described in the Option Agreement (the “Reaves Land”) and an approximately 1.496 acre parcel of ground contiguous to the Reaves Land, as such property is more fully described in the Option Agreement (the “Appling Land”). Capitalized terms used herein without separate definition shall have the same meanings as in the Option Agreement.

Pursuant to Section 3 of the Option Agreement, Optionee does hereby give Optionor notice of its exercise of the Option to purchase the Property. This notice constitutes the Exercise Notice. As required by Section 3 of the Option Agreement:

a. Optionee’s initial determination of the Purchase Price is that the Purchase Price shall be $2,930,372.53, which is the price paid by Optionor at the closing on its acquisition of the Property.

b. The Closing Date (as such term is defined in the Option Agreement) shall be December 23, 2002, or such other date as agreed to by Optionor and Optionee.

Please do not hesitate to call with any questions you may have.

Sincerely,

Edward T. Haslam

on behalf of Concord EFS, Inc.

cc: Jim Smith, Esq., Smith & Smith Law Firm (Fax: 901.683.0223)

Glenn D. Blumenfeld, Esq. Dechert

Daniel W. Simcox, Esq., Dechert

CONCORD EFS, INC.

1100 Carr Road

Wilmington, DE 19809

December 20, 2002

VIA FAX AND FEDEX

Dan M. Palmer and Edward A Labry III

2525 Horizon Lake Drive

Memphis, TN 38133

Attn: Dan M. Palmer

Fax: 901.381.5575

Re:    Purchase Option for Property in Memphis, TN

Dear Messrs. Palmer and Labry:

Pursuant to the terms of a certain Option to Purchase Agreement, dated as of July 17, 2002 (the “Option Agreement”) by and between Dan Palmer and Edward A. Labry III (collectively, “Optionor”), on the one hand, and Concord EFS, Inc., a Delaware corporation (“Optionee”) on the other hand, Optionor granted Optionee an option to purchase an approximately 37.669 acre parcel of ground located on the south side of Goodlett Farms Parkway and the east side of Charles Bryan Road in Shelby County, Memphis, Tennessee, as such property is more fully described in the Option Agreement (the “Reaves Land”) and an approximately 1.496 acre parcel of ground contiguous to the Reaves Land, as such property is more fully described in the Option Agreement (the “Appling Land”). Optionor properly exercised the Option pursuant to an Option Notice dated November 22, 2002. Capitalized terms used herein without separate definition shall have the same meanings as in the Option Agreement.

From discussions this week, we understand that you wish to reschedule the Closing Date from December 23, 2002 to December 30 or 31, 2002. This letter will evidence our agreement to reschedule the Closing Date to December 31, 2002, or such earlier date as agreed to by Optionor and Optionee in writing.

Please do not hesitate to call with any questions you may have.

Sincerely,

/s/ Edward T. Haslam

Edward T. Haslam

on behalf of Concord EFS, Inc.

Acknowledged and Agreed:

/s/ Dan Palmer	/s/ Edward A. Labry III
Dan Palmer	Edward A. Labry III

cc: J. Richard Buchignani, Esq. (Fax: 901.381.5533)

Jim Smith, Esq., Smith & Smith Law Firm (Fax: 901.683.0223)

Daniel W. Simcox, Esq., Dechert (Fax: 215.655.2922)

EX-10.24

EXHIBIT 10.24

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into as of January 21^st , 2003 by and between Concord EFS, Inc., a Delaware corporation (the “Company”), and Paul Finch (the “Executive”).

WHEREAS, the Company desires to employ the Executive to serve as President, Risk Management Services and Senior Vice President of the Company, and the Executive desires to be employed by the Company, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

1.    Employment.  The Company hereby employs the Executive and the Executive hereby agrees to be employed by the Company upon the terms and subject to the conditions contained in this Agreement. The term of employment of the Executive by the Company pursuant to this Agreement shall commence on the date hereof and, unless earlier terminated pursuant to Section 4, shall end on the third anniversary of the date hereof (such period referred to herein as the (“Initial Term,” collectively with any extensions of this Agreement as the “Employment Period”).

2.    Position and Duties; Responsibilities.  The Company shall employ the Executive during the Employment Period as its President, Risk Management Services and Senior Vice President or in such other position as determined by the Company from time to time. During the Employment Period, the Executive shall perform faithfully and loyally and to the best of the Executive’s abilities the duties assigned to the Executive hereunder and shall devote the Executive’s full business time, attention and effort to the affairs of the Company and its subsidiaries and shall use the Executive’s best efforts to promote the interests of the Company and its subsidiaries. The Executive may engage in charitable, civic or community activities and, with the prior approval of the Board of Directors of the Company (the “Board”), may serve as a director of any other business corporation, provided that such activities or service do not interfere with the Executive’s duties hereunder or violate the terms of any of the covenants contained in Sections 6, 7 or 8 hereof. The Executive shall at all times abide by all policies and procedures of the Company as in effect or amended from time to time in the Company’s discretion.

3.    Compensation.  (a)  Base Salary.  During the Employment Period, the Company shall pay to the Executive a base salary at the rate of $275,000 per annum (“Base Salary”), payable in accordance with the Company’s executive payroll policy. Such Base Salary shall be reviewed annually, and shall be subject to such annual increases, if any, as determined by the Compensation Committee of the Board.

(b)    Bonuses.

(i)    Annual Bonus.  The Executive shall, in the sole discretion of the Compensation Committee of the Board, be eligible as of the end of each fiscal year of the Company during the term of this Agreement to receive an annual incentive bonus for such fiscal year in accordance with the terms of the Company’s annual executive bonus program.

(c)    Stock Options.  During the Employment Period, the Executive shall be eligible for the grant of options under the Company’s 2002 Incentive Stock Option Plan, as amended commensurate with other senior executives.

(i)    The Company shall use its reasonable best efforts to cause to be granted to the Executive an option to purchase 100,000 shares of Company common stock (the “Option”) pursuant to the terms of the Company’s 2002 Incentive Stock Option Plan, as amended (the “Plan”). Consistent with the Plan, the Option will have a 10-year term and an exercise price equal to the fair market value of the Company’s common stock at the time of the grant. The Option will become vested with respect to 25% of the shares subject to the Option on each anniversary of the date hereof as long as the Executive remains employed by the Company. Notwithstanding the foregoing, the granting of the Option, and the terms thereof, shall be subject to approval by the Compensation Committee of the Board.

(ii)    Notwithstanding the provisions of Section 3(c)(i) above, if, prior to the last day of the Noncompetition Period (as defined in Section 6(b)), the Executive breaches any of the provisions of Sections 6, 7 or 8 of this Agreement or is terminated for Cause, then (i) the Executive’s Option shall immediately terminate, and (ii) the Executive shall promptly pay to the Company an amount of cash equal to the Gain Realized (as defined below) on any shares acquired through the exercise of the Option (the “Option Shares”) during the Restricted Period (as defined below). For purposes of this Section 4(c)(ii), “Restricted Period” shall refer to the period of time commencing 90 days prior to the effective date of termination of the Executive’s employment and ending on the last day of the Noncompetition Period; and “Gain Realized” shall equal the difference between (x) the fair market value of the Option Shares on the date the Option is granted and (y) the greater of the fair market value of the Option Shares (A) on the date of acquisition of such Option Shares or (B) on the first date any of the provisions of Section 6, 7 or 8 of this Agreement were breached or the effective date of termination of the Executive’s employment if the Executive was terminated for Cause.

(d)    Other Benefits.  During the Employment Period, the Executive shall be eligible to participate in the Company’s employee benefit plans generally available to senior executives of the Company (such benefits being hereinafter referred to as the “Employee Benefits”), which participation shall be subject to the terms of the applicable plans. The Executive shall be entitled to take time off for vacation or illness in accordance with the Company’s policy for senior executives and to receive all other fringe benefits as are from time to time made generally available to senior executives of the Company. The Company reserves

2

the right to alter, suspend, amend or discontinue any and all of its benefit plans and fringe benefits, in whole or in part, at any time with or without notice.

(e)    Expense Reimbursement.  During the Employment Period, the Company shall reimburse the Executive, in accordance with the Company’s policies and procedures, for all proper expenses incurred by the Executive in the performance of the Executive’s duties hereunder.

4.    Termination.  (a)  Death.  Upon the death of the Executive, this Agreement shall automatically terminate and all rights of the Executive and the Executive’s heirs, executors and administrators to compensation and other benefits under this Agreement shall cease immediately, except that the Executive’s heirs, executors or administrators, as the case may be, shall be entitled to:

(i)      accrued Base Salary and vacation pay through and including the Executive’s date of death;

(ii)     a pro rata target Annual Bonus for the portion of the bonus period ending on the date of the Executive’s death, payable at the time that other senior executives of the Company are paid their Annual Bonuses; and

(iii)    other Employee Benefits to which the Executive was entitled on the date of death in accordance with the terms of the plans and programs of the Company.

(b)    Disability.  The Company may, at its option, terminate this Agreement upon written notice to the Executive if the Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of the Executive’s position, with or without reasonable accommodation, required of the Executive hereunder for a continuous period of 120 days or any 180 days within any 12-month period. Upon such termination, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to:

(i)      accrued Base Salary and vacation pay through and including the effective date of the Executive’s termination of employment;

(ii)     a pro rata target Annual Bonus for the portion of the bonus period ending on the effective date of the Executive’s termination of employment, payable at the time that other senior executives of the Company are paid their Annual Bonuses; and

(iii)    other Employee Benefits to which the Executive is entitled upon termination of employment in accordance with the terms of the plans and programs of the Company.

In the event of any dispute regarding the existence of the Executive’s incapacity or disability hereunder, the matter shall be resolved by the determination of a physician selected by the Board. The Executive shall submit to appropriate medical examinations for purposes of such determination.

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(c)    Cause.  (i) The Company may, at its option, terminate the Executive’s employment under this Agreement for Cause (as hereinafter defined) upon written notice to the Executive (the “Cause Notice”). Any such termination for Cause shall be authorized by the Board. The Cause Notice shall state the particular action(s) or inaction(s) giving rise to termination for Cause. The Executive shall have five (5) days after the Cause Notice is given to cure the particular action(s) or inaction(s), to the extent a cure is possible. If the Executive so effects a cure to the satisfaction of the Board, the Cause Notice shall be deemed rescinded and of no force or effect.

(ii)    As used in this Agreement, the term “Cause” shall mean any one or more of the following:

(A)    any refusal by the Executive to perform the Executive’s duties under this Agreement or to perform specific directives of the Board or of the President/CEO which are consistent with the scope and nature of the Executive’s duties and responsibilities as set forth herein;

(B)    any act of fraud, embezzlement or theft by the Executive in connection with the Executive’s duties hereunder or in the course of the Executive’s employment hereunder or any prior employment, or the Executive’s admission or conviction of a felony or of any crime involving moral turpitude, fraud, embezzlement, theft or misrepresentation;

(C)    any gross negligence or willful misconduct of the Executive resulting in a loss to the Company or any of its subsidiaries, or damage to the reputation of the Company or any of its subsidiaries;

(D)    any breach by the Executive of any one or more of the covenants contained in Sections 6, 7 or 8 hereof; or

(E)    any violation of any statutory or common law duty of loyalty to the Company or any of its subsidiaries.

(iii)    The exercise of the right of the Company to terminate this Agreement pursuant to this Section 4(c) shall not abrogate the rights or remedies of the Company in respect of the breach giving rise to such termination.

(iv)    If the Company terminates the Executive’s employment for Cause, all obligations of the Company hereunder shall cease, except that the Executive shall be entitled to the payments and benefits specified in Sections 4(b)(i) and 4(b)(iii) hereof.

(d)    Termination Without Cause.  The Company may, at its option, terminate the Executive’s employment under this Agreement upon written notice to the Executive for a reason other than a reason set forth in Section 4(a), 4(b) or 4(c). If the Company terminates the Executive’s employment for any such reason, all obligations of the Company hereunder shall cease immediately, except that the Executive shall be entitled to:

4

(i)      the payments and benefits specified in Sections 4(b)(i) through 4(b)(iii) (inclusive);

(ii)     payment equal to the Executive’s Base Salary at the Executive’s then current rate for the remainder of the Initial Term, less required and authorized withholding and deductions, payable in installments in accordance with the Company’s normal payroll practices or in a lump sum, as determined by the Company in its discretion;

(iii)    payment equal to one (1) times the average Annual Bonus earned by the Executive during the three prior fiscal years, or if the Executive was not employed by the Company for at least three fiscal years, the average Annual Bonus earned by the Executive during the Employment Period, less required and authorized deductions, payable at the time that other senior executives of the Company are paid their Annual Bonuses with respect to the two fiscal years commencing after the effective date of the Executive’s termination of employment or in a lump sum, as determined by the Company in its discretion; and

(iv)    continuation of the Executive’s participation in the Company’s group health and life insurance plans for one (1) year (with the Executive continuing to pay the employee’s share of applicable premiums).

Notwithstanding Sections 4(d)(ii), (iii) and (iv), the amounts payable to the Executive under Sections 4(d)(ii) and (iii) shall be reduced by the amount of salary, bonus or other compensation that the Executive receives from a subsequent employer, and the benefit continuation required under Section 4(d)(iv) shall be discontinued upon receipt by the Executive of substantially similar benefits from a subsequent employer, as determined by the Board in good faith, during the period in which such amounts are payable or such benefits are required to be continued under Sections 4(d)(ii), (iii) or (iv), as applicable. The Executive shall use reasonable efforts to seek other employment for this purpose. Further, notwithstanding Sections 4(d)(ii), (iii) and (iv), the Company’s obligation to pay the amounts under Sections 4(d)(ii) and (iii) and to continue certain benefits under Section 4(d)(iv) shall cease immediately upon the Executive’s breach of any provision of Section 6, 7 or 8 hereof.

(e)    Termination for Good Reason.

(i)      The Executive may terminate the Executive’s employment under this Agreement for Good Reason (as hereinafter defined) upon written notice to the Company (the “Good Reason Notice”). The Good Reason Notice shall state the particular action(s) or inaction(s) giving rise to the termination for Good Reason and must be delivered to the Company within thirty (30) days after the Executive becomes aware of such action(s) or inaction(s). The Company shall have thirty (30) days after the Good Reason Notice is given to cure the particular action(s) or inaction(s). If the Company so effects a cure, the Good Reason Notice shall be deemed rescinded and of no further force and effect. A

5

termination for Good Reason shall be treated as a termination without cause by the Company under Section 4(d).

(ii)    As used in this Agreement, the term “Good Reason” shall mean any one or more of the following: (A) action by the Company resulting in a substantial diminution of the Executive’s titles or positions with the Company, (B) any reduction in the Executive’s Base Salary or (C) any relocation of the Executive more than fifty (50) miles from Scottsdale, Arizona.

(f)    Payments in Lieu of Other Severance Rights.  The severance payments provided hereunder shall be made in lieu of any other severance payments under any severance agreement, plan, program or arrangement of the Company applicable to the Executive; provided that the sum of such payments shall not be less than the amount that otherwise would have been payable to the Executive under the Company’s severance policy, if any.

(g)    Payments Contingent on Release.  Notwithstanding anything to the contrary, no amount shall be payable to the Executive (or the Executive’s executor or other legal representative in the case of the Executive’s death or disability) pursuant to Section 4, other than (i) accrued Base Salary and vacation pay through and including the Executive’s date of termination or death and (ii) other Employee Benefits to which the Executive is entitled upon termination of employment in accordance with the terms of the plans and programs of the Company, as the case may be, unless and until thirty (30) days after the Executive (or the Executive’s executor or other legal representative in the case of the Executive’s death or disability) executes and delivers to the Company, in accordance with Section 13, a general release prescribed by the Company, substantially in the form of Exhibit A attached hereto (the “Release”), provided such Release is executed and delivered to Company within twenty-two (22) days of the Executive’s cessation of employment, or within forty-five (45) days in the event of the Executive’s death or disability. Whether the Executive’s employment is terminated with Cause or without Cause, in no event shall the Company be required to pay the Executive damages on account of an alleged breach of this Agreement (which shall not include any noncontractual claims, such as statutory discrimination claims) in excess of the consideration set forth in Section 4(d).

(h)    Cooperation & Indemnification  The Executive agrees to reasonably assist and cooperate with the Company, its subsidiaries and/or their agents, officers, directors and employees (i) on matters relating to the tasks for which the Executive was responsible, or about which the Executive had knowledge, before cessation of employment or which may otherwise be within the knowledge of the Executive and (ii) exclusively in connection with any existing or future disputes, litigation or investigations of any nature brought by, against, or otherwise involving the Company in which the Company deems the Executive’s cooperation necessary. The Company will reimburse the Executive for reasonable out of pocket expenses incurred in connection therewith, in accordance with Company policy. Executive shall be eligible for such indemnification as is provided for by the bylaws of the Company.

5.    Federal and State Withholding.  The Company shall deduct from the amounts payable to the Executive pursuant to this Agreement the amount of all required federal, state and local withholding taxes in accordance with the Executive’s Form W-4 on file with the

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Company, and all applicable federal employment taxes. The Executive shall be solely responsible for all other taxes associated with the amounts payable under the Agreement, except for the employer portion of any employment taxes as required under applicable law.

6.    Noncompetition; Nonsolicitation.  (a) General. The Executive acknowledges that in the course of the Executive’s employment with the Company, the Executive has and will become familiar with trade secrets and other confidential information concerning the Company and its subsidiaries and has established and will establish substantial relationships with certain customers of the Company and its subsidiaries. The Executive further acknowledges that the Executive’s services will be of special, unique and extraordinary value to the Company and its subsidiaries.

(b)    Noncompetition.  The Executive agrees that during the period of the Executive’s employment with the Company, the period, if any, during which the Executive is receiving payments from the Company pursuant to Section 4, and for a period of six (6) months thereafter (the “Noncompetition Period”), the Executive shall not in any manner, directly or indirectly, through any person, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in the business of furnishing electronic funds transfer and related services consisting of automated teller machine, point of sale transactions and related services, data processing services related to terminal driving, card authorization and card production and other payment system services, or in any other business being conducted by the Company or any of its subsidiaries as of the termination of the Executive’s employment in which the Executive was involved during the Executive’s employment, in any geographic area in which the Company or any of its subsidiaries is then conducting such business.

(c)    Nonsolicitation.  The Executive further agrees that during the Noncompetition Period, the Executive shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee of the Company or any of its subsidiaries to terminate or abandon his or her employment for any purpose whatsoever or (ii) in connection with any business to which Section 6(b) applies, call on, service, solicit or otherwise do business with any customer (determined as of the effective date of the termination of Executive’s employment) of the Company or any of its subsidiaries.

(d)    Exceptions.  Nothing in this Section 6 shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company or (ii) an owner of not more than two percent (2%) of the outstanding stock of any class of a corporation, any securities of which are publicly traded, so long as the Executive has no active participation in the business of such corporation.

(e)    Nondisparagement.  Except as otherwise required by applicable law, the Executive agrees not to make, or cause to be made, any oral or written statement, or take any other action, which disparages, criticizes, damages the reputation of, or is hostile to, the Company or its administration, employees, management, officers, shareholders, agents and/or directors. In the event that the Executive violates this provision, including making statements to the media, it will be considered a material breach hereof.

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(f)    Tolling.  The Noncompetition Period shall be extended for any period during which the Executive is in breach of this Section 6.

7.    Confidentiality.  The Executive shall not, at any time during the Employment Period or thereafter, make use of or disclose, directly or indirectly, any (i) trade secret or other confidential or secret information of the Company or of any of its subsidiaries or (ii) other technical, business, marketing, proprietary, financial, customer, pricing or personnel information of the Company or of any of its subsidiaries not intended to be available to the public generally or to the competitors of the Company or to the competitors of any of its subsidiaries (“Confidential Information”), except to the extent that such Confidential Information (a) becomes a matter of public record or is published in a newspaper, magazine or other periodical or on electronic or other media available to the general public, other than as a result of any act or omission of the Executive, (b) is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency, provided that the Executive gives prompt notice of such requirement to the Company to enable the Company to seek an appropriate protective order, or (c) is required to be used or disclosed by the Executive to perform properly the Executive’s duties under this Agreement. Promptly following the termination of the Employment Period, the Executive shall surrender to the Company all property of the Company and its subsidiaries and the actual and prospective customers of the Company and its subsidiaries that the Executive may then possess or have under the Executive’s control (together with all copies thereof), including but not limited to records, memoranda, notes, plans, reports, computer tapes and software and other documents and data which constitute Confidential Information.

8.    Intellectual Property and Developments.  The Executive shall disclose promptly to the Company all inventions, discoveries, developments, improvements, processes, designs, works of authorship, ideas and related documentation that are written, discovered, made, conceived or first reduced to practice by the Executive (either solely or jointly with another or others) while employed by the Company (collectively, “Development(s)”), whether or not they are patentable, copyrightable or subject to trade secret protection. The Executive shall not, at any time during or after the Executive’s employment, have or claim any right, title or interest in or to, or disclose to any third party, any Development(s) or any trade name, patent, trademark, copyright, intellectual property or other proprietary rights belonging to the Company. All Development(s) shall be the sole and exclusive property of the Company and shall be “work made for hire” as that term is defined in the copyright laws of the United States, not works of joint ownership. In any event, to the extent that any Development(s) may not be held to be work made for hire, or to the extent that the Executive has any right, title or interest in or to the Development(s) (including without limitation patent rights, copyrights, trade secrets or other proprietary rights), the Executive hereby assigns to the Company (without any further consideration) all such rights, title, and interest in and to the Development(s). The Executive shall cooperate fully with the Company during the Executive’s employment and thereafter in the securing of any trade name, patent, trademark, copyright or intellectual property protection or other similar rights in the United States and in foreign countries and shall give evidence and testimony and execute and deliver to the Company all papers reasonably requested by any of them in connection therewith.

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  9.    Remedies.  (a) Acknowledgment.  The Executive acknowledges that the provisions contained in Sections 6, 7 and 8 are reasonable and necessary because of the substantial harm that could be caused to the Company by the Executive engaging in any of the prohibited or restricted activities contained in such Sections. The Executive represents and warrants that the prohibitions and restrictions contained in Sections 6, 7 and 8 will not impair the Executive’s ability to earn a livelihood because the Executive has the ability and experience to engage in employment that will not breach or violate the prohibitions and restrictions contained in such Sections.

(b)    Injunctive Relief.  The parties hereto agree that the Company and its subsidiaries would be damaged irreparably in the event that any provision of Section 6, 7 or 8 of this Agreement were not performed in accordance with its terms or were otherwise breached and that money damages would be an inadequate remedy for any such nonperformance or breach. Accordingly, the Company and its successors and permitted assigns shall be entitled, in addition to other rights and remedies existing in their favor, to an injunction or injunctions to prevent any breach or threatened breach of any of such provisions and to enforce such provisions specifically (without posting a bond or other security). The Executive agrees that the Executive will submit to the personal jurisdiction of the courts of the State of Delaware in any action by the Company to enforce an arbitration award against the Executive or to obtain interim injunctive or other relief pending an arbitration decision.

(c)    Reformation.  The Executive and the Company agree that in the event any of the prohibitions or restrictions set forth in Sections 6, 7 or 8 of this Agreement are found by a court of final and competent jurisdiction to be unreasonable and accordingly unfavorable, it is the purpose and intent of the parties that any prohibitions or restrictions be deemed modified or limited so that, as modified or limited, such prohibitions or restrictions may be enforced to the fullest extent permitted by law.

10.    Representations.  (a) The Executive represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which the Executive is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompetition agreement or confidentiality agreement with any other person or entity that will interfere with Executive’s ability to fulfill his obligations under this Agreement and (iii) upon the execution of this Agreement by the Company and the Executive, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.

(b)    The Executive understands that the Executive has a period of 21 days to review and consider the Release attached hereto as Exhibit A and to consult with an attorney and other advisors of the Executive’s choice before signing it.

(c)    If the Executive is 40 years of age or older when the Release is signed, the Executive may, within seven (7) days of the Executive signing the Release, revoke (i) those portions of the Release (once signed) relating to releasing claims for age discrimination (such as claims under the Age Discrimination in Employment Act of 1967, as amended) and (ii) only to

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the limited extent otherwise required by applicable law, any other portion of such Release. Revocation shall be made by delivering a written notice of revocation to the Company c/o General Counsel, c/o Legal Department at the address specified herein. For this revocation to be effective, written notice must be received no later than midnight on the seventh day after the Executive signs the Release.

11.    Survival.  Sections 3(c), 6, 7, 8, 9, 10 and 12 of this Agreement shall survive and continue in full force and effect in accordance with their respective terms, notwithstanding any termination of the Employment Period.

12.    Arbitration.  Except as otherwise set forth in Section 9 hereof, any dispute or controversy between the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration in Delaware administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its Commercial Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of the Company and the Executive. The Company and the Executive acknowledge that this Agreement evidences a transaction involving interstate commerce. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.

13.    Notices.  All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally or by overnight courier to the following address of the other party hereto (or such other address for such party as shall be specified by notice given pursuant to this Section) or (b) sent by facsimile to the following facsimile number of the other party hereto (or such other facsimile number for such party as shall be specified by notice given pursuant to this Section), with the confirmatory copy delivered by overnight courier to the address of such party pursuant to this Section 13:

If to the Company, to:

Office of the General Counsel                    

Concord EFS, Inc.                        

1100 Carr Road                            

Wilmington, DE 19809                

If to the Executive, to:

Paul Finch                                    

8419 East Cortez                          

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Scottsdale, AZ 85260                    

14.    Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

15.    Entire Agreement.  This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related in any manner to the subject matter hereof.

16.     Successors and Assigns.  This Agreement shall be enforceable by the Executive and the Executive’s heirs, executors, administrators and legal representatives, and by the Company and its successors and assigns. The Executive may not assign this Agreement and any such assignment shall be null and void.

17.    Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to principles of conflict of laws.

18.    Amendment and Waiver.  The provisions of this Agreement may be amended or waived only by the written agreement of the Company and the Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement.

19.    Counterparts.  This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CONCORD EFS, INC.
By:	Edward A. Labry, III
Title:	President

[EXECUTIVE]

    /s/ Paul Finch

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EXHIBIT A

RELEASE

This Release given by [insert name] (“the “Executive”) to Concord EFS, Inc. (the “Company”) for the benefit of the Released Persons, is executed in consideration for the covenants made by Company in an Employment Agreement, dated [insert date] (the “Agreement”).

1.    The Executive and the Executive’s heirs, assigns, successors, personal and legal representatives, and agents hereby unconditionally, knowingly and voluntarily release, waive and forever discharge the Company and its owners, predecessors, successors, divisions, parents, subsidiaries, partnerships and affiliates, and each of these entities’ past, present and future directors, officers, employees, shareholders, representatives, agents, attorneys and all persons acting by, through, under, or in concert with any of them (the “Released Persons”) from each and every claim, complaint, action, liability, charge, promise, agreement, obligation, loss, cost, expense, suit, damage, demand, dispute or right of any sort or nature whatsoever, at law or in equity (collectively, “Claims”), whether known or unknown, asserted or not asserted, foreseen or unforeseen, to the extent arising out of or related to any and all acts, omissions, events, circumstances or facts existing or occurring on or before the date of this Release. The foregoing release includes, but is not limited to, any Claim relating to the Executive’s employment relationship (including termination thereof), discrimination on the basis of race, sex, religion, marital status, sexual orientation, national origin, handicap or disability, age, veteran status, special disabled veteran status or citizenship status, including but not limited to any Claim arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Family and Medical Leave Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act or the Worker Adjustment and Retraining Notification Act, all as amended; any Claim arising out of or related to an express or implied employment contract, any other contract affecting terms and conditions of employment or a covenant of good faith and fair dealing; any tort or contract Claims; any personal gain with respect to any Claim arising under the qui tam provisions of the False Claims Act, 31 U.S.C. 3730; and any Claim arising under any other federal, state or local statute, regulation, ordinance or order, or pursuant to any common law doctrine.

2.    The Executive represents that the Executive has carefully read this release and understands that the foregoing releases Claims under the Age Discrimination in Employment Act of 1967, as amended, and that the Executive understands that he/she is not releasing any Claims to the extent arising after the date of this Release.

3.    The Executive represents and warrants that: (a) the Executive has not filed or initiated any legal or other proceedings against any of the Released Persons; (b) no such proceedings have been initiated against any of the Released Persons on the Executive’s behalf; (c) the Executive is the sole owner of all the claims that are released above; (d) none of these claims has been transferred or assigned or caused to be transferred or assigned to any other person, firm or other legal entity; and (e) the Executive has the full right and power to grant, execute, and deliver the releases, undertakings, and agreements contained in this Release. The Executive further agrees never to commence any action against the Released Persons or to cause any such action to be commenced against the Released Persons regarding any matter within the scope of this Release. In

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the event of any further proceedings whatsoever based upon any matter released herein, the Company and each of the other Released Persons shall have no further monetary or other obligation of any kind to the Executive, including without limitation any obligation for any costs, expenses and attorneys’ fees incurred by or on behalf of the Executive.

4.    The Executive agrees that the Executive has no present or future right to employment with the Released Persons and that the Executive will not apply or seek consideration for any employment, engagement or contract with the Released Persons.

5.    The Executive agrees that the Executive will not disclose the existence or terms of this Release to any third parties with the exception of the Executive’s accountants, attorneys and spouse, each of whom shall be bound by this confidentiality provision, or as may be required to comply with legal process. The Executive understands and agrees that this requirement of confidentiality is among the material inducements for the Company to enter into this Release.

6.    Nothing in this Release is intended to or shall be construed as an admission by the Company or any of the other Released Persons that it violated any law, interfered with any right, breached any obligation or otherwise engaged in any improper or illegal conduct with respect to the Executive or otherwise, the Released Persons expressly denying any such illegal or wrongful conduct.

7.    Sections 6, 7, 8, 9, 10 and 12 of the Agreement are hereby incorporated herein by reference.

8.    THE EXECUTIVE ACKNOWLEDGES THAT THE EXECUTIVE UNDERSTANDS THE TERMS AND EFFECT OF THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED TO AND GIVEN AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE, AND THAT THE EXECUTIVE HAS HAD TWENTY-ONE DAYS TO CONSIDER WHETHER TO EXECUTE THIS RELEASE. IF THE EXECUTIVE IS 40 YEARS OF AGE OR OLDER ON THE DATE THAT THE EXECUTIVE EXECUTES THIS RELEASE, THE EXECUTIVE FURTHER ACKNOWLEDGES THAT WITHIN SEVEN DAYS FROM THE DATE OF THE EXECUTION OF THIS RELEASE, THE EXECUTIVE MAY, AT THE EXECUTIVE’S SOLE OPTION, REVOKE THIS RELEASE UPON WRITTEN NOTICE TO [INSERT POSITION] OF THE COMPANY AND THAT THIS RELEASE WILL NOT BECOME EFFECTIVE UNTIL THE SEVEN-DAY REVOCATION PERIOD HAS EXPIRED.

EXECUTIVE

DATE:

WITNESS:                                              

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EX-10.25

EXHIBIT 10.25

As a result of several previous conversations, both telephonic and in person, between myself, Dan Palmer, Ed Labry, Dick Kiphart and Dick Harter, I traveled to Memphis on 9/17/02 to discuss the potential transition of the CFO position from Wilmington to Memphis at some time in the future.

On 9/17/02, I met with both Ed Labry and Dan Palmer and various timings and transition packages were discussed. However, the last proposal from Dan Palmer was to keep everything relatively status quo until the end of February ‘03 and then evaluate at that point and time if Concord still wants to transition the CFO position to Memphis or not. In addition, Dan stated that I would also have the ability to decide if I wanted to stay beyond the annual shareholders meeting or decide if I want to leave on that date and make it part of the Dan and Ed Labry change at that meeting.

Therefore, I propose the following:

-    That the discussion and decision on the CFO move to Memphis be put on hold until the end of February.

-    At the end of February ‘03, Concord will decide on whether to move forward with the transition or not for a period of at least one year.

-    At the end of February ‘03, I will have the opportunity to decide if I want to leave Concord at the annual shareholders meeting or stay beyond that in a mutually agreed upon role.

-    If I decide to leave or if Concord decides to transition the CFO position to Memphis, I will work through the shareholders meeting to transition any remaining CFO duties to the new CFO.

-    If I leave for any reason, then I will receive the following transition package:

-    6 months of salary/stay bonus payable at the date of the shareholders meeting;

-    1 year salary and benefits payable from the date of the shareholders meeting;

-    1 year vesting of stock options from the May ‘03 shareholders meeting.

I would also like to state what I will deliver to Concord over the next six months until February ‘03.

-    The continued daily work of being Concord CFO.

-    The delivery of a 2003 detailed plan.

-    The transition of knowledge to Norman Bennett of the monthly close progress, monthly and quarterly financial reporting, and the ability to understand our 2003 business plan and overall business and financial model.

It is absolutely critical to me that this matter be agreed to ASAP. Therefore, if you agree to the details of this memo, please sign below and fax it to me today. I would like to add that the requested transition package is exactly what Ed presented to me on 9/17/02.

I sincerely appreciate your prompt attention to this matter.

/s/ Dan M. Palmer	10/2/02
Dan A. Palmer	Date
/s/ Edward A. Labry	10/2/02
Edward A. Labry	Date

EX-10.26

EXHIBIT 10.26

AMENDMENT TO EMPLOYMENT AGREEMENT

DATED OCTOBER 2, 2002

The undersigned hereby agree that the employment agreement, dated October 2, 2002, (“Agreement”) by and between Edward T. Haslam (“Haslam”) and Concord EFS, Inc. (“Concord”) shall be amended as follows:

The parties agree to extend the Agreement as follows:

On or before May 30, 2003, Haslam reserves the right to give notice that he is terminating his employment relationship with Concord effective July 31, 2003, unless both parties agree that he will remain beyond that date in a mutually agreed upon role.

In the event that Haslam gives notice prior to May 30, 2003 of his intent to terminate his employment relationship with Concord, or in the event that Concord notifies Haslam by May 30, 2003 that it has decided to transition the Chief Financial Officer to position to Memphis, Haslam shall continue to work through July 31, 2003 to transition CFO duties to the new CFO.

In the event that notice is given by either party prior to May 30, 2003 that Haslam’s employment is terminated for any reason, Haslam shall be entitled to receive the following transition package and his stock option agreement shall be amended at the time to so provide:

i. Six (6) months of salary/stay bonus payable no later than July 31, 2003; and

ii. One (1) year salary and benefits payable from July 31, 2003; and

iii. One (1) year of continued vesting of stock options from July 31, 2003 to July 31, 2004, and then an additional 90 days thereafter to exercise all vested options.

As consideration for the foregoing, Haslam shall continue to perform the duties of the Chief Financial Officer of Concord.

This agreement shall be effective February 26, 2003 and may be signed in counterparts.

By:	/s/    BOND ISAACSON
	BOND ISAACSON

By:	/s/    J. RICHARD BUCHIGNANI
	J. RICHARD BUCHIGNANI

By:	/s/    EDWARD T. HASLAM
	EDWARD T. HASLAM

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EX-10.27

EXHIBIT 10.27

EMPLOYMENT AGREEMENT

AGREEMENT (this “Agreement”) made as of the 1^st day of March, 1999 by and between H&S Holding Company, a Delaware corporation (the “Company”), and E. Miles Kilburn (the “Executive”).

WHEREAS, Star System, Inc., a Delaware corporation (“Star”), and HONOR Technologies, Inc., a Delaware corporation (“Honor”), have entered into an Agreement and Plan of Merger, dated as of October 2, 1998, as amended by the First Amendment, dated February 4, 1999 (the “Merger Agreement”), pursuant to which Star and Honor will become wholly owned subsidiaries (together with any other subsidiaries of the Company, the “Subsidiaries”) of the Company as of the Closing Date (as defined in the Merger Agreement);

WHEREAS, the Company wishes to employ the Executive as an Executive Vice President and Chief Financial Officer of the Company and its Subsidiaries;

WHEREAS, the Executive is willing to commit himself to serve the Company and its Subsidiaries, on the terms and conditions herein provided; and

WHEREAS, in order to effect the foregoing, the Company and the Executive wish to enter into an employment agreement on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1.    Employment.  The Company hereby agrees to employ the Executive (or to cause one or more of its Subsidiaries to employ the Executive), and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein.

2.    Term.  The term of this Agreement (the “Term”) shall commence on the Closing Date (hereinafter, the “Effective Date”) and end on the second anniversary of such date, provided that, on the first anniversary of the Effective Date and each subsequent anniversary thereof during the Term, the Term shall be automatically extended for an additional one year period unless either party hereto gives notice

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to the other party 90 days prior to such anniversary that such party does not wish to so extend the Term.

3.     Position and Duties.  The Executive shall serve as Executive Vice President and Chief Financial Officer of the Company and its Subsidiaries. The Executive shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Chief Executive Officer of the Company (“CEO”). The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company and its Subsidiaries, provided that, during the Term, it shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic, industry or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (iii) 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 the Executive may conduct activities that are generally accepted for an executive in his position.

4.    Compensation and Related Matters.

(a)    Salary.  During the period of the Executive’s employment hereunder, the Company shall pay to the Executive a salary at an annual rate of $158,000 (“Base Salary”). Base Salary shall be payable in accordance with the Company’s normal payroll practices, shall be reviewed at least annually and may be increased (but not decreased) upon review.

(b)    Annual Bonus.  The Company shall provide to the Executive an annual target bonus opportunity of no less than 30% of Base Salary, based upon the achievement of such corporate target performance goals as may be established from time to time for this purpose by the Board of Directors of the Company (the “Board”). The Executive shall also be entitled to a preestablished percentage of Base Salary if corresponding minimum or maximum performance goals are achieved.

(c)    Other Benefits.  The Executive shall be eligible, while performing services hereunder, to participate in or to receive benefits, at a level commensurate with the Executive’s position with the Company and its Subsidiaries, under all incentive bonus, fringe benefit and other employee benefit (including both welfare and retirement benefit) plans and arrangements made available by the Company or its Subsidiaries to similarly situated executives, including but not limited

2

to Honor’s Long-Term Incentive Plan (generally as in effect prior to the Closing Date), continuation of existing deferred compensation and salary continuation arrangements, automobile allowances, payment of country club dues and fees as determined by the Chief Executive Officer of the Company, and the reimbursement of all moving expenses in accordance with Honor’s policy regarding moving expenses prior to the Closing Date (provided, that the Company shall in addition provide Executive with a tax gross-up in an amount sufficient to offset in full any federal or state income tax liability resulting from such reimbursement), subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.

(d)    Expenses.  The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company.

(e)    Vacations.  The Executive shall be entitled to 20 vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, determined in accordance with the Company’s vacation practices and policy. The Executive shall also be entitled to all paid holidays given by the Company to its executives.

(f)    Services Furnished.  The Company shall furnish the Executive with office space, secretarial support and such other facilities and services, while the Executive is performing services hereunder, as shall be suitable to the Executive’s position and adequate for the performance of his duties as set forth in Section 3 hereof.

5.    Offices.  The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of any of the Company’s direct or indirect subsidiaries or affiliates, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided to similarly situated executives of the Company.

6.    Termination.  The termination of the Executive’s employment hereunder under the following circumstances shall not constitute a breach of this Agreement:

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(a)    Death.  The Executive’s employment hereunder shall terminate upon his death.

(b)    Disability.  If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from his duties hereunder on a full-time basis for the entire period of 180 consecutive days, and within 30 days after written notice of termination is given (which may occur before or after the end of such 180-day period) shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive’s employment hereunder.

(c)    Cause.  The Company may terminate the Executive’s employment hereunder for Cause. For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder upon (i) the Executive’s conviction of or guilty plea to the commission of an act or acts constituting a felony under the laws of the United States or any state thereof, (ii) action by the Executive toward the Company involving personal dishonesty, theft or fraud in connection with the Executive’s duties as an officer of the Company and its Subsidiaries and intended to result in personal gain, or (iii) the Executive’s willful failure to abide by or follow lawful, reasonable written directions of the Board or the CEO, which does not cease within thirty (30) business days after written notice regarding such refusal has been given to the Executive by the Company. For purposes of this Section 7(c), no act or failure to act by the Executive shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the act or failure to act was in the best interest of the Company.

(d)    Termination by the Executive for Good Reason.  The Executive may terminate his employment hereunder for Good Reason. For purposes of this Agreement, “Good Reason” shall mean (i) a material breach by the Company of the terms of this Agreement that has not been cured within thirty (30) business days after written notice of such noncompliance has been given by the Executive to the Company, (ii) if conditions of his employment are materially changed during the twelve month period following the consummation of a Change of Control from those existing prior to the announcement of such Change of Control, or (iii) a reduction in the Executive’s Base Salary or annual bonus opportunity. “Change of Control” shall mean, if: (A) the shareholders of the Company approve (x) the sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company, (y) any consolidation or merger of the Company in which the Company is not the surviving corporation, other than a consolidation or merger of the Company in which the holders of the voting common

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stock of the Company immediately prior to the merger retain at lease a majority of the voting securities of the surviving corporation immediately after the merger; or (B) the holders of 50% or more of the outstanding voting stock of the company shall accept an offer or offers to sell their shares to one or more unrelated third parties.

(e)    Termination by the Executive for Ill Health.  The Executive may terminate his employment hereunder if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that the Executive shall have furnished the Company with a written statement from a qualified doctor to such effect and provided, further, that, at the Company’s request, the Executive shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion of the Executive’s doctor.

(f)    Date of Termination; Notice of Termination.  Any termination of the Executive’s employment by the Company or by the Executive (other than termination pursuant to subsection (a) hereof) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set 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. “Date of Termination” shall mean (i) if the Executive’s employment is terminated by his death, the date of his death, (ii) if the Executive’s employment is terminated for Disability pursuant to subsection (b) hereof, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30-day period), (iii) if the Executive’s employment is terminated for Cause pursuant to subsection (c) hereof, the date specified in the Notice of Termination, and (iv) if the Executive’s employment is terminated for any other reason, sixty (60) days after Notice of Termination is given.

7.    Compensation During Disability or Upon Termination.

(a)    Disability.  During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness (the “Disability Period”), the Executive shall continue to receive his full Base Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 7(b) hereof, provided that payments so made to the Executive shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company or under the Social

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Security disability insurance program, and which amounts were not previously applied to reduce any such payment. If the Company shall terminate the Executive’s employment pursuant to Section 7(b) hereof or if the Executive shall terminate his employment pursuant to Section 7(e) hereof, the Company shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and shall pay to the Executive, in accordance with the terms of the applicable plan or program, all other unpaid amounts to which the Executive is then entitled under any compensation or benefit plan or program of the Company (collectively, “Accrued Obligations”), and the Company shall have no further obligations under this Agreement.

(b)    Death.  If the Executive’s employment is terminated by his death, the Company shall pay the Executive the Accrued Obligations and the Company shall have no further obligations to the Executive under this Agreement.

(c)    Cause; Resignation.  If the Executive’s employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason or if the Executive shall resign for reasons of ill health, the Company shall pay the Executive the Accrued Obligations and the Company shall have no further obligations to the Executive under this Agreement.

(d)    Termination by the Company other than for Disability or Cause or by the Executive for Good Reason.  If the Company shall terminate the Executive’s employment other than pursuant to Section 7(b) (Disability) or 7(c) (Cause) hereof (it being understood that a purported termination pursuant to Section 7(b) or 7(c) hereof which is disputed and finally determined not to have been proper shall be a termination by the Company other than pursuant to Section 7(b) or 7(c) hereof) or if the Executive shall terminate his employment hereunder pursuant to Section 7(d) (Good Reason) hereof, then

(i)    the Company shall pay the Executive the Accrued Obligations;

(ii)    in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay the Executive, in a lump sum payment within 30 days following the Date of Termination, in cash, the sum of (A) a pro rata Annual Bonus, in an amount equal to: (1) the percentage of Base Salary paid out for the most recent bonus period, (2) multiplied by the Base Salary in effect on the date Notice of Termination is given, (3) multiplied by a fraction, the numerator of which is

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the number of days that have elapsed as of the Date of Termination in the fiscal year in which such Date of Termination occurs and the denominator of which is 365, and (B) an amount equal to two (2) times Base Salary at the rate in effect on the date Notice of Termination is given; and

(iii)    the Company shall maintain in full force and effect, for the continued benefit of the Executive during the one-year period following the Date of Termination (the “Continuation Period”), all life insurance and health and medical coverage plans in which the Executive was entitled to participate immediately prior to the Date of Termination or, if the Executive’s continued participation is not possible under the general terms and provisions of such plans and programs, substantially equivalent (on an after- tax basis) benefits, whether in cash or in kind,

and the Company shall have no further obligations to the Executive under this Agreement.

(e)    Mitigation; Set-Off.  The Executive shall not be under any obligation to seek employment by another employer. No amount of the payment and benefits provided for under Section 7(d)(ii) hereof shall be reduced by any salary, bonus or benefits earned by the Executive as the result of employment by another employer, and such amount may not be reduced by offset against any amount owed by the Executive to the Company. Benefits otherwise receivable by the Executive pursuant to Section 7(d) (iii) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive during the Continuation Period. Any such benefits actually received by or made available to the Executive shall be promptly reported to the Company by the Executive.

8.    Confidentiality; Noncompetition.

(a) The Executive shall hold in a fiduciary capacity for the benefit of the Company and its Subsidiaries all trade secrets and confidential information relating to the Company, its Subsidiaries and their respective businesses that shall have been obtained by the Executive during the Executive’s employment by the Company and that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). The Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, knowingly communicate or divulge any such trade secrets or information to anyone other than the Company and those designated by the Company. Any termination of the

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Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 8(a).

(b)    The Executive shall not engage in any Competitive Activity while he is employed by the Company. In the event of the termination of the Executive’s employment by (i) the Company for Cause or (ii) the Executive other than for Good Reason, the Executive shall not engage in any Competitive Activity for a period of twelve (12) months following the Date of Termination.

For purposes of this Agreement, “Competitive Activity” shall mean (i) activity, without the written consent of an authorized officer of the Company, consisting of the Executive’s participation in the management of, or his acting as a consultant for or employee of, any business operation of any enterprise if such operation (a “Competitive Operation”) is then in substantial and direct competition with a Principal Business; (ii) the solicitation, on behalf of the Executive or for any Competitive Operation, directly or indirectly, of any customers (determined as of the Date of Termination) of the Company or its Subsidiaries; or (iii) the solicitation, enticement or encouragement of any employee (determined as of the Date of Termination) of the Company or its Subsidiaries to terminate such employee’s employment. Notwithstanding the foregoing, Competitive Activity shall not include (x) the mere passive ownership of up to five percent (5%) of the outstanding securities in any enterprise, including without limitation a Competitive Operation; or (y) the participation in the management of, or acting as a consultant for or employee of, any enterprise or any business operation thereof, other than in connection with a Competitive Operation of such enterprise, provided that the Executive does not furnish advice to any Competitive Operation of such enterprise. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein.

For purposes of this Agreement, “Principal Business” shall mean the furnishing of electronic funds transfer and related services consisting of automated teller machine, point of sale transactions and related services, data processing services related to terminal driving, card authorization and card production and other payment system services.

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(c)    The Executive shall assign to the Company or its Subsidiaries or the designee thereof, without further compensation, his entire right, title and interest in all Developments. For purposes of this Agreement, “Developments” shall mean all inventions, discoveries, enhancements, improvements and ideas and all related patents, copyrights, patent applications and copyright applications, in the United States and elsewhere, created by the Executive, alone or with others (x) as a result of the material use of the Company or its Subsidiaries’ time, materials or facilities or (y) resulting from or suggested by the Executive’s work at the Company or its Subsidiaries, either (A) during his employment with the Company and its Subsidiaries or (B) for one year after the Date of Termination if conceived and reduced to practice as a result of, and attributable to, work done by the Executive during the Executive’s employment in connection with the Principal Business. The Executive shall execute, at the Company’s request and expense, specific assignments to any such Development as well as any documents that the Company or its Subsidiaries consider necessary or desirable to obtain or defend letters patent and to vest title in such Developments in the Company or its Subsidiaries or its assigns.

(d)    In the event that the Executive’s employment is subject to the California Labor Code, this Agreement does not apply to a Development which qualifies as a nonassignable Invention under Section 2870 of the California Labor Code. The Executive acknowledges that the Executive has reviewed the Executive-Owned Invention Notification attached hereto as Exhibit A and agrees that the Executive’s signature on that Notification acknowledges his or her receipt thereof.

(e)    In the event of a breach or threatened breach of subsections (a), (b) or (c) of this Section 8, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledging that damages would be inadequate and insufficient.

(f)    Any termination of the Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 8.

9.    Successors; Binding Agreement; Indemnification.

(a)    Neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company will require any successor (whether direct or indirect, by purchase, merger,

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consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume 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. As used in this Agreement, “Company” shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

(b)    This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

(c)    The Company shall indemnify, hold harmless and defend the Executive for all acts or omissions taken or not taken by him in good faith while performing services for the Company to the same extent and upon the same terms and conditions as other similarly situated officers and directors of the Company. If and to the extent that the Company maintains, at any time during the Term, an insurance policy covering the other officers and directors of the Company against lawsuits, the Company shall use its best efforts to cause the Executive to be covered under such policy upon the same terms and conditions as other similarly situated officers and directors.

10.    Notice.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address printed on the signature page of this Agreement, and if to the Company, as follows:

If to the Company:

H&S Holding Company

2301 Lucien Way, Ste. 260

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Maitland, Florida 32751

Attn. Corporate Secretary

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

11.    Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the CEO or such other officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Florida without regard to its conflicts of law principles. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. 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 shall survive such expiration.

12.    Validity.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

13.    Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14.    Settlement of Disputes; Arbitration.

(a)    All claims by the Executive for benefits under this Agreement shall be directed to and determined by the CEO and shall be in writing.

(b)    Any further dispute or controversy arising under or in connection with this Agreement hereof) shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Orlando, Florida in accordance with the rules of the American Arbitration Association then in effect. Judgment may be en-

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tered on the arbitrator’s award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any anticipated or continued violation of the provisions of Section 8 hereof, and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company’s posting any bond.

(c) The Executive and the Company shall each pay its own legal fees and expenses incurred in connection with any dispute or controversy arising under this Agreement.

15.    Entire Agreement.  This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.

H&S HOLDING COMPANY
By:	/s/ Ronald V. Congemi
	Name: Title:    President & CEO
/s/ E. Miles Kilburn
E. Miles Kilburn Address:

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Exhibit A

EXECUTIVE-OWNED INVENTION NOTIFICATION

This Executive-Owned Invention Notification (“Notification”) is to inform the Executive in accordance with Section 2872 of the California Labor Code that the Agreement between the Company and the Executive does not require the Executive to assign or offer to assign to the Company any invention that the Executive developed or develops entirely on his or her own time without using the Company’s equipment, supplies, facilities or trade secret information except for those inventions that either:

(i)    Relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or

(ii)   Result from any work performed by the Executive for the Company.

To the extent a provision in the Agreement purports to require the Executive to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable.

This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

The Executive acknowledges receipt of a copy of this Notification:

By:	/s/ E. Miles Kilburn
	(Printed Name of Executive)
By:	9/28/99

Witnessed By:

(Printed Name of Representative)

Dated:

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (the “Amendment”) is made and entered into as of this 6th day of October, 2000 by and between Star Systems, Inc., a Delaware corporation (the “Company”), Concord EFS, Inc., a Delaware corporation (“Parent”), and E. Miles Kilburn (the “Executive”) as an amendment to the Employment Agreement between H&S Holding Company (renamed Star Systems, Inc.) and the Executive, dated as of March 1, 1999 (the “Agreement”).

WHEREAS, concurrently with this Amendment, the Company, Parent and Orion Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Sub”), are entering into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Sub will merge with and into the Company (the “Merger”); and

WHEREAS, the Company, Parent and the Executive mutually desire to amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the parties hereby agree to amend the Agreement as set forth herein. The provisions of this Amendment shall become effective immediately, provided, however, that if the Merger Agreement is terminated, then (i) this Amendment shall automatically terminate at the same time, (ii) each party’s obligations hereunder shall automatically cease to be of any effect and (iii) the Agreement shall remain in effect as if it had not been amended by this Amendment.

1.    The first and second sentences of Section 3 of the Agreement is hereby amended to read as follows:

The Executive shall serve as Executive Vice President and Chief Financial Officer of the Company and its subsidiaries, and shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Chief Executive Officer of the Company (“CEO”), provided, however, that on and after the Effective Time of the Merger, as such terms are defined in the Agreement and Plan of Merger (the “Merger Agreement”), entered into concurrently with the First Amendment hereto, among the Company, Concord EFS, Inc., a Delaware corporation (“Parent”), and Orion Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Sub”), the Executive shall serve in such position and have such responsibilities and authority as may from time to time be authorized or directed by Parent, and shall report to the President, or Network President of Parent.

2.    Clause (i) of the third sentence of Section 3 of the Agreement is hereby amended to read as follows:

(i) serve on corporate, civic, industry or charitable boards or committees, provided that after the Effective Time such service is approved by the President of Parent,

3.    Section 4(b) of the Agreement is hereby amended by adding the following at the end thereof:

Notwithstanding the foregoing, on and after the Effective Time, as defined in the Merger Agreement, the Company shall provide to the Executive an annual incentive bonus in an amount commensurate with the Executive’s position, as determined by the Board of Directors of Parent.

4.    Section 6 (c) of the Agreement is hereby amended to read as follows:

(c)    Cause.  The Company may terminate the Executive’s employment hereunder for Cause. For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder upon (i) the Executive’s conviction of or guilty plea to the commission of an act or acts constituting a felony under the laws of the United States or any state thereof, (ii) action by the Executive toward the Company involving personal dishonesty, theft or fraud in connection with the Executive’s duties as an officer of the Company and its Subsidiaries and intended to result in personal gain, (iii) the Executive’s willful failure to abide by or follow lawful, reasonable written directions of the Company, which does not cease within fifteen (15) business days after written notice regarding such refusal has been given to the Executive by the Company or (iv) the Executive’s breach of Section 8 hereof. For purposes of this Section 6(c), no act or failure to act by the Executive shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the act or failure to act was in the best interest of the Company.

5    The second sentence of Section 6(d) of the Agreement is hereby amended to read as follows:

For purposes of this Agreement, “Good Reason” shall mean any of the following events which shall not have been cured within fifteen (15) business days after written notice of such event has been given by the Executive to the Company: (i) a material breach by the Company of the terms of this Agreement, (ii) action taken by the Company during the twelve-month period following the

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Effective Time (as such term is defined in the Merger Agreement) that results in a substantial diminution of the nature, responsibility or character of the Executive’s titles, positions, duties, responsibilities or authorities with the Company, as in effect at the Effective Time, taking into account the fact that as a result of the Merger (A) the Company will be in the process of integrating its operations with those of Sub and Parent and that such integration process will likely result in certain changes in the Executive’s duties, including that assistance with such integration may take priority over the Executive’s customary job duties, and (B) the Company will cease to be an independent company and will become a subsidiary of Parent, and the duties and responsibilities of the Executive will change in accordance with this change in the ownership of the Company, or (iii) any reduction in the Executive’s Base Salary.

6.    Section 7(d) of the Agreement is hereby amended to read as follows:

If the Company shall terminate the Executive’s employment other than pursuant to Section 7(a) (Disability) or 7(c) (Cause) hereof (it being understood that a purported termination pursuant to Section 7(a) or 7(c) hereof which is disputed and finally determined not to have been proper shall be a termination by the Company other than pursuant to Section 7(a) or 7(c) hereof) or if the Executive shall terminate his employment hereunder pursuant to Section 7(d) (Good Reason) hereof, then

(i) the Company shall pay the Executive the Accrued Obligations;

(ii) the Company shall pay to the Executive in equal payments on each of the Company’s regular payroll dates during the 24-month period following the Date of Termination an amount which, when multiplied by the number of scheduled payroll dates during such period, is equal to the sum of (A) a pro rata Annual Bonus, in an amount equal to: (1) the percentage of Base Salary paid out for the most recent bonus period, (2) multiplied by the Base Salary in effect on the date Notice of Termination is given, (3) multiplied by a fraction, the numerator of which is the number of days that have elapsed as of the Date of Termination in the fiscal year in which such Date of Termination occurs and the denominator of which is 365, and (B) an amount equal to two (2) times Base Salary at the rate in effect on the date Notice of Termination is given; and

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(iii) the Company shall maintain in full force and effect, for the continued benefit of the Executive during the one-year period following the Date of Termination (the “Continuation Period”), all life insurance and health and medical coverage plans in which the Executive was entitled to participate immediately prior to the Date of Termination or, if the Executive’s continued participation is not possible under the general terms and provisions of such plans and programs, substantially equivalent (on an after-tax basis) benefits, whether in cash or in kind

and the Company shall have no further obligations to the Executive under this Agreement. Notwithstanding the foregoing, no payments shall be made or benefits provided to the Executive pursuant to this Section 7(d) on or after the first date on which the Executive breaches any of the covenants set forth in Section 8 hereof.

7.    All references in Section 8 to “Subsidiaries” shall be changed to references to “Parent and Subsidiaries of Parent.”

8.    The second sentence of Section 8(a) is hereby amended to read as follows:

The Executive shall not, without the prior written consent of Parent or as may be required by law or legal process, use, communicate or divulge any such trade secrets or confidential information to anyone other than the Company and those designated by the Company. Immediately upon the Company’s request or on the termination date of the Executive’s employment, whichever occurs first, the Executive shall return to the Company all of the property of the Company, its affiliates, and the actual and prospective clients of any of them, including, without limitation, all documents and things containing any trade secrets or confidential information, computer programs and diskettes, files, forms, notes, records, charts, and all copies.

9.    The first paragraph of Section 8(b) of the Agreement is hereby amended to read as follows:

The Executive shall not engage in any Competitive Activity while he is employed by the Company or for a period of 24 months following the termination of his employment for any reason (the “Noncompetition Period”). In consideration for the Executive’s agreements hereunder, the Company shall pay the Executive a lump sum of $300,000 in cash at the Effective Time, as defined in the Merger Agreement, subject to applicable tax withholding requirements, provided that the Executive is still employed by the

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Company at the Effective Time and has not breached the terms of this Agreement.

10. The second paragraph of Section 8(b) of the Agreement is hereby amended by deleting the phrase “without the written consent of an authorized officer of the Company,” where it appears in the first sentence thereof, and by inserting the phrase “without the written consent of Parent” in lieu thereof.

11. Sections 9 through 15 of the Agreement, and all references thereto, are hereby renumbered as Sections 10 through 16, respectively, and the following new Section 9 is hereby added thereto:

9.    Option Grant.  (a) In consideration for the Executive’s agreements hereunder, including but not limited to Section 8 of this Agreement, Parent will grant the Executive the option as described in this Section. If, at the Effective Time, as defined in the Merger Agreement, the Executive is still employed by the Company and has not breached the terms of this Agreement, then Parent shall, immediately after the Effective Time, cause to be granted to the Executive an option to purchase 100,000 shares of Parent’s common stock (the “Option”) pursuant to the terms of Parent’s 1993 Incentive Stock Option Plan, as amended (the “Plan”). Consistent with the Plan, the Option will have a 10-year term and an exercise price equal to the fair market value of Parent’s common stock at the time of the grant. The Option will become vested with respect to 25% of the shares subject to the Option on each anniversary of the Effective Time as long as the Executive remains employed by the Company.

(b)  Notwithstanding the provisions of Section 9(a) above, if, prior to the last day of the Noncompetition Period, the Executive breaches any of the provisions of Section 8 of this Agreement or is terminated for Cause, then (i) the Option shall immediately terminate, and (ii) the Executive shall promptly pay to the Company an amount of cash equal to the Gain Realized (as defined below) on any shares acquired through the exercise of the Option (the “Option Shares”) during the Restricted Period (as defined below). For purposes of this Section 9(b), “Restricted Period” shall refer to the period of time commencing 90 days prior to the termination of the Executive’s employment and ending on the last day of the Noncompetition Period; and “Gain Realized” shall equal the difference between (x) the fair market value of the Option Shares on the date the Option is granted and (y) the greater of the fair market value of the Option Shares (A) on the date of acquisition of such Option Shares or (B) on the first date any of the provisions of Section 8 of this Agreement were breached or the Date of Termination if the Executive was terminated for Cause.

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IN WITNESS WHEREOF, the Company and Parent have caused this Amendment to be signed by their duly authorized representatives and the Executive has signed this Amendment as of the day and year first above written.

STAR SYSTEMS, INC.
By:	/s/ Ronald V. Congemi
	Name: Ronald V. Congemi Title:    President & CEO
CONCORD EFS, INC.
By:	/s/ Edward T. Haslam
	Name: Edward T. Haslam Title:    CFO & CAO
/s/ E. Miles Kilburn             E. Miles Kilburn

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Second Amendment to Employment Agreement

This Second Amendment to Employment Agreement is made as of February 1, 2003 and amends the Employment Agreement by and between Star Systems, Inc. (f/k/a H&S Holding Company), Concord EFS, Inc. (“Parent”) and E. Miles Kilburn (“Executive”), dated as March 1, 1999, as amended October 6, 2000 (the “Employment Agreement”).

In consideration of the mutual promises contained herein and other good and valuable consideration, the parties agree to amend the Employment Agreement as set forth herein:

1. The Executive shall serve as Senior Vice President, Business Strategy and Corporate Development of Parent and shall direct corporate merger and acquisition activities, and the development of new revenue resulting from corporate alliances with third party processors, networks and software providers to financial institutions (“Corporate Alliances”). Executive shall report to Parent’s President.

2. In addition to Executive’s Base Salary (currently $350,000) while employed by Parent, Executive shall be eligible to earn commissions of 1/12^th of the estimated first year’s annual revenue of new business generated from Corporate Alliances developed as a result of his corporate alliance duties. Net new revenue includes but is not limited to uplift to STAR network volumes and excludes pass-through costs. Commissions shall accrue and be payable only after the first $350,000 of estimated annual revenue is generated by Executive.

3. Executive shall be granted stock options under Parent’s 2002 Incentive Stock Option Plan, as amended, consistent with other senior executives.

4. On or after March 1, 2004, Executive may voluntarily terminate his employment (“Voluntary Resignation”), and Parent shall pay one year’s Base Salary to Executive.

5. Executive’s stock options in Parent will continue to vest during the one-year period following any Voluntary Resignation, and be exercisable until 90 days thereafter, subject to the approval of the Compensation Committee of Parent’s Board of Directors.

6. Executive may relocate from Memphis TN, and Parent shall pay reasonable home office and other ongoing customary expenses related to Executive’s position. Relocation costs shall be Executive’s responsibility.

7. Executive and Parent hereby ratify all other terms and conditions of the Employment Agreement not inconsistent with the foregoing amendments.

1

In Witness Whereof, Parent and Star Systems, Inc. have caused this Agreement to be signed by their duly authorized representatives and the Executive has signed this Agreement as of the day and year first above written.

STAR SYSTEMS, INC.		CONCORD EFS, INC.
By:	/s/ Edward A. Labry	By:	/s/ Edward A. Labry
Name:  Edward A. Labry Title:     CEO		Name:  Edward A. Labry Title:     President
E. Miles Kilburn
/s/ E. Miles Kilburn

2

EX-10.28

EXHIBIT 10.28

[CONCORD EFS, INC. LETTERHEAD]

April 25, 2002

Norman Bennett

6539 Pidgeon Hall

Memphis, TN 38119

Dear Norman:

Confirming our telephone conversation of today, our offer of employment dated April 25, 2002 is hereby amended as follows.

The position as offered is a Senior Vice President, Treasury, reporting directly to Ed Labry. Based on our conversation, your tentative start date with us will be April 29, 2002 and your work schedule will be Monday through Friday, 8:00 a.m. to 5:00 p.m., subject to change based on business needs.

This is an exempt position. Your salary will be $150,000 annualized or $5,769.24 bi-weekly.

You will also be eligible, upon board approval, for a bonus between the amount of $40,000-$60,000 in 2003 based on your overall job performance.

Additionally, upon board approval, you will be granted 25,000 stock options in accordance with the 1993 Concord EFS, Inc. Incentive Stock Option Plan, as amended, subject in all respects to the terms of the Plan and the Option Agreement evidencing this grant.

If you are in agreement with the terms of this amended offer, please read and sign the enclosed copy of this letter and return within twenty-four (24) hours of receiving this information.

I am pleased to welcome you to our staff, and hope that you will enjoy your association with Concord EFS, Inc.

Sincerely,

/s/ Tina Akin

Tina Akin

Recruiter

/s/    Norman Bennett	4/29/02
Name	Date

cc: Ed Labry

EX-10.29

EXHIBIT 10.29

UNUMPROVIDENT_SM [logo]

	ADVANTAGE I
	Specimen Contract
LONG TERM CARE INSURANCE
	TAX QUALIFIED PLANS
	This specimen is not intended to replace the filed contract

Unum Life Insurance

Company of America

2211 Congress Street

Portland, ME 04122

www.unumprovident.com

A-36000

(5-02)

UNUM PROVIDENT_SM [logo]

	Individual Long Term Care Insurance Policy
Sample Policy May Vary in Different States
	Long Term Care Insurance Policy
	This policy is intended to be a qualified long-term care insurance contract under Section 7702B(b) of the Internal Revenue Code of 1986.
Individual Long Term Care Insurance Summary of Benefits	Unum Life Insurance Company of America (referred to as “we”, “our” and “us”) is pleased to issue this insurance policy to You. This policy provides nursing home benefits under stated conditions. Please refer to the policy provisions where we tell You when and how we will pay benefits. You will find an index of these provisions on Page 2. THIS IS A LIMITED BENEFIT HEALTH INSURANCE POLICY - PLEASE READ IT CAREFULLY.
Tax Qualified Plan	This Policy is Guaranteed Renewable We Have a Limited Right to Change Premiums
	You may renew this policy on each Policy Anniversary by paying each premium before its Grace Period ends. We reserve the right to change premiums for this policy. To do so, we must change the premiums for all similar policies issued in Your state on this policy form. Any change in premium will be effective on Your Policy Anniversary Date. We will send You written notice at least 31 days in advance. 30 Day Right to Examine Your Policy You may cancel this policy for any reason within 30 days after it is delivered to You or Your representative. Simply return the policy, within 30 days of its receipt, to us at our Home Office. If this is done, the policy will be canceled from the beginning and all of the premium paid will be refunded. Important Caution About Your Application Caution: We issued this policy based upon medical and other questions You answered in Your application. A copy of Your application is attached. If, for any reason, any of Your answers are incorrect or untrue, contact us immediately at the address stated below, to the attention of the Long Term Care Division. If any of Your answers are incorrect or untrue, we may deny Your benefits or void this policy. The best time to clear up any questions is now, before a claim arises! THIS POLICY IS NOT A MEDICARE SUPPLEMENT POLICY. If You are eligible for Medicare, review the Guide to Health Insurance for People with Medicare available from us. NOTICE TO BUYER: This policy may not cover all costs associated with long term care incurred by You during the period of coverage. You are advised to review carefully all policy limitations. This policy becomes effective on the Effective Date shown in the Policy Schedule, provided the first modal premium is paid.

                        [SIGNATURE] Secretary                       [SIGNATURE] President

Unum Life Insurance Company of America

Portland, Maine 04122

(Provisions may vary in certain states)

                                                        LTC 94Q

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5100-97 (3-98)

2

Index of Policy Provisions

Renewal	1
Thirty Day Right to Examine Policy	1
Policy Schedule	5
Terms You Should Know	7
Benefit Information	10
Monthly Benefit
Bed Reservation Provision
Rehabilitation and Alternate Care Plans
Limitations and Exclusions	12
Plan Exclusions
Pre-Existing Conditions
Claim Information	13
How To File a Claim
When Claims Are Paid
To Whom Claims Are Paid
Claim Overpayment
Termination Provisions	15
Termination of Benefits
Extension of Benefits
Termination of Policy
Premiums	16
Waiver of Premium
Grace Period
Reinstatement
Reinstatement of Terminated Policy Due to Disability
Refund of Premium After Death
General Provisions	18
The Contract
Statements
Legal Actions
Incontestable
Conformity with State Statutes
Misstatement of Age
Nonparticipating; Dividends Not Payable
Owner
Loss Payee
Assignment
Any riders or amendments will follow

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	Policy Schedule
This policy is for	Policy Schedule
Tax Qualified Plans	Insured	John W. Doe	Policy Date	02/01/02
Riders may not be available in all states.	Policy Number	123456	Effective Date	02/01/02
	Summary of Premium     The premium mode at issue is QUARTERLY.
	Premiums are payable in United States dollars as follows:
	Beginning	Annual	Semi-Annual	Quarterly	Monthly
	02/01/02	XXX.XX	XXX.XX	XX.XX	XX.XX
	Summary of Coverage     FORM: LTC94Q
	EFFECTIVE DATE: 02/01/02		ANNUAL PREMIUM: XXX.XX
Other elimination periods available.	Elimination Period:		90 cumulative days
Monthly benefits from $1,000 to $6,000.	Monthly Benefit Amount:		Nursing Home Monthly Benefit - $3,000
Nursing Home = Nursing Facility. Assisted Living Facility is called Residential Care Facility II in Missouri and Community Care Facility in South Carolina.			Assisted Living Facility Benefit - 60% of Nursing Home Monthly Benefit, or the Home Care Monthly Benefit if greater than 60%.
	Maximum Benefit Amount:		$216,000
	Non-forfeiture Option:		Shortened Benefit Period
Other inflation options	5% Compound Inflation:		Yes
available, vary by state.
	If the Policy Schedule shows that Your Maximum Benefit Period is “Lifetime,” Your     Maximum Benefit Amount will not be limited to any dollar amount.

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	Policy Schedule (continued)
	Policy Schedule
	Insured	John W. Doe
	Policy Number	123456
Professional Home and	Optional Rider Benefits
Community Care Rider or	FORM:	PHC	Professional Home Care or
Total Home Care Rider must		THC	Total Home Care
be sold with Nursing Home
Policy in Michigan, Oregon	EFFECTIVE DATE: 02/01/02
and Rhode Island.	ANNUAL PREMIUM: XXX.XX
	Elimination Period:		90 cumulative days
	Elimination Accumulation Period:		270 days
	Home Care Benefit Amount:		100% of Nursing Home Monthly Benefit
	The Maximum Benefit Amount for the Policy and any Optional Benefit Riders attached     to the Policy will not exceed the Maximum Benefit Amount shown in the Policy     Schedule. Your Maximum Benefit Amount will be adjusted to include any inflation     protection option increases, if applicable.

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Contingent Non-Forfeiture Benefit

Triggers for a Substantial Premium Increase

Issue Age	Percent Increase Over Initial Premium
29 and under	200%
30-34	190%
35-39	170%
40-44	150%
45-49	130%
50-54	110%
55-59	90%
60	70%
61	66%
62	62%
63	58%
64	54%
65	50%
66	48%
67	46%
68	44%
69	42%
70	40%
71	38%
72	36%
73	34%
74	32%
75	30%
76	28%
77	26%
78	24%
79	22%
80	20%
81	19%
82	18%
83	17%
84	16%
85	15%
86	14%
87	13%
88	12%
89	11%
90 and over	10%

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	Terms You Should Know
Definitions apply to base Nursing Home Policy and all attached Riders.	Many terms used in Your policy have special meanings. A list of these terms and meanings follows:
Activities of Daily Living defined.	“Activities of Daily Living” (ADLs) are: n  bathing - washing oneself by sponge bath; or in either a tub or shower, including the task of   getting into or out of the tub or shower with or without equipment or adaptive devices. n  dressing - putting on and taking off all items of clothing and any necessary braces, fasteners, or   artificial limbs. n  toileting - getting to and from the toilet, getting on and off the toilet, and performing associated   personal hygiene. n  transferring - moving into or out of a bed, chair, or wheelchair with or without equipment such   as canes, quad canes, walkers, crutches or grab bars or other support devices including   mechanical or motorized devices. n  continence - the ability to maintain control of bowel or bladder function; or when unable to   maintain control of bowel or bladder function, the ability to perform associated personal hygiene   (including caring for catheter or colostomy bag). n  eating - feeding oneself by getting food into the body from a receptacle (such as a plate, cup or   table) or by a feeding tube or intravenously.
Advanced Age defined.	“AdvancedAge” refers to the inability to perform an ADL, or the presence of Cognitive   Impairment, because of frailty or debilitation resulting from the aging process.
Assessment defined.	“Assessment” means an interview of You done by us or our representative to assist in the       determination of Your insurability at the time of application, or the determination of disability at   the time of Your claim.

Called: Residential Care Facility in Missouri, Community Residential Care Facility II in South Carolina. New Jersey has no inpatient minimum. Disability and Disabled defined.












“Assisted Living Facility” means: n    A facility that is primarily engaged in providing ongoing care and services to a minimum of 10     inpatients in one location and meets all of the following tests: n  provides 24 hour a day care; and n  provides custodial services and personal care assistance to support needs as a result of a   disability; and n  has an employee on duty at all times who is awake, trained and ready to provide care; and n  provides 3 meals a day, including special dietary requirements; and n  operates under state licensing laws and any other laws that apply; and n  has formal arrangements for services of a physician or nurse to furnish medical care in the       event of an emergency; and n  is authorized to administer medication to patients on the order of a physician; and n  is not, other than incidentally, a home for alcoholics or drug abusers, or a hotel; or n  a similar facility approved by us. Note:    These   requirements are typically met by Assisted Living Facilities that are either free standing facilities or part of a life care community. In general, they are not met by individual    residences, boarding homes, or independent living units. “Disability” and “Disabled” means: n  You are unable to perform without Substantial Assistance from another individual at least two    Activities of Daily Living; or n  You require Substantial Supervision by another individual to protect You or others from threats       to health and safety due to Severe Cognitive Impairment.

7

Effective Date defined.	“Effective Date” is the date shown in the Policy Schedule. Coverage takes effect on the Effective Date provided the first Modal Premium is paid.
Accumulation Period defined.	“Elimination Accumulation Period”. We do not require that an Elimination Period longer than 30 days be consecutive days. However, we do require that an Elimination Period longer than 30 days occur entirely during a limited time span, called the Elimination Accumulation Period. The Elimination Accumulation Period is equal to 3 times the Elimination Period.
Elimination Period defined.	“Elimination Period” means a period of either: n  30 or less consecutive days during which You are disabled and for which You are receiving   services in a Nursing Facility or Assisted Living Facility, and no benefit is payable. A separate Elimination Period will apply to each covered loss. However, each covered loss that is separated from the other by less than 6 months will be considered to be the same covered loss and not subject to a new Elimination Period: or n  greater than 30 cumulative days during which You are disabled and for which You are   receiving services in a Nursing Facility or Assisted Living Facility, and no benefit is payable.   An Elimination Period longer than 30 days must be satisfied by You only once during Your   Lifetime. The number of days in the Elimination Period is shown in the Policy Schedule. “Home Office” means the Unum Life Insurance Company of America, 2211 Congress Street, Portland, Maine 04122.
Injury defined.	“Injury” means bodily harm caused by an accident.
Licensed Health Care Practitioner defined.	“Licensed Health Care Practitioner” means any Physician, and any registered professional nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary of Treasury.
Maximum Benefit Amount defined.	“Maximum Benefit Amount” means the total dollar amount of benefits that will be paid under the Policy. The total dollar amount of benefits includes the combined dollars paid out for Nursing Facility and Assisted Living Facility Benefits. The Maximum Benefit Amount is shown in the Policy Schedule. If the Policy Schedule shows that Your Maximum Benefit Amount is “Lifetime”, Your Maximum Benefit Amount will not be limited to any dollar amount. Your Maximum Benefit Amount will be adjusted to include any inflation protection option increases, if applicable.
Monthly Benefit Amount defined.	“Monthly Benefit Amount” means Your monthly Nursing Home Benefit Amount or Your monthly Assisted Living Facility Benefit Amount shown in the Policy Schedule.
Nursing Facility defined.	“Nursing Facility” means:
Nursing Facility and Nursing Home are used interchangeably.	n  a facility, or a distinctly separate part of a hospital, that provides skilled or intermediate nursing   care and custodial care and operates under state licensing laws and any other laws that apply;   or n  any other facility that meets all of the following tests: n  is operated as a health care facility under applicable state licensing laws and any other laws; n  primarily provides nursing care under the orders of a Physician; n  operates under the supervision of a registered nurse or a licensed practical nurse; n  is regularly engaged in providing room and board and continuously provides 24-hour-per-day   nursing care of sick and injured persons;

8

	n  maintains a daily medical record of each patient who must be under the care of a Physician;
	n  is authorized to administer medication to patients on the order of a Physician; and
	n  is not, other than incidentally, a home for the mentally retarded, the mentally ill, the blind or   the deaf, a hotel, a domiciliary care home, a residence, or a home for alcoholics or drug   abusers; or
	n  a similar facility approved by us.
Physician defined.	“Physician” means a person who is operating within the scope of his/her license, and is either:
	n  licensed to practice medicine and surgery and prescribe and administer drugs; or
	n  legally qualified as a medical practitioner and required to be recognized, under this policy for   insurance purposes, according to applicable state insurance laws.
	We will consider a person to be a Physician only when the person is performing tasks that are within the limits of the person’s medical license. We will not recognize the following as Physicians for claims that You make to us under this Policy:
	n  You, or
	n  Your spouse, daughter, son, parent, sister, brother, grandparent or grandchild.
Severe Cognitive Impairment defined.	“Severe Cognitive Impairment” means a severe deterioration or loss, as reliably measured by clinical evidence and standardized tests, in:
	n  Your short or long term memory;
	n  Your orientation as to person, place, and time; or
	n  Your deductive or abstract reasoning.
	Such deterioration or loss requires Substantial Supervision by another individual for the purpose of protecting Yourself. Such loss can result from a Disability, Alzheimer’s disease, or similar form of dementia.
Sickness defined.	“Sickness” means a physical illness, condition, or disease which has been assessed, diagnosed or treated.
Substantial Assistance defined.	“Substantial Assistance” means stand-by assistance without which You would not be able to safely and completely perform the ADL.
Substantial Supervision defined. .	“Substantial Supervision” means the presence of another individual for the purpose of protecting You from harming Yourself or others.
	“You” and “Your” refer to the Insured named in the Policy Schedule. It is the person whom we are insuring. The Insured cannot be changed.

9

	Benefit Information Monthly Benefit
Eligibility for benefits.	You are eligible for a Monthly Benefit after:
	n  You become Disabled;
	n  You are receiving services in a Nursing Facility or Assisted Living Facility;
	n  You have satisfied Your Elimination Period; and
	n  a Physician has certified that You are unable to perform (without Substantial Assistance from   another individual) two or more ADLs for a period of at least 90 days, or that You require   Substantial Supervision by another individual to protect You or others from threats to health or   safety due to Severe Cognitive Impairment. You will be required to submit a Physician   certification every 12 months.
	A Monthly Benefit will become payable once all of these requirements are met.
	Treatment for Your Disability must be provided pursuant to a plan of care developed by a Licensed Health Care Practitioner. We will pay You:
	n  the Nursing Facility Benefit Amount if You are Disabled and are receiving services in a Nursing   Facility, or n  the Assisted Living Facility Benefit Amount if You are Disabled and are receiving services in an   Assisted Living Facility. The Assisted Living Facility Benefit Amount is 60% of the Nursing   Facility Benefit Amount.
	If the Policy Schedule shows that You have purchased a Home and Community Care Rider, the Assisted Living Facility Benefit Amount will be the greater of:
	n  60% of the Nursing Facility Benefit Amount; or
	n  the Home and Community Care Benefit amount shown on the Policy Schedule.
	We will send the benefit payments to You each month. If You are eligible for benefits for a period that is less than one month, we will pay 1/30th of the net monthly payment for each day that You are Disabled and are receiving services in a Nursing Facility or Assisted Living Facility. Benefit payments will cease as provided in the “Termination of Benefits” section of this policy.
Bed Reservation Provision. In Colorado Bed Reservation is 31 days per policy year.	Bed Reservation Provision If Your stay in a Nursing Facility or Assisted Living Facility is interrupted because You are hospitalized and You are receiving a benefit, we will continue to pay You the Monthly Benefit Amount if a charge is made to reserve Your Nursing Facility or Assisted Living Facility accommodations. Such days will count toward the Maximum Benefit Amount. If Your stay is interrupted while You are completing Your Elimination Period, such days will be used to help satisfy this period. Covered Bed Reservation days will be limited to 31 days per calendar year.
If an insured is receiving benefits, we may work with them to find the best support for their recovery and to help them gain functional capacity. This may include an alternative care plan. Not available in Indiana and Pennsylvania.	Rehabilitation and Alternate Care Plans While You are disabled, we may suggest participation in an alternate care plan designed to help You regain the ability to independently perform the Activities of Daily Living. The services/equipment must be medically necessary and appropriate for Your Disability and provided pursuant to a plan of care approved by a Physician. These services or equipment must be intended to assist You in living at home or in other residential housing by eliminating Your need for Substantial Assistance. The services or equipment cannot be covered by other insurance or Medicare. Examples of an alternate care plan may include, but are not limited to:

10

n  a rehabilitation program;

n  home modifications for wheelchair access; or

n  certain types of medical equipment, emergency medical response systems or hardware purchases.

The terms of an alternate care plan and the actual expenses that Unum will pay will be subject to written mutual agreement between You, Your Licensed Health Care Provider and us.

If for any reason You do not wish to participate in an alternate care plan, Your benefits will continue according to the provisions of this contract.

11

	Limitations and Exclusions Plan Exclusions
State variations occur.	We will not provide benefits for:
	n  a Disability caused by a war or any act of war, whether declared or undeclared, that occurs while   Your insurance is in force;
	n  a Disability caused by intentionally self-inflicted injuries or attempted suicide;
Crime may be called a felony.	n  a Disability caused by the commission of a crime for which You have been convicted under state   or federal law, or attempting to commit a crime under state or federal law;
May also be called alcoholism and drug abuse.	n  a Disability caused by alcoholism or alcohol abuse; n  a Disability caused by voluntary use of any controlled substance unless the controlled substance   is prescribed for You by a Physician (“controlled substance” is defined in Title II of the   Comprehensive Drug Abuse Prevention and Control Act of 1970 and all amendments);
Pennsylvania has an additional exclusion: Any benefits payable shall be in excess of and not in duplication of any first party benefits payable under the Pennsylvania Motor Vehicle Financial Responsibility Law.	n  a period during which You are outside the United States, its territories or possessions for longer   than  30 days; or
	n  a period in which You are confined in a hospital, other than if You are confined to a Nursing   Facility that is a distinctly separate part of a hospital. This exclusion does not apply to those   periods covered under the Bed Reservation provision.
	Pre-Existing Conditions
	We will not reduce or deny any claim under this policy because a Disability existed before the policy’s Effective Date.

12

	Claim Information
How to Submit a Claim.	How to File a Claim
	You must give us written notice of claim within 30 days of the date of disability. If it is not possible for You to give us notice within this time limit, it must be given as soon as reasonably possible.
	We will send You our initial claim forms when we receive Your written notice of claim. If You do not receive our claim forms within 15 days after written notice of claim is sent, You can send us written proof of claim without waiting for the forms.
	You must give us initial proof of claim no later than 90 days after the date of disability. If it is not possible for You to give proof within these time limits, it must be given as soon as reasonably possible. However, proof of claim must be given no later than one year after the time proof is otherwise required.
	The proof of Your claim must include:
	n  the date the Disability occurred;
	n  the cause of the Disability;
	n  the extent of the Disability;
	n  certification by a Physician that You are unable to perform (without Substantial Assistance from   another individual) two or more ADLs for at least 90 days, or that You require Substantial   Supervision by another individual to protect Yourself and others from threats to health or safety   due to Severe Cognitive Impairment;
	n  Your plan of care developed by a Licensed Health Care Practitioner;
	n  such other proof as we may deem necessary.
In addition to initial proof of claim, we will, from time to time, assess an insured’s continuation of loss.	You must give us proof of continued Disability: n  at intervals requested by us; and n  within 30 days of our request.
	In addition to claim forms, we may require one or more of the following as proof of claim:
	n  an Assessment;
	n  Physician’s statement and/or copies of relevant medical records from any Physician or health   care provider involved in Your care;
	n  an independent medical examination; or
	n  verification or proof of services provided.
	We reserve the right to request additional information necessary to our claim determination from You, Your Physician, or other health care providers. We also, if necessary, reserve the right to select a Physician that is mutually agreed upon to perform an independent medical examination.
When we pay a claim.	When Claims are Paid
	When we receive proof of claim, benefits payable under the policy will be paid before the end of the month for each day for which You were entitled to benefits during the prior month.
	To Whom Claims Are Paid
	All benefits are payable directly to You unless You have requested in writing that payment be made otherwise.

13

	If You die while You are eligible to receive benefits, we will pay any accrued benefit to Your estate. At our option, any remaining benefit of $1,000 or less may be paid to an alternative payee if either of the following is true:
	n  such benefit is payable to Your estate, or
	n  such benefit is payable to any person who is a minor or otherwise not competent to give a valid      release.
	The alternative payee must be a person who we feel is entitled to receive the benefit. Also, the alternative payee must be related to You by blood or marriage. Any such payments made in good faith will fully discharge us to the extent of such payment.
	Claim Overpayment
Claim Overpayment.	If for any reason, benefits have been paid for a period for which You were not entitled to benefits, repayment of the overpayment must be made to us within 45 days of notice to You. Any amounts not repaid may be recovered by us by offsetting against any amounts otherwise payable to You under this Policy, or by other reasonable means.

14

Termination Provisions

Termination of Benefits

Your benefit payments will cease on the earliest of:

n  the day after You are no longer disabled;

n  the expiration of Your Physician certification;

n  the day after You are no longer residing in a Nursing Facility or Assisted Living Facility;

n  the day after the Maximum Benefit Amount has been paid; or

n  the day after You die.

Extension of Benefits

Termination of coverage will be without prejudice to any benefits payable under the policy if eligibility for such benefits or disability began while Your long term care insurance was inforce, and continues without interruption after termination. Such extension of benefits will be limited to the duration of the payment of the Maximum Benefit Amount.

Termination of Policy

Your policy will terminate on the earliest of:

n  the day after the Maximum Benefit Amount has been paid;

n  the day after You die; or

n  the day after the end of the Grace Period, if You fail to pay Your premium within the Grace Period.

Termination of the policy under any condition will not prejudice any payable claim which begins prior to termination.

15

Premiums

Waiver of Premium

After You have satisfied Your Elimination Period, we will waive premium payment during any period for which benefits are payable. Any premium which You had paid to us during Your Elimination Period will be refunded to You on a pro rata basis.

The pro rata refund will be calculated based on the number of days in Your Elimination Period.

If benefits are no longer payable, You must resume premium payments. We will notify You of the amount of Your next premium payment and the date it is due.

Grace Period

The Grace Period is the 31 consecutive days that begin with the day a premium is due. We will keep this policy in effect and continue coverage during that time. If the premium is not paid during those 31 days, this policy will terminate. However, termination of the policy will not prejudice any payable claim for a covered loss which begins prior to policy termination.

The first premium is due and payable on the Effective Date of the policy. There is no Grace Period for the first premium.

Reinstatement

If this policy terminates because a premium is not paid by the end of the Grace Period, You may apply to reinstate this policy at any time until the first unpaid premium is six months overdue.

In order to reinstate this policy, three requirements must be met. They are:

n  You must complete a reinstatement application;

n  we must approve that reinstatement application; and

n  You must pay all unpaid premium.

If we approve the reinstatement application, we will reinstate this policy on the approval date. If we issue a prepayment agreement and do not approve or disapprove the reinstatement application within 45 days from the date of the prepayment agreement, we will reinstate this policy on that 45th day.

It WILL NOT cover any Injury or Sickness which is excluded by name or description in this policy.

Reinstatement of Terminated Policy Due to Disability

If You become Disabled and this policy terminates because a premium is not paid by the end of the Grace Period, You may request to reinstate this policy at any time until five months from the policy termination date.

In order to reinstate this policy, two requirements must be met. They are:

n  You must provide proof that Your Disability occurred prior to the policy termination date; and

n  You must pay all unpaid premium.

If You meet these requirements, we will reinstate this policy on the policy termination date.

The reinstated policy WILL NOT cover any Disability which is excluded by name or description in this policy.

16

Refund of Premium After Death

If You die while insured under this policy, we will refund any pro rata portion of Your premium paid covering the period after Your death. We will make the refund within 30 days after we receive written notice of Your death. Payment will be made to Your estate.

17

General Provisions

The Contract

This policy, including Your application and any attached papers, represents the entire contract between You and us. Statements by agents or brokers are not part of our contract. Only an executive officer of this Company can approve a change in this policy. The approval must be in writing and be endorsed on or attached to this policy. No one else can change this policy or waive any of its provisions.

Unless we tell You something else, years, months and anniversaries that we refer to are calculated from the Policy Date shown on the Policy Schedule.

Statements

In the absence of Fraud, all statements You make in applying for this coverage are considered representations and not warranties (absolute guarantees).

No statements by You will be used to deny a claim unless a copy of Your statements has been given to You.

Legal Actions

No one may start legal actions to recover on this policy until 60 days after written Proof of Loss has been given to us. Legal action must be started within three years after the written Proof of Loss is required to be furnished.

Incontestable

For a policy in force for less than six months, we may contest this policy upon showing a misrepresentation that is material to Your acceptance of coverage.

For a policy in force at least six months, but less than two years, we may contest this policy upon showing a misrepresentation that is material to both Your acceptance of coverage and which pertains to the conditions of Your Disability.

After two years from the policy’s Effective Date, only fraudulent misstatements in Your application may be used to contest this policy. If this policy is reinstated, the contestable period will be two years from the reinstatement date.

“Contest” means that we question the validity of coverage under this policy by letter to You. This contest is effective on the date we mail the letter and refund the premium to You.

There is no time limit to contest this policy for fraudulent misstatements.

Conformity with State Statutes

If any provision of this policy conflicts with the statutes of the state where You reside on the Effective Date of that provision, it is amended to conform with the minimum requirements of those statutes. Premiums may be changed to reflect these policy requirements.

Misstatement of Age

If Your age has been misstated, any benefit payable will be changed to the amount which the premium paid would have bought for the correct age.

If we accept premium for coverage which we would not have issued or which would have ceased according to the correct age, our only liability is to refund the premium for the period not covered.

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Nonparticipating; Dividends Not Payable

This policy does not participate in our profits or surplus earnings; and no dividends will be paid at any time.

Owner

You own this policy. You have all the rights and privileges granted by this policy while it is in effect. Some of Your ownership rights are:

n  the right to continue or terminate this policy;

n  the right to name someone else (a Loss Payee) to receive the benefits of this policy;

n  the right to suspend this policy while You are in military service; and

n  the right to assign any or all rights under this policy.

Loss Payee

If You decide to have someone else receive policy benefits, You must notify us in writing on a form satisfactory to us. The notice will be effective when we receive it at our Home Office.

Assignment

You may assign any or all ownership rights to someone else. The assignment must be in writing and must specify the rights which are assigned and for how long. The Loss Payee is not changed by an assignment unless the assignment specifically names a new Loss Payee. When an assignment is in effect, “You” and “Your” refer to the assignee in provisions which describe ownership rights.

No assignment is binding on us until the original or an acceptable copy is received at our Home Office. We are not responsible for the validity or effect of any assignment.

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	Professional Home and Community Care Benefit Rider
Optional Riders which can be purchased in addition to the Nursing Home Care Base Plan. This rider cannot be sold separately.	This rider is part of the policy to which it is attached. The rights provided by this rider are subject to the terms and conditions of this rider and the rest of the policy. This rider becomes effective on the later of the Effective Date of the policy or the Rider Date shown in the Policy Schedule. Premiums for this rider are shown in the rider description in the Policy Schedule. They are payable at the same time and under the same conditions as premiums for the policy.
These definitions are in addition to those listed in the base plan.	Terms You Should Know Many terms in this rider have special meanings. A list of these terms and meanings follows:
Adult Day Care defined.	“Adult Day Care” means a community-based program offering health, social and related support services to impaired adults. Adult Day Care can be provided by an Adult Day Care Facility or a Licensed Home Health Care Agency. “Adult Day Care Facility” is a facility that provides Adult Day Care and operates under state licensing laws and any other laws that apply; and meets the following tests: n  operates a minimum of 5 days a week; n  remains open for at least 6 hours a day; n  maintains a written record of care on each patient; n  includes a plan of care and record of services provided; n  has a staff that includes a full-time director and at least one registered nurse who are there during   operating hours for at least 4 hours a day; n  has established procedures for obtaining appropriate aid in the event of a medical emergency; n  provides a range of physical and social support services to adults; and n  whose program does not include overnight stays.
Not a rider in Michigan, Oregon, or Rhode Island. Part of the base contract.	“Elimination Period”. The meaning of Elimination Period as used in the policy and this rider is changed to read as follows: A period of either: n  20 or 30 consecutive days during which You are Disabled and You are receiving Professional   Home and Community Care and no benefit is payable. Each calendar week that You receive at   least one day of Professional Home and Community Care will be counted as seven days towards   completing the Elimination Period. If You continue to remain at home or another similar place   and do not receive Professional Home and Community Care for at least one day within a   calendar week, the Elimination Period will begin again.   A separate Elimination period will apply to each covered loss. However, each covered loss that is   separated from the other by less than six months will be considered to be the same covered loss   and not subject to a new Elimination period; or n  greater than 30 cumulative days during which You are Disabled and You are receiving   Professional Home and Community Care and no benefit is payable. Each calendar week that You   receive at least one day of Professional Home and Community Care, will be counted as seven   days towards completing the Elimination Period. An Elimination Period longer than 30 days     must be satisfied by You only once during Your Lifetime. The number of days in the Elimination Period is shown in the Policy Schedule.

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“Hospice Facility” is a facility that provides a formal program of care for terminally ill patients whose life expectancy is less than 6 months, provided on an inpatient basis and directed by a physician. It must be licensed, certified or registered in accordance with state law.

“Licensed Home Health Care Agency” is:

n  an organization that is licensed or certified by the appropriate licensing agency of the state

     where Professional Home and Community Care will be provided; or certified as a home

     health care organization as defined under Medicare;

n  any other organization that meets all of the following tests:

n  primarily provides nursing care and other therapeutic services;

n  has  standards, policies and rules established by a professional group which is associated

  with   the organization;

n  includes at least one doctor and one registered nurse;

n  maintains a written record of care on each patient; and

n  includes a plan of care and record of services provided; or

n  a similar organization approved by us.

“Professional Home and Community Care” means nursing care; physical, respiratory, occupational or speech therapy; homemaker services; and any other services provided by a Licensed Home Health Care Agency or Adult Day Care Facility. Each one hour or more per day of a Licensed Home Health Care Agency’s services will be considered one visit. The services to be provided to You must be in a written plan of care which has been agreed to by You or Your authorized representative and the Licensed Home Health Care Agency. Professional Home and Community Care does not include services performed by Your family members through a Licensed Home Health Care Agency or an Adult Day Care Facility. Your family members include Your spouse, children, parents, sisters, brothers, grandparents or grandchildren, or persons related to You by marriage.

“Respite Care” means short-term or periodic care which is required to maintain Your health or safety and to give temporary relief to Your primary informal caregiver from his or her caregiving duties. Respite Care can be provided in Your home, a Nursing Facility, an Assisted Living Facility, an Adult Day Care Facility, or a similar facility approved by us.

All other terms used in this rider which are defined in the policy shall have the meaning given to them in the policy.

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Benefit Payment.


















Benefits Professional Home and Community Care Benefit You will be eligible for a Professional Home and Community Care Benefit after: n  You become Disabled; n  You are receiving care anywhere other than a Nursing Facility, Assisted Living Facility or an   acute care hospital; n  You have satisfied Your Elimination Period; and n  a Physician has certified that You are unable to perform (without Substantial Assistance from   another individual) two or more ADLs for a period of at least 90 days, or that You require   Substantial Supervision by another individual to protect You and others from threats to health or   safety due to Severe Cognitive Impairment. Your care can be provided at any other type of facility, such as an Adult Day Care Facility, a Hospice Facility, or Your home through a Licensed Home Health Care Agency. The treatment and services You receive for Your Disability must be provided pursuant to a plan of care developed by a Licensed Health Care Practitioner. You must give us proof indicating days of Professional Home and Community Care services provided to You before a benefit will be paid. We will pay You 1/30th of the Monthly Professional Home and Community Care Benefit for each day You receive Professional Home and Community Care services. When benefits become payable, there will be no more cost to You for Your coverage as long as You continue to be Disabled and receive Professional Home and Community Care. If You do not receive Professional Home and Community Care for a period of 30 consecutive days, premium payments will again become due. To continue Your coverage, You must resume premium payments on the next premium due date following this 30 day period. In no event will the total benefits paid under the policy including this rider exceed the Maximum Benefit Amount. The Monthly Professional Home and Community Care Benefit Amount and the Maximum Benefit Amount are shown in the Policy Schedule. Respite Care Benefit If You are Disabled, but Professional Home and Community Care Benefits have not yet become payable, we will make payments to You for each day You receive Respite Care for up to 15 days each calendar year. The amount of Your daily payment will equal 1/30th of Your Monthly Professional Home and Community Care Benefit Amount. You do not have to complete an elimination period for Respite Care payments to become payable. Care can be provided to You by: n  a formal caregiver, such as a Licensed Home Health Care Agency, a registered nurse, a licensed   practical nurse; or n  an informal caregiver, such as friends or relatives. Other than for premium waived during the Elimination Period according to the terms of the policy, premium will not be waived while You are receiving a payment for Respite Care. Respite Care Benefits will reduce Your Maximum Benefit Amount and will end when the Maximum Benefit Amount has been reached.

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How Long Benefits Will Be Paid

The Professional Home and Community Care Benefit will cease on the earliest of:

n  the day after You are no longer Disabled;

n  30 days after You cease to receive Professional Home and Community Care;

n  the expiration of Your Physician certification;

n  the day after the Maximum Benefit Amount has been paid; or

n  the day after You die.

Termination of the Rider

This rider will terminate on the earliest of:

n  the date we receive Your written request to terminate this rider; or

n  the date the policy terminates.

Optional Riders may vary by state.

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	Total Home Care Benefit Rider
This rider cannot be sold separately. This rider allows care to be provided by family and friends as well as licensed Health Care Providers.	This rider is part of the policy to which it is attached. The rights provided by this rider are subject to the terms and conditions of this rider and the rest of the policy. This rider becomes effective on the later of the Effective Date of the policy or the Rider Date shown in the Policy Schedule. Premiums for this rider are shown in the rider description in the Policy Schedule. They are payable at the same time and under the same conditions as premiums for the policy.
These definitions are in addition to those listed in the base plan. Not a rider in Michigan, Oregon, or Rhode Island. Part of the base contract.	Terms You Should Know Many terms used in this rider have special meanings. A list of these terms and meanings follows: “Elimination Period” The meaning of Elimination Period as used in the policy and this rider is changed to read as follows: A period of either:
	n  30 or less consecutive days during which You are disabled and for which no benefit is payable. A   separate Elimination Period will apply to each covered loss. However, each covered loss that is   separated from the other by less than 6 months will be considered to be the same covered loss   and not subject to a new Elimination Period; or n  greater than 30 cumulative days during which You are disabled and for which no benefit is   payable. An Elimination Period longer than 30 days must be satisfied by You only once during   Your Lifetime. The number of days in the Elimination Period is shown in the Policy Schedule.
	“Respite Care” means short-term or periodic care which is required to maintain Your health or safety and to give temporary relief to Your primary informal caregiver from his or her caregiving duties. Respite Care can be provided in Your home, a Nursing Facility, an Assisted Living Facility, an adult day care facility, or a similar facility approved by us. All other terms used in this Rider which are defined in the policy shall have the meaning given to them in the policy.
	Benefits
Benefit Payment.	Total Home Care Benefit You will be eligible for a Total Home Care Monthly Benefit after: n  You become Disabled; n  You are receiving care anywhere other than in a Nursing Facility, an Assisted Living Facility or    an acute care hospital; n  You satisfy Your Elimination Period; and n  a Physician has certified that You are unable to perform (without Substantial Assistance from   another individual) two or more ADLs for a period of at least 90 days, or that You require   Substantial Supervision by another individual to protect You and others from threats to health   or safety due to Severe Cognitive Impairment. The treatment and services You receive for Your Disability must be provided pursuant to a plan of care developed by a Licensed Health Care Practitioner and can be provided to You by: n  a formal caregiver, such as a licensed home health care agency, a registered nurse, a licensed   practical nurse; or n  an informal caregiver, such as a friend or relative.

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We may require proof indicating days of Total Home Care services provided to You before a benefit will be paid.

When benefits become payable, there will be no more cost to You for Your coverage as long as You continue to be Disabled and receive Total Home Care.

In no event will the total benefits paid under the policy including this rider exceed the Maximum Benefit Amount. The Monthly Total Home Care Benefit Amount and the Maximum Benefit Amount are shown in the Policy Schedule.

Respite Care Benefit

If You are disabled but Total Home Care Benefits have not yet become payable, we will make payments to You for each day You receive Respite Care for up to 15 days each calendar year. The amount of Your daily payment will equal l/30th of Your Monthly Total Care Benefit Amount. You do not have to complete an Elimination Period for Respite Care payments to become payable.

Other than for premium waived during the Elimination Period according to the terms of the policy, premium will not be waived while You are receiving a payment for Respite Care.

Respite Care Benefits will count toward the Maximum Benefit Amount, and will end when the Maximum Benefit Amount has been reached.

How Long Will Benefits Be Paid

The Total Home Care Benefit will cease on the earliest of:

n  the day after You are no longer disabled;

n  the expiration of Your Physician certification;

n  the day after the Maximum Benefit Amount has been paid; or

n  the day after You die.

Termination of the Rider

This rider will terminate on the earliest of:

n  the date we receive Your written request to terminate this rider; or

n  the date the policy terminates.

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Inflation Protection Provision Rider

This rider is part of the policy to which it is attached. The rights provided by this rider are subject to the terms and conditions of this rider and the rest of the policy. This rider becomes effective on the later of the Effective Date of the policy or the Rider Date shown in the Policy Schedule. Premiums for this rider are shown in the rider description in the Policy Schedule. They are payable at the same time and under the same conditions as premiums for the policy.

5% Compound Inflation Protection

Your Monthly Benefit will increase each year on the Policy Anniversary by 5% of the Monthly Benefit in effect on that Policy Anniversary. Increases will be automatic and will occur regardless of Your health and whether or not You are receiving covered care. Your premium will not increase due to automatic increases in Your Monthly Benefit. Your remaining Lifetime Maximum Benefit Amount will also increase by 5% .

How Long Benefits Will Be Paid

The Inflation Protection Provision will cease on the earliest of:

n  the day after the Maximum Benefit Amount has been paid; or

n  the day after You die.

Termination of the Rider

This rider will terminate on the earliest of:

n the date we receive Your written request to terminate this rider; or

n the date the policy terminates.

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Non-Forfeiture Benefit Rider: Shortened Benefit Period

This rider is part of the policy to which it is attached. The rights provided by this rider are subject to the terms and conditions of this rider and the rest of the policy. This rider becomes effective on the later of the Effective Date of the policy or the Rider Date shown in the Policy Schedule. Premiums for this rider are shown in the rider description in the Policy Schedule. They are payable at the same time and under the same conditions as premiums for the policy.

If You stop making premium payments after Your policy has been in force for three years, You will be eligible for a Non-forfeiture Benefit. This means that Your policy would continue automatically with the same level of benefits, except for a reduction in Your Maximum Benefit Amount. Your Maximum Benefit Amount under this Non-forfeiture Benefit will be equal to the total premium paid up to the date You stopped paying premiums.

In no event will the Maximum Benefit Amount:

1.      be less than one Nursing Facility Monthly Benefit payment amount; or

2.      exceed that which would have been paid had You not stopped paying premiums.

No inflation protection increases, if included in Your plan, will be made after the end of the period for which premiums were last remitted to Unum for Your policy.

This Non-forfeiture Benefit is subject to all of the other terms and conditions of this policy.

This policy has no cash surrender value.

How Long Benefits Will Be Paid

The Non-forfeiture Benefit will cease on the earliest of:

n  the day after the Maximum Benefit Amount has been paid; or

n  the day after You die.

Termination of the Rider

This rider will terminate on the earliest of:

n  the date we receive Your written request to terminate this rider; or

n  the date the policy terminates.

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Contingent Non-Forfeiture Benefit If your premium rates increase: (a)    to a level which results in a cumulative increase of your annual premium that equals or exceeds   the percentage shown in the Policy Schedule of your initial annual premium based on your   issue age and (b)    your policy has been in force for at least three full years from the Policy Effective Date; You may choose to do one of the following:

Only in the contract in: AL, DE, HA, ID, ME, MN, MT, NE, NM, OK, VA, WI

(a)    continue to pay the required premium; (b)    lower your premium by decreasing your coverage; (c)    elect to convert your coverage within 120 days of the premium increase effective date to a   paid-up status with the Contingent Non-Forfeiture Benefit; or (d)    terminate your policy within 120 days of the premium increase effective date and be   automatically converted to the Contingent Non-Forfeiture Benefit. The percentage increase in premium does not include increases to premium due to changes to your Long Term Care insurance coverage. If you stop making premium payments under items (c) and (d), this means that your policy will continue automatically with the same level of benefits, except for a reduction in your Lifetime Maximum Benefit Amount. Your Lifetime Maximum Benefit Amount under this Contingent Non-Forfeiture Benefit will be equal to the total premium paid up to the date you stopped paying premiums reduced by the total amount of benefits already paid to you. In no event will your Lifetime Maximum Benefit Amount: (a)    be less than one Nursing Facility Monthly Benefit payment amount; or (b)    exceed that which would have been paid had you not stopped paying premiums. If your policy contains an Inflation Protection Benefit and continues under the Contingent Non-Forfeiture Benefit, no inflation protection increases will be made after the end of the period for which premiums were last remitted to Unum for your policy.

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Policy Series: LTC94Q The UnumProvident brand represents the disability income protection resources of several insuring companies with more than a century of industry experience. Marketing under the UnumProvident brand, these companies provide a range of insurance solutions designed to help people balance their work and personal lives, return to work after disability, and protect their incomes and preserve their assets from the financial effects of illness and injury. UnumProvident is the marketing brand: The Long Term Care insurance is underwritten by Unum Life Insurance Company of America, 2211 Congress Street, Portland ME 04122, a subsidiary of UnumProvident Corporation. www. unumprovident.com © 2002 UnumProvident Corporation. The name and logo combination is a servicemark of UnumProvident Corporation and its subsidiaries. All rights reserved.

A-36000

(5-02)

POLICY SCHEDULE

INSURED	Ronald V Congemi	POLICY DATE	12/01/2001
POLICYNUMBER	LAC716293	EFFECTIVE DATE	12/01/2001
		ACCELERATED PAYMENT OPTION EFFECTIVE DATE	12/01/2001

SUMMARY OF PREMIUM

Premiums are payable in United States dollars as follows:

Beginning	Annual	Semi Annual	Quarterly	Monthly
12/01/2001	$3,353.04	$1,710.05	$871.79	$301.77

SUMMARY OF COVERAGE

Form # LTC94Q	Nursing Home
Effective Date	12/01/2001
Annual Premium	$2,242.08
Elimination Period	90 Cumulative days
Benefit Amount	$4,000 Per Month
Assisted Living Facility Benefit	60% of the Nursing Home Benefit or 100% of the Home Care Benefit whichever is greater.
Maximum Benefit Amount	$288,000
Form # PHC97Q	Professional Home and Community Care Benefit
Home Care Effective Date	12/01/2001
Annual Premium	$1,110.96
Home Care Benefit	100% of Nursing Home Benefit

Riders

Benefit Increase Provision	5% Compound Unlimited
Non Forfeiture Benefit	Shortened Benefit Period 3 Years
Accelerated Payment Option	Ten Year

If the Lifetime Maximum Benefit Amount is Unlimited, the Lifetime Maximum Benefit Amount will not be limited to any dollar amount.

The Lifetime Maximum Benefit Amount for the Policy and any optional riders attached to the Policy will not exceed the Lifetime Maximum Benefit Amount shown on the Policy schedule.

The Nursing Home Benefit Amount and the Lifetime Maximum Benefit Amount will increase each policy anniversary, based on the Benefit Increase Provision purchased.

3

POLICY SCHEDULE

INSURED	Edward T Haslam	POLICY DATE	12/01/2001
POLICY NUMBER	LAC716290	EFFECTIVE DATE	12/01/2001
		ACCELERATED PAYMENT OPTION EFFECTIVE DATE	12/01/2001

SUMMARY OF PREMIUM

Premiums are payable in United States dollars as follows:

Beginning	Annual	Semi Annual	Quarterly	Monthly
12/01/2001	$3,209.76	$1,636.98	$834.54	$288.88

SUMMARY OF COVERAGE

Form # LTC94Q	Nursing Home
Effective Date	12/01/2001
Annual Premium	$2,087.28
Elimination Period	90 Cumulative days
Benefit Amount	$4,000 Per Month
Assisted Living Facility Benefit	85% of the Nursing Home Benefit or 100% of the Home Care Benefit whichever is greater.
Maximum Benefit Amount	$288,000
Form # PHC97Q	Professional Home and Community Care Benefit
Home Care Effective Date	12/01/2001
Annual Premium	$1,122.48
Home Care Benefit	100% of Nursing Home Benefit

Riders

Benefit Increase Provision	5% Compound Unlimited
Non Forfeiture Benefit	Shortened Benefit Period 3 Years
Accelerated Payment Option	Ten Year

If the Lifetime Maximum Benefit Amount is Unlimited, the Lifetime Maximum Benefit Amount will not be limited to any dollar amount.

The Lifetime Maximum Benefit Amount for the Policy and any optional riders attached to the Policy will not exceed the Lifetime Maximum Benefit Amount shown on the Policy schedule.

The Nursing Home Benefit Amount and the Lifetime Maximum Benefit Amount will increase each policy anniversary, based on the Benefit Increase Provision purchased.

3

POLICY SCHEDULE

INSURED	Dan M Palmer	POLICY DATE	12/01/2001
POLICY NUMBER	LAC716309	EFFECTIVE DATE	12/01/2001
		ACCELERATED PAYMENT OPTION EFFECTIVE DATE	12/01/2001

SUMMARY OF PREMIUM

Premiums are payable in United States dollars as follows:

Beginning	Annual	Semi Annual	Quarterly	Monthly
12/01/2001	$3,502.08	$1,786.06	$910.54	$315.19

SUMMARY OF COVERAGE

Form # LTC94Q	Nursing Home
Effective Date	12/01/2001
Annual Premium	$2,608.92
Elimination Period	90 Cumulative days
Benefit Amount	$4,000 Per Month
Assisted Living Facility Benefit	60% of the Nursing Home Benefit or 100% of the Home Care Benefit whichever is greater.
Maximum Benefit Amount	$288,000
Form # PHC97Q	Professional Home and Community Care Benefit
Home Care Effective Date	12/01/2001
Annual Premium	$893.16
Home Care Benefit	100% of Nursing Home Benefit

Riders

Benefit Increase Provision	5% Compound Unlimited
Non Forfeiture Benefit	Shortened Benefit Period 3 Years
Accelerated Payment Option	Ten Year

If the Lifetime Maximum Benefit Amount is Unlimited, the Lifetime Maximum Benefit Amount will not be limited to any dollar amount.

The Lifetime Maximum Benefit Amount for the Policy and any optional riders attached to the Policy will not exceed the Lifetime Maximum Benefit Amount shown on the Policy schedule.

The Nursing Home Benefit Amount and the Lifetime Maximum Benefit Amount will increase each policy anniversary, based on the Benefit Increase Provision purchased.

3

POLICY SCHEDULE

INSURED	Chris Reckert	POLICY DATE	12/01/2001
POLICY NUMBER	LAC716297	EFFECTIVE DATE	12/01/2001
		ACCELERATED PAYMENT OPTION EFFECTIVE DATE	12/01/2001

SUMMARY OF PREMIUM

Premiums are payable in United States dollars as follows:

Beginning	Annual	Semi Annual	Quarterly	Monthly
12/01/2001	$2,865.60	$1,461.46	$745.06	$257.90

SUMMARY OF COVERAGE

Form # LTC94Q	Nursing Home
Effective Date	12/01/2001
Annual Premium	$1,689.48
Elimination Period	90 Cumulative days
Benefit Amount	$4,000 Per Month
Assisted Living Facility Benefit	60% of the Nursing Home Benefit or 100% of the Home Care Benefit whichever is greater.
Maximum Benefit Amount	$288,000
Form # PHC97Q	Professional Home and Community Care Benefit
Home Care Effective Date	12/01/2001
Annual Premium	$1,176.12
Home Care Benefit	100% of Nursing Home Benefit

Riders

Benefit Increase Provision	5% Compound Unlimited
Non Forfeiture Benefit	Shortened Benefit Period 3 Years
Accelerated Payment Option	Ten Year

If the Lifetime Maximum Benefit Amount is Unlimited, the Lifetime Maximum Benefit Amount will not be limited to any dollar amount.

The Lifetime Maximum Benefit Amount for the Policy and any optional riders attached to the Policy will not exceed the Lifetime Maximum Benefit Amount shown on the Policy schedule.

The Nursing Home Benefit Amount and the Lifetime Maximum Benefit Amount will increase each policy anniversary, based on the Benefit Increase Provision purchased.

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EX-10.30

EXHIBIT 10.30

[UNUM LOGO]

Unum_®

Protecting everything

you work for

Specimen Policy

Income Series

Individual Income Protection Insurance

Form 600 & 601

[GRAPHIC]

Unum’s uniquely packaged Income Series policy is designed to help you meet the lifelong income protection and asset preservation needs of a wide range of today’s customers. Three coverage packages – Income I, Income II (Select) and Income III (Choice) – are available, as are a number of optional benefits that allow customers to further customize their coverage to their needs and concerns.

The specimen contract in this booklet shows the general coverage provided by Income Series policy form 600 (non-cancellable coverage). Annotations show where the coverage changes for customers who choose policy form 601 (guaranteed renewable coverage).

Income I serves as core coverage under the Income Series policy, and many of the annotations in that section apply also to Income II and Income III packages. See the appropriate tabbed section for Income II and Income III for detailed information on how each of these differs from the core coverage provided by Income I.

Income Series policies and provisions may vary by state, as may the exclusions and limitations of the general coverage shown in this booklet. See the actual policy or your Unum marketing consultant for exact provisions and details of availability.

[Graphic: Income I Package]

Income I Package

1

		Income I Package
The income Series’ strong core package of coverage is designed for a wide variety of professionals, managers and executives		[LOGO] Provident Life and Accident Insurance Company 1 Fountain Square Chattanooga, TN 37402 (John Doe), the Insured Policy Number (123456789) Disability Income Policy
Choice of non-cancellable or guaranteed renewable coverage “Non-cancellable” means the coverage cannot be changed and premiums are guaranteed for the life of the policy, unless you change the coverage yourself and as long as premiums are paid on time. If you choose guaranteed renewable coverage (policy 601), this section will reflect that terminology and note the fact that premiums can be changed, but only for an entire class of customers. For policies that are part of a multi-life (employer-sponsored) plan, coverage is available for ages in excess of 65.	—>	NON-CANCELLABLE AND GUARANTEED RENEWABLE TO AGE 65, NO CHANGE IN PREMIUM RATES. As long as the premium is paid on time, We cannot change Your Policy or its premium rate until Your 65th birthday.
You can renew your policy after age 65, as long as you continue to work full time.	—>	RENEWAL OPTION AFTER YOU REACH AGE 65. SUBJECT TO CHANGE IN PREMIUM RATES. You may continue Your Policy for a Total Disability benefit with a limited benefit period while You are actively and regularly employed a minimum of 30 hours per week. There is no age limit. This option is explained in Part 4.
Satisfaction guaranteed or full premium refund within 10 days of receipt.	—>	Your Right To Cancel. If You are not satisfied with Your Policy, You may cancel it. Return the Policy to Us or Your authorized representative through whom it was purchased by midnight of the tenth day after the date You receive it. If You return the Policy by mail, it must be properly addressed, postage prepaid, and postmarked no later than midnight of that tenth day. Our mailing address is 1 Fountain Square, Chattanooga, TN 37402. Within ten days after We receive the Policy, We will refund any premium You have paid. The Policy will be considered to have never been issued.
		Read Your Policy Carefully. It is a legal contract between You and Us. Signed for by Provident Life and Accident Insurance Company

[SIGNATURE]	[SIGNATURE]
Vice President, Corporate Secretary and Assistant General Counsel 600	Chairman, President and Chief Executive Officer

2

[Graphic: Income I Package]

TABLE OF CONTENTS

Renewal Provisions

Policy Schedule

Part — 1 Definitions

Part — 2 Exclusions

Part — 3 Premium and Reinstatement

Part — 4 Renewal Option After Age 65

Part — 5 Claims

Part — 6 The Contract

Part — 7 Benefits

Part — 8 Recurrent and Concurrent Disability

A copy of Your application, added benefits You have purchased, and any added provisions are attached at the back of the Policy.

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		POLICY SCHEDULE
		Insured/Owner – John Doe		Policy Number – 123456789
		Effective Date – January 1, 2000		First Renewal Date – January 1, 2001
				Renewal Term – One Month
		Summary of Premium
		Annual Premium for Disability Benefits Annual Premium for Additional Benefits Total Annual Premium Your Monthly Premium		$   XX.XX $   XX.XX $XXX.XX $XXX.XX
Four ways to pay premiums This specimen shows monthly payment. Other standard payment mode choices are Annual, Semi-Annual and Quarterly. For policies that are part of a multi-life plan, additional payment modes may be available for payroll deduction in order to match the employer’s pay schedule.	—>	Other Premium Paying Methods: $XXX.XX Annually $XXX.XX Semi-Annually $XXX.XX Quarterly
		Table of Total Disability Benefits
		Elimination Period	Maximum Benefit Period For Total Disability	Total Disability Monthly Amount
		90 Days	To Age 65	$3,000
Additional Monthly Indemnity adds more flexibility	—>	180 Days	To Age 65	$l,000
This specimen shows a two-part benefit. The $1,000 amount has been set up as Additional Monthly Indemnity (AMI) with a different Elimination Period. See page 44 for details. This is how long benefits will be paid during Total Disability.		The Maximum Benefit Periods for Total Disability may change due to Your age at Total Disability. Please see the Maximum Benefit Periods for Total Disability section of the Policy Schedule.
Extended Mental Disorder benefits available in most employer plans The employer may opt to extend 24-month Mental Disorder provision to the duration of the individual’s Benefit Period (2 years, 3 years, 5 years, to age 65 or to age 67, for example), except in CA and FL.	—>	Maximum Benefit Period for Mental Disorders – 24 Months over the life of Your Policy Benefits payable beyond the Maximum Benefit Period for Mental Disorders for a hospital confinement due to a Disability from Mental Disorders will in no event exceed the Maximum Benefit Periods for Total Disability.
All three Income Series policies share this 24- month “own occupation” provision. At the end of 24 months, Income I benefits depend on the ability to perform “any occupation for which you are suited by education, training or experience.” See pages 7 and 10 under Definitions for exact language.	—>	Your Occupation Period – 24 Months
		Maximum Benefit Periods for Total Disability
		For Total Benefits payable To Age 65, if Total Disability begins:
		Before Age 61 At Age 61, but before Age 62 At Age 62, but before Age 63 At Age 63, but before Age 64 At Age 64, but before Age 65 At or after Age 65, but before Age 75 At or after Age 75		To Age 65 48 Months 42 Months 36 Months 30 Months 24 Months 12 Months
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		Graphic: Income I Package
		For Total Disability Benefits Payable for 5 Years, If Total Disability begins:
		Before Age 61			60 Months
		At Age 61, but before Age 62			48 Months
		At Age 62, but before Age 63			42 Months
		At Age 63, but before Age 64			36 Months
		At Age 64, but before Age 65			30 Months
		At or after Age 65, but before Age 75			24 Months
		At or after Age 75			12 Months
Provides benefits for less-than-total (Residual) disability and includes a Work Incentive Benefit (WIB) designed to help ease the customer back into the workplace after a disability. Residual benefits are based on loss of income. See page 18 for a description of how these are calculated. During the Income I Work Incentive Benefit (WIB) period, an additional short-term benefit can replace up to 100% of prior income, within the maximum benefit amount for the customer, as shown in the Policy Schedule. (Note that the WIB period is different for Income II and Income III coverage. See tabbed sections for details.)	—>	Residual Disability Benefits
		Elimination Period	Work Incentive Period		Maximum Benefit Period for Residual Disability
		90 Days	3 Months		24 Months
Allows the customer to exchange income protection insurance for individual long-term care (LTC) insurance between the ages of 60 and 70. The LTC benefit period available to Income I customers is 3 years. See page 28 for details. (Note that the LTC benefit period differs for Income II and Income III packages.)	—>	Lifetime Continuation Option
		Elimination Period	Benefit Amount for Long Term Care Policy		Lifetime Maximum Benefit Amount for Long Term Care Policy
		90 Days	$3,000 per month		$108,000
Three years of automatic coverage increases available standard in the policy. See page 29 for a complete description.	—>	Schedule of UPDATE Increases
		Increase Date	Monthly Benefit Increase		Annual Premium Increase
		January 1, 2000	$200		$XX
		January 1, 2001	$200		$XX
		January 1, 2002	$200		$XX
A selection of optional benefits can customize coverage more closely to the customer’s needs and concerns. Complete descriptions can be found under the Optional Benefits tab.	—>	Table of Additional Benefits
		Description			Annual Premium Prior to Age 65
		Cost of Living Adjustment Option			$XX.XX
		Rider Effective Date:		January 1, 2000
		Catastrophic Disability Benefit:			$XX.XX
		Rider Effective Date:		January 1, 2000
		Catastrophic Disability Elimination Period:		90 Days
		Catastrophic Disability Benefit Amount:		$2,500 per month
		Future Income Option			$XX.XX
		Rider Effective Date:		January 1, 2000
		FIO Expiration Date:		January 1, 2014
		Unit of Increase:		$1,000
		Maximum Number of Increase Units:		6
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Social Insurance Substitute (SIS) Benefit		$XX.XX
Rider Effective Date	January 1, 2000
Maximum SIS Benefit:	$1,000 per month
SIS Elimination Period:	90 Days
SIS Benefit Period:	To Age 65
SIS Expiration Date:	Your Age 65
Lifetime Continuation Option Increase (LCOI)		$XX.XX
Rider Effective Date:	January 1, 2000
LCOI Amount:	$4,000
LCOI Expiration Date:	Your Age 70
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		[Graphic: Income I Package]
		INTRODUCTION
		This Policy is a legal contract between You and Us. It is issued in consideration of the payment, in advance, of the premium and of Your statements and representations in the application(s). A copy of the application(s) is attached and is part of Your Policy. Omissions and misstatements in the application(s) could cause an otherwise valid claim to be denied or Your Policy to be rescinded. We agree to pay benefits subject to all of the provisions contained in Your Policy. You agree to do all that would be reasonably expected to mitigate any loss. Loss must begin while Your Policy is in force.
These terms are used throughout the policy.	—>	PART 1 – DEFINITIONS THE FOLLOWING WORDS HAVE SPECIAL MEANINGS. THEY ARE IMPORTANT IN DESCRIBING YOUR RIGHTS AND OUR RIGHTS UNDER THE POLICY. REFER BACK TO THESE MEANINGS AS YOU READ YOUR POLICY.
This “any occupation” provision applies to Income I after the 24-month “own occupation” period. (Note that different and enhanced provisions apply to Income II and Income III after 24 months of “own occupation” benefits.)	—>	Any Occupation means Any Occupation for which You are reasonably fitted based on education, training or experience. Concurrent Disability means a Disability that is caused by more than one Injury and/or Sickness. Contest means that We question the validity of coverage under Your Policy by letter to You. This contest is effective on the date We mail the letter and refund the premium to You. CPI-U means the Consumer Price Index for all Urban Consumers. It is published by the United States Department of Labor. If this index is discontinued or if the method of computing is materially changed, We may choose another index. We will choose an index that, in Our opinion, would most accurately reflect the rate of change in the cost of living in the United States. CPI-U will then mean the index We choose. CPI-U Change means the result of a computation We will make as of each Review Date. We will divide the CPI-U for the most recent Index Month by the CPI-U for the Index Month prior to the most recent Index Month. CPI-U Factor means the result of the CPI-U Change as of the current Review Date multiplied by the CPI-U Change for each prior Review Date occurring since the Disability began. The CPI-U Factor as of the first Review Date will equal the CPI-U Change as of that Review Date. The CPI-U Factor is determined as of each Review Date while Disability continues. Disability or Disabled means that You are Totally Disabled or Residually Disabled. Disability must start while this Policy is in force. A Disability begins with an Elimination Period and has a maximum benefit period applied to it. Effective Date means the date that the Policy becomes effective. It is shown in the Policy Schedule.
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Available choices include 60, 90, 180 and 365 days. (30-day period also available with 2-, 3-, 5-year Benefit Period. A 730-day choice is also available for AMI and SIS benefit amounts if these are purchased. See page 44 for the language that applies to AMI.	—>	Elimination Period means the number of days that must elapse in a Disability before benefits become payable. The number of days is shown in the Policy Schedule. These days need not be consecutive; they can be accumulated during a Disability to satisfy an Elimination Period. Benefits are not payable, nor do they accrue, during an Elimination Period. Hospital means an institution legally operating as a facility that: 1.  is mainly engaged in providing in-patient medical care for diagnosis and treatment of Injury or Sickness, and routinely makes a charge for such care; 2.  is supervised by a staff of Physicians on the premises: and 3.  provides on the premises 24 hour nursing services by registered graduate nurses. In no event will Hospital include any institution: 1.  which is run mainly as a rest, nursing or convalescent home; 2.  in which any part is mainly for the care of the aged; or 3.  which is engaged in the schooling of its patients. Index Month means the calendar month four months prior to the calendar month in which a Review Date occurs. The first Index Month for any Disability will be the calendar month four months prior to the month that Your Disability began. Injury or Injuries means accidental bodily injury that occurs after the Effective Date and while Your Policy is in force. Insured is named in the Policy Schedule and is the owner of this Policy. Loss of Earnings for any month means Your Prior Earnings minus Your Monthly Earnings in the month for which a benefit is claimed. This difference will be considered a Loss of Earnings to the extent it is due to the Injury or Sickness that caused the Disability. The Loss of Earnings must be at least 20% of Prior Earnings. Maximum Benefit Period for Mental Disorders is the longest period of time for which We will pay benefits for loss contributed to or caused by Mental Disorders. It is shown in the Policy Schedule. Maximum Benefit Period for Residual Disability is the longest period of time for which We will pay benefits during a Residual Disability. It is shown in the Policy Schedule. Maximum Benefit Period for Total Disability is the longest period of time for which We will pay benefits during a Total Disability. It is shown in the Policy Schedule. Mental Disorders means any disorder (except dementia resulting from stroke, trauma, infections or degenerative diseases such as Alzheimer’s disease) classified in the Diagnostic and Statistical Manual of Mental Disorders (DSM), published by the American Psychiatric Association, most current as of the start of a Disability. Such disorders include, but are not limited to psychotic, emotional or behavioral disorders, or disorders relatable to stress or to substance abuse or dependency. If the DSM is discontinued or replaced, these disorders will be those classified in the diagnostic manual then in use by the American Psychiatric Association as of the start of a Disability.
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		[Graphic: Income I Package]
		Monthly Earnings means Your salary, wages, commissions, bonuses, fees and income earned for services performed. If You own any portion of a business or profession, it means: 1.  Your share of income earned by that business or profession; 2.  less Your share of business expenses that are deductible for Federal income tax purposes; 3.  plus Your salary and any contributions to a pension or profit sharing plan made on Your behalf. Monthly Earnings does not include: 1.  income from deferred compensation plans, disability income policies or retirement plans; or 2.  income not derived from Your vocational activities. We will allow either the cash or accrual accounting method, but during a Disability, the same method must be used when determining Loss of Earnings. Physician means a person who is licensed by law, and is acting within the scope of the license, to treat Injuries or Sickness that results in a Disability. A Physician cannot be You or anyone related to You by blood or marriage, a business or professional partner, or any person who has a financial affiliation or business interest with You. A Physician must be a licensed psychiatrist or a licensed doctoral level psychologist if a Disability is due to a Mental Disorder that is classified in the Diagnostic and Statistical Manual of Mental Disorders (DSM), or its successor, published by the American Psychiatric Association as of the beginning of a Disability. Physician’s Care means the regular and personal care of a Physician as frequently as is medically required according to standard medical practice, and which, under prevailing medical standards, is appropriate for the condition causing the Disability. Policy means the legal contract between You and Us. The policy, any application(s), the Policy Schedule(s) and any attached papers that We call riders, amendments, or endorsements make up the entire contract between You and Us.
Note that this provision does not apply for guaranteed-standard-issue multi-life plans. In such cases, eligible employees qualify for coverage if they have been at work full-time for the 60 days prior to applying for insurance. (60-day period may be extended in some multi-life offers.)	—>	Pre-existing Conditions means a sickness or physical condition for which prior to the Effective Date: 1.  symptoms existed that would cause an ordinarily prudent person to seek advice or treatment from a Physician; or 2.  advice or treatment was recommended by or received from a Physician. Prior Earnings means the greater of Your Monthly Earnings: 1.  for the 12 months just prior to the Disability for which claim is made; or 2.  for the fiscal year with the higher earnings of the last two fiscal years prior to the Disability for which claim is made. Starting as of the first Review Date, We will make an inflation adjustment to Your Prior Earnings. We will multiply Your Prior earnings by the CPI-U Factor. The result will be used until the next Review Date to compute Residual Disability Benefit amounts payable. The inflation adjustment increase will be at least 2% of Your Prior Earnings amount. In no event will the inflation adjustment increase be more than 10% of Your Prior Earnings amount.
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		Recurrent Disability means a Disability that occurs within six months after the end of a previous Disability that is due to the same or related causes.
		Residual Disability or Residually Disabled means that You are not Totally Disabled, but due to Injury or Sickness:
		1.  You are unable to perform one or more of the material and substantial duties of Your Occupation; or You are unable to perform them for as long as normally required to perform them; and
		2.  You are receiving Physician’s Care. We will waive this requirement if We receive written proof acceptable to Us that further care would be of no benefit to You.
		After the end of the Elimination Period, Residual Disability or Residually Disabled also means:
		3.  You incur a Loss of Earnings while You are engaged in Your Occupation or Any Occupation.
		Review Date means each anniversary of the start of a Disability.
		Rider Effective Date means the date that the Rider becomes effective. It is shown in the Policy Schedule.
		Sickness means sickness or disease that first manifests itself after the Effective Date and while Your Policy is in force. It includes Disability from surgery performed to improve Your appearance or prevent disfigurement or to transplant part of Your body to someone else.
		Total Disability or Totally Disabled means that because of Injuries or Sickness:
		1.  You are unable to perform the material and substantial duties of Your Occupation; and
		2.  You are not engaged in any other occupation; and
Although this provision for Physician’s Care applies to qualification for all benefits payable under the Income Series, it will be waived if Unum receives acceptable proof that such care would be of no further benefit.	—>	3.  You are receiving Physician’s Care. We will waive this requirement if We receive written proof acceptable to Us that further Physician’s Care would be of no benefit to You. After the end of the Your Occupation Period, then Total Disability also means: 4.  You are unable to perform the material and substantial duties of Any Occupation.
		Total Disability Monthly Amount is shown in the Policy Schedule.
		We, Our, and Us refer to The Provident Life and Accident Insurance Company and its affiliates.
		Work Incentive Period for Residual Disability is shown in the Policy Schedule.
		You, Your and Yourself refer to the Insured named in the Policy Schedule.
		Your Occupation means the occupation or occupations, as performed in the national economy, rather than as performed for a specific employer or in a specific location, in which You are regularly engaged at the time You become Disabled.
		600

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		[Graphic: Income I Package]
This section describes situations in which policy benefits are not available.	—>	PART 2 – EXCLUSIONS Exclusions We will not pay benefits for a Disability contributed to or caused by:
		1.  war or act of war, whether declared or undeclared; or 2.  the suspension, revocation or surrender of Your professional license to practice in Your Occupation; or
Note that this exclusion does not apply to qualified multi-life plan coverage. In such cases, pregnancy is covered as any other sickness.	—>	3.  normal pregnancy or childbirth during the first 90 days of Disability (We will pay benefits for loss caused by complications of pregnancy. Complications are physical conditions that physicians consider distinct from pregnancy even though caused or worsened by pregnancy. Examples of conditions that are not complications include false labor and morning sickness.) 4.  Your commission or attempt to commit a crime, or Your being engaged in an illegal occupation; or 5.  intentionally self inflicted injuries; or 6.  any loss We have excluded by name or specific description (any such exclusion will appear in the Policy Schedule). We will not pay benefits for any period You are incarcerated during a Disability. We will not pay benefits for more than 12 months while You reside outside the United States or Canada. You will be considered to reside outside these countries when You have been outside the United States or Canada for a total period of 6 months or more during any 12 consecutive months during a Disability.
Note that this limitation may not apply to guaranteed-standard-issue or guaranteed-to-issue coverage in plans sponsored by employers.	—>	Pre-existing Conditions Limitation We will not pay benefits for a Disability caused by a Pre-existing Condition that was not disclosed, or that was misrepresented, in answer to a question in the application for this Policy.
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		PART 3 – PREMIUM AND REINSTATEMENT
		Payment of Premium The first term of this Policy starts on the Effective Date shown in the Policy Schedule. It ends on the First Renewal Date. Later terms are periods for which You pay renewal
For Guaranteed Renewable coverage: If the coverage is guaranteed renewable (policy 601) instead of non-cancellable (policy 600), there will be a paragraph here in the policy stating: “Our renewal premium will be based on Our rates then in effect for Your rating group. We can change the premium rate but only if We change the rate for everyone who has this policy form in Your rating group in Your state.”	—>	premiums. All terms will begin and end at 12:01 A.M., Standard Time at Your home. You continue the Policy in force from term to term by paying premiums when due. The renewal premium for each term is due on the day the preceding term ends, subject to the grace period. Premiums may be paid annually or semi-annually. If Our rules permit it, You can pay the premiums quarterly or monthly. We will allow You to change this by written request. But, We will not allow a change while You are Disabled.
The customer has up to 31 days after each premium due date to pay each premium, during which time the policy remains in force.	—>	Grace Period After the first premium has been paid, a grace period of 31 days is allowed for late payment of premium. Your Policy will remain in force during the grace period. If the premium is not paid when it is due or within the grace period, the Policy will lapse. Reinstatement If a renewal premium is not paid before the grace period ends, the Policy will lapse. You may apply to reinstate this Policy within six months from the date of the Policy lapse by: 1) completing an application for reinstatement and 2) paying the full amount of overdue premium. You will be given a conditional receipt for the premium tendered. If Your application is approved, the Policy will be reinstated as of the approval date. If We fail to act on Your application (by approving or disapproving it) within 45 days from the date of the conditional receipt, the Policy will be reinstated on that 45th day. If We or one of Our authorized representatives accept the overdue premiums without requiring an application for reinstatement, the Policy will be reinstated. The reinstated Policy will cover only loss that results from Injuries that occur after the date of reinstatement or Sickness that is first manifested more than 10 days after that date. In all other respects, Your rights and Ours will remain the same, subject to any provisions noted on or attached to the reinstated Policy. Premium Refund We will make pro-rata refunds of premium: 1.  in the event of Your death (such refunds will be made to Your estate for any premium paid for a period beyond the date of Your death.); 2.  if the Policy terminates because You stop working (except because of Injury or Sickness) when this Policy has been continued after Your 65th birthday, or if later, after it has been in force for five years; 3.  if You suspend Your Policy in accordance with the Suspension During Military Service provision: or 4.  in accordance with the Waiver of Premium provision.
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		[Graphic: Income I Package]
		Suspension During Military Service If You enter full time, active duty in the military (land, sea, or air ) service of any nation or international authority. You may suspend this Policy. However, You may not suspend the Policy during active military training lasting three months or less. The Policy will not be in force while it is suspended, and You will not have to pay any premiums. When We receive Your written request to suspend the Policy, We will refund the pro-rata portion of any premium paid for a period beyond the date We receive Your request. If Your full time active duty in military service ends before Your 65th birthday, You may place this Policy back in force without evidence of insurability . Your coverage will start again when: 1.  We receive Your written request to place the Policy back in force; and 2.  You have paid the pro-rata premium for coverage until the next premium due date. We must receive Your request and premium payment within 90 days after the date Your active duty service in the military ends. Premiums will be at the same rate they would have been had Your Policy remained in force. The Policy will not cover any loss due to Injuries that occur or Sickness that is first manifested while the Policy is suspended. In all other respects. You and We will have the same rights under the Policy as before it was suspended.
No premium due while the customer is disabled and receiving benefits.	—>	Waiver of Premium After 90 days of Disability resulting from Injuries or Sickness not excluded from coverage, We will: 1.  refund any premiums for this Policy that were due and paid while You were Disabled; and 2.  waive the payment of premiums that thereafter become due for as long as the Disability continues, but not beyond the maximum benefit period. After the Disability ends, or after the maximum benefit period ends, whichever comes first, to keep this Policy in force You must resume the payment of premiums by paying the pro-rata premium until the next premium due date. Thereafter premiums will be due and payable as provided in the Policy. For premiums to be waived, You must provide Us with satisfactory proof of Disability.
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		PART 4 – RENEWAL OPTION IF EMPLOYED BENEFITS FOR TOTAL DISABILITY – LIMITED BENEFIT PERIOD
		Renewal Option
		After Your 65th birthday You may continue Your Policy while:
		1.  You remain actively and regularly employed for at least 30 hours per week; and
		2.  The premium is paid on time.
		We can require proof after Your 65th birthday that You have continued to be actively and regularly employed for at least 30 hours per week.
		The Policy must be in force when You elect this option.
		The only benefits that will continue under this option are Benefits for Total Disability. All other benefits and options in force on Your 65th birthday will end on that date, unless otherwise stated in Your Policy.
		Maximum Benefit Period for Total Disability
		If You elect this option, We will pay the Total Disability Monthly Amount subject to the same provisions, exceptions and limitations in the Policy.
		For Total Disability starting:
After age 65 and until age 75, benefits are payable for up to 24 months. After age 75, benefits are payable for up to 12 months.	—>	1.  After Your 65th birthday, but before Your 75th birthday, the Maximum Benefit Period for Total Disability will be 24 months or the period shown in the Policy Schedule if less; and 2.  After Your 75th birthday, the Maximum Benefit Period for Total Disability will be 12 months.
		Premiums after Age 65
		The premium will be the rate then in effect for Your rating group. We can change the premium rate but only if We change the rate for everyone who has this policy form in Your rating group in Your state.
		Any premium paid after Your 65th birthday for a period not covered by Your Policy under this option will be returned to You.
		600

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		[Graphic: Income I Package]
This section describes how to submit a claim for disability and how benefits are paid.	—>	PART 5 – CLAIMS Time of Loss All losses must occur while Your Policy is in force. Written Notice of Claim Written notice of claim must be given to Us within 30 days after Your Disability begins. If this cannot be done, then notice must be given as soon as reasonably possible. Claim Forms After We receive the written notice of claim, We will send You Our proof of loss forms within 15 days. If We do not, You will meet the written proof of loss requirements if You send Us, within the time set forth below, a written statement of the nature and extent of Your loss. Written Proof of Loss Written proof of loss must be sent to Us within 90 days after the end of each period for which You are claiming benefits. If that is not reasonably possible, Your claim will not be reduced or denied for that reason if such proof is filed as soon as is reasonably possible. However, unless You are legally incapacitated, written proof must be given one year after the date it was required. We can require any proof that We consider necessary to consider your claim. This may include medical information, personal and business tax returns filed with the Internal Revenue Service, financial statements, accountant’s statements or other proof acceptable to Us. Also, We or an independent accountant retained by Us shall have the right to examine the financial records of the business and of the Insured as often as We may reasonably require. Examinations At Our expense, We can require that You undergo a medical examination, functional capacity examination and/or psychiatric examination, including any related tests as are reasonably necessary to the performance of the examination by a Physician or specialist appropriate for the condition at such time and place and as frequently as We may reasonably require. We reserve the right to select the examiner. We will pay for the examination, including the costs associated with Your travel to the examination, if the examination cannot be conducted locally. You must meet with Our representative for a personal interview or review of records at such time and as frequently as We reasonably require. Responsibility to Obtain Appropriate Medical Care You have the responsibility to obtain all reasonably appropriate medical care and treatment using all generally accepted medical procedures for the condition upon which the claim for benefits under the Policy is based. This medical care must be medically reasonable for such conditions to an ordinarily prudent person.
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		Time of Payment of Claims After We receive satisfactory written proof of loss, We will pay monthly all benefits We owe You at the end of each month of Disability. For periods less than one month, We will pay  1/30th of the benefit for each day of Disability. The balance of any unpaid benefits will be paid promptly at the end of the claim. Payment of Claims All benefits will be paid to You. Benefits terminate upon Your death. If any benefit is payable but not yet paid upon Your death, then We will pay Your estate. If You are not competent to give valid release, We can pay up to 1,000 dollars to one of Your relatives who We believe is entitled to it. If We do that in good faith, We will not be liable to anyone for the amount We pay.
This provision applies to policies issued through a qualified multi-life plan.	—>	ERISA Your rights under the Employee Retirement Income Security Act of 1974 (ERISA): If the coverage of this Policy qualifies under an employee welfare benefit plan established and maintained by the employer and governed by ERISA, We will be the claims administrator and have full, final, binding and exclusive discretion to determine benefits. The administrator’s claim decision will not be overturned unless it is arbitrary and capricious or lacking any rational basis. You have the right to appeal Our decision under the terms of this plan and under ERISA. This appeal should be sent within 90 days of the receipt of Our denial. It should be sent to: Provident Life and Accident Insurance Company Customer Care Center 1 Fountain Square Chattanooga, TN 37402 Your appeal should include any additional important information not initially submitted or available. You should submit copies of all appropriate documents and the reason why You believe different action should be taken under the terms of Your Policy. The Customer Care Center will make a final determination on Your request for appeal within 60 days from the receipt of Your appeal. If We do not receive any additional information from You within the 90 day period, We will consider Our original denial to be Our final determination on this matter.
		600

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		[Graphic: Income I Package]
		PART 6 – THE CONTRACT Entire Contract; Changes This Policy (with the application and attached papers) is the entire contract between You and Us. No change in this Policy will be effective until approved by a Company officer. This approval must be noted on or attached to this Policy. No agent may change this Policy or waive any of its provisions.
These provisions may be waived for guaranteed-standard-issue coverage provided in a multi-life plan sponsored by an employer.	—>	Time Limit On Certain Defenses Misstatements in the Application After two years from the Effective Date of this Policy, no misstatements or omissions, except fraudulent misstatements or omissions, made by You in the application for this Policy will be used to void or Contest the Policy or to deny a claim for loss incurred or Disability that starts after the end of such two year period. Limitation on Pre-existing Conditions No claim for loss incurred or Disability that starts after two years from the Effective Date of this Policy will be reduced or denied on the ground that a sickness or physical condition not excluded by name or specific description had existed before the Effective Date of this Policy. Conformity With State Statutes Any provisions in this Policy which, on its Effective Date, conflict with the laws of the state in which You reside on that date is amended to meet the minimum requirement of such laws. Legal Action You cannot bring legal action within 60 days from the date written proof of loss is given. You cannot bring it after 3 years from the date written proof of loss is required. Assignment We will not be bound by an assignment of Your Policy for any claim unless We receive a written assignment at Our home office before We pay the benefits claimed. We will not be responsible for the validity of any assignment. An absolute assignment is a change of policy owner to the assignee. A collateral assignment is not a change of the policy owner; in this case benefits will be paid jointly to the policy owner and the assignee. Misstatement of Age If Your age has been misstated, the benefits under the Policy will be those that the premium You paid would have purchased at Your correct age.
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		PART 7 – BENEFITS
		Benefits for Total Disability If You are Totally Disabled, We will pay benefits as follows: 1.  Benefits start to accrue on the day of Total Disability following the Elimination Period. 2.  The Total Disability Monthly Amount will be paid for as long as Total Disability continues, but not beyond the Maximum Benefit Period for Total Disability. Benefits for Disability Resulting from a Mental Disorder If Your Disability is contributed to or caused by a Mental Disorder, We will pay benefits according to the provisions of this Policy, except as limited by the Maximum Benefit Period for Mental Disorders.
		If, at the end of the Maximum Benefit Period for Mental Disorders, You are continuously confined, due to a Disability from Mental Disorders, in a Hospital under the care of a Physician, We will waive the Maximum Benefit Period for Mental Disorders for the duration of Your hospital confinement for this Disability.
Also covers less-than-total disability Residual benefits are based on the level of income lost due to less-than-total disability. Prior total disability is not required for Residual benefits.	—>	Benefits for Residual Disability If You are Residually Disabled, We will pay benefits as follows: 1.  Benefits start to accrue on the day of Residual Disability following the Elimination Period or after Your Total Disability ends, if later. 2.  The Residual Disability Monthly Amount will be determined each month using the following formulas:
Higher benefits apply during an initial return-to-work period after total disability Unum’s Work Incentive Benefit (WIB) provides an enhanced short-term benefit payable during the initial return to work after disability. Subject to the maximum benefit amount shown in the Policy Schedule, Income I’s WIB can replace up to 100% of prior income for the first three months after the return to work. (Note that the WIB period differs for Income II and Income III. See the appropriate tab section for the WIB period that applies to each of these packages.)	—>	During the Work Incentive Period, the following formula will be used:
		Prior Earnings minus (-) Monthly Earnings			=	Residual Disability Monthly Amounts
		*Residual Disability Monthly Amount cannot exceed the Total Disability Monthly Amount.
This is the formula used to calculate Residual benefits after the initial WIB period.	—>	After the Work Incentive Period, the following formula will be used:
		Loss of Earnings Prior Earnings	X	Total Disability Monthly Amount	=	Residual Disability Monthly Amount
		If the Loss of Earnings equals 75% or greater of Prior Earnings, We will deem the loss to be 100% of Prior Earnings.
		3.  The Residual Disability Monthly Amount will be paid for as long as Residual Disability continues, but not beyond the Maximum Benefit Period for Residual Disability.
		Residual Disability benefits will not be paid for any days for which Total Disability benefits are paid.
		600

18

		[Graphic: Income I Package]
Unum’s expert Rehabilitation Services aim at helping disabled customers return to self-sufficiency The extensive Rehabilitation Services described in this section are included in the policy, as long as the customer and Unum agree mutually in writing on a program aimed at facilitating the return to work. Benefits will continue while the customer participates in the rehabilitation program.	—>	Rehabilitation Benefit Rehabilitation will be voluntary on Your part and on Our part. If You and We agree on a program of occupational rehabilitation in advance, We will pay for the program as set forth in a written agreement. The goal of the program must be to return You to work. The extent of Our role will be determined by the written agreement. Generally, We will pay the expenses of the program that are not already covered by some other social or insurance program. Some of the services that might be provided could include, but are not limited to: 1.      coordination of physical rehabilitation and medical services; 2.      financial and business planning; 3.      vocational evaluation and transferable skills analysis; 4.      career counseling and retraining; 5.      labor market surveys and job placement services; and 6.      evaluation of necessary worksite modifications and adaptive equipment. We can periodically review the program and Your progress in it. We will continue to pay for the program as long as We determine that it is helping You return to work in Your Occupation during Your Occupation Period or Any Occupation thereafter. As long as You continue to qualify for Policy benefits, participation in the program will not, of itself, be considered a recovery from Injury or Sickness, and benefits will continue as provided in the Policy while You are actively participating in the program. PART 8 – RECURRENT DISABILITY AND CONCURRENT DISABILITY Recurrent Disability If after the end of a Disability You have a Recurrent Disability, it will be considered to be a continuing Disability in order to determine the Elimination Period and the maximum benefit period applied to it. Concurrent Disability We will pay benefits for a Concurrent Disability as if it was caused by only one Injury or Sickness. We will not pay for more than one Disability benefit for the same period, except in the event of a Catastrophic Disability. We will always pay the larger benefit.
		600

19

20

[Graphic: Income II (Select) Package]

Income II (Select) Package

21

		Income II (Select) Package
This rider page will be added to policies for customers who choose the Income II (Select) package of coverage. Income II includes an enhanced provision for total disability benefits after the initial 24-month “own occupation” period common to all three packages. Income II also enhances core coverage with: • Longer-term Residual Benefits for less-than-total disability beyond the 24-month period provided by Income I, to the full duration of the Benefit Period chosen by the customer (3 years, 5 years, to age 65 or to age 67) • Introduction of 6-Month Recovery Benefits to provide financial support while a formerly-disabled customer is rebuilding earnings • Longer Work Incentive Benefit period, extending the 3-month Income I WIB to six months • Longer Lifetime Continuation benefit period, extending the 3-year LTC benefit period available with Income I to six years with Income II	—>	SELECT RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Full-Time Work means working at least as many hours as You worked prior to Disability. In no event will We consider Full-Time Work to mean more than 50 hours per week.
This “any occupation” provision applies to Income II benefits during disability after the 24-month “own occupation” period. (Note that different provisions apply for the Income I and Income III packages after 24 months.)	—>	Any Occupation means Any Occupation for which You are reasonably fitted based on education, training or experience that can be expected to generate at least 60% of Prior Earnings within 12 months of returning to Full-Time Work. Maximum Benefit Period for Recovery Benefits is the longest period of time for which We will pay benefits during a Recovery. It is shown in the Policy Schedule. Recovery means that, following a Disability that continued at least until the end of the Elimination Period: 1.  You incur a Loss of Earnings that is due to the prior Injury or Sickness that caused the Disability; and 2.  You have returned to Full Time Work in Your Occupation. BENEFITS Benefits for Gainful Occupation If, after the Your Occupation Period ends while You are Totally Disabled, You are still unable to perform the material and substantial duties of Your Occupation but You are able to perform the material and substantial duties of Any Occupation, We will pay benefits as follows: If You are not working in Any Occupation to the full extent permitted by the restrictions and limitations resulting from Your Injuries or Sickness, We will pay You a Gainful Occupation Benefit which will be determined each month using the following formula:

Total Disability	X	50%	=	Gainful Occupation
Monthly Benefit				Benefit

You must continue to receive Physician’s Care. We will waive this requirement if We receive written proof acceptable to Us that further Physician’s Care would be of no benefit to You.

600-S

22

		[Graphic: Income II (Select) Package]
Recovery Benefit Pays a proportional benefit for six months after the customer returns to work full-time in his or her own occupation, while earnings are rebuilt	—>	Benefits for Recovery If You experience a Recovery, We will pay benefits as follows: 1.  Benefits start to accrue on the day after Your Disability ends. 2.  The Recovery Benefit will be determined each month using the following formula: Loss of Earnings    X    Total Disability    =    Recovery Benefit   Prior Earnings            Monthly Amount 3.  The Recovery Benefit will be paid for as long as Your Recovery continues, but not beyond the Maximum Benefit Period for Recovery Benefits. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer
		600-S

23

24

Income III (Choice) Package

[Graphic: Income III (Choice) Package]

25

		Income III (Choice) Package
This rider page will be added to policies for customers who select the Income III (Choice) package of coverage. Income III includes a different provision for total disability benefits than Income I and Income II after the initial 24-month “own occupation” period common to all three packages, enhancing core coverage with: • Long-term Own-Occupation Benefits, for own-occupation coverage during the full duration of the benefit period chosen by the customer (3 years, 5 years, to age 65 or to age 67) • Longer-term Residual Benefits for less-than-total disability beyond the 24-month period provided by Income I, to the full duration of the benefit period chosen by the customer (3 years, 5 years, to age 65 or to age 67) • Recovery Benefits for 12 Months to provide financial support while the formerly-disabled customer is rebuilding earnings • Longer Work Incentive Benefit period, extending the WIB to twelve months • Lifetime Continuation benefit period of six years	—>	CHOICE RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Full Time Work means working at least as many hours as You worked prior to Disability. In no event will We consider Full Time Work to mean more than 50 hours per week. Maximum Benefit Period for Recovery Benefits is the longest period of time for which We will pay benefits during a Recovery. It is shown in the Policy Schedule. Recovery means that, following a Disability that continued at least until the end of the Elimination Period: 1.  You incur a Loss of Earnings that is due to the prior Injury or Sickness that caused the Disability; and 2.  You have returned to Full Time Work in Your Occupation. BENEFITS Benefits for Recovery If You experience a Recovery, We will pay benefits as follows: 1.  Benefits start to accrue on the day after Your Disability ends. 2.  The Recovery Benefit will be determined each month using the following formula:

Loss of Earnings	x    Total Disability	=    Recovery Benefit
Prior Earnings	Monthly Amount

3.  The Recovery Benefit will be paid for as long as Your Recovery continues, but not beyond the Maximum Benefit Period for Recovery Benefits.

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY

[SIGNATURE]

Chairman, President and Chief Executive Officer

600-C

26

Optional Income Series Benefits

Some of the following options are included as standard choices that can be exercised in any base Income Series policy. Others must be chosen as additions to the policy at the initial application for base coverage.

Options that are standard in the policy include:

• Lifetime Continuation Option (page 28)

• Update Increases (page 29)

Options that can be added at the time of application include:

• Catastrophic Disability Benefit (page 30)

• Social Insurance Substitute (SIS) benefits (page 32)

• Cost of Living Adjustments (page 34)

• Future Increase Options (FIO) (page 37)

• LTD Insurability (page 40)

• Lifetime Continuation Option Increase (LCOI) (page 43)

• Additional Monthly Indemnity (AMI ) (page 44)

[Graphic: Optional Income Series Benefits]

27

		Lifetime Continuation Option
Lifetime Continuation Option standard in all packages Automatically included in all Income Series policies where allowed by state regulations, this benefit allows the exchange of earning-years income protection insurance for long-term care (LTC) insurance when the need changes to asset preservation. The LTC benefit period available with Income I coverage is 3 years. With Income II or Income III coverage, the LTC benefit period is 6 years. Increases to the base LTC benefit are available if the Lifetime Continuation Option Increase rider is added to the policy. See page 43 for information on this increase rider.	—>	LIFETIME CONTINUATION OPTION RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Benefit Amount for Long Term Care Policy is shown in the Policy Schedule. It is the benefit amount We will issue to You under the Long Term Care Policy, subject to Your timely payment of premiums for your Policy. Lifetime Maximum Benefit Amount for Long Term Care Policy is shown in the Policy Schedule. It is the total dollar amount of benefits that will be paid under the Long Term Care Policy. Long Term Care Policy means an individual long term care policy that is subject to the following terms: 1.  It will be an individual long term care policy that We, or Our affiliates offer at the time the exchange is made and will be issued with the Benefit Amount for Long Term Care Policy and Lifetime Maximum Benefit Amount for Long Term Care Policy;
Unum guarantees that the LTC policy will meet minimum standards for such coverage that are in effect when the exchange is made.	—>	2.  It will meet or exceed all applicable federal and state minimum standards in effect for such policies at the time the exchange is made;
Although the ability to exchange does not add to the premium for income protection under the base policy, the premium for LTC coverage obtained through the Lifetime Continuation provision will be the standard premium charged for such LTC coverage at the time of the exchange	—>	3.  The premium for the Long Term Care Policy will be the premium We charge for Your age and Long Term Care Benefit Amount at the time the exchange is made.
		BENEFITS
LTC benefits are available through this exchange provision without evidence of insurability at ages specified.	—>	You may exchange Your Policy for a Long Term Care Policy without submitting evidence of insurability: 1.  Between age 60 and age 70 if You are not Disabled; 2.  Between age 65 and age 70 if You are Disabled, but have received the maximum benefits allowable under this Policy. 3.  On Your age 70. If You are Disabled and receiving benefits on this date, You may defer the exchange until You have received the maximum benefit amount for the Disability. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer 600-LC Availability varies by state for this option. Not available in WA and CT. See your Unum marketing consultant for details that apply in your area.

28

		Update Increases
Update options standard in all packages Automatically included in all Income Series policies, this option allows three years of coverage increases to help the customer’s benefit keep pace with increases in income.	—>	UPDATE INCREASE BENEFIT RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: BENEFITS This rider provides UPDATE Increases which will be automatically added to Your Total Disability Monthly Amount shown in the Policy Schedule, without evidence of insurability. This will be done on each UPDATE Increase Date.
If these increases are accepted, the customer will be responsible for the applicable premium for the increased coverage.	—>	These increases are subject to the timely payment of the proper premium. These premiums are based on Your age on the UPDATE Increase Date. They are listed in the Schedule of UPDATE Increases shown in the Policy Schedule. An UPDATE Increase will only apply to a Disability that starts after the UPDATE Increase Date. It will not apply to a continuation of a prior Disability (see the Recurrent Disability provision of this Policy). If the premium for the Policy is being waived (see the Waiver of Premium Section) on the UPDATE Increase Date, the premium for the increase will also be waived. When You resume paying premiums for the Policy, You must also start paying premiums for the UPDATE Increase.
Refusing an increase will not affect subsequent increase offers that apply.	—>	You may refuse an Increase by notifying Us in writing 30 days prior to the UPDATE Increase Date. Your refusal of an increase will not affect the remaining UPDATE Increases. If the renewal premium that includes the premium for the increase is not paid in full the first time it is billed, We will consider the increase for that date to be refused. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer
		600-UPDATE
		[Graphic: Optional Income Series Benefits]

29

		Catastrophic Disability Benefit
Catastrophic Disability Benefit can be added to all packages Available with all Income Series policies, this option allows the customer to purchase an additional monthly benefit that can replace up to 100% of prior earnings for any one of three very serious types of disabilities that are likely to increase living expenses: •      ADL disability •      Cognitive impairment •      Presumptive disability	—>	CATASTROPHIC DISABILITY BENEFIT RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions:
		DEFINITIONS
The Catastrophic Benefit is payable monthly for loss of the ability to perform two of the six Activities of Daily Living (ADLs) described here, without standby assistance. Loss of ADLs must be due to injury or sickness.	—>	Activities of Daily Living (ADLs) are: 1.  Bathing – means washing Yourself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. 2.  Dressing – means putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs. 3.  Toileting – means getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. 4.  Transferring – means moving into or out of a bed, chair, or wheelchair. 5.  Continence – means the ability to maintain control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag). 6.  Eating – means feeding Yourself by getting food into the body from a receptacle (such as plate, cup or table) or by feeding tube or intravenously. ADL Disabled means that, because of Injuries or Sickness, You are unable to perform two or more Activities of Daily Living (ADLs) without Stand-by Assistance. Catastrophic Disability or Catastrophically Disabled means that, because of Injuries or Sickness, You are: 1.  Cognitively Impaired and You are receiving Physician’s Care. We will waive this requirement if We receive written proof acceptable to Us that further Physician’s Care would be of no benefit to You; or 2.  ADL Disabled. Catastrophic Disability Benefit Amount is shown in the Policy Schedule. Catastrophic Disability Elimination Period is shown in the Policy Schedule.
		600-CAT

30

The Catastrophic Benefit is payable monthly for cognitive impairment as described here.	—>	Cognitive Impairment or Cognitively Impaired means that, because of Injuries or Sickness, You have suffered a deterioration or loss in Your intellectual capacity which requires another person’s assistance or verbal cueing to protect Yourself or others as measured by clinical evidence and standardized tests which reliably measure Your impairment. Such loss in intellectual capacity must result from Injury, Sickness, Alzheimer’s Disease or similar form of senility or irreversible dementia. Disability or Disabled, as defined in Your Policy, is amended to include Catastrophically Disabled or Presumptively Disabled.
Unum will presume that the customer is disabled and the Catastrophic Benefit will be payable monthly for loss of abilities as described here.	—>	Presumptive Disability or Presumptively Disabled means, that, because of Injuries or Sickness, You suffer the total and permanent loss of: 1.  speech; 2.  hearing in both ears; 3.  sight in both eyes; or 4.  use of both arms, both legs, or one arm and one leg. Stand-by Assistance means You require the presence of another human being to ensure that all or part of an ADL may be completed safely. Stand-by Assistance may also mean that in order to accomplish an ADL, You need verbal cueing. BENEFITS Benefits for Catastrophic Disability If You are Catastrophically Disabled, We will pay benefits as follows:
The Catastrophic Benefit will be payable after the Elimination Period shown in the Policy Schedule for ADL Disability or cognitive impairment.	—>	1.  Benefits start to accrue on the day of Catastrophic Disability following the Catastrophic Disability Elimination Period. 2.  The Catastrophic Disability Monthly Amount will be paid for as long as Your Catastrophic Disability continues, but not beyond the Maximum Benefit Period for Total Disability. Benefits for Presumptive Disability If You are Presumptively Disabled, We will pay benefits as follows:
No Elimination Period will apply for Catastrophic Benefits applicable for Presumptive Disability.	—>	1.  Benefits start to accrue on the day Your Presumptive Disability begins. 2.  The total Disability Monthly Amount and Catastrophic Disability Monthly Amount will be paid for as long as Your Presumptive Disability continues, but not beyond the Maximum Benefit Period for Total Disability.
Proof of Presumptive Disability is required, but there is no requirement for further physician’s care and benefits are payable whether or not the customer is able to earn an income.	—>	You must present satisfactory proof of Your Presumptive Disability loss, but there is no requirement for the continued care of a Physician. We will presume You to be Presumptively Disabled as long as such loss continues, whether or not You are able to work or earn an income. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [Signature] Chairman, President and Chief Executive Officer
		600-CAT
		[Graphic: Optional Income Series Benefits]

31

		Social Insurance Substitute (SIS)
Optional Social Insurance Substitute (SIS) Benefit Coordinates Income Series benefits with social insurance benefits.	—>	SOCIAL INSURANCE SUBSTITUTE (SIS) BENEFIT RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Maximum SIS Benefit is shown in the Policy Schedule. SIS Benefit is an amount that will be in addition to the Total Disability Monthly Amount. The amount of the SIS Benefit depends on the amount of Your Social Insurance Benefits: 1.  If You receive no Social Insurance Benefits, the SIS Benefit is the Maximum SIS Benefit.
Provides benefits when the customer is disabled and receiving no benefits from Social Insurance programs. Provides for dollar-for-dollar offset of any Social Insurance program benefits the customer receives. (Tiered offset instead of dollar-for-dollar, in NJ and NY.)	—>	2.  If You receive Social Insurance Benefits, the SIS Benefit is the Maximum SIS Benefit minus the Social Insurance Benefits You receive. 3.  If You receive Social Insurance Benefits that are equal to or greater than the Maximum SIS Benefit, the SIS Benefit is zero. Any legislated automatic increases in Your Social Insurance Benefits during a Disability will not be included in the computing of the SIS Benefit. SIS Benefit Period is shown in the Policy Schedule. SIS Elimination Period is shown in the Policy Schedule. Social Insurance Benefits means payments: 1.  under the federal Social Security Act or any similar federal, state or local government law ( Social Security benefits are paid for disability and retirement as: a) a Primary Insurance Amount (PIA) to You; or b) a PIA to You and a Family Benefit for Your dependents); 2.  under any Workers’ Compensation or Occupational Disease law or similar law; 3.  any state disability or temporary disability law; or 4.  under retirement and disability fund programs of any federal, state, county, municipal or other governmental subdivision. BENEFITS If You are Disabled: 1.  The SIS Benefit will start to accrue on the day of Disability after the SIS Elimination Period. It will be added to and paid with the Total Disability Monthly Amount at the end of each month of Disability. 2.  The SIS Benefit will be added for as long as Disability continues, but not beyond the end of the SIS Benefit Period. 600-SIS

32

PROOF OF SOCIAL INSURANCE BENEFITS

		To receive the SIS Benefit, You must give Us satisfactory proof of the status of Your Social Insurance Benefits when and as often as We may reasonably require. When a member of Your family may be entitled to Social Insurance Benefits because of Your Disability, these same proof requirements apply. The proof for any legislated benefits must include the correspondence You had with the Social Insurance provider. The proof must show that: 1.  You have applied for Social Insurance Benefits to which You may be entitled; 2.  Your claim for these Social Insurance Benefits has been approved, denied or is still pending; and 3.  if denied, You are following any appeals processes available to You. If You are still denied Social Insurance Benefits after completing the appeals process, We can require You to reapply for them as often as is reasonable. The proof for any retirement and disability fund benefits provided to government employees by any federal, state, county, municipal or other governmental subdivision must include the correspondence You have with Your employer. The proof must show that: 1.  You have applied for the disability benefits to which You may be entitled; and 2.  Your claim for these benefits has been approved, denied or is still pending. We cannot at any time require You to elect early (or reduced) retirement benefits from Social Security or any other retirement plan for which You may be eligible in order to receive the SIS Benefit.
		ATTORNEY FEES REIMBURSEMENT
		We will reimburse You for attorney fees You incur for services provided for a hearing before an Administrative Law Judge, a review of the hearing by the Appeals Council, or a civil action in the U.S. District court. The most We will pay for attorney fees during a Disability is an amount equal to the Maximum SIS Benefit. We will not reimburse You for attorney fees for services which were provided before Your initial filing for Social Security benefits is denied, and before You have requested and received a reconsideration of the denial.
The customer does not have to reimburse the company underwriting the coverage for Social Insurance benefits received retroactively.	—>	If You receive a retroactive payment of Social Insurance Benefits, You will not have to return any payments already made by Us. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer
		600-SIS

[Graphic: Optional Income Series Benefits]

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		Cost of Living Adjustments (COLA)
Optional Cost of Living Adjustments (COLA) Helps income replacement benefits keep pace with inflation during a disability that has lasted at least 12 months	—>	COST OF LIVING ADJUSTMENTS RIDER (Applies to benefits payable after the 12th month of Disability) This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Adjusted Catastrophic Disability Benefit is the Catastrophic Disability Benefit multiplied by the Benefit Factor for a Review Period. An Adjusted Catastrophic Disability Benefit can not: 1.  exceed the Catastrophic Disability Benefit increased by a percentage factor equal to the completed number of Review Periods multiplied by 7%; or 2.  be less than the amount of the Catastrophic Disability Benefit increased by a percentage factor equal to the completed number of Review Periods multiplied by 2%.
After one year of disability, monthly benefit amount(s) will be increased by 2% to 7% each year while disability continues. The actual percentage of increase will be made based on changes in the CPI-U each year.	—>	Adjusted Total Disability Monthly Amount is the Total Disability Monthly Amount multiplied by the Benefit Factor for a Review Period. An Adjusted Total Disability Monthly Amount can not: 1.  exceed the Total Disability Monthly Amount increased by a percentage factor equal to the completed number of Review Periods multiplied by 7%; or 2.  be less than the amount of the Total Disability Monthly Amount increased by a percentage factor equal to the completed number of Review Periods multiplied by 2%. Benefit Factor is determined by dividing the CPI-U for the latest Index Month by the CPI-U for the first Index Month. We will compute it on each Review Date during a Disability. It will apply to the Review Period that follows.
This section contains information about the CPI-U on which benefit increases are based.	—>	CPI-U means the Consumer Price Index for All Urban Consumers. It is published by the United States Department of Labor. If the CPI-U is discontinued or if its method of computation is changed, We may use another nationally published index. We will choose an index which is similar in scope and purpose to the CPI-U. The CPI-U will then mean the index which is chosen. Index Month means the calendar month three months prior to a Review Date. But, the first Index Month means the calendar month three months prior to the start of a Disability. We will measure all changes in the CPI-U from the first Index Month. Review Date means each anniversary date of the start of Disability. Review Period means a one year period ending on a Review Date. Total Disability Monthly Amount is shown in the Policy Schedule. It can be increased by a “Social Insurance Substitute (SIS) Benefit” if it is included in Your policy and when it is applicable. 600-COLA

34

BENEFITS

If Injuries or Sickness results in a Disability that lasts at least 12 months, We will compute Cost of Living Adjustments on each Review Date. Monthly benefits which thereafter accrue during that Disability will be adjusted as follows:

1. On each Review Date, We will compute the Benefit Factor and the Adjusted Total Disability Monthly Amount for the Review Period that follows.

2. For any Total Disability Monthly Amount that accrues during a Review Period, We will pay instead the Adjusted Total Disability Monthly Amount.

3. For any Catastrophic Disability Benefit (if included in Your Policy,) that accrues during a Review Period, We will pay instead the Adjusted Catastrophic Disability Benefit.

4. We will adjust any Residual Disability Monthly Amount, Gainful Occupation Benefit or Recovery Benefit, if included in Your policy, which accrues during a Review Period. To do this, We will use the Adjusted Total Disability Monthly Amount in the formula to determine each benefit that is to be paid during that Review Period. It will be used in the formula instead of the Total Disability Monthly Amount.

5. Computations of Cost of Living Adjustments will end on the earliest of:

a. the end of the Disability (see definition of Disability);

b. the end of a benefit period; or

c. Your 65th birthday.

If the computations end because of (a) or (b) above, benefit amounts will revert to those shown in the Policy Schedule. Benefits payable for the first 12 months of a new Disability will not include a Cost of Living Adjustment. A new first Index Month and Review Date will apply to each new Disability that lasts more than 12 months.

If the computations end because of (c) above and if any benefits continue to be payable after that date for a Disability that started before Your 64th birthday, We will apply to those benefits the Benefit Factor that last applied before Your 65th birthday.

We will compute a Benefit Factor on the first Review Date for a Disability that starts between Your 64th and 65th birthdays. This factor will continue to apply to any benefits paid during that Disability.

600-COLA

[Graphic: Optional Income Series Benefits]

35

If monthly benefits(s) have increased during disability through COLA, after the customer returns to work, he or she can increase coverage to the level achieved through the last COLA adjustment. —>








QUALIFIED RIGHT TO INCREASE TOTAL DISABILITY MONTHLY AMOUNT TO ADJUSTED AMOUNT You may increase benefits when You return to active and gainful full-time work after the end of a Disability during which Cost of Living Adjustments were made. You may increase to the amount of the Adjusted Total Disability Monthly Amount (less any SIS Benefit if included) or Adjusted Catastrophic Disability Monthly Amount whatever applies to Your Disability which was used to determine the last monthly claim payment, if: 1.  You have not reached Your 60th birthday on the date You elect the increase; and 2.  within 90 days after the Disability ends, You make application to use on a form which We will furnish You upon request. On this form, You must confirm that You are actively and gainfully employed full-time. Other evidence of insurability will not be required. The effective date of the increase will be the first of the month after We approve Your application for the increase. The required additional premium must be paid within 31 days of that date. Later premiums for the increase must be paid as part of the renewal premiums for the policy. The premium for the increase will be based on Your attained age at the time of the increase. It will also be based on our table of premium rates then in effect. The increase in benefit will apply to new Disabilities which start after the effective date of the increase. If You do not elect and obtain this increase, the Total Disability Monthly Amount will revert to the amount shown in the Policy Schedule for new Disabilities. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer 600-COLA

36

		Future Income Option (FIO)
Optional Future Income (FIO) increases Help coverage keep pace with income increases, by guaranteeing the right to apply for increases in addition to Update increases, without medical underwriting.	—>	FUTURE INCOME OPTION (FIO) RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS
The increase available will be based on either of these earned income average situations most advantageous to the customer.	—>	Earned Income means the greater of the average of Your Monthly Earnings: 1.  For the 12 months just prior to the date of Your request for an increase in the Total Disability Monthly Amount; or 2.  For the fiscal year with the highest earnings of the last two fiscal years prior to the date of Your request. FIO Expiration Date is shown in the Policy Schedule. FIO Option Date means each even numbered anniversary of the Effective Date that occurs on or before the FIO Expiration Date. If an FIO Option Date does not coincide with a renewal date for this Policy, the FIO Option Date will change to coincide with the next renewal date thereafter. Unit of Increase is an amount by which the Total Disability Monthly Amount can be increased on an FIO Option Date. That amount is show in the Policy Schedule. The maximum number of Units of Increase is also shown in the Policy Schedule. BENEFIT You may apply for up to one Unit of Increase as of any FIO Option Date. You may apply for part of a Unit of Increase as of any FIO Option Date.
If one of the available increases is not used or if only part of it is used, the customer can carry over the unused amount to the next FIO date.	—>	If all or part of a Unit of Increase is not used as of an FIO Option Date, You may carry it over and apply for it on the next FIO Option Date, but You can not carry it over beyond that FIO Option Date. To use all or part of a carried-over Unit of Increase, You must also exercise all of Your current Unit of Increase. The total number of Units of Increase exercised can never exceed the maximum number of Units of Increase shown in the Policy Schedule.
The customer can apply for a one-time extra unit of increase on any FIO date before reaching the age of 42.	—>	On any FIO Option Date prior to age 42, You may also apply for up to one added Unit of Increase if You are not Disabled and You exercise all of Your current Unit of Increase. This added Unit of Increase may not be exercised more than once. If You qualify, We will increase Your Total Disability Monthly Amount by the amount for which You apply. 600-FIO [Graphic: Optional Income Series Benefits]

37

		TO QUALIFY FOR AN INCREASE
		You will qualify for an increase if at the time You apply:
		1.  Your Earned Income is sufficient for an increase. This will be determined by Our published underwriting rules and issue and participation limits in effect at the time You apply; and
		2.  The sum of all Your disability income coverage, after the increase, is not more than the maximum coverage We offer to new applicants of Your class of risk. This will be determined by Our published underwriting rules and issue and participation limits in effect at the time You apply. The sum of Your disability income coverage will be determined by adding up the benefits You would receive from:
		a.  Us;
		b.  Any other insurer; and
		c.  Any government agency.
To qualify for an increase, the customer submits only financial evidence that earnings have increased. No medical qualification is required.	—>	We may require proof of Your Earned Income. This could include tax returns or other proof that We may require. APPLICATION FOR AN INCREASE
		You may apply for an increase as of any FIO Option Date. You may apply for no more than one Unit of Increase during any continuing Disability.
		WHEN AN INCREASE IS EFFECTIVE
		An increase in Your Total Disability Monthly Amount under this option will be effective as of the applicable FIO Option Date; however, if Your application for an increase in Your Total Disability Monthly Amount is dated within 31 days after the FIO Option Date, then the effective date of an increase in Your Total Disability Monthly Amount under this option will be effective as of the date of
The customer can apply for one unit of increase even while disabled. That increase will apply to the benefit paid during any subsequent disability, but not to the current period of disability.	—>	Your application. If the FIO Option Date upon which an increase is selected occurs while you are Disabled, the increased Total Disability Monthly Amount will only apply to a new and separate Disability.
		THE PREMIUM
		The premium for each increase will be at the rate for Your age on the applicable FIO Option Date. To determine Your premium, We will use either:
		1.  Your class of risk on the Effective Date of Your Policy; or
		2.  Your class of risk on the effective date of the increase;
		whichever is more favorable to You. You must make the first payment of the premium for an increase to Our Home Office. You must do this no later than 31 days after the FIO Option Date.
		Also, if the premium for Your Policy is being waived on the FIO Option Date, You will not have to pay the premium for the increase until the premium for Your Policy becomes payable again. 600-FIO

38

TERMINATION

This rider will end:

1. On the FIO Expiration Date;

2. When the total of all increases in the Total Disability Monthy Amount equals the value of the maximum Units of Increase shown in the Policy Schedule;

3. If the premium for Your Policy or this rider is not paid on time;

4. Upon Your written request to end this rider; or

5. On the date Your Policy terminates;

whichever happens first.

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY

[SIGNATURE]

Chairman, President and Chief Executive Officer

600-FIO

[Graphic: Optional Income Series Benefits]

39

		LTD Insurability
Optional LTD Insurability Available to customers who have LTD at the time the individual income protection policy is purchased. With this rider, if the individual later loses access to LTD benefits, he or she can increase individual coverage without medical evidence of insurability.	—>	LTD INSURABILITY OPTION RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS Earned Income means the greater of the average of Your Monthly Earnings: 1.  For the 12 months just prior to the date of Your request for an increase in the Total Disability Monthly Amount; or 2.  For the fiscal year with the highest earnings of the last two fiscal years prior to the date of Your request. LTD Expiration Date is shown in the Policy Schedule. LTD Insurability Increase Amount is the amount by which the Total Disability Monthly Amount can be increased during the LTD Insurability Option Period. That amount is shown in the Policy Schedule.
This rider can be exercised if access to LTD is lost due to a job change or because the employer’s plan is reduced or terminated without replacement.	—>	LTD Insurability Option Date means: 1.  The date Your employment relationship ends with an employer that has a group long term disability in force under which You are covered at the time Your employment terminates; or 2.  The date on which the group long term disability plan terminates or is reduced with no intention of its subsequent equivalent replacement. LTD Insurability Option Period means the 90 day period that begins on the LTD Insurability Option Date. BENEFITS
This rider can be exercised even if access to LTD is lost during a disability. The increased individual coverage will apply to the individual policy benefit paid during any subsequent disability, but not to the current period of disability.	—>	During the LTD Insurability Option Period, You have the right to increase Your Total Disability Monthly Amount. If an LTD Insurability Option Date occurs during a Disability, You may apply for an increase to Your Total Disability Monthly Amount. You may apply to increase Your Total Disability Monthly Amount by all or part of the LTD Insurability Increase Amount shown in the Policy Schedule. If We approve Your application for an increase, the increased Total Disability Monthly Amount will apply only to a new and separate Disability. 600-TL

40

		TO QUALIFY FOR AN INCREASE
The ability to increase the individual benefit will depend on the customer meeting Unum’s income requirements and on the maximum coverage available to new applicants in his or her risk class. We may require proof of income, even though no medical qualification will be required.	—>	You will qualify for an increase if at the time You apply: 1.  Your Earned Income is sufficient for an increase. This will be determined by Our published underwriting rules and issue and participation limits in effect at the time You apply; and 2.  The sum of all Your disability income coverage, after the increase, is not more than the maximum coverage We offer to new applicants of Your class of risk. This will be determined by Our published underwriting rules and issue and participation limits in effect at the time You apply. The sum of Your disability income coverage will be determined by adding up the benefits You would receive from: a.  Us; b.  Any other insurer; and c.  Any government agency. We may require proof of Your Earned Income. This could include tax returns or other proof that We may require. WHEN AN INCREASE IS EFFECTIVE An increase in Your Total Disability Monthly Amount under this option will be effective as of LTD Insurability Option Date. However, if Your application for an increase in Your Total Disability Monthly Amount is dated within 31 days after the LTD Insurability Option Date, then the effective date of an increase in Your Total Disability Monthly Amount under this option will be effective as of the date of Your application. If the LTD Insurability Option Date upon which an increase is elected occurs while You are Disabled, the increased Total Disability Monthly Amount will only apply to a new and separate Disability. THE PREMIUM
The new premium after an increase will depend either on the customer’s risk class when the original individual coverage became effective or on the customer’s risk class when the increase became effective–whichever is more advantageous for the individual.	—>	The premium for each increase will be at the rate for Your age on the LTD Insurability Option Date. To determine Your premium, We will use either: 1.  Your class of risk on the Effective Date of Your Policy; or 2.  Your class of risk on the effective date of the increase; whichever is more favorable to You. You must make the first payment of the premium for an increase to Our Home Office. You must do this no later than 31 days after the LTD Insurability Option Date. Also, if the premium for Your Policy is being waived, You will not have to pay the premium for the increase until the premium for Your Policy becomes payable again.

[Graphic: Optional Income Series Benefits]

41

TERMINATION

This rider will end:

1. On the LTD Expiration Date;

2. When the total of Your increases under this rider equals the LTD Insurability Increase Amount;

3. If the premium for Your Policy or this rider is not paid on time;

4. Upon Your written request to end this rider; or

5. On the date Your Policy terminates;

whichever happens first.

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY

[SIGNATURE]        

Chairman, President and Chief Executive Officer

42

		Option To Increase Lifetime Continuation
Optional Lifetime Continuation Increase (LCOI) Available at the time of the original application for income protection, this rider allows the customer to purchase a higher long-term care (LTC) benefit when income protection is exchanged for LTC insurance. No evidence of insurability will be required at the time of the exchange.	—>	LIFETIME CONTINUATION OPTION INCREASE (LCOI) RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: DEFINITIONS As used in this rider: LCOI Option Date means the date You exchange Your Policy for a Long Term Care Policy under the Lifetime Continuation Option.
The LTC benefit available through the base policy Lifetime Continuation benefit exchange is $3,000 per month. This rider allows the customer to increase the LTC benefit above that level. The amount of increase purchased is shown in the Policy Schedule (page 6 of this specimen).	—>	LCOI Option Amount is the maximum amount by which You can increase the Long Term Care Benefit Amount on the LCOI Option Date. It is shown in the Policy Schedule. Long Term Care Benefit Amount is the benefit amount We will issue to You under the Lifetime Continuation Option provision. It is shown in the Policy Schedule. BENEFITS On the LCOI Option Date, You may increase the Long Term Care Benefit Amount up to the full LCOI Amount, without submitting evidence of insurability. In no event will We increase the Long Term Care Benefit Amount by more than the LCOI Amount. PREMIUM The premium for the LCOI Amount will be at the rate for Your age on the Option Date. TERMINATION This rider will end: 1.  When You exchange Your Policy for a Long Term Care Policy under the Lifetime Continuation Option Benefit; 2.  If the premium for Your Policy or this option is not paid on time; 3.  Upon Your written request to end this option; or 4.  On the date Your Policy terminates; whichever happens first. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer 600-LCOI Availability varies by state for this option. Not available in WA and CT. See your Unum marketing consultant for details that apply in your area. [Graphic: Optional Income Series Benefits]

43

		Additional Monthly Indemnity (AMI)
Optional Additional Monthly Indemnity (AMI) Adds flexibility to the individual coverage by allowing the customer to set up part of his or her total benefit with a different Elimination Period or Benefit Period, so that the policy benefits can coordinate with benefits payable from other sources.	—>	ADDITIONAL MONTHLY INDEMNITY RIDER This rider is a part of Your Policy to which it is attached. This benefit is subject to the terms and conditions of this rider and the rest of the Policy. All provisions of Your Policy apply to this rider and remain the same except where We change them by this rider. This rider is effective on the Effective Date of Your Policy or the Rider Effective Date, whichever is later. Your Policy is amended by adding or changing the following provisions: BENEFITS If You become Totally Disabled after the Rider Effective Date, We will pay benefits as follows: 1.  Benefits start to accrue on the day of Total Disability following the Elimination Period. 2.  The Total Disability Monthly Amount shown in this rider will be paid for as long as Your Total Disability continues, but not beyond the Maximum Benefit Period for Total Disability also shown in this rider. These benefits are payable in addition to the other benefits provided by Your Policy. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY [SIGNATURE] Chairman, President and Chief Executive Officer 600-AMI

44

[UNUM LOGO]

Coverage described in this booklet underwritten by

UnumProvident Corporation subsidiary:

Provident Life and Accident Insurance Company

1 Fountain Square, Chattanooga, TN 37402

www.unum.com

Unum is the marketing brand of UnumProvident Corporation.

^©2000 UnumProvident Corporation. Unum^®, the lighthouse logo,

and “Protecting everything you work for^®” are registered trademarks

of UnumProvident Corporation. All rights reserved.

A-32402 (8-00)

Agency/Broker: 010306-0033

PATRICK LEE TRAMMELL

C O V E R A G E    S U M M A R Y

Insured: RONALD V CONGEMI	Date of Birth: 03/03/47 (54)
Risk No: 00121465	Social Security No: xxx-xx-xxxx
CONCORD EFS INC
Net Discounted Premiums:
$13,773.11 (Annual)	Policy Number: 06-5880448
$7,162.02 (Semi-annual)	Policy Form: 600
$3,581.00 (Quarterly)	Effective Date: December 1, 2001
$1,191.37 (Monthly)	Class: A1 Smoker
	Premium Term: Annual
	State App Signed: TN
*00G0105880448003023*

PLAN	BENEFIT AMOUNT	ELIMINATION PERIOD (Days)	BENEFIT PERIOD		TERM PREMIUM
ADL-CAT	$  8,000	90	65-65/2A	$	480.80
BASIC	$15,000	90	65-65/2A	$	11,319.01
SELECT
CHOICE
COLA/CPI				$	1,933.30
LC				$	.00
			POL FEE	$	40.00
			TOTAL	$	13,773.11

S P E C I A L    N O T E S

Issued With Exclusion:	Reconsider Date:
XX9-SEE 1330 Page	12/06/02
Issued Sub-standard
Issued with Amendment Forms
1251-COV  , 1251-INC  , 1251-AM  , 1251-AMCO
Policy rewrite from:		BACK EXCLUSION
06-400-5247428 dated September 1, 2000
06-400-5247673 dated September 1, 2000

Agency/Broker: 010306-0033

PATRICK LEE TRAMMELL

C O V E R A G E    S U M M A R Y

Insured: EDWARD T HASLAM	Date of Birth: 01/31/53 (48)
Risk No: 00121465	Social Security No: xxx-xx-xxxx
CONCORD EFS INC
Net Discounted Premiums:
$5,272.60 (Annual)	Policy Number: 06-5880450
$2,741.75 (Semi-annual)	Policy Form: 600
$1,370.88 (Quarterly)	Effective Date: December 1, 2001
$456.08 (Monthly)	Class: A1 Nonsmoker
	Premium Term: Annual
	State App Signed: TN
*00G0105880450002939*

PLAN	BENEFIT AMOUNT	ELIMINATION PERIOD (Days)	BENEFIT PERIOD		TERM PREMIUM
ADL-CAT	$8,000	90	5-5/2A	$	340.29
BASIC	$9,667	90	5-5/2A	$	4,932.32
SELECT
CHOICE
LC				$	.00
			POL FEE	$	.00
			TOTAL	$	5,272.61

S P E C I A L    N O T E S

Issued as Special Class	SPECIAL CLASS %-30% RECONSIDER DATE-PERM
Issued With Exclusion:	Reconsider Date:
RJ0-SINUSITIS	PERM
See Policy Schedule for Waiver wording
Issued Sub-standard
Issued with Amendment Forms
1251-COV, 1251-INC , 1251-AMCO

Agency/Broker: 010306-0033

PATRICK LEE TRAMMELL

C O V E R A G E    S U M M A R Y

Insured: DAN M PALMER	Date of Birth: 02/28/43 (58)
Risk No: 00121465	Social Security No: xxx-xx-xxxx
CONCORD EFS INC
Net Discounted Premiums:
$11,892.47 (Annual)	Policy Number: 06-5880445
$  6,184.09 (Semi-annual)	Policy Form: 600
$  3,092.04 (Quarterly)	Effective Date: December 1, 2001
$  1,028.70 (Monthly)	Class: A1 Nonsmoker
	Premium Term: Annual
	State App Signed: TN

PLAN	BENEFIT AMOUNT	ELIMINATION PERIOD (Days)	BENEFIT PERIOD		TERM PREMIUM
ADL-CAT	$ 8,000	90	65-65/2A	$	470.40
BASIC	$15,000	90	65-65/2A	$	10,311.59
SELECT
CHOICE
COLA/CPI				$	1,070.48
LC				$	.00
			POL-FEE	$	40.00
			TOTAL	$	11,892.47

S P E C I A L    N O T E S

Issued Standard

Issued with Amendment Forms

    1251-INC , 1251-AMCO

Agency/Broker: 010306-0033

PATRICK LEE TRAMMELL

C O V E R A G E    S U M M A R Y

Insured: CHRIS RECKERT	Date of Birth: 10/31/62 (38)
Risk No: 00121465	Social Security No: xxx-xx-xxxx
CONCORD EFS INC
Net Discounted Premiums:
$2,462.17 (Annual)	Policy Number: 06-5880444
$1,280.33 (Semi-annual)	Policy Form: 600
$640.16 (Quarterly)	Effective Date: December 1, 2001
$212.98 (Monthly)	Class: A1 Nonsmoker
	Premium Term: Annual
	State App Signed: TN

PLAN	BENEFIT AMOUNT	ELIMINATION PERIOD (Days)	BENEFIT PERIOD		TERM PREMIUM
ADL-CAT	$5,208	90	65-65/2A	$	117.90
BASIC	$5,625	90	65-65/2A	$	1,754.53
SELECT
CHOICE
COLA/CPI				$	549.74
LC				$	.00
			POL FEE	$	40.00
			TOTAL	$	2,462.17

S P E C I A L    N O T E S

Issued Not as Applied For

Issued with Amendment Forms

    1251-INC , 1251-AMCO

EX-10.31

EXHIBIT 10.31

Bridge Loan Agreement

Letter of Guarantee and Stock Option Pledge

This agreement is made by and between Dan Palmer and Concord EFS, Inc. on October 22, 2001.

Whereas, Dan Palmer desires to borrow from Concord EFS, Inc. (the “Company”) the amount set forth on Exhibit A attached hereto (the “Loan Amount”), to be repaid in full with interest within thirty (30) days; and

Whereas, the Company is willing to extend a loan to Dan Palmer under the terms and conditions set forth herein.

For the consideration set forth below the parties agree as follows:

The Company hereby extends a loan of the Loan Amount, and has delivered such Loan Amount, to Dan Palmer.

Dan Palmer agrees to repay the Loan Amount to the Company within thirty (30) days and pay simple annual interest of three and thirty one one-hundredths percent (3.31%) determined based on the days such loan is outstanding as a pro rata portion of a calendar year of 365 days.

Dan Palmer hereby grants a security interest to the Company of all vested Concord stock options in order to ensure repayment of said loan. Such security interest shall lapse and be of no further force or effect after the repayment of the Loan Amount to the Company including all accrued interest.

This Agreement can be extended for additional 30 day periods by mutual agreement of the parties at the above noted interest rate.

CONCORD EFS, INC.	DAN PALMER
/s/ Edward A. Labry III	/s/ Dan M. Palmer

EXHIBIT A

$13,297,500.00

EX-10.32

EXHIBIT 10.32

Bridge Loan Agreement

Letter of Guarantee and Stock Option Pledge

This agreement is made by and between Edward A. Labry and Concord EFS, Inc. on October 22, 2001.

Whereas, Edward A. Labry desires to borrow from Concord EFS, Inc. (the “Company”) the amount set forth on Exhibit A attached hereto (the “Loan Amount”), to be repaid in full with interest within thirty (30) days; and

Whereas, the Company is willing to extend a loan to Edward A. Labry under the terms and conditions set forth herein.

For the consideration set forth below the parties agree as follows:

The Company hereby extends a loan of the Loan Amount, and has delivered such Loan Amount, to Edward A. Labry.

Edward A. Labry agrees to repay the Loan Amount to the Company within thirty (30) days and pay simple annual interest of three and thirty-one one hundredths percent (3.31%) determined based on the days such loan is outstanding as a pro rata portion of a calendar year of 365 days.

Edward A. Labry hereby grants a security interest to the Company of all vested Concord stock options in order to ensure repayment of said loan. Such security interest shall lapse and be of no further force or effect after the repayment of the Loan Amount to the Company including all accrued interest.

This Agreement can be extended for additional 30 day periods by mutual agreement of the parties at the above noted interest rate.

CONCORD EFS, INC.	EDWARD A. LABRY
/s/ Dan M. Palmer	/s/ Edward A. Labry III

EXHIBIT A

$13,297,500.00

EX-13

EXHIBIT 13

CONCORD EFS, INC. AND SUBSIDIARIES

Financial Highlights	2
The Story Behind The Transaction	4
Stockholders’ Letter	14
Management’s Discussion & Analysis of Financial Condition and Results of Operations	20
Financial Statements	36
Corporate Directory	81

CONCORD EFS, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

MARKET VALUE

On November 7, 2002 we listed our common stock on the New York Stock Exchange under the symbol “CE.” Prior to that time, our common stock was traded on the Nasdaq National Market under the symbol “CEFT.” The following table sets forth, for the periods presented, the range of high and low sales prices per share of our common stock, as reported on the New York Stock Exchange and the Nasdaq National Market.

	HIGH		LOW
Year ended December 31, 2002
First Quarter	$	34.38	$	24.75
Second Quarter	$	35.06	$	28.66
Third Quarter	$	30.78	$	12.60
Fourth Quarter	$	18.10	$	12.70
Year ended December 31, 2001
First Quarter	$	24.97	$	17.00
Second Quarter	$	28.47	$	18.72
Third Quarter	$	30.83	$	21.08
Fourth Quarter	$	33.36	$	23.65

As of March 24, 2003, we had approximately 66,300 holders of record of common stock. We have never paid cash dividends on our capital stock. It is our present policy to retain earnings to finance our operations and growth, and we do not expect to pay any cash dividends in the foreseeable future.

2

CONCORD EFS, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

The following consolidated selected financial data for the years ended December 31 (in thousands, except per share data) should be read in conjunction with our consolidated financial statements and the notes to those financial statements, which are included in this report.

	2002		2001		2000		1999		1998
INCOME STATEMENT DATA
Revenue	$	1,966,628	$	1,579,944	$	1,319,650	$	1,037,559	$	811,590
Cost of Operations		1,366,545		1,080,372		924,699		713,246		552,469
Selling, General and Administrative Expenses		123,867		91,105		91,995		92,334		90,936
Acquisition, Restructuring and Write-off Charges		77,486		125,362		11,691		36,189		—
Litigation Settlement Charges		8,761		—		—		—		—
Operating Income		389,969		283,105		291,265		195,790		168,185
Net Investment Income		65,745		57,594		37,243		16,251		2,604
Other Income, Net		9,163		4,191		2,235		230		1,234
Equity in Earnings of Subsidiary		—		—		—		—		281
Income Taxes		163,129		127,958		120,220		82,906		65,709
Minority Interest in Subsidiary		910		526		597		124		—
Net Income	$	300,838	$	216,406	$	209,926	$	129,241	$	106,595
Basic Earnings per Share		$0.59		$0.44		$0.44		$0.28		$0.24
Diluted Earnings per Share		$0.57		$0.42		$0.42		$0.27		$0.23
Basic Shares		507,278		494,747		478,358		463,686		448,470
Diluted Shares		524,676		516,958		495,993		479,734		462,792
BALANCE SHEET DATA
Working Capital	$	1,288,533	$	1,318,916	$	655,999	$	450,272	$	223,137
Total Assets	$	2,528,440	$	2,729,445	$	1,828,286	$	1,301,067	$	1,002,282
Long-Term Debt, Less Current Maturities	$	139,092	$	119,458	$	109,911	$	89,268	$	190,625
Total Stockholders’ Equity	$	1,916,162	$	1,858,587	$	1,132,531	$	855,421	$	493,248

	Percentage of Revenue						Percentage Change
	2002		2001		2000		2002 over 2001		2001 over 2000
INCOME STATEMENT DATA
Revenue	100.0	%	100.0	%	100.0	%	24.5	%	19.7	%
Cost of Operations	69.5		68.4		70.1		26.5		16.8
Selling, General and Administrative Expenses	6.3		5.8		7.0		36.0		(1.0	)
Acquisition, Restructuring and Write-off Charges	3.9		7.9		0.9		(38.2	)	972.3
Litigation Settlement Charges	0.5		—		—		—		—
Operating Income	19.8		17.9		22.0		37.7		(2.8	)
Net Investment Income	3.3		3.6		2.8		14.2		54.6
Other Income, Net	0.5		0.3		0.2		118.6		87.5
Income Taxes	8.3		8.1		9.1		27.5		6.4
Minority Interest in Subsidiary	0.0		0.0		0.0		73.0		(11.9	)
Net Income	15.3	%	13.7	%	15.9	%	39.0	%	3.1	%

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

Swiping a card.

Entering a 4-digit pin.

Pressing the “yes” button.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

Consumers take for granted how simple it is to pay for things in today’s electronic economy. But behind billions of electronic payment transactions each year, we are putting the power of our technology to work—processing and verifying information, communicating with scores of network links, maintaining and analyzing data records. Our services help millions of consumers pay for gas, groceries, and other everyday items and help thousands of financial institutions and merchants make money along the way.

To learn more about our unique story, we invite you to follow a transaction from beginning to end to see how our services combine to touch transactions from swipe to settlement—and at every point in between.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

Our “Story Behind the Transaction” is about the potential for combining our services for retailers, financial institutions, and consumers in each electronic payment transaction. The story features three vertically integrated business lines that work together behind the scenes to make electronic payments and other financial transactions faster, more efficient, and more secure:

• Risk Management Services, which provides financial institutions and retailers with proprietary software, information, and analysis to prevent fraud before an account is opened or before a transaction is processed;

• Payment Services, which provides systems and processing that enable retailers to accept all types of card-based payments; and

• Network Services, which provides automated teller machine (ATM) and card processing services for financial institutions and enables millions of cardholders to use their STAR^SM ATM/debit cards to pay for purchases nationwide.

The services from our business lines weave together to produce a seamless value chain for financial institutions, retailers, and consumers throughout the different stages of an electronic transaction.

The behind-the-scenes look at the multiple steps in a debit transaction begins with opening a new checking account. Our proprietary technology is there from the beginning, before the first transaction, with sophisticated online services and software tools that reduce fraud risk at the point of account opening, at the point of deposit, and at the point of sale.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

9:02:08	Opens newchecking account	Before the account is opened, IDENTITY CHEKsm crosschecks multiple data sources to detect inconsistencies that might suggest identity fraud. The service uses sophisticated analytic software from our subsidiary Primary Payment Systems, Inc., a leader in deposit account fraud detection systems.
9:16:38	Makes initialdeposit	Our DEPOSIT CHEK® service accesses a repository of 190 million account records to verify the payer account is in good standing. Primary Payment Systems is the custodian of the shared repository, created through the collaboration of nearly every major financial institution in the U.S.
9:25:12	Signs up for debit card	Our card processing services enable financial institutions to issue a new STAR debit card on the spot, which the customer encodes with a personal identification number (PIN). This instant-issue increases card use and improves customer satisfaction for the financial institution.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

From the moment a consumer walks up to a cash register, our services swing into action. The handheld device that verifies identification, the payment terminal on the counter, and the point of sale systems and processing that acquire and route the transaction are all part of our in-store solutions that enable merchants of all sizes to reduce risk, accept non-cash payments, and lower costs.

The fastest-growing payment type is PIN-secured debit, an electronic payment from a checking/deposit account that uses a personal identification number, or “PIN,” as an electronic signature. Preferred by many consumers, PIN-debit is the most secure type of card payment and is the only payment type that allows cardholders to add to the purchase amount to get cash back on the spot. PIN-debit is also a favorite among retailers due to its low cost and fast transaction speed. Retailers are increasingly prompting customers to “please enter your PIN” to ensure that the transaction is processed in the most cost-effective way.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

9:43:02	Presents merchandise at checkout	For age-restricted merchandise, our IDLogix™ service provides drivers license validation via proprietary terminals and software, reducing risk of underage sales due to fraudulent identification. We foresee additional private and public sector applications for IDLogix, such as verifying identification for money transfers or entry to secure areas.
9:45:12	Swipes card and enters PIN	Our end-to-end service includes providing point of sale terminal equipment, which is shipped to the retailer and maintained from a central terminal deployment center. Featured is the all-in-one STAR Universal Terminal® with an integrated IDLogix function that also reads checks, accepts all cards, and prompts the cardholder to enter a PIN.
9:45:22	Presses “yes” to authorize payment	Our point of sale processing service captures the transaction at the terminal and routes it to the appropriate card network for authorization. We are connected via telecommunications technology to point of sale terminals at over 400,000 retail locations nationwide.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

It usually takes less than 2 seconds for a PIN-debit transaction to travel the distance between “enter” and “approved.” In that short time span, the transaction covers an astonishing distance, traveling across telecommunications connections to the designated debit network, from there to the card issuer for approval, back to the network, and finally back to the store.

We are there every step of the way. We manage a telecommunications network that supports all major telecommunications options, including a high-speed Internet gateway that cuts transaction travel time. We operate STAR, the nation’s largest PIN-debit network, which routes the transaction for approval. And we provide transaction authorization services on behalf of the card issuer.

Our STAR network plays a leading role in the “Story Behind the Transaction.” STAR acquires and switches more PIN-debit transactions than any other network through its connections to financial institutions, retailers, retail ATM deployers, and third party processors, which collectively connect to over 1.2 million STAR-branded ATM and retail locations nationwide. When a cardholder enters a PIN, more often than not that transaction will be routed to STAR.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

9:45:22	Transaction routing	We support all major telecommunications options, including frame relay, dial-up, satellite, wireless, and digital subscriber line. Our newest option is EFSnetsm, a high-speed Internet gateway service that is faster and less expensive than dial-up or leased lines—an important advantage in fast-turnaround locations like fast-food restaurants.
9:45:23	Network switching	The STAR network “switch” acts like an air traffic controller, routing incoming transactions to the appropriate destinations for authorization. STAR switches more transactions than any other PIN-debit network, as millions of cardholders use their STAR cards at ATM and point of sale locations coast-to-coast.
9:45:24	Authorization	We check the cardholder’s account balance before authorizing the transaction and sending it back to the network via our Card Management & Authorization System. Our card processing services include card production and issuance, maintenance of cardholder account and balance information, and online reporting.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

There’s more to our unique and exciting story. We don’t stop at providing the front-end services for a payment transaction. We also provide the back-end settlement, funds movement, and reporting services that allow our retailers to enjoy “swipe to settlement” from a single provider.

In the end, the “Story Behind the Transaction” is about our Risk Management Services, Payment Services, and Network Services working together to complete electronic transactions quickly, efficiently, and securely. And while each transaction’s story may be slightly different—as third party processors send transactions to our STAR network or as we acquire transactions from other debit or credit networks—the potential exists for us to touch each transaction multiple times. We earn a fee each time we touch a transaction, so these integrated services multiply the revenue opportunity in each transaction while also enabling us to maintain quality and add value throughout the transaction flow for financial institutions, retailers, and their customers.

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CONCORD EFS, INC. AND SUBSIDIARIES

THE STORY BEHIND THE TRANSACTION

9:46:08	Receives receipt, merchandise, and cash back	The approved transaction is received by the point of sale terminal back at the store, where the cardholder receives the receipt and the requested cash-back amount. Our point of sale processing service captures and records the transaction detail for electronic settlement with the networks and the retailer.
	Electronic settlement, funds movement, and reporting	We settle with the network, and subsidiary Concord EFS National Bank provides the funds movement into the retailer’s account. Our ClientLine™ suite of online tools provides retailers with a variety of reporting, activation, deployment, and adjustment services.

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CONCORD EFS, INC. AND SUBSIDIARIES

STOCKHOLDERS’ LETTER

To Our Stockholders

In 2002 we processed over 10.8 billion transactions—almost 30 million transactions every day—which represented an 18% increase in volume compared to 2001. For a business model based largely on transaction fees, this was clearly an important achievement. However, our continued successful participation in the trend of cash and checks moving to electronic payments has deeper significance. Beyond the simple equation of more transactions generating more fees is the fact that the synergies among our vertically integrated business lines serve to multiply the revenue opportunity in each transaction we process. This important feature of our business model, illustrated in our “Story Behind the Transaction,” is a basis for our confidence in Concord’s future success.

Foundations for the Future

In 2002 we successfully continued to penetrate the quick service restaurant market, which we believe represents a significant new market for card-based payments. We added a total of 4,800 quick service restaurant locations, bringing to 14,800 the total number of quick service restaurant locations that use our payment processing services. Most notably, we announced in December 2002 that the world’s largest food service organization has selected Concord to be its nationally approved provider of card-based payment processing at its company-owned restaurants and the preferred provider for its franchisee locations nationwide.

In another move to sharpen our focus on new growth opportunities, we organized our various risk management services into a new business line in 2002. Risk Management Services provides proprietary online services and software tools that help prevent deposit, payment, and identity fraud, which costs financial institutions and retailers billions of dollars annually. We believe that Concord is well positioned to capitalize effectively on this large market opportunity, and we expect Risk Management Services to contribute materially to future growth.

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November 7, 2002 marked an important milestone at Concord as our stock began trading on the New York Stock Exchange under the symbol “CE.” This move is expected to improve the visibility of our stock among a wider base of investors and lessen the stock’s volatility.

Performance Highlights

We are especially pleased to report positive results for 2002 despite the uncertain U.S. economy. Revenue reached approximately $2.0 billion, up 24% over 2001, with net income totaling $300.8 million, up 39%, and diluted earnings per share of $0.57, up 37%. Excluding non-recurring charges, net income and diluted earnings per share were up 18% and 16%, respectively. Cash flow from operations continued to be excellent in 2002, up 23% over 2001 excluding the timing of settlement operations.

Our two reporting segments, Network Services and Payment Services, both had strong growth in revenue and transactions in 2002. Network Services, which provides financial institutions with ATM and debit card processing services plus access to our nationwide STAR_sm network, grew revenue at 15% in 2002. Transaction volume was up 14% due to 30% growth in STAR debit payment transactions, which are electronic payments from a checking account that use a personal identification number (“PIN”) as an electronic signature. These PIN-debit transactions represented 47% of the 6.3 billion transactions processed by Network Services in 2002. Payment Services, which provides payment processing, settlement, and related services to retailers, increased revenue by 29% on transaction volume growth of 25% in 2002. This growth was largely driven by acquired PIN-debit payment transactions, which were up 43% in 2002. Acquired PIN-debit transactions represented 24% of the 4.5 billion transactions processed by Payment Services in 2002.

We completed several alliances and acquisitions in 2002 to add technology, customers, and transactions. The most significant alliance agreements included (1) a joint venture with Traveler’s Express/MoneyGram to provide an ATM-based person-to-person money transfer service, which leverages our nationwide network of 241,000 STAR ATMs to create new transactions and revenue streams for our financial institution customers; (2) an agreement with Link2Gov Corp., an e-payment solutions provider for government entities, to provide electronic

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payment processing services for 2002 federal tax payments made by phone or over the Internet; and (3) joint initiatives with Certegy Inc. in which we expect to provide payment processing for over 40,000 Certegy merchants and will offer Certegy’s check authorization services to our retail customers. Significant acquisitions included (1) The Logix Companies, LLC, which added ATM processing volume and provided new identification validation technology that is now featured in our risk management services and (2) Core Data Resources, Inc., an electronic transaction processor that together with Logix doubled the number of ATMs that we process. As a result of these two acquisitions, we now process approximately one-fourth of all ATMs in the U.S.

We continued to make progress on our company’s consolidation plans in 2002. Important accomplishments included moving in-house all network switch processing functions and disaster recovery capabilities. Going forward, we believe that there is continued integration work to be done to realize fully the synergies from our acquisitions. In 2003 we will continue to focus on improving operating efficiencies, something that we have a track record of doing well.

The Story Behind the Transaction

We hope you take a moment to review the “Story Behind the Transaction” on the opening pages of this report because we think it will help you better understand our business model, the services we provide to our customers, and the synergies created by our vertically integrated business lines. Our network, payment, and risk management services combine to create a seamless value chain for financial institutions, retailers, and consumers throughout the various stages of an electronic transaction. We earn a fee each time we “touch” a transaction, so these integrated services multiply the revenue opportunity in each transaction.

Our revenue opportunity is further enhanced by our ownership of the STAR network. STAR processes over 50% of U.S. PIN-debit payment transactions, the fastest growing payment type in the U.S., through connections to over one million retail locations that accept STAR-branded cards for payment. This connectivity is important because in the world of card payments the brand determines transaction routing. This means that transactions are sent to us, as the operator of the STAR switch, whether or not we are the acquiring processor.

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We think the opportunity for multiple fees per transaction combined with the ability to touch more debit transactions is a compelling feature of our business model. And we believe that the potential for debit transactions is enormous. While PIN-debit payments are projected to grow 18% annually through 2005, PIN-debit transactions were just 3% of total consumer payments in 2001. That same year there were 80 billion payments made with checks or cash in the U.S., representing vast opportunities for these payments to convert to PIN-debit or other electronic form.

One key to tapping this potential will be early penetration of new segments that are poised to move to card-based payments, as we did successfully in supermarkets and gas stations in the 1990’s. A new segment beginning to embrace electronic payments is the quick service restaurant industry, which is characterized by high-volume cash transactions. We are also actively exploring ways to electronify cash and check transactions to create new revenue streams for our financial institution customers, such as automating vending machine payments and converting recurring consumer payments like utility bills to electronic transfers.

Looking Ahead

In 2003 we will be focusing on three key initiatives: (1) cross-selling products from all of our business lines—Network Services, Payment Services, and Risk Management Services—to all of our customers, both financial institutions and retailers; (2) strengthening the STAR network by renewing and extending contracts with our largest financial institution participants; and (3) continuing to improve our operating efficiency through consolidation, expense reduction, and improvements in our internal operating processes.

As the leader in the fastest-growing payment category, we believe that we are well positioned to capitalize on macro trends in debit payments and risk management. We have a large recurring-revenue base with the majority of our revenue under multi-year contracts. Our business segments have synergies that have the potential to optimize revenue and present us with significant cross-selling opportunities. And we have a strong balance sheet and excellent cash flow. It all adds up to an exciting future. We’re glad that you have chosen to join us.

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Sincerely,

/S/    DAN M. PALMER	/S/    BOND R. ISAACSON	/S/    EDWARD A. LABRY III
Dan M. Palmer	Bond R. Isaacson	Edward A. Labry III
Co-Chief Executive Officer	Co-Chief Executive Officer	President

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CONCORD EFS, INC. AND SUBSIDIARIES

Management’s Discussion & Analysis of Financial Condition and Results of Operations	20
Consolidated Balance Sheets	36
Consolidated Statements of Income	37
Consolidated Statements of Stockholders’ Equity	38
Consolidated Statements of Cash Flows	39
Notes to Consolidated Financial Statements	40
Report of Independent Auditors	80
Corporate Directory	81

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CONCORD EFS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION & ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 31, 2002

You should read the following discussion together with our consolidated financial statements and the notes to those financial statements, which are included in this report. This report may contain forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth in this paragraph. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) the failure to successfully execute our corporate consolidation plans, (ii) the loss of key personnel or inability to attract additional qualified personnel, (iii) the loss of key customers or renewal of customer contracts on less favorable terms, (iv) increasing competition and its effect on our margins, (v) changes in card association rules and practices, (vi) the inability to remain current with rapid technological change, (vii) risks related to acquisitions, (viii) the imposition of additional state taxes, (ix) continued consolidation in the banking and retail industries, (x) business cycles and the credit risk of our merchant customers, (xi) the outcome of litigation involving VISA and MasterCard, (xii) utility and system interruptions or processing errors, (xiii) information theft, (xiv) susceptibility to merchant fraud and credit and fraud risk of entities we sponsor into networks, (xv) changes in card association fees or products, (xvi) automated teller machine market saturation or restrictions on surcharging, (xvii) rules and regulations governing financial institutions and other networks and changes in such rules and regulations, (xviii) the timing and extent of changes in interest rates, (xix) volatility of the price of our common stock, and (xx) litigation risks. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. See the cautionary statements included as Exhibit 99.5 to our annual report on Form 10-K filed on March 27, 2003 for a more detailed discussion of the foregoing and other factors.

Overview

Concord EFS, Inc. (Concord), a leading electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, we acquire, route, authorize, capture, and settle virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. In 2002 we processed approximately 10.8 billion transactions.

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We organize our business into segments based upon the different products and services that we offer to the different industries we serve. In the fiscal year ended December 31, 2002 we had two segments—Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies.

Network Services

Network Services provides the systems and processing that allow financial institutions to offer their customers access to their deposit accounts at ATMs and POS locations. Our network access services include transaction switching and settlement, plus related support services to our customers. We operate the network switch for the combined STAR_sm, MAC^®, and Cash Station^® debit networks that connects over 1.2 million ATMs and POS locations that accept debit cards issued by our member financial institutions. In addition, we provide ATM processing and monitoring, transaction routing and authorization via credit card associations and debit networks, deposit risk management, and card management, authorization, and fraud protection for PIN-secured debit and signature debit cards. In 2002 we processed approximately 3.0 billion PIN-secured debit payment transactions and approximately 3.3 billion ATM and other transactions.

On May 17, 2002 we acquired Core Data Resources, Inc. (n/k/a Concord Processing, LP), an electronic transaction processor based in Amarillo, Texas. Core Data provides ATM processing and related services to financial institutions, retailers, and independent sales organizations nationwide. This acquisition was accounted for as a purchase transaction in which we exchanged approximately 2.0 million shares of our common stock for all of Core Data’s outstanding common stock.

On March 1, 2002 we acquired The Logix Companies, LLC, an electronic transaction processor based in Longmont, Colorado. Logix provides financial institutions, retailers, and independent sales organizations with ATM processing, electronic check conversion, identification and authentication services, database development and reporting, and merchant processing services. This acquisition was accounted for as a purchase transaction in which we exchanged approximately 0.9 million shares of our common stock and paid $6.3 million in cash for all of the outstanding membership units of Logix.

On February 1, 2001 we acquired Star Systems, Inc. (STAR), which owned the nation’s largest PIN-secured debit network, based in Maitland, Florida. The merger was accounted for as a pooling-of-interests transaction in which we exchanged approximately 48.0 million shares of our common stock for all of STAR’s outstanding common stock. On August 21, 2000 we completed our acquisition of Cash Station, Inc., a leading midwest PIN-secured debit network based in Chicago, Illinois. This acquisition was accounted for as a pooling-of-interests transaction in which we exchanged approximately 5.0 million shares of our stock for all of the outstanding common stock of Cash Station.

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As a result of our acquisition of STAR and Cash Station and subsequent purchase of shares, we acquired a majority interest in Primary Payment Systems, Inc., a company providing deposit and payment risk management services to merchants and financial institutions. We own an 85.5% interest in Primary Payment Systems, with the remainder owned by certain financial institutions and a credit union service provider. Primary Payment Systems’ deposit and payment risk management services provide advance notification of potential losses associated with fraudulent checks or high risk accounts.

In 2001 Primary Payment Systems expanded its operations in the deposit risk management area through its acquisition of Wally Industries, Inc. d/b/a WJM Technologies. WJM’s front-end tools, which screen new deposit accounts before they are opened, increase the breadth of Primary Payment Systems’ deposit risk management services.

We have a number of significant customer contracts in our Network Services segment that by their terms terminate on December 31, 2004. We are actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are not renewed or are renewed on less favorable terms than the current terms, there may be an adverse effect on our business, operating results, and financial condition. In addition, the loss of several of these large customers could have an additional adverse effect on our business, operating results, and financial condition due to the interdependency of participants in the STAR network. The loss of a significant number of STAR-branded cards, ATMs, or POS terminals could cause other financial institutions or merchants to evaluate their contractual participation in the STAR network.

Payment Services

Payment Services provides the systems and processing that allow retail clients to accept virtually any type of electronic payment, including all card types—credit, debit, electronic benefits transfer (EBT), prepaid, and proprietary cards—as well as a variety of check-based options. We provide POS processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies. In 2002 we processed approximately 4.5 billion of these payment transactions. Our services are generally turn-key, providing merchants with POS terminal equipment, transaction routing and authorization, settlement, funds movement, and sponsorship into all credit card associations (such as VISA and MasterCard) and debit networks (such as STAR, Pulse, and NYCE).

We own one insured depository institution, EFS National Bank (n/k/a Concord EFS National Bank), which supports our payment processing business. As part of our effort to consolidate our insured depository operations and terminate local deposit taking and lending activities, EFS Federal Savings Bank, another subsidiary, was merged into EFS National Bank on August 26, 2002.

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On January 1, 2002 we acquired H & F Services, Inc., an independent sales organization that sells payment services products and services to small- and medium-sized merchants. Prior to the acquisition, we purchased merchant contracts from H & F Services. The acquisition was intended to establish control over this sales channel with product, pricing, compensation, and productivity initiatives. This acquisition has significantly increased selling, general and administrative expenses, while reducing the average cost of acquiring merchant contracts and reducing the cost of operations.

Early in 2000 we completed two acquisitions in the Payment Services area. In February 2000 we acquired Virtual Cyber Systems, Inc. (n/k/a Concord Emerging Technologies, Inc.), an Internet software development company. This acquisition was accounted for as a purchase transaction in which we exchanged approximately 0.1 million shares of our common stock for all of the outstanding shares of Virtual Cyber Systems, Inc. and paid approximately $0.4 million in cash to Virtual Cyber Systems’ option holders to cash out their options. In January 2000 we acquired National Payment Systems Inc. d/b/a Card Payment Systems, a New York-based reseller of payment processing services. Card Payment Systems provides card-based payment processing services to independent sales organizations, which in turn sell those services to merchants. The acquisition was accounted for as a pooling-of-interests transaction in which we exchanged approximately 12.5 million shares of our stock for all of the outstanding shares of Card Payment Systems. Effective January 1, 2003, Card Payment Systems began doing business as Concord Payment Systems.

As a result of our recently announced strategy of developing our risk management services, we expect to organize a new segment during the 2003 fiscal year. Our new Risk Management Services segment is expected to provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction.

Consolidation Plans

In conjunction with the Core Data acquisition, we initiated a consolidation plan and continued our consolidation initiatives to improve overall operating efficiencies in the second quarter of 2002. This plan includes contract terminations, exiting a non-strategic business, closing and consolidating certain facilities, and eliminating 24 positions. We incurred charges of $28.3 million related to this plan. We expect to complete this plan by June 30, 2003.

In the first quarter of 2002 we initiated a consolidation plan to continue improvements in overall operating efficiency and integrate recent acquisitions. This plan includes closing and consolidating certain facilities, exiting several non-strategic businesses, and eliminating approximately 165 positions. We incurred charges of $46.7 million related to this consolidation plan. We expect to complete this plan by March 31, 2003.

In the first quarter of 2001 we initiated a company-wide consolidation plan to address areas of operating redundancies created through acquisitions. This plan included consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms, and the functional integration of the STAR organization into Concord. We incurred charges of

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$127.9 million (of which $2.5 million was recorded in 2002) related to this consolidation plan, including costs incurred in combining operating platforms and facilities, communications conversion costs, asset write-offs, and severance and compensation costs, as well as investment banking fees and advisory, legal, and accounting fees incurred in connection with the acquisition of STAR. The consolidation activities that were initiated in the first quarter of 2001 were substantially completed by March 31, 2002.

Restatement of Historical Financial Information

The financial information for prior periods presented below and elsewhere in this report has been restated for the results of STAR, Cash Station, and Card Payment Systems in accordance with the pooling-of-interests method of accounting for business combinations. The financial information includes the financial position, operating results, and cash flows for all periods presented.

Critical Accounting Policies

The critical accounting policies that are most important to the presentation of our financial statements relate to revenue recognition, capitalized software, stock-based compensation, and accounting for purchased merchant contracts.

Revenue from our Network Services and Payment Services segments related to the processing of credit, debit, and other transactions represents approximately 85.7% of our total revenue and is recognized at the time the transaction is processed. This revenue is collected either the next day as a charge against the merchant’s settlement payment or through an automated debit to the customer’s account no later than the 25th day of the following month. Network Services revenue is recorded gross of network fees and net of interchange fees. Payment Services revenue is recorded gross of network and interchange fees. For both Network Services and Payment Services network fees represent amounts charged to us by the card associations and debit networks and billed to our clients. In accordance with EITF 01-14 “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” we recognize these amounts, as well as certain telecommunications amounts, as both a component of revenue and expense in our financial statements. Network Services interchange fees represent amounts paid to us from the card associations as the card issuer processor and subsequently paid by us to the card issuer. In accordance with EITF 02-16, as discussed below, Network Services revenue excludes this interchange fee. In contrast, Payment Services interchange fees are collected from our merchant clients, not the card association or network vendor, and as a result are reported as both a component of revenue and expense. Since this revenue is recorded as transactions are processed and settlement occurs timely, we experience a low level of losses on collection. No material amounts of revenue are recorded based on estimates or assumptions.

We have elected to early adopt the provisions of the FASB’s Emerging Issues Task Force Issue 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16) for the fourth quarter of 2002. The effective date would otherwise have been January 1, 2003. The application of EITF 02-16 results in a change in presentation of interchange fees received by us from card associations relating to signature debit card transactions processed by our Network Services segment. The interchange fee received reimburses us for similar amounts paid to signature debit card issuing financial institutions.

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These amounts received are now presented as a reduction of segment cost of operations, which offset the amounts paid. Prior to the adoption of EITF 02-16, interchange received on signature debit card transactions was included in segment revenue. Prior annual and interim periods presented herein have been reclassified to conform to this change. Interchange excluded from revenue and decreasing cost of operations for 2002 is $207.8 million. The amount of interchange which decreases previously reported segment revenue and cost of operations by equal amounts was $123.4 million and $85.3 million in 2001 and 2000, respectively. The adoption of EITF 02-16 had no effect on reported operating income, net income or cash flows for any annual or quarterly periods presented.

In order to remain current with technological change, we invest significantly in internally developed software that is used in providing processing services to our customers. In accordance with the Accounting Standards Executive Committee Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when we have completed all planning, designing, coding, and testing activities that are necessary to determine that a product or product enhancement can be produced to meet its design specifications, including functions, features, and technical performance requirements. Capitalization of costs ceases when the product or product enhancement is available for general use. Software development costs are amortized using the straight-line method over the estimated useful life of the software, which is generally five years. We capitalized $48.8 million of software development costs in 2002.

We have elected to follow Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for our stock options because, among other things, the alternative fair value accounting provided for under Statement of Financial Accounting Standards 123, “Accounting for Stock-Based Compensation,” requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25, no compensation expense is recognized because the exercise price of our stock options equals the market price of the underlying stock on the date of grant. If the fair value method had been used, net income would have been reduced by approximately $41.3 million in 2002.

Effective January 1, 2002 individual purchased merchant contracts were written off if the merchant had terminated its processing relationship with us. In 2002 the remaining contracts were amortized using the straight-line method over nine years, and individual contracts were expensed at the termination of our merchant processing relationship. Prior to January 1, 2002 purchased merchant contracts were amortized using the straight-line method over six years, and the estimated life of purchased merchant contracts was evaluated annually based on attrition experience on an overall portfolio basis. Total expenses relating to non-performing purchased merchant contracts amounted to $28.7 million in 2002.

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Components of Revenue and Expenses

Network Services and Payment Services are our two reportable business segments. These business units are managed separately because they offer distinct products for different end users. All of our revenue is generated and all of our assets are located in the United States, and no single customer of ours accounts for a material portion of our revenue. The majority of our revenue is tied to contracts with initial terms of between three and five years.

A principal component of our revenue is derived from Network Services (31.1% in 2002 and 33.7% in 2001). Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, plus network fees charged to us by other networks and billed to our customers. We recognize this revenue at the time of the transaction.

The majority of our revenue (68.9% in 2002 and 66.3% in 2001) is derived from transaction fees and other income related to Payment Services. Revenue from Payment Services includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card or signature debit card transaction we process, as well as a flat fee per transaction. These discount and flat fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange fees charged to us by the card associations. The fee structure for smaller merchants includes the flat fee per transaction and a discount rate generally greater than the card association interchange rate. The fee structure for larger merchants includes the flat fee per transaction and a discount rate generally equal to the card association interchange rate. One result of having revenue partially based on a percentage of the transaction dollar amount is that lower ticket size causes a reduction in revenue. However, net income is not always correspondingly affected because transactions with large merchants, where the discount rate is generally equal to the card association interchange rate, have a direct dollar for dollar decrease in revenue and cost of operations.

Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT transactions are similar to credit card transactions in that the bundled fee we charge to a merchant includes the transaction authorization, processing, settlement, and funds transfer services we provide, plus the interchange and network fees charged to us by the debit networks. We recognize this revenue at the time of the transaction.

The following table lists revenue by segment for the years ended December 31 (in millions):

	2002		2001		2000
Network Services	$	612.0	$	532.5	$	436.0
Payment Services		1,354.6		1,047.4		883.7
Total	$	1,966.6	$	1,579.9	$	1,319.7

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The following table provides the impact of interchange fees on our reported revenue (in millions):

	Network Services	Payment Services	Total
2002
Revenue per the income statement	$612.0	$1,354.6	$1,966.6
Interchange fees included in revenue	—	822.1	822.1
Revenue, net of interchange fees	612.0	532.5	1,144.5
Interchange fees	207.8	822.1	1,029.9
Revenue, gross of interchange fees	$819.8	$1,354.6	$2,174.4
2001
Revenue per the income statement	$532.5	$1,047.4	$1,579.9
Interchange fees included in revenue	—	590.0	590.0
Revenue, net of interchange fees	532.5	457.4	989.9
Interchange fees	123.4	590.0	713.4
Revenue, gross of interchange fees	$655.9	$1,047.4	$1,703.3
2000
Revenue per the income statement	$436.0	$   883.7	$1,319.7
Interchange fees included in revenue	—	478.6	478.6
Revenue, net of interchange fees	436.0	405.1	841.1
Interchange fees	85.3	478.6	563.9
Revenue, gross of interchange fees	$521.3	$   883.7	$1,405.0

Cost of operations includes all costs directly attributable to our providing services to our customers. In Payment Services the most significant component of cost of operations is interchange fees, which amounted to $822.1 million, $590.0 million, and $478.6 million in 2002, 2001, and 2000, respectively. In most instances, the interchange fee is a percentage of the transaction amount and is charged to us by the credit card associations and debit networks. Cost of operations in both Network Services and Payment Services also includes telecommunications costs, personnel costs, occupancy costs, depreciation, and the cost of equipment leased and sold.

The following table lists cost of operations by segment for the years ended December 31 (in millions):

	2002		2001		2000
Network Services	$	234.8	$	225.5	$	219.6
Payment Services		1,131.7		854.9		705.1
Total	$	1,366.5	$	1,080.4	$	924.7

Our selling, general and administrative expenses include certain salaries, sales commissions, and other general administrative expenses, including legal fees, accounting fees, advertising, and marketing expenses. These costs are not allocated to the reportable segments.

Information regarding our business segments is included under the caption “Note P—Operations by Business Segment” in the notes to our consolidated financial statements and is incorporated herein by reference.

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Results of Operations

The following table shows the percentage of revenue represented by certain items on our consolidated statements of income for the years ended December 31:

	2002		2001		2000
Revenue	100.0	%	100.0	%	100.0	%
Cost of operations	69.5		68.4		70.1
Selling, general and administrative expenses	6.3		5.8		7.0
Acquisition, restructuring and write-off charges	3.9		7.9		0.9
Litigation settlement charges	0.5		—		—
Operating income	19.8		17.9		22.0
Net investment income	3.3		3.6		2.8
Other income, net	0.5		0.3		0.2
Income before taxes	23.6		21.8		25.0
Income taxes	8.3		8.1		9.1
Net income	15.3	%	13.7	%	15.9	%

Calendar 2002 Compared to Calendar 2001

Revenue increased 24.5% to $1,966.6 million in 2002 from $1,579.9 million in 2001. In 2002 Network Services accounted for 31.1% of revenue, and Payment Services accounted for 68.9%. Network Services revenue increased 14.9% over 2001. Excluding acquisitions, this increase was primarily attributable to an 11.6% increase in transaction volumes and network price increases for STAR and other debit networks. The increased transaction volumes from new and existing network and processing customers resulted primarily from a 30.1% increase in STAR network POS transactions. The acquisition of Logix and Core Data accounted for a 4.0% Network Services revenue increase in 2002. Revenue from Payment Services increased 29.3% over 2001, due primarily to interchange price increases and a 24.7% increase in transaction volumes. Interchange fees increased 39.3% or $232.1 million. Revenue, net of interchange fees, increased 16.4% or $75.1 million due primarily to transaction growth from the addition of large lower margin merchants and the expansion of relationships with existing lower margin merchants. The volume increase is the weighted average of a 43.0% increase in debit card transactions, a 23.2% increase in EBT card transactions, and a 21.0% increase in credit card transactions at new and existing merchants.

Cost of operations increased in 2002 to 69.5% of revenue compared to 68.4% in 2001. This percentage increase was primarily due to increased transaction volumes in both Network Services and Payment Services and increased interchange fees in Payment Services, which were partially offset by improvements in operating efficiencies and economies of scale. The increased interchange fees resulted from the addition of large lower margin merchants, the expansion of relationships with existing large lower margin merchants, and price increases instituted by the debit and credit networks.

Selling, general and administrative expenses increased as a percentage of revenue to 6.3% in 2002 from 5.8% in 2001. Overall, selling, general and administrative expenses increased to

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$123.9 million in 2002 from $91.1 million in 2001. This increase was primarily attributable to $24.0 million in expenses related to the acquisitions of H & F Services, Logix, and Core Data and $4.3 million in increased advertising and marketing expenses.

Acquisition, restructuring and write-off charges decreased to $77.5 million in 2002 from $125.4 million in 2001. The charges incurred in 2002 related to consolidation plans initiated to continue activities to improve our overall operating efficiencies and integrate recent acquisitions. The charges consisted of $24.1 million for the write-off of non-performing purchased merchant contracts, $16.8 million for contract terminations, $7.9 million for the write-off of capitalized software and equipment no longer in use, and $28.7 million for other activities, which includes $2.5 million in connection with the completion of our 2001 consolidation plan.

Litigation settlement charges were $8.8 million in 2002. There were no such charges in 2001. The charges represent credits and payments to merchants and former merchants, legal expenses, and claims administration expenses in connection with a settlement agreement relating to a purported class action lawsuit alleging that certain rate and fee charges were improper under Tennessee law due to allegedly deficient notice.

Operating income as a percentage of revenue increased to 19.8% in 2002 from 17.9% in 2001. This increase was due to a decrease of $39.1 million in acquisition, restructuring, write-off, and litigation settlement charges and was partially offset by the addition of lower margin revenue from large merchants and the increase in selling, general and administrative expenses.

Other income increased as a percentage of revenue to 0.5% in 2002 from 0.3% in 2001. This increase was the result of the sale of certain terminal hardware and related future rental payments in the second quarter of 2002.

Net investment income decreased as a percentage of revenue to 3.3% in 2002 from 3.6% in 2001. Overall, net investment income increased 14.2% to $65.7 million in 2002 compared to $57.6 million in 2001. This increase resulted primarily from increased investment of available cash flow from operations plus $420.6 million in proceeds from our June 2001 stock offering offset by lower rates of return. Net investment income includes $2.4 million of gains from alternative investments in 2002.

Our overall tax rate decreased to 35.1% in 2002 compared to 37.1% in 2001. This decrease was due primarily to lower nondeductible expenses including acquisition expenses and goodwill amortization compared to 2001.

Net income as a percentage of revenue increased to 15.3% in 2002 from 13.7% in 2001. The components of this increase are explained above.

Our overall performance in 2002 reflects declining operating margins that were due primarily to the impact of increased interchange and debit network fees in Payment Services. Interchange and network fees represent amounts charged by the credit and debit networks and appear as both revenue and cost of operations in our financial statements. Increased interchange and network

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fees result in increased revenue and cost of operations with a small positive impact on dollar margins and a negative impact on percentage margins. Other significant factors affecting our performance included the addition of large lower margin merchants, the general economic downturn, lower interest rates, slower than expected integration and consolidation activities, and increased selling, general and administrative expenses.

Calendar 2001 Compared to Calendar 2000

Revenue increased 19.7% to $1,579.9 million in 2001 from $1,319.7 million in 2000. In 2001 Network Services accounted for 33.7% of revenue, and Payment Services accounted for 66.3%. Network Services revenue increased 22.2% over 2000 as a result of the addition of new network and processing customers and increases in transaction volumes. The increased transaction volumes resulted primarily from increased use of our network debit cards for payment at the point of sale. Revenue from Payment Services increased 18.5% over 2000, due primarily to increased transaction volumes and interchange fees. Interchange fees increased 23.3% or $111.4 million. Revenue, net of interchange fees, increased 12.9% or $52.3 million due primarily to the addition of large lower margin merchants and the expansion of relationships with existing lower margin merchants. The increased volumes resulted from the addition of new merchants and the widening acceptance of debit and EBT card transactions at new and existing merchants.

Cost of operations decreased in 2001 to 68.4% of revenue compared to 70.1% in 2000. This decrease was due primarily to a decrease as a percentage of revenue in certain operating costs such as telecommunications, payroll expenses, and depreciation and amortization expenses. These decreases resulted from cost efficiencies from our company-wide consolidation activities.

Selling, general and administrative expenses decreased as a percentage of revenue to 5.8% in 2001 from 7.0% in 2000. This decrease was primarily attributable to lower marketing expense.

Acquisition, restructuring and write-off charges in 2001 were $125.4 million compared to $11.7 million in 2000. In the first quarter of 2001 we initiated a company-wide consolidation plan to address areas of operating redundancies created by our recent acquisitions. The plan included consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms, and the functional integration of the STAR organization into Concord. The charge of $125.4 million consisted of $63.9 million for combining various STAR processing platforms and facilities that were closed and consolidated, $16.0 million for abandoned duplicate products and systems that did not support our new network strategy, and $19.1 million for the various data center services contracts that were terminated. The consolidation of products, services, processing platforms, and facilities created personnel duplications. As a result, the charge included compensation and severance costs of $9.8 million to diminish redundancies and consolidate operational groups. Finally, the charge included advisory, legal, and accounting fees totaling $15.6 million, and other expenses of $1.0 million in connection with the STAR acquisition.

The consolidation plan was implemented to capture synergies within our network operations and align our resources across the enterprise for greater efficiency and improved service delivery. We substantially completed these consolidation activities by the end of the first quarter of 2002.

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Operating income as a percentage of revenue decreased to 17.9% in 2001 from 22.0% in 2000. This decrease was due to an increase of $113.7 million in acquisition, restructuring and write-off charges, and was partially offset by the cost efficiencies from our company-wide consolidation activities, increased economies of scale, and declining selling, general and administrative expenses.

Net investment income improved as a percentage of revenue to 3.6% in 2001 compared to 2.8% in 2000. This improvement resulted primarily from our increased investment of available cash flow from operations plus $420.6 million in proceeds from our June 2001 stock offering. Overall, net investment income increased 54.6% compared to 2000.

Our overall tax rate increased to 37.1% in 2001 from 36.3% in 2000. This increase was due primarily to higher nondeductible acquisition expenses compared to 2000.

Net income as a percentage of revenue decreased in 2001 to 13.7% from 15.9% in 2000. The primary factor in this decrease in net income was the acquisition expenses and restructuring charges related to the acquisition of STAR.

Liquidity and Capital Resources

We have consistently generated significant resources from operating activities. In 2002, 2001, and 2000 operating activities excluding the timing of settlement operations generated cash of $423.6 million, $344.6 million, and $286.8 million, respectively. Including the timing of settlement operations, we generated cash of $126.4 million, $661.9 million, and $404.5 million from operating activities in 2002, 2001 and 2000, respectively. Fluctuations in settlement receivable and payable balances are affected primarily by the timing of settlements. If the end of a reporting period ends on a Saturday or Sunday, we are due cash from the credit card associations that is payable to our merchants. If the end of a reporting period occurs on a Monday, we hold multiple days of cash that is payable to our merchants. This may inflate the year-end cash balance and cash provided by operating activities on our cash flow statement. Conversely, cash provided by operating activities may be adversely affected for the next reporting period depending on what day of the week the reporting period ends. All settlement cash balances are cleared in one or two business days. Inclusion of settlement in GAAP cash flows is not indicative of cash provided by operating activities unless settlement receivable and payable amounts are consistent from period to period.

We generally hold a significant amount of cash and securities because of the capital requirements of banking regulators and because of the liquidity requirements associated with conducting settlement operations and owning ATM machines. During fiscal 2002 we liquidated approximately $127.5 million in securities available for sale, net of sales and maturities. During 2001 and 2000 we invested approximately $574.5 million and $171.5 million, respectively, in securities available for sale, net of sales and maturities. As of December 31, 2002, we held

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securities with a market value of $1,124.5 million, including $218.0 million pledged as collateral for the Federal Home Loan Bank (FHLB) advances. We also invested $132.2 million, $136.9 million, and $87.1 million in 2002, 2001, and 2000, respectively, in capital expenditures, which were primarily for capitalized and purchased software and computer facilities and equipment.

We have historically financed our operations primarily through net cash provided by operating activities, the issuance of equity, and the exercise of stock options. We issued 17.8 million shares of common stock in June 2001 and received proceeds of $420.6 million, which we invested in securities.

Stock issued upon exercises of options under our incentive stock option plans provided $23.7 million of additional capital in 2002. As of December 31, 2002, there were 52.9 million stock options outstanding, approximately 47.6% of which were exercisable. We cannot estimate the timing of or amount of future cash flows from the exercise of stock options.

We have lines of credit with financial institutions totaling $65.0 million. As of December 31, 2002 and 2001, no amounts were outstanding on these lines of credit. As of December 31, 2002, we had $198.0 million of advances outstanding to, and $14.8 million in unused lines of credit with, the FHLB. In fiscal 2002 we received $78.6 million in proceeds from FHLB advances, net of payments.

Net loans made by our bank subsidiary as of December 31, 2002 and by our bank subsidiaries as of December 31, 2001 were $6.1 million and $89.0 million, respectively. Proceeds from the sale of loans amounted to $58.1 million during fiscal 2002. These sales and the decrease in deposits of $84.8 million during fiscal 2002 are the result of our effort to terminate local deposit taking and lending activities. We do not expect deposits to be a source of liquidity going forward.

During the third quarter of 2002, we invested $195.5 million in alternative investments managed by two hedge fund-of-funds entities. A total of 85 individual hedge funds were included in our fund-of-funds investments. In response to negative perceptions among stockholders of potential risks, on August 9, 2002, we announced we would be liquidating these alternative investments in an orderly process which began immediately after the announcement. Under the terms of the investment agreements, all of the funds require advance notice to redeem and withdraw our investment. These notices to redeem are required to be given from 30 to 60 days prior to the end of a quarter. There were no redemption fees required to be paid by us as a result of our negotiations to exit the funds. As a result of the liquidation process, our investment in alternative investments totaled $17.8 million as of December 31, 2002, which is expected to be completely liquidated in the first quarter of 2003.

On August 5, 2002 we announced that our Board of Directors approved the repurchase of up to $250.0 million of our common stock. Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions. On November 7, 2002 we announced that our Board of Directors approved the repurchase of an additional $150.0 million of our common stock and on November 21, 2002 we announced that the repurchase of an additional $100.0 million of our common stock was approved. The Board’s approvals bring the total approved repurchase to $500.0 million. As of

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December 31, 2002, we had purchased and retired a total of 26.9 million shares at an aggregate cost of $393.5 million pursuant to the repurchase plan. All repurchases have been made in the open market without the use of any derivative instruments.

Our acquisitions of STAR, Logix, and Core Data are examples of our practice of using our stock to make acquisitions. Any future acquisitions may involve our issuance of stock. If we make additional acquisitions, we may incur acquisition, restructuring and write-off charges in connection with combining operations.

During the third quarter of 2002, we entered into agreements for the financing, construction and leasing of a new corporate headquarters in Memphis, Tennessee with an estimated total cost of $55.0 million. The agreements qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on our balance sheet. The term of the lease is seven years. Upon the completion of construction, which is expected in the fourth quarter of 2003, rent payments will begin and will be expensed in our statements of income. The anticipated minimum lease payments under these agreements are not material to us. At the end of the lease term, we have options which include the renewal of the lease for five years and a fixed-price purchase option on the land and facility. We have guaranteed the residual value of the land and facility at the end of the lease term to the owner / lessor. Under this guarantee, we would be responsible for a decline in fair value during the lease term up to an estimated maximum amount of approximately $45.9 million if we do not exercise our option to acquire the land and facility at the end of the term of the lease. We also hold separate agreements with similar provisions on properties we currently occupy in Wilmington, Delaware and Marietta, Georgia. At their inception, the combined total cost financed under these agreements was approximately $35.0 million and the combined residual guarantees totaled approximately $29.3 million. Based on current market conditions, we do not expect to be required to make payments under these residual value guarantees.

We are currently evaluating the provisions of the Financial Accounting Standards Board Interpretation 46, “Consolidation of Variable Interest Entities,” which will be applicable to the Memphis, Tennessee, Wilmington, Delaware, and Marietta, Georgia leases beginning July 1, 2003.

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The following table lists our contractual obligations due by period for long-term debt, operating leases, software licenses, and other contractual agreements with initial or remaining terms in excess of one year at December 31, 2002 (in millions):

	2003		2004–2005		2006–2007		Thereafter		Total
FHLB advances	$	58,940	$	18,124	$	3,968	$	117,000	$	198,032
Operating leases		10,101		16,699		10,958		12,008		49,766
Software licenses		2,228		2,941		348		—		5,517
Other commitments		3,582		5,519		1,900		—		11,001
Total	$	74,851	$	43,283	$	17,174	$	129,008	$	264,316

We believe that our cash and cash equivalents, securities, available credit (unused lines of credit with the FHLB and unsecured lines of credit with financial institutions), and cash generated from operations are adequate to meet our capital and operating needs. Concord EFS National Bank, our wholly owned financial institution subsidiary, exceeded all required regulatory capital ratios as of December 31, 2002.

We have a number of significant customer contracts in our Network Services segment that by their terms terminate on December 31, 2004. We are actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are renewed, there may be material expenditures associated with the renewals.

Effects of Inflation

Our assets are primarily monetary, consisting of cash, assets convertible into cash, securities, and receivables. Because of their liquidity, these assets are not significantly affected by inflation; however, earnings and asset values are impacted by the interest rate environment. We believe that anticipated replacement costs of software, facilities, and equipment will not materially affect operations. However, the rate of inflation affects our expenses, such as those for employee compensation and telecommunications, which may not be readily recoverable in the price of our services.

Quantitative and Qualitative Disclosures About Market Risk

The securities we hold are subject to risk resulting from interest rate fluctuations to the extent that there is a difference between the amount of our interest-bearing assets and the amount of interest-bearing liabilities that are prepaid, mature, or reprice in specific periods. The impact of interest rate fluctuations on securities available for sale is reflected in accumulated other comprehensive income (loss) in our financial statements. This risk is mitigated by the fact that as of December 31, 2002, approximately 80.9% of the market value of securities owned was funded through equity rather than debt. The principal objective of our asset/liability activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating our funding needs. We use an interest rate sensitivity model as the primary quantitative tool in measuring the amount of interest rate risk that is present at the end of each month.

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The following table provides comparative information about our financial instruments that are sensitive to changes in interest rates. This table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For December 31, 2002 we assumed all interest sensitive loans and deposits are to mature in 2003 due to our intention to sell these assets and liabilities in 2003. In addition, the fair value of loans and deposits for December 31, 2002 are based on quoted bids for those assets and liabilities in connection with their sale. In accordance with our planned liquidation of alternative investments in 2003, the carrying amount of $17.8 million reported in the balance sheet approximates the fair value of those assets. Additionally, we have assumed our securities are similar enough to aggregate them for presentation purposes. If tax-equivalent yields of municipal securities had been used, the weighted-average interest rates would have been higher.

	Expected Maturity Date
December 31, 2002	2003			2004			2005			2006			2007			Thereafter			Total		Fair Value
	(in millions)
Assets:
Securities available for sale	$	11.9		$	17.8		$	17.7		$	26.8		$	10.5		$	1,005.0		$	1,089.7	$	1,108.3
Average interest rate		4.6	%		3.8	%		3.6	%		4.0	%		5.3	%		6.1	%
Loans	$	6.1			—			—			—			—			—		$	6.1	$	5.4
Average interest rate		6.6	%		—			—			—			—			—
Liabilities:
Deposits	$	78.1			—			—			—			—			—		$	78.1	$	79.3
Average interest rate		2.8	%		—			—			—			—			—
FHLB advances	$	58.9		$	11.0		$	7.1		$	2.4		$	1.6		$	117.0		$	198.0	$	215.1
Average interest rate		2.9	%		3.8	%		3.8	%		3.5	%		3.3	%		5.3	%
December 31, 2001	2002			2003			2004			2005			2006			Thereafter			Total		Fair Value
	(in millions)
Assets:
Securities available for sale	$	19.0		$	23.7		$	18.0		$	7.2		$	65.3		$	1,130.6		$	1,263.8	$	1,210.8
Average interest rate		6.0	%		5.5	%		6.1	%		4.9	%		5.0	%		6.3	%
Loans	$	9.1		$	0.1		$	4.9		$	3.4		$	4.1		$	69.2		$	90.8	$	93.1
Average interest rate		5.3	%		7.3	%		6.1	%		9.0	%		8.6	%		7.7	%
Liabilities:
Deposits	$	145.2		$	10.0		$	4.1		$	1.8		$	1.9			—		$	163.0	$	164.1
Average interest rate		2.6	%		5.8	%		5.0	%		6.8	%		5.1	%		—
FHLB advances		—		$	10.0			—			—		$	2.7		$	106.8		$	119.5	$	149.0
Average interest rate		—			5.6	%		—			—			5.2	%		5.5	%

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CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31
	2002		2001
	(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	471,825	$	682,906
Securities available for sale		985,400		1,121,494
Alternative investments		17,844		—
Accounts receivable, net		129,983		105,152
Settlement receivables, net		24,958		29,344
Inventories		19,983		20,971
Prepaid expenses and other current assets		30,789		34,346
Deferred income taxes		5,569		13,054
TOTAL CURRENT ASSETS		1,686,351		2,007,267
Securities available for sale		139,092		107,311
Loans, net		6,125		89,038
Property and equipment, net		338,558		267,451
Goodwill, net		265,460		158,632
Other intangible assets, net		57,073		85,712
Other assets		35,781		14,034
TOTAL ASSETS	$	2,528,440	$	2,729,445
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and other liabilities	$	25,252	$	21,879
Settlement payables		165,349		466,910
Deposits		78,133		162,972
Accrued liabilities		42,889		29,837
Accrued restructuring charges		10,728		5,315
Income taxes payable		16,527		1,438
Current maturities of long-term debt		58,940		—
TOTAL CURRENT LIABILITIES		397,818		688,351
Long-term debt		139,092		119,458
Deferred income taxes		62,343		55,437
Other liabilities		7,962		4,202
TOTAL LIABILITIES		607,215		867,448
Commitments and contingent liabilities		—		—
Minority interest in subsidiary		5,063		3,410
STOCKHOLDERS’ EQUITY
Common stock, $0.33 1/3 par value; authorized 1,500,000 shares, issued and outstanding 486,461 at December 31, 2002 and 508,055 at December 31, 2001		162,154		169,352
Additional paid-in capital		986,416		852,169
Retained earnings		756,605		840,350
Accumulated other comprehensive income (loss)		10,987		(3,284	)
TOTAL STOCKHOLDERS’ EQUITY		1,916,162		1,858,587
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,528,440	$	2,729,445

See Notes to Consolidated Financial Statements.

-36-

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31
	2002		2001		2000
	(in thousands, except per share data)
Revenue	$	1,966,628	$	1,579,944	$	1,319,650
Cost of operations		1,366,545		1,080,372		924,699
Selling, general and administrative expenses		123,867		91,105		91,995
Acquisition, restructuring and write-off charges		77,486		125,362		11,691
Litigation settlement charges		8,761		—		—
OPERATING INCOME		389,969		283,105		291,265
Other income and expense:
Investment income		77,387		70,668		48,182
Interest expense		11,642		13,074		10,939
Other income, net		9,163		4,191		2,235
INCOME BEFORE TAXES AND MINORITY INTEREST		464,877		344,890		330,743
Income taxes		163,129		127,958		120,220
INCOME BEFORE MINORITY INTEREST		301,748		216,932		210,523
Minority interest in net income of subsidiary		910		526		597
NET INCOME	$	300,838	$	216,406	$	209,926
PER SHARE DATA:
Basic earnings per share	$	0.59	$	0.44	$	0.44
Diluted earnings per share	$	0.57	$	0.42	$	0.42
AVERAGE SHARES OUTSTANDING:
Basic shares		507,278		494,747		478,358
Diluted shares		524,676		516,958		495,993

See Notes to Consolidated Financial Statements.

-37-

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount
	(in thousands)
BALANCE AT DECEMBER 31, 1999	477,158		$	159,052		$	294,439		$	414,462		$	(12,532	)	$	855,421
Exercise of stock options	5,586			1,862			25,031			—			—			26,893
Tax benefit of nonqualifying stock option exercises	—			—			27,955			—			—			27,955
Stock issued for purchase acquisition	169			56			1,668			—			—			1,724
Activity by pooled subsidiaries	—			—			—			(444	)		—			(444	)
Net income	—			—			—			209,926			—			209,926
Change in net unrealized gain (loss) on securities available for sale, net of tax of $5,536	—			—			—			—			11,056			11,056
Comprehensive income																220,982
BALANCE AT DECEMBER 31, 2000	482,913			160,970			349,093			623,944			(1,476	)		1,132,531
Exercise of stock options	7,384			2,462			35,537			—			—			37,999
Offering of common stock	17,758			5,920			414,710			—			—			420,630
Tax benefit of nonqualifying stock option exercises	—			—			52,829			—			—			52,829
Net income	—			—			—			216,406			—			216,406
Change in net unrealized gain (loss) on securities available for sale, net of tax of $974	—			—			—			—			(1,808	)		(1,808	)
Comprehensive income																214,598
BALANCE AT DECEMBER 31, 2001	508,055			169,352			852,169			840,350			(3,284	)		1,858,587
Exercise of stock options	2,400			800			22,936			—			—			23,736
Tax benefit of nonqualifying stock option exercises	—			—			14,234			—			—			14,234
Stock issued for purchase acquisitions	2,886			962			92,830			—			—			93,792
Stock option modification charges	—			—			4,990			—			—			4,990
Stock repurchased and retired	(26,880	)		(8,960	)		—			(384,588	)		—			(393,548	)
Other	—			—			(743	)		5			—			(738	)
Net income	—			—			—			300,838			—			300,838
Change in net unrealized gain (loss) on securities available for sale, net of tax of $7,673	—			—			—			—			14,271			14,271
Comprehensive income																315,109
BALANCE AT DECEMBER 31, 2002	486,461		$	162,154		$	986,416		$	756,605		$	10,987		$	1,916,162

See Notes to Consolidated Financial Statements.

-38-

CONCORD EFS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31
	2002			2001			2000
	(in thousands)
OPERATING ACTIVITIES
Net income	$	300,838		$	216,406		$	209,926
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in subsidiary		910			526			597
Provision for losses on accounts receivable and loans		187			1,964			5,039
Depreciation and amortization		85,903			94,091			96,615
Deferred income taxes		11,381			18,356			13,610
Net realized gain on sales of securities available for sale		(3,962	)		(3,615	)		(2,333	)
Restructuring charges		38,339			20,825			—
Changes in operating assets and liabilities:
Settlement receivables and payables, net		(297,175	)		317,250			117,762
Accounts receivable		(23,590	)		(17,869	)		(13,914	)
Inventories		1,222			(5,884	)		2,989
Prepaid expenses and other assets		(14,622	)		(12,203	)		(9,577	)
Accounts payable and other liabilities		26,597			32,131			(10,172	)
Other, net		392			(116	)		(5,995	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		126,420			661,862			404,547
INVESTING ACTIVITIES
Acquisition of securities available for sale		(867,983	)		(1,343,032	)		(308,157	)
Proceeds from sales of securities available for sale		763,068			598,389			106,771
Proceeds from maturity of securities available for sale		232,453			170,163			29,889
Acquisition of alternative investments		(195,546	)		—			—
Proceeds from liquidation of alternative investments		180,135			—			—
Purchases of loans		(17,716	)		(36,089	)		(48,324	)
Proceeds from sales of loans		58,056			—			—
Other net change in loans		44,133			24,980			(69	)
Acquisition of property and equipment		(132,153	)		(136,865	)		(87,113	)
Purchase of merchant contracts		(3,219	)		(30,157	)		(30,640	)
Business acquisitions, net		(20,088	)		(19,700	)		—
Other investing activity		(2,284	)		(5,807	)		(2,899	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		38,856			(778,118	)		(340,542	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits		(84,839	)		37,138			25,359
Proceeds from borrowings		183,200			21,000			42,000
Payments on borrowings		(104,626	)		(14,579	)		(22,326	)
Purchase and retirement of common stock		(393,548	)		—			—
Proceeds from exercise of stock options		23,736			37,999			26,893
Proceeds from offering of common stock		—			420,630			—
Payments on leases payable		(280	)		(1,409	)		(2,874	)
Activity by pooled subsidiaries		—			—			(3,345	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(376,357	)		500,779			65,707
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(211,081	)		384,523			129,712
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		682,906			298,383			168,671
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	471,825		$	682,906		$	298,383
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	11,626		$	12,943		$	10,698
Income taxes paid	$	125,232		$	64,781		$	96,419

See Notes to Consolidated Financial Statements.

-39-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies

Nature of Operations: Concord EFS, Inc. (Concord), a leading electronic transaction processor, provides the technology and network systems that make payments and other financial transactions faster, more efficient, and more secure than paper-based alternatives. As a vertically integrated service provider, Concord acquires, routes, authorizes, captures, and settles virtually all types of electronic payment and deposit access transactions for financial institutions and merchants nationwide. Concord’s primary activities consist of Network Services, which provides automated teller machine (ATM) processing, debit card processing, deposit risk management, and coast-to-coast debit network access principally for financial institutions, and Payment Services, which provides point of sale (POS) processing, settlement, and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants, and trucking companies.

Principles of Consolidation: The consolidated financial statements include the accounts of Concord and its subsidiaries after elimination of all material intercompany balances and transactions.

Business Combinations: Concord adopted Statement of Financial Accounting Standards 141, “Business Combinations,” effective July 1, 2001. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001.

The consolidated financial statements have been restated for all transactions accounted for as poolings of interests prior to July 1, 2001 to combine the financial position, results of operations, and cash flows of the respective companies for all periods presented. Transactions accounted for under the purchase method of accounting reflect the net assets of the acquired company at fair value on the date of acquisition, and the excess of the purchase price over fair value of the assets is recorded as goodwill. The results of operations of the purchased company are included in the consolidated results since the date of acquisition.

Stock issued in a purchase transaction is valued at an average closing price of Concord’s stock for a period of a few days surrounding the announcement date of the purchase in accordance with EITF 99-12.

Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

-40-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Revenue Recognition: Revenue from credit card and other transaction processing activities is recorded when the service is provided. Network Services revenue is recorded gross of network fees and net of interchange fees. Payment Services revenue is recorded gross of network and interchange fees. For both Network Services and Payment Services network fees represent amounts charged to Concord by the card associations and debit networks and billed to its clients. In accordance with EITF 01-14, as discussed below, Concord recognizes these amounts as both a component of revenue and expense in its financial statements. Network Services interchange fees represent amounts paid to Concord from the card associations as the card issuer processor and subsequently paid by Concord to the card issuer. In accordance with EITF 02-16, as discussed below, Network Services revenue excludes this interchange fee. In contrast, Payment Services interchange fees are collected from Concord’s merchant clients, not the card association or network vendor, and as a result is reported as both a component of revenue and expense. Payment Services interchange fees amounted to $822.1 million, $590.0 million, and $478.6 million for the years ended December 31, 2002, 2001, and 2000, respectively.

In January 2003 the FASB’s Emerging Issues Task Force reached a consensus on Issue 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16). EITF 02-16 provides guidance on how a customer should account for cash consideration received from a vendor. The transition provisions apply prospectively to arrangements entered into or modified subsequent to December 31, 2002 and would require all amounts received from vendors to be accounted for as a reduction of the cost of the products or services purchased unless certain criteria are met. Concord has elected to early adopt the provisions of EITF 02-16 for the fourth quarter of 2002.

The application of EITF 02-16 results in a change in presentation of interchange fees received by Concord from card associations relating to signature debit card transactions processed by its Network Services segment. The interchange fee received reimburses Concord for similar amounts paid to signature debit card issuing financial institutions processed by its Network Services segment. These amounts received are now presented as a reduction of segment cost of operations, which offset the amounts paid. Prior to the adoption of EITF 02-16, interchange received on signature debit card transactions was included in segment revenue. Prior annual and interim periods presented herein have been reclassified to conform to this change. Interchange excluded from revenue and decreasing cost of operations for 2002 is $207.8 million. The amount of interchange which decreases previously reported segment revenue and cost of operations by equal amounts was $123.4 million and $85.3 million for the years ended December 31, 2001 and 2000, respectively. The adoption of EITF 02-16 had no effect on reported operating income, net income or cash flows for any annual or quarterly periods presented.

-41-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Revenue Recognition, continued: In January 2002 the EITF reached a consensus on Issue 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (EITF 01-14). EITF 01-14 concluded that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement. Concord adopted EITF 01-14 effective January 1, 2002. The adoption of EITF 01-14 had no material effect on Concord, as substantially all reimbursements governed by EITF 01-14 were previously reported in revenue. These expenses (primarily certain telecommunications expenses and network fees) are billed to the customer separately or as part of a bundled rate including other Concord services.

Revenue from service contracts and product sales is recognized when the service is provided or the equipment is shipped. Service contracts and related sales include all revenue under system service contracts, including revenue from sales of terminal hardware when the contract includes such sales.

Revenue from most Payment Services customers is collected daily from settlement funds due to Concord’s merchants or through an automated debit to the customer’s account in the next month. Transaction revenue from Network Services customers is recorded as a receivable at month end and collected through a debit to the customer’s account during the next month. In addition, Concord records an account receivable when revenue is recognized from sales of POS equipment to Payment Services customers.

Accounts and Settlement Receivables: Concord may incur losses from cardholder disputes in the case of merchant insolvency or bankruptcy for the full amount of the cardholder transaction. Based on historical losses, Concord believes its allowance for doubtful accounts is adequate. The allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. Losses are charged against the allowance when management confirms that a receivable balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

Cash Equivalents: Concord considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of federal funds sold through Concord’s financial institution subsidiary and money market funds that invest in commercial paper, repurchase agreements, and instruments of domestic and foreign banks and other financial institutions.

-42-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Securities Available for Sale: Management determines the appropriate classification of debt securities at the time of purchase and evaluates such designation as of each balance sheet date. Securities available for sale are stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Such amortization, interest, and dividends are included in investment income. The cost of securities sold is based on the specific identification method.

Alternative Investments: Concord’s alternative investments, including hedge fund-of-funds, are accounted for under the equity method of accounting with realized and unrealized gains and losses reflected in investment income for each reporting period.

Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist primarily of POS terminals. Concord periodically reviews its inventories for obsolescence and slow-moving items.

Loans: A substantial portion of the loan portfolio is represented by mortgage loans in Memphis, Tennessee and the surrounding communities purchased through Concord’s financial institution subsidiary, EFS National Bank (n/k/a Concord EFS National Bank). The ability of Concord’s debtors to honor their contracts is dependent upon the real estate and general economic conditions of this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances net of the related allowance for loan losses. Interest income is accrued on the unpaid principal balance. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest income is subsequently recognized on non-accrual loans only to the extent cash payments in excess of past due principal amounts are received. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management determines that a loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

-43-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Loans, continued: Loans held for sale are carried at net realizable value as measured by quoted market prices or fair value of collateral less estimated selling costs.

Property and Equipment: Property and equipment are stated at cost. Costs associated with internally developed software are capitalized once technological feasibility of the software has been established. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Goodwill and Other Intangible Assets: Goodwill and other intangible assets are stated at cost. Concord adopted Statement of Financial Accounting Standards 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with finite useful lives will continue to be amortized over their estimated useful lives. Information concerning the adoption of SFAS 142 is contained in Note G to these consolidated financial statements. Prior to the adoption of SFAS 142, amortization was computed using the straight-line method over an estimated useful life of 10 to 25 years for goodwill. The amortization of intangibles other than purchased merchant contracts, such as customer lists and trade names, is computed using the straight-line method over an estimated useful life of 5 to 15 years.

For 2001 and 2000 purchased merchant contracts were amortized using the straight-line method over 6 years, and the estimated life for purchased merchant contracts was evaluated annually based on attrition experience on an overall portfolio basis. Effective January 1, 2002, individual purchased merchant contracts were written off (included in acquisition, restructuring and write-off charges) if the merchant had terminated its processing relationship. In 2002 the remaining contracts were amortized using the straight-line method over 9 years, and individual contracts were expensed (included in cost of operations) at the termination of the merchant processing relationship.

Other Assets: Other assets include $29.9 million, net of accumulated amortization, for capitalized payments made to customers, which are amortized over the life of the customer contract and are recoverable on a pro-rata basis upon early termination. These payments generally defray customer costs to convert to Concord’s systems.

-44-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Impairment of Long-Lived Assets: In accordance with Statement of Financial Accounting Standards 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective January 1, 2002, and its predecessor SFAS 121 prior thereto, long-lived assets are reviewed for impairment on an annual basis and whenever events indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets or operations are compared with their carrying value to determine if a write-down to fair value, normally measured by discounting estimated future cash flows, is required.

Income Taxes: Concord accounts for income taxes using the liability method.

Stock-Based Compensation: Concord grants options to employees and directors for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of the grant. These stock option grants are accounted for in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees;” accordingly, Concord recognizes no compensation expense for the stock option grants.

The following table presents information regarding Concord’s use of the intrinsic value method under APB 25 of accounting for stock-based compensation and states pro forma net income and earnings per share, as required by SFAS 123, “Accounting for Stock-Based Compensation,” as if Concord had accounted for its stock options under the fair value method of that statement for the years ended December 31 (in thousands, except per share data):

	2002		2001		2000
Net income as reported	$	300,838	$	216,406	$	209,926
Basic earnings per share as reported	$	0.59	$	0.44	$	0.44
Diluted earnings per share as reported	$	0.57	$	0.42	$	0.42
Stock-based compensation cost, net of tax, included in the determination of net income as reported	$	4,990		—		—
Stock-based compensation cost, net of tax, that would have been included in the determination of net income if the fair value method had been applied to all stock option grants	$	41,333	$	28,774	$	25,473
Pro forma net income	$	259,505	$	187,632	$	184,453
Pro forma basic earnings per share	$	0.51	$	0.38	$	0.39
Pro forma diluted earnings per share	$	0.49	$	0.36	$	0.37

-45-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Recent Pronouncements: In July 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue 94-3. The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The FASB concluded in SFAS 146 that an entity’s commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement may affect the timing of the recognition of exit costs, if any, in future periods.

In October 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 147, “Acquisitions of Certain Financial Institutions.” SFAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution and is effective for any such activities initiated after October 1, 2002. The adoption of this statement is not anticipated to have a material effect on Concord’s financial statements.

In November 2002 the Financial Accounting Standards Board issued FASB Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures that must be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and its recognition requirements are applicable for guarantees issued or modified after December 31, 2002. The adoption of this interpretation is not anticipated to have a material effect on Concord’s financial statements.

-46-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note A—Significant Accounting Policies, continued

Recent Pronouncements, continued: In December 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value method of APB 25. Concord intends to continue to account for stock options under the provisions of APB 25.

In January 2003 the Financial Accounting Standards Board issued FASB Interpretation 46, “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003 regardless of when the variable interest entity was established. Concord is currently evaluating the provisions of FIN 46.

Reclassification: Certain 2001 and 2000 amounts have been reclassified to conform to the 2002 presentation. These reclassifications include an increase in noncurrent assets of securities available for sale representing pledged securities on long-term debt and a corresponding decrease in current assets of securities available for sale. Net realized gain on sales of securities available for sale has been reclassified from revenue and cost of operations to other income. Other income also includes gain on sale of a subsidiary reclassified from selling, general and administrative expenses. In addition, revenue and cost of operations have been reclassified by equal amounts to reflect the early adoption of EITF 02-16 as described previously in this Note A.

- 47 -

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges

On May 17, 2002 Concord acquired Core Data Resources, Inc. (n/k/a Concord Processing, LP), an electronic transaction processor. Core Data’s ATM processing services are designed specifically for retailers and independent sales organizations and complement Concord’s existing ATM driving and monitoring services. The acquisition, for which Concord issued approximately 2.0 million shares of its common stock valued at $64.9 million, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On March 1, 2002 Concord acquired The Logix Companies, LLC, an electronic transaction processor. Logix technology supplies new features to Concord’s check conversion and risk management services, and the Logix ATM driving business primarily serves independent sales organizations. The acquisition, for which Concord issued approximately 0.9 million shares of its common stock valued at $28.8 million and paid approximately $6.3 million in cash, was accounted for as a purchase transaction and is immaterial to Concord’s results of operations. The allocation of the purchase price was based on a valuation study completed in the fourth quarter of 2002.

On January 1, 2002 Concord acquired H & F Services, Inc., an independent sales organization, for $8.9 million in cash. Prior to the acquisition, Concord had purchased merchant contracts from H & F Services. The acquisition was intended to establish control over this sales channel with product, pricing, compensation, and productivity initiatives. The acquisition was accounted for as a purchase transaction and is immaterial to Concord’s financial statements. The H & F Services stock purchase agreement contains deferred purchase price payments through 2007 subject to the terms and conditions contained therein. As of December 31, 2002, the deferred payments amounted to $3.9 million.

The following table presents the aggregate purchase price, assets, liabilities, and goodwill relating to Concord’s 2002 acquisitions (in thousands):

Purchase price	$	112,080
Cash		(10,179	)
Other current assets		(8,365	)
Property and equipment, net		(19,434	)
Other intangible assets, net		(7,060	)
Other assets		(805	)
Current liabilities		26,237
Restructuring related liabilities		13,236
Other liabilities		1,118
Goodwill	$	106,828

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

Concord owns a majority interest in Primary Payment Systems, Inc., a deposit risk management company. In April 2001 Concord increased its ownership position in Primary Payment Systems to 85.5% through the purchase of newly issued shares, which largely funded Primary Payment Systems’ acquisition of Wally Industries, Inc. d/b/a WJM Technologies. The acquisition of WJM, for which Primary Payment Systems paid approximately $20.0 million, was accounted for as a purchase transaction and is immaterial to Concord’s financial statements.

On February 1, 2001 Concord acquired Star Systems, Inc. (STAR^SM), a debit network. The acquisition was accounted for as a pooling-of-interests transaction in which Concord issued approximately 48.0 million shares of its common stock.

On August 21, 2000 Concord acquired Cash Station, Inc. (Cash Station^®), a debit network. The acquisition was accounted for as a pooling-of-interests transaction in which Concord issued approximately 5.0 million shares of its common stock.

On February 7, 2000 Concord acquired Virtual Cyber Systems, Inc. (n/k/a Concord Emerging Technologies, Inc.), an Internet software development company. The acquisition of Virtual Cyber Systems, for which Concord issued approximately 0.1 million shares of its common stock and paid approximately $0.4 million in cash, was accounted for as a purchase transaction and is immaterial to Concord’s financial statements.

On January 31, 2000 Concord acquired National Payment Systems Inc. d/b/a Card Payment Systems, a reseller of payment processing services. The acquisition was accounted for as a pooling-of-interests transaction in which Concord issued approximately 12.5 million shares of its common stock. Card Payment Systems is now doing business as Concord Payment Systems.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

The following table presents selected financial information split among Concord, Card Payment Systems, Cash Station, and STAR for the years ended December 31 (in thousands, except per share data):

	2002		2001			2000
Revenue:
Concord	$	1,966,628	$	1,565,072		$	1,128,403
Card Payment Systems (1)		—		—			4,047
Cash Station (2)		—		—			9,494
STAR (3)		—		15,396			184,866
Intercompany eliminations (4)		—		(524	)		(7,160	)
Combined revenue	$	1,966,628	$	1,579,944		$	1,319,650
Net income:
Concord	$	300,838	$	213,478		$	186,009
Card Payment Systems (1)		—		—			650
Cash Station (2)		—		—			816
STAR (3)		—		2,928			22,451
Combined net income	$	300,838	$	216,406		$	209,926
Basic earnings per share combined	$	0.59	$	0.44		$	0.44
Diluted earnings per share combined	$	0.57	$	0.42		$	0.42

(1) The 2000 amounts reflect the results of Card Payment Systems operations from January 1, 2000 through January 31, 2000 (unaudited). The Card Payment Systems results of operations from February 1, 2000 are included in Concord amounts.

(2) The 2000 amounts reflect the results of Cash Station operations from January 1, 2000 through June 30, 2000 (unaudited). Results of operations from July 1, 2000 are included in Concord amounts.

(3) The 2001 amounts reflect the results of STAR operations from January 1, 2001 through January 31, 2001. Results of operations from February 1, 2001 are included in Concord amounts. The 2000 amounts reflect the results of STAR operations from  January 1, 2000 through December 31, 2000.

(4) All material activity between Concord and STAR has been eliminated.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

During the second quarter, management approved a plan in conjunction with the Core Data acquisition and continued consolidation initiatives to improve overall operating efficiencies. Acquisition, restructuring and write-off charges relating to the second quarter 2002 plan were $28.3 million ($18.4 million, net of taxes). The charge consisted of $16.8 million for contract terminations, $3.4 million for exiting a non-strategic business, $1.0 million for closing and consolidating certain facilities, and $0.7 million for compensation and severance. In addition, the charge included stock compensation charges of $4.8 million related to the modification of stock options of terminated employees and asset impairment charges of $1.6 million recorded as an adjustment to the write-off of non-performing purchased merchant contracts. In connection with the plan, Concord expects to eliminate 24 positions, 9 of which were eliminated as of December 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $0.2 million through December 31, 2002. As of December 31, 2002, $3.9 million of the charges were accrued but unpaid. Concord expects to complete the plan by June 30, 2003.

The following table presents a summary of activity through December 31, 2002 related to the second quarter 2002 restructuring charge accrual (in thousands):

Acquisition, restructuring and write-off charges	$	29,006
Changes in estimate		(712	)
Cash outlays		(17,882	)
Non-cash writedowns and charges—asset impairment		(1,691	)
Non-cash writedowns and charges—other		(4,845	)
Balance, December 31, 2002	$	3,876

The following table presents a summary of the remaining components related to the second quarter 2002 restructuring charge accrual (in thousands):

Non-strategic business closures	$	1,923
Facility closings and consolidations		796
Contract terminations		613
Compensation and severance		544
Balance, December 31, 2002	$	3,876

In addition, Concord accrued $8.0 million as an adjustment to goodwill for contract terminations, which has been paid as of December 31, 2002.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

During the first quarter, management approved a corporate consolidation plan initiated to continue improvements in overall operating efficiency and integrate recent acquisitions. Acquisition, restructuring and write-off charges relating to the first quarter 2002 plan were $46.7 million ($30.1 million, net of taxes). The charge consisted of $6.7 million for closing and consolidating certain facilities, $5.9 million for compensation and severance, and $3.7 million for exiting non-strategic businesses. In addition, asset impairment charges of $22.5 million ($0.03 basic and diluted earnings per share) were incurred for the write-off of non-performing purchased merchant contracts identified in the first quarter and $7.9 million was incurred for the write-off of capitalized software and computer and communications equipment no longer in use. In connection with the plan, Concord expects to eliminate approximately 165 positions, 159 of which were eliminated as of December 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $4.2 million through December 31, 2002. As of December 31, 2002, $6.9 million of the charges were accrued but unpaid. Concord expects to complete the consolidation plan by March 31, 2003.

The following table presents a summary of activity through December 31, 2002 related to the first quarter 2002 restructuring charge accrual (in thousands):

Acquisition, restructuring and write-off charges	$	47,500
Changes in estimate		(815	)
Cash outlays		(8,059	)
Non-cash writedowns and charges—asset impairment		(31,774	)
Balance, December 31, 2002	$	6,852

The following table presents a summary of the remaining components related to the first quarter 2002 restructuring charge accrual (in thousands):

Facility closings and consolidations	$	4,228
Compensation and severance		1,749
Non-strategic business closures		875
Balance, December 31, 2002	$	6,852

In addition, Concord accrued $5.3 million as an adjustment to goodwill which consisted primarily of compensation and severance costs and contract terminations. As of December 31, 2002, $1.8 million of these costs were accrued but unpaid. This liability is included in accrued liabilities in the consolidated balance sheets.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note B—Business Combinations and Acquisition, Restructuring and Write-Off Charges, continued

Acquisition, restructuring and write-off charges were $125.4 million ($86.4 million, net of taxes) for the three months ended March 31, 2001. The charges were a result of a company-wide consolidation plan to address areas of operating redundancies created through acquisitions. The plan included consolidation of data centers and other facilities to eliminate redundancies, the reassignment or termination of certain employees timed to coincide with the integration of redundant processing platforms, and the functional integration of the STAR organization into Concord. The charges consisted of $63.9 million for combining various processing platforms, $16.0 million for the consolidation of duplicate products and internal systems, $15.6 million for advisory, legal, and accounting fees, $19.1 million for the termination of certain data center services contracts, $9.8 million for compensation and severance costs, and $1.0 million for other expenses. In connection with the consolidation plan, Concord expected to eliminate approximately 250 positions, all of which were eliminated as of March 31, 2002. Compensation and severance costs paid and charged against the restructuring charge accrual were $9.8 million through March 31, 2002. As of December 31, 2002, the consolidation activities were completed, and there was no remaining balance related to the 2001 restructuring charge accrual.

The following table presents a summary of fiscal year 2002 activity through December 31, 2002 related to the 2001 restructuring charge accrual (in thousands):

Balance, December 31, 2001	$	5,315
Changes in estimate		2,507
Cash outlays		(7,793	)
Non-cash writedowns and charges—asset impairment		(29	)
Balance, December 31, 2002	$	—

In 2002 additional charges of $2.5 million were recorded relating to combining various processing platforms in connection with the 2001 consolidation plan.

Acquisition, restructuring and write-off charges were $11.7 million ($8.2 million, net of taxes) for the year ended December 31, 2000. The expenses and charges consisted of advisory, legal, and accounting fees incurred in the acquisitions of Card Payment Systems and Cash Station and severance and network de-conversion costs incurred in connection with the acquisition of Cash Station. As of December 31, 2001, there was no remaining balance related to the 2000 restructuring charge accrual.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note C—Accounts Receivable, Net and Settlement Receivables, Net

Accounts receivable, net, consisted of the following at December 31 (in thousands):

	2002			2001
Network accounts receivable	$	60,630		$	52,282
Payment accounts receivable		67,964			49,629
Other accounts receivable		2,804			5,505
		131,398			107,416
Allowance for doubtful accounts		(1,415	)		(2,264	)
Accounts receivable, net	$	129,983		$	105,152

Settlement receivables, net, consisted of the following at December 31 (in thousands):

	2002			2001
VISA and MasterCard settlement receivables	$	—		$	2,279
Trucking companies settlement receivables		25,258			28,206
		25,258			30,485
Allowance for doubtful accounts		(300	)		(1,141	)
Settlement receivables, net	$	24,958		$	29,344

-54-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note D—Securities Available for Sale

The following is a summary of securities available for sale (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2002
U.S. government and agency securities	$	69,957	$	42	$	(1,207	)	$	68,792
Mortgage-backed securities		621,873		14,558		(51	)		636,380
Corporate securities		144,049		995		(652	)		144,392
Municipal securities		253,655		6,504		(1,392	)		258,767
Total debt securities		1,089,534		22,099		(3,302	)		1,108,331
Equity securities		17,759		—		(1,598	)		16,161
Total securities available for sale	$	1,107,293	$	22,099	$	(4,900	)	$	1,124,492
December 31, 2001
U.S. government and agency securities	$	108,595	$	381	$	(910	)	$	108,066
Mortgage-backed securities		511,079		2,740		(2,067	)		511,752
Corporate securities		272,960		3,893		(7,991	)		268,862
Municipal securities		323,650		2,508		(4,015	)		322,143
Total debt securities		1,216,284		9,522		(14,983	)		1,210,823
Equity securities		17,574		408		—			17,982
Total securities available for sale	$	1,233,858	$	9,930	$	(14,983	)	$	1,228,805

The scheduled maturities of debt securities were as follows at December 31, 2002 (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	11,944	$	11,951
Due in one to five years		73,725		74,782
Due in five to ten years		144,892		147,399
Due after ten years		858,973		874,199
	$	1,089,534	$	1,108,331

Expected maturities on mortgage-backed securities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Securities carried at approximately $218.0 million at December 31, 2002 were pledged as collateral for the Federal Home Loan Bank (FHLB) advances.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note E—Loans, Net

Loans, net, consisted of the following at December 31 (in thousands):

	2002		2001
Mortgage (1–4 family)	$	2,551	$	45,544
Small Business Administration		—		27,689
Construction and development		1,607		8,579
Commercial		1,716		8,542
Consumer		251		408
		6,125		90,762
Allowance for loan losses		—		(1,724	)
Loans, net	$	6,125	$	89,038

As of December 31, 2002, all loans were held for sale.

Note F—Property and Equipment, Net

Property and equipment, net, consisted of the following at December 31 (in thousands):

	Useful Lives	2002			2001
Land	—	$	4,064		$	1,050
Buildings and improvements	40 years		16,972			16,615
Capitalized and purchased software	5 years		227,659			163,090
Computer facilities and equipment	3–5 years		249,110			225,146
Furniture and equipment	3–5 years		78,331			73,029
Leasehold improvements	2.5–10 years		18,871			16,845
			595,007			495,775
Accumulated depreciation			(256,449	)		(228,324	)
Property and equipment, net		$	338,558		$	267,451

Depreciation expense was $71.1 million, $63.1 million, and $61.4 million for the years ended December 31, 2002, 2001, and 2000, respectively.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note G—Goodwill and Other Intangible Assets

Goodwill, net, consisted of the following at December 31 (in thousands):

	2002			2001
Goodwill	$	329,882		$	223,054
Accumulated amortization		(64,422	)		(64,422	)
Goodwill, net	$	265,460		$	158,632

Amortization expense related to goodwill was $0.0 million, $10.9 million, and $9.5 million for the years ended December 31, 2002, 2001, and 2000, respectively. Concord has performed the annual impairment test for goodwill as of December 31, 2002 and has determined that the carrying amount of goodwill is not impaired.

The following table presents changes to unamortized goodwill by Concord’s reporting units (in thousands):

	Network Services		Payment Services		Total
Balance, December 31, 2001	$	124,982	$	33,650	$	158,632
Purchase business combinations		68,961		37,867		106,828
Balance, December 31, 2002	$	193,943	$	71,517	$	265,460

The following table presents a reconciliation of net income adjusted to exclude amortization expense of goodwill (in thousands, except per share data):

	2002		2001		2000
Reported net income	$	300,838	$	216,406	$	209,926
Goodwill amortization, net of tax		—		9,662		8,427
Adjusted net income	$	300,838	$	226,068	$	218,353
Adjusted basic earnings per share	$	0.59	$	0.46	$	0.46
Adjusted diluted earnings per share	$	0.57	$	0.44	$	0.44

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note G—Goodwill and Other Intangible Assets, continued

Other intangible assets, net, consisted of the following at December 31 (in thousands):

	2002			2001
Purchased merchant contracts	$	72,497		$	121,010
Accumulated amortization		(28,536	)		(43,993	)
Purchased merchant contracts, net		43,961			77,017
Customer lists and trade names		40,781			33,674
Accumulated amortization		(27,669	)		(24,979	)
Customer lists and trade names, net		13,112			8,695
Other intangible assets, net	$	57,073		$	85,712

Total amortization expense related to other intangible assets was $14.8 million, $20.1 million, and $14.9 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Amortization expense associated with purchased merchant contracts was $12.2 million, $17.7 million, and $12.7 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Total expenses of $28.7 million were incurred for non-performing purchased merchant contracts for the year ended December 31, 2002, of which $24.1 million was recorded in acquisition, restructuring and write-off charges and $4.6 million was included in amortization expense.

Customer lists and trade names consist of contract rights including agreements not to compete and other values assigned to the assets. Based on valuation studies of acquired companies, $7.1 million was allocated to customer lists and trade names for the year ended December 31, 2002. Amortization expense associated with these assets was $2.6 million, $2.4 million, and $2.2 million for the years ended December 31, 2002, 2001, and 2000, respectively.

The following table presents Concord’s estimated amortization expense relating to other intangible assets as of December 31, 2002 for the periods indicated (in thousands):

2003	$	9,613
2004		9,566
2005		9,564
2006		9,384
2007		8,111
Thereafter		10,835
	$	57,073

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note H—Investment Income and Other Income

Investment income for the year ended December 31, 2002 includes $2.4 million representing realized and unrealized gains from alternative investments. The remaining investment income represents interest income on securities available for sale and other investments of available cash.

Other income for the year ended December 31, 2002 includes $5.9 million representing the gain on sale of certain terminal hardware and related future rental payments. The remaining other income primarily represents net realized gain on sales of securities available for sale.

Note I—Commitments and Contingencies

Concord licenses a portion of its computer software under various non-cancelable agreements, which expire on various dates through 2006. Software license expense under these agreements totaled $6.6 million, $4.8 million, and $4.6 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Concord rents facilities under non-cancelable operating leases expiring at various dates through 2011. Rental expense for operating leases amounted to $8.7 million, $8.2 million, and $8.0 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Concord has entered into operating lease agreements for facilities in Maitland, Florida, Wilmington, Delaware, Marietta, Georgia, and Memphis, Tennessee that include renewal options. The lease for offices and the data processing center in Maitland, Florida expires in August 2011 with an option to renew for three additional five-year terms. The minimum lease payments under this lease are not material to Concord.

The Wilmington, Marietta, and Memphis leases qualify for operating lease accounting treatment under Statement of Financial Accounting Standards 13, “Accounting For Leases,” and, as such, the related assets and obligations are not recorded on Concord’s balance sheet. None of the minimum lease payments under these leases is material to Concord. The following table summarizes certain aspects of these leases:

Property Location	Lease Expiration	Renewal Option at Expiration	Value Guaranteed at Expiration		Total Cost Financed
Wilmington, DE	May 2005	Two five-year terms	$	12.3 million	$	15.0 million
Marietta, GA	November 2005	Two five-year terms	$	17.0 million	$	20.0 million
Memphis, TN	July 2009	One five-year term	$	45.9 million	$	55.0 million

-59-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note I—Commitments and Contingencies, continued

For each of the leases, the renewal (including economic terms of the lease during the renewal term) is subject to the consent of the lessor and lenders. In addition to the renewal option, Concord also has the option of purchasing the related property for the lease balance or remarketing the property for the lessor at the end of the initial and any renewal term of each lease. In each case, Concord has guaranteed the value realizable from the sale of the property at the end of the lease term as indicated in the table above. Should Concord elect to market the property for the lessor at the end of the lease term, Concord would be responsible for the difference in the sale proceeds and the value guaranteed above. Based on current market conditions, Concord does not expect to be required to make payments under these residual value guarantees.

The Memphis agreement is for the financing, construction, and leasing of a new corporate headquarters. Construction is expected to be completed in the fourth quarter of 2003, at which time the rent payments will begin and will be expensed in Concord’s statements of income.

Future minimum lease payments for software license agreements and operating leases with initial or remaining terms in excess of one year at December 31, 2002 are as follows (in thousands):

	Software Licenses		Operating Leases
2003	$	2,228	$	10,101
2004		2,222		8,638
2005		719		8,061
2006		348		6,653
2007		—		4,305
Thereafter		—		12,008
Total future payments	$	5,517	$	49,766

Concord has a number of significant customer contracts in its Network Services segment that by their terms terminate on December 31, 2004. Concord is actively pursuing the renewal of these customer contracts; however, there is no assurance that they will be renewed. If some or all of these contracts are renewed, there may be material expenditures associated with the renewals.

In September 2000 EFS National Bank was named as a defendant in a purported class action lawsuit filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis alleging that certain of EFS National Bank’s rate and fee changes were improper under Tennessee law due to allegedly deficient notice. On May 14, 2002 the plaintiffs filed a second amended complaint alleging that the class consists of over 100,000 merchants who were subjected to the allegedly improper rate and fee changes over a several-year period. The second

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note I—Commitments and Contingencies, continued

amended complaint sought damages in excess of $70.0 million as well as injunctive relief and unspecified punitive damages, treble damages, attorney fees, and costs.

On May 16, 2002 the parties entered into a settlement agreement relating to this litigation and received preliminary approval from the trial court therefor. On August 6, 2002 the trial court rejected the only objection filed against the settlement agreement and gave the settlement agreement its final approval. The objector and his counsel subsequently reached an agreement with EFS National Bank, plaintiffs, and counsel for the plaintiffs, pursuant to which EFS National Bank contributed an immaterial amount. As a result, no appeal was taken, and thus the settlement is now final and unappealable. The maximum amount of the credits and payments by EFS National Bank under the settlement is $37.6 million, payable over a five-year period. In connection with the settlement, Concord initially recorded a charge of $20.8 million ($13.5 million, net of taxes) for the three months ended June 30, 2002. The charge was less than $37.6 million because the credits and payments are contingent upon merchant retention and submission of claims.

On September 17, 2002 EFS National Bank paid plaintiffs’ counsel and the named plaintiffs a total of $5.0 million, as required by the settlement agreement. The deadline for the submission of claims by class members was September 16, 2002. Approximately 150,000 class members were eligible to make claims, but less than 3,000 valid claims were actually submitted. In the first quarter of 2003 the court-appointed claims administrator issued a final report on the total amount of the valid claims submitted. Based on the low number of valid claims submitted, Concord has reduced the charge by $12.0 million ($7.8 million, net of taxes). EFS National Bank is also responsible for the costs of claims administration and for its own costs and expenses, including attorneys’ fees.

A purported class action complaint with similar allegations and requests for relief was filed in St. Charles County, Missouri. That action was dismissed with prejudice in connection with the settlement of the Tennessee case.

Concord and certain of its directors and certain of its officers have been named as defendants in a purported securities fraud class action lawsuit and two stockholder derivative actions. The lawsuits raise allegations relating to Concord’s financial performance between March 2001 and September 2002, changes in the price of Concord’s common stock during that time, alleged failures to disclose material facts, and alleged insider trading and breaches of fiduciary duties by certain officers and certain directors. The lawsuits seek unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Although these matters are in the preliminary stages, Concord believes that the claims against it and its directors and officers are without merit and intends to vigorously defend against all claims. Any losses incurred by

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note I—Commitments and Contingencies, continued

Concord in connection with this litigation may be covered in part by Concord’s directors’ and officers’ liability insurance.

In March 2003 a purported class action complaint was filed in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis against certain former and current officers and directors of Concord. The complaint generally alleges a breach of the defendants’ duty of loyalty and due care in connection with the defendants’ alleged attempt to sell Concord without maximizing the value to shareholders in order to advance the defendants’ alleged individual interests in obtaining indemnification agreements related to the securities and other derivative litigation discussed above. The complaint seeks class certification, injunctive relief directing the defendants’ conduct in connection with an alleged sale or auction of Concord, reasonable attorneys’ fees, experts’ fees and other costs and relief the court deems just and proper. The defendants have until on or about April 22, 2003 to respond to the complaint. Although this matter is in the very preliminary stages, Concord believes that the claims against its officers and directors are without merit and intends to vigorously contest these claims.

In June 2002 EFS National Bank, Concord, and John Doe Corporations were named as defendants in a purported class action lawsuit filed in the United States District Court for the Western District of Tennessee. The plaintiffs allege that Concord changed fees and charges without providing the requisite notice, charged merchants for transactions that never occurred, and failed to route payments in accordance with the plaintiffs’ instructions. The plaintiffs allege fraud, breach of contract, conversion, and causes of action under the Tennessee Consumer Protection Act and the Racketeer Influenced and Corrupt Organizations Act (RICO). The class plaintiffs seek to certify consists of all merchant customers of EFS National Bank, Concord, or John Doe Corporations, who were subject to charges that were not fully disclosed on their statements, charges for transactions which the merchant never undertook, and/or charges in excess of the amount agreed upon in their contracts. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and other relief. Concord has moved to dismiss all claims, but the court has not yet ruled on the motion. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

In September 2002 Concord was named as a defendant in a purported class action lawsuit filed in New Jersey state court. The plaintiff alleges that Concord wrongfully allowed and facilitated surcharges on electronic benefits transfer (EBT) withdrawals at ATMs within its network. The plaintiff’s four original claims were for violation of N.J.S.A. 44:10-75(c) (which concerns New Jersey’s EBT program), violation of New Jersey’s Consumer Fraud Act, negligence, and breach of contract (as an alleged third-party beneficiary). The plaintiff seeks certification of a class consisting of all New Jersey public assistance recipients participating in the New Jersey EBT program who, since March 24, 1997, withdrew their cash benefits from ATMs serviced and processed by Concord and incurred a surcharge per EBT withdrawal. The lawsuit seeks unspecified compensatory and punitive damages, attorneys’ fees, and injunctive and other relief. Concord moved to dismiss all four claims. At a hearing on March 7, 2003, the court found that the claim for violation of N.J.S.A. 44:10-75(c) should be dismissed with prejudice and that the claims for violation of New Jersey’s Consumer Fraud Act and for breach of contract should be dismissed without prejudice, but the court denied Concord’s motion to dismiss as to the negligence claim. Although this matter is in the preliminary stages, Concord believes that the claims against it are without merit and intends to vigorously defend against all claims.

- 62 -

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note I—Commitments and Contingencies, continued

In October 1996 Commonwealth Savings Bank (Commonwealth) filed a lawsuit against CoreStates Financial Corp. (CoreStates) in the Court of Common Pleas of Chester County, Pennsylvania. On August 6, 1997 Commonwealth added MONEY ACCESS SERVICE INC. (MASI), a Concord subsidiary, as a defendant therein, alleging that MASI is liable to Commonwealth for an amount in excess of $3.6 million based on claims arising out of alleged errors in the conversion of certain Meridian Bank branches to the MAC network and MASI processing at the time the branches were acquired by Commonwealth from CoreStates and CoreStates’ affiliates. Discovery is complete. The court has struck various reports and portions of reports submitted by Commonwealth’s damages experts. At a deposition in March 2000, Commonwealth’s expert testified to a damages calculation of $4.2 million. On November 15, 2002, CoreStates and MASI filed motions for partial summary judgment on all but a small part of Commonwealth’s remaining claim. The motion has been fully briefed, and the court heard oral argument on January 10, 2003. The court has not yet ruled on the motion. Concord believes that the claims against it are without merit and intends to continue to vigorously defend against all claims.

Concord is also a party to various routine lawsuits arising out of the conduct of its business, none of which is expected to have a material adverse effect upon Concord’s financial condition or results of operations.

Note J—Long-Term Debt

Long-term debt consisted of the following at December 31 (in thousands):

	2002			2001
FHLB advances	$	198,032		$	119,458
Current maturities		(58,940	)		—
Total FHLB advances, less current maturities	$	139,092		$	119,458

Concord has $65.0 million available from financial institutions in unsecured lines of credit, which expire on various dates through November 2003. No amounts were outstanding on these lines of credit at December 31, 2002 or 2001.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note J—Long-Term Debt, continued

Scheduled maturities of FHLB advances were as follows at December 31, 2002 (in thousands):

2003	$  58,940
2004	11,054
2005	7,070
2006	2,362
2007	1,606
Thereafter	117,000
Total	$198,032

FHLB advances were at fixed rates ranging from 1.8% to 6.3% at December 31, 2002 with a final maturity date in 2012. Concord had approximately $14.8 million available on unused lines of credit with the FHLB at December 31, 2002.

Note K—Employee Benefit Plans

Effective March 1, 1998 Concord established the Concord EFS Retirement Savings Plan (the Concord Retirement Plan). Employees who have reached the age of 21 are eligible to participate in the Concord Retirement Plan on the first day of the month following the date of employment. This 401(k) plan provides for voluntary tax-deferred contributions by eligible employees and matching contributions by Concord. The matching contributions by Concord commence on the first day of a quarter following an employee’s completion of six months of service. Total expenses related to the Concord Retirement Plan were $4.5 million, $2.7 million, and $2.7 million for the years ended December 31, 2002, 2001, and 2000, respectively.

STAR maintained a defined contribution plan (the STAR Retirement Plan). Employees of STAR were eligible to become participants in the STAR Retirement Plan upon completion of three months of employment and upon attaining the age of 21.5 years. Participation in the STAR Retirement Plan was voluntary. Total expenses related to the STAR Retirement Plan were $2.8 million and $3.5 million for the years ended December 31, 2001 and 2000, respectively. The STAR Retirement Plan was terminated as of December 31, 2001, and all participants became participants in the Concord Retirement Plan.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note L—Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Concord’s deferred tax liabilities and assets at December 31 are as follows (in thousands):

	2002			2001
Deferred tax liabilities:
Capitalization of internal use software	$	37,426		$	19,266
Restructuring charges		52			3,973
Depreciation		15,989			17,435
Intangible amortization		2,721			1,084
Purchased merchant contracts		—			6,610
Other		6,155			7,069
Total deferred tax liabilities		62,343			55,437
Deferred tax assets:
Net unrealized (gain) loss on securities available for sale		(5,901	)		1,772
Bad debt allowance		685			2,079
Restructuring charges		2,290			5,868
Purchased merchant contracts		5,041			—
Other		3,454			3,335
Total deferred tax assets		5,569			13,054
Net deferred tax liability	$	56,774		$	42,383

The components of the provision for income taxes for the years ended December 31 are as follows (in thousands):

	2002		2001		2000
Current
Federal	$	145,798	$	104,593	$	102,942
State		6,718		5,009		3,668
Total current income taxes		152,516		109,602		106,610
Deferred
Federal		10,120		18,356		11,816
State		493		—		1,794
Total deferred income taxes		10,613		18,356		13,610
Total income taxes	$	163,129	$	127,958	$	120,220

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note L—Income Taxes, continued

The reconciliation of income taxes computed at the U.S. federal statutory tax rate of 35.0% to income tax expense for the years ended December 31 is as follows (in thousands):

	2002			2001			2000
Tax at statutory rate	$	162,707		$	120,711		$	115,760
State income taxes, net of federal benefit		4,688			3,256			3,551
Acquisition costs		—			5,250			753
Nondeductible amortization of goodwill		—			2,601			2,549
Tax-exempt interest income		(4,717	)		(3,931	)		(2,560	)
Other, net		451			71			167
Total income taxes	$	163,129		$	127,958		$	120,220

Income tax benefits resulting from the disqualifying dispositions of certain employee incentive stock option shares were credited to additional paid-in capital because no compensation expense was charged to income for financial reporting purposes related to the exercise of such options.

Note M—Stockholders’ Equity

On August 5, 2002 Concord announced that its Board of Directors approved the repurchase of up to $250.0 million of its common stock. Under the repurchase plan, Concord may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions. On November 7, 2002 Concord announced that its Board of Directors approved the repurchase of an additional $150.0 million of its common stock and on November 21, 2002 an additional $100.0 million was approved. The Board’s approvals bring the total potential repurchase to $500.0 million. As of December 31, 2002, a total of 26.9 million shares at an aggregate cost of $393.5 million had been purchased and retired pursuant to the repurchase plan. All repurchases have been made in the open market without the use of any derivative instruments. Concord immediately retires its common stock when purchased. Upon retirement, Concord reduces retained earnings for the excess of purchase price over par value.

Concord’s Board of Directors approved a two-for-one stock split on August 30, 2001. On September 28, 2001 additional shares were distributed to stockholders of record as of September 14, 2001. All appropriate share data and per share data have been restated to reflect the stock split.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note M—Stockholders’ Equity, continued

In June 2001 Concord issued and sold approximately 17.8 million shares of its common stock pursuant to a registration statement filed with the Securities and Exchange Commission. Pursuant to the same registration statement, the selling stockholders named in the registration statement sold approximately 34.1 million shares of Concord common stock. Most of the selling stockholders were the previous owners of STAR who had received unregistered common stock of Concord in connection with the February 1, 2001 acquisition. Net of the underwriting discount and other expenses of the offering, Concord received $420.6 million for the common stock it issued and sold. Concord did not receive any proceeds from the sale of shares by the selling stockholders.

Note N—Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31 (in thousands, except per share data):

	2002		2001		2000
Numerator:
Net income	$	300,838	$	216,406	$	209,926
Denominator:
Denominator for basic earnings per share, weighted-average shares		507,278		494,747		478,358
Effect of dilutive stock options		17,398		22,211		17,635
Denominator for diluted earnings per share, weighted-average shares and assumed conversions		524,676		516,958		495,993
Basic earnings per share	$	0.59	$	0.44	$	0.44
Diluted earnings per share	$	0.57	$	0.42	$	0.42

The number of anti-dilutive stock options not included above were 10,512,982 shares, 46,188 shares, and 2,270,299 shares for the years ended December 31, 2002, 2001, and 2000, respectively.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note O—Stock Options

At the 2002 Annual Meeting, Concord’s stockholders approved the Concord EFS, Inc. 2002 Stock Option Plan (the 2002 Option Plan). The 2002 Option Plan succeeded and replaced the Concord EFS, Inc. 1993 Incentive Stock Option Plan, as amended (the 1993 Option Plan). Under the 2002 Option Plan, the Compensation Committee of Concord’s Board of Directors may grant options to any officer or employee of Concord, or of any Concord subsidiary or affiliate, or to any director of Concord. All options granted after March 28, 2002 have been granted under the 2002 Option Plan.

The 2002 Option Plan allows for the grant of options to purchase up to 43.0 million shares of Concord’s common stock, and such number includes the number of shares of Concord’s common stock remaining available for the future grant of stock options under the 1993 Option Plan. If shares of Concord’s common stock subject to an option granted under the 2002 Option Plan or 1993 Option Plan are not issued due to the expiration, termination, cancellation, or forfeiture of that option, those shares become available for the grant of new options under the 2002 Option Plan.

Options are granted with an exercise price per share not less than 100% of the market value of a share of Concord common stock on the date of the grant (110% in the case of an incentive stock option granted to a holder of more than 10% of the outstanding shares) and generally become exercisable over a four-year period from the date of the grant. Options generally expire ten years from the grant date. At December 31, 2002, 40.1 million shares were available to be granted.

The 1993 Option Plan allowed for the grant of options to purchase up to 75.0 million shares of common stock for the benefit of Concord’s directors and key employees. Under the 1993 Option Plan, options were granted with an exercise price per share not less than 100% of the market value of a share of Concord common stock on the date of the grant (110% in the case of an incentive stock option granted to a holder of more than 10% of the outstanding shares) and generally became exercisable over a four-year period from the date of the grant. Options generally expired ten years from the grant date.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note O—Stock Options, continued

Information pertaining to the 1993 Option Plan and the 2002 Option Plan is summarized as follows (in thousands, except price per share):

	Number of Shares Under Option		Weighted Average Exercise Price/Share		Weighted Average Aggregate Price		Options Exercisable
Outstanding at December 31, 1999	39,288		$	6.71	$	263,753	15,680
Granted	13,234		$	9.29
Exercised	(5,586	)	$	4.81
Terminated	(494	)	$	10.11
Outstanding at December 31, 2000	46,442		$	7.64	$	354,850	19,486
Granted	7,542		$	21.29
Exercised	(7,384	)	$	5.15
Terminated	(761	)	$	11.33
Outstanding at December 31, 2001	45,839		$	10.23	$	468,772	20,929
Granted	9,592		$	28.26
Exercised	(2,400	)	$	9.89
Terminated	(136	)	$	21.22
Outstanding at December 31, 2002	52,895		$	13.49	$	713,247	25,165

The weighted-average fair value of options granted during 2002, 2001, and 2000 was $12.53, $6.64, and $4.14, respectively.

-69-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note O—Stock Options, continued

Additional information regarding options outstanding as of December 31, 2002 is summarized as follows:

Option Exercise Price Range	Options Outstanding (thousands)	Weighted Average Exercise Price/Share		Weighted Average Remaining Contractual Life of Options in Years	Number of Options Exercisable (thousands)	Weighted Average Exercise Price of Options Exercisable
$  0.96 –   7.22	17,333	$	5.63	4.43	15,083	$	5.46
$  8.30 – 15.69	21,358	$	10.71	7.06	8,509	$	10.70
$21.03 – 24.52	7,031	$	21.24	8.17	1,559	$	21.34
$27.06 – 34.30	7,173	$	33.15	9.17	14	$	28.13
$  0.96 – 34.30	52,895	$	13.49	6.63	25,165	$	8.23

Prior to its acquisition by Concord, STAR adopted the Star Systems, Inc. 2000 Equity Incentive Plan (the STAR Plan). In connection with Concord’s acquisition of STAR, all outstanding options in the STAR Plan were vested and became exercisable. The total amount of option shares (after conversion to Concord shares) at December 31, 2000 was approximately 1.6 million, at a weighted-average exercise price of $5.11. None of the options were issuable upon exercise until February 2001, when the shares subject to issuance under these options were registered.

As discussed below, Concord has elected to follow APB 25 and related interpretations in accounting for its stock options because, among other things, the alternative fair value accounting provided for under SFAS 123, “Accounting for Stock-Based Compensation,” requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25, no compensation expense is recognized because the exercise price of Concord’s stock options equals the market price of the underlying stock on the date of grant.

Pro forma information regarding net income and earnings per share is required by SFAS 123 and has been determined as if Concord had accounted for its stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2002, 2001, and 2000, respectively: risk-free interest rates of 4.25%, 4.8%, and 5.0%, volatility factors of the expected market price of Concord’s common stock of 0.482, 0.381, and 0.512, and weighted-average expected life of the options of 4.4, 3.0, and 3.0 years. Dividend yield assumptions of 0% remained constant for all years.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note O—Stock Options, continued

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Concord’s stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management’s opinion that the existing models do not necessarily provide a reliable single measure of the fair value of Concord’s employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. Concord’s pro forma information is as follows for the years ended December 31 (in thousands, except for earnings per share):

	2002		2001		2000
Pro forma net income	$	259,505	$	187,632	$	184,453
Pro forma basic earnings per share	$	0.51	$	0.38	$	0.39
Pro forma diluted earnings per share	$	0.49	$	0.36	$	0.37

Note P—Operations by Business Segment

Concord has two reportable segments: Network Services and Payment Services.

Network Services revenue consists of access and switching fees for network access, processing fees for driving and monitoring ATMs, and processing fees for managing debit card records, plus network fees charged to Concord by other networks and billed to its customers.

Revenue from Payment Services includes discount fees charged to merchants, which are a percentage of the dollar amount of each credit card or signature debit card transaction Concord processes, as well as a flat fee per transaction. These discount and flat fees constitute a bundled rate for the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange fees charged to Concord by the card associations. Payment Services revenue also includes fees for debit card and EBT card transactions, check verification and authorization services, and sales of POS terminals from inventory. Debit card and EBT card transactions are similar to credit card transactions in that the bundled fee Concord charges to a merchant includes the transaction authorization, processing, settlement, and funds transfer services Concord provides, plus the interchange and network fees charged to Concord by the debit networks.

-71-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note P—Operations by Business Segment, continued

Concord evaluates performance and allocates resources based on profit or loss from operations. Items classified as “Other” include amounts not identifiable with the two reported segments described above. The accounting policies of the reportable segments are the same as those described in Note A—Significant Accounting Policies.

Assets are allocated between Network Services and Payment Services based upon Concord’s evaluation of the revenue earned by the particular assets. Assets classified as “Other” represent securities available for sale and alternative investments.

Concord’s reportable segments are business units that are managed separately because they offer distinct products for different end users. No single customer of Concord accounts for a material portion of Concord’s revenue.

As a result of Concord’s recently announced strategy of developing risk management services, Concord expects to organize a new segment during the 2003 fiscal year. The new Risk Management Services segment is expected to provide software, information, and analysis to financial institutions, retailers, government service providers, and other businesses to assist in fraud prevention and reduction.

Business segment information for the years ended December 31, 2002, 2001, and 2000 is presented as follows (in thousands):

	Network Services		Payment Services		Other			Total
2002
Revenue	$	612,064	$	1,354,564	$	—		$	1,966,628
Cost of operations		234,790		1,131,755		—			1,366,545
Selling, general and administrative expenses		—		—		123,867			123,867
Acquisition, restructuring and write-off charges		33,786		43,700		—			77,486
Litigation settlement charges		—		—		8,761			8,761
Investment income		—		—		77,387			77,387
Interest expense		—		—		11,642			11,642
Other income, net		—		—		9,163			9,163
Income taxes		—		—		163,129			163,129
Minority interest in subsidiary		—		—		910			910
Net income (loss)	$	343,488	$	179,109	$	(221,759	)	$	300,838
Assets by segment	$	635,809	$	750,295	$	1,142,336		$	2,528,440
Depreciation	$	33,777	$	37,316		—		$	71,093
Non-cash acquisition, restructuring and write-off charges	$	7,079	$	31,260		—		$	38,339

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note P—Operations by Business Segment, continued

	Network Services		Payment Services		Other			Total
2001
Revenue	$	532,519	$	1,047,425	$	—		$	1,579,944
Cost of operations		225,508		854,864		—			1,080,372
Selling, general and administrative expenses		—		—		91,105			91,105
Acquisition, restructuring and write-off charges		103,575		21,787		—			125,362
Litigation settlement charges		—		—		—			—
Investment income		—		—		70,668			70,668
Interest expense		—		—		13,074			13,074
Other income, net		—		—		4,191			4,191
Income taxes		—		—		127,958			127,958
Minority interest in subsidiary		—		—		526			526
Net income (loss)	$	203,436	$	170,774	$	(157,804	)	$	216,406
Assets by segment	$	688,191	$	812,449	$	1,228,805		$	2,729,445
Depreciation	$	30,474	$	32,638		—		$	63,112
Non-cash acquisition, restructuring and write-off charges	$	14,692	$	6,133		—		$	20,825
2000
Revenue	$	435,914	$	883,736	$	—		$	1,319,650
Cost of operations		219,642		705,057		—			924,699
Selling, general and administrative expenses		—		—		91,995			91,995
Acquisition, restructuring and write-off charges		10,915		776		—			11,691
Litigation settlement charges		—		—		—			—
Investment income		—		—		48,182			48,182
Interest expense		—		—		10,939			10,939
Other income, net		—		—		2,235			2,235
Income taxes		—		—		120,220			120,220
Minority interest in subsidiary		—		—		597			597
Net income (loss)	$	205,357	$	177,903	$	(173,334	)	$	209,926
Assets by segment	$	455,446	$	723,415	$	649,425		$	1,828,286

-73-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note Q—Debt and Dividend Restrictions

In accordance with federal banking laws, certain restrictions exist regarding the ability of Concord EFS National Bank to transfer funds to Concord in the form of cash dividends, loans, or advances. The prior approval of the Office of the Comptroller of the Currency is required for Concord EFS National Bank to pay dividends in excess of earnings retained in the current year plus retained net earnings for the preceding two years. As of December 31, 2002, $78.8 million of undistributed earnings of Concord EFS National Bank included in consolidated retained earnings were available for distribution to Concord as dividends without prior regulatory approval. As of December 31, 2002, total stockholders’ equity of Concord EFS National Bank was $469.8 million. Under Federal Reserve regulations, Concord EFS National Bank is also limited as to the amount it may loan to affiliates, including Concord, unless such loans are fully collateralized by specific obligations. At December 31, 2002, the maximum amount available for transfer in the form of loans to Concord from Concord EFS National Bank approximated 2.0% of Concord’s consolidated net assets. Concord EFS National Bank exceeded all required regulatory capital ratios as of December 31, 2002.

Note R—Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments. These fair values are provided for disclosure purposes only and do not necessarily indicate the amount Concord would pay or receive in a market transaction with an unrelated third party.

Securities Available for Sale: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Alternative Investments: The carrying amounts reported in the balance sheet for alternative investments approximates the fair value of those assets.

Loans: As of December 31, 2002, the carrying amounts reported in the balance sheet for loans approximated the fair value as measured by quoted market prices or fair value of collateral less estimated selling costs of those assets since loans are held for sale in connection with Concord’s effort to terminate lending activities.

As of December 31, 2001, fair values of all categories of loans were estimated by discounting their expected future cash flows using interest rates then being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note R—Disclosures About Fair Value of Financial Instruments, continued

Deposits: As of December 31, 2002, the carrying amounts reported in the balance sheet for deposits approximated the fair value of those liabilities since deposits are held for sale in connection with Concord’s effort to terminate local deposit taking.

As of December 31, 2001, fair values of all fixed-rate, fixed-maturity deposits were estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar deposits to a schedule of aggregated expected monthly maturities on time deposits. The fair values disclosed for deposits other than fixed-rate, fixed-maturity deposits approximate their respective carrying values at the reporting date.

FHLB Advances: The fair values of FHLB advances were estimated using discounted cash flow analyses based on Concord’s current incremental borrowing rates for similar types of borrowing arrangements.

The following table summarizes the carrying amount compared to the fair value of financial instruments according to the methods and assumptions listed above (in thousands):

	Carrying Amount			Fair Value
December 31, 2002
Financial assets:
Securities available for sale	$	1,124,492		$	1,124,492
Alternative investments	$	17,844		$	17,844
Loans, net	$	6,125
Fair value adjustment included in accrued restructuring charges		(700	)
Loans at fair value	$	5,425		$	5,425
Financial liabilities:
Deposits	$	78,133
Fair value adjustment included in accrued restructuring charges		1,200
Deposits at fair value	$	79,333		$	79,333
FHLB advances	$	198,032		$	215,079
December 31, 2001
Financial assets:
Securities available for sale	$	1,228,805		$	1,228,805
Alternative investments		—			—
Loans, net	$	89,038		$	93,104
Financial liabilities:
Deposits	$	162,972		$	164,108
FHLB advances	$	119,458		$	148,968

-75-

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note S—Related Party Transactions

Simultaneous with Concord’s purchase of the site for its new corporate headquarters in July 2002, Dan M. Palmer, its Co-Chief Executive Officer and director, and Edward A. Labry III, its President and director, purchased approximately 39.1 acres of land located adjacent to the site of Concord’s new corporate headquarters in Memphis, Tennessee. At the same time, Concord entered into a certain Option to Purchase Agreement with Mr. Palmer and Mr. Labry relating to the land. Under the agreement, Mr. Palmer and Mr. Labry granted Concord the option to purchase the land at any time prior to July 17, 2007 and a right of first refusal with respect to the land for an additional five years commencing on July 17, 2007. On November 22, 2002 Concord gave notice to Mr. Palmer and Mr. Labry of the exercise of its option to purchase the land, and on December 30, 2002, Concord purchased the land for approximately $2.9 million, in accordance with the agreement, which represents the amount that Mr. Palmer and Mr. Labry paid for the land, including transaction costs.

In connection with the purchase of land described above, Concord purchased an additional parcel of land from Mr. Palmer and Mr. Labry on December 30, 2002 for approximately $0.1 million, which represents the amount that Mr. Palmer and Mr. Labry paid for the additional parcel of land, including transaction costs.

In 2002 Concord’s Board of Directors authorized the expenditure of up to $0.5 million per year on chartered air services from DPAir, LLC d/b/a PalmAir. Dan M. Palmer, who is Co-Chief Executive Officer and a director of Concord, owns a 99.0% interest in PalmAir. During 2002 Concord paid PalmAir approximately $0.5 million for chartered air travel services at rates that were not in excess of those charged by comparable third-party vendors. Concord paid PalmAir approximately $0.1 million in each of 2001 and 2000.

During 2002 Morgan Keegan & Company, Inc. (Morgan Keegan), a registered broker dealer, executed purchases and sales of fixed income securities for Concord that, in par value of securities, totaled approximately $254.9 million in purchases and $260.0 million in sales. During 2002 Morgan Keegan also acted as an agent on Concord’s behalf in connection with Concord’s repurchase of 4.0 million shares of Concord’s common stock, for which Morgan Keegan earned an aggregate commission of approximately $0.2 million. During 2001 and 2000 Concord also executed trades with Morgan Keegan for fixed income securities. In June 2001 Morgan Keegan was an underwriter with respect to 10% of the 17.8 million shares of Concord’s common stock sold by Concord in its June 2001 public offering for net aggregate proceeds of $420.6 million. Morgan Keegan’s underwriting fee on Concord’s shares was approximately $1.8 million. Benjamin C. Labry, the brother of Concord’s President and director Edward A. Labry III, is a Morgan Keegan employee whom Concord believes shares in the commissions earned by Morgan Keegan in connection with the transactions Morgan Keegan executes for Concord.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note S—Related Party Transactions, continued

In October 2001 Concord loaned $13.3 million to each of Dan M. Palmer, who is Co-Chief Executive Officer and a director of Concord, and Edward A. Labry III, who is President and a director of Concord. The loans were full recourse to each of Mr. Palmer and Mr. Labry. The loans had a term of 30 days with a provision for extension and an interest rate of 3.31%, which Concord believes was comparable to that offered by a third-party financial institution. Loan principal and interest of 4.5% was repaid during the fourth quarter of 2001.

In February 2000 Concord exchanged approximately 0.1 million shares of its common stock for all of the outstanding shares of Virtual Cyber Systems, Inc., an Internet software development company, and paid approximately $0.4 million in cash to Virtual Cyber Systems’ option holders to cash out their options. Prior to the transaction, Gary G. Arnold owned all of the outstanding shares of Virtual Cyber Systems. Mr. Arnold is the half-brother of Concord’s Co-Chief Executive Officer and director Dan M. Palmer. In connection with the acquisition, Concord repaid the approximately $0.9 million and $0.1 million that Virtual Cyber Systems owed to Mr. Palmer and Mr. Arnold, respectively. Notwithstanding that the transaction was not material to Concord, it engaged an investment banking firm to render its opinion as to the fairness of the transaction, in light of the related-party nature of the transaction. Prior to executing the stock purchase agreement with Virtual Cyber Systems, Concord did receive such opinion to the effect that the amount of transaction consideration to be paid to Mr. Arnold and the option holders was fair, from a financial point of view, to Concord.

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CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note T—Quarterly Financial Results (Unaudited)

The following table provides an unaudited summary of quarterly results for the calendar years 2002 and 2001 (in thousands, except per share data). The quarterly information reported previously on certain quarterly reports on Form 10-Q has been restated to reflect reclassifications, as described in Note A.

	1st Quarter			2nd Quarter		3rd Quarter			4th Quarter
2002
Revenue	$	421,681		$	488,181	$	514,389		$	542,377
Cost of operations	$	281,919		$	331,898	$	367,179		$	385,549
Acquisition, restructuring and write-off charges	$	47,500		$	29,006		—		$	980
Litigation settlement charges (credits)		—		$	20,761	$	(11,000	)	$	(1,000	)
Net income	$	54,209		$	63,218	$	94,329		$	89,082
Per share:
Basic earnings	$	0.11		$	0.12	$	0.18		$	0.18
Diluted earnings	$	0.10		$	0.12	$	0.18		$	0.18
2001
Revenue	$	350,026		$	391,229	$	406,911		$	431,778
Cost of operations	$	245,427		$	271,007	$	275,127		$	288,811
Acquisition, restructuring and write-off charges	$	125,362			—		—			—
Litigation settlement charges (credits)		—			—		—			—
Net income (loss)	$	(25,992	)	$	71,182	$	81,456		$	89,760
Per share:
Basic earnings (loss)	$	(0.05	)	$	0.15	$	0.16		$	0.18
Diluted earnings (loss)	$	(0.05	)	$	0.14	$	0.16		$	0.17

- 78 -

CONCORD EFS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note T—Quarterly Financial Results (Unaudited), continued

The following table provides the unaudited quarterly interchange fees, which decreases previously reported revenue and cost of operations by equal amounts to reflect the reclassification related to the early adoption of EITF 02-16 as described in Note A (in thousands):

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Decrease in revenue and cost of operations:
2002	40,462	49,996	53,907	63,432
2001	24,841	28,612	29,287	40,703

The following table provides the unaudited quarterly increase in noncurrent assets and corresponding decrease in current assets to reflect the reclassification of pledged securities, as described in Note A (in thousands):

	March 31,		June 30,		September 30,
Increase in noncurrent assets and corresponding decrease in current assets:
2002	$	109,927	$	126,244	$	141,751
2001	$	111,562	$	117,324	$	105,788

-79-

CONCORD EFS, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of Concord EFS, Inc.

We have audited the accompanying consolidated balance sheets of Concord EFS, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the management of Concord EFS, Inc. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Star Systems, Inc., a wholly-owned subsidiary, which statements reflect net income constituting approximately 10.7% of the related consolidated financial statement total for the year ended December 31, 2000. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Star Systems, Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Concord EFS, Inc. and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note A to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” in 2002.

/S/    ERNST & YOUNG LLP

Memphis, Tennessee

March 19, 2003

except for Note I, as to which the date is

March 24, 2003

- 80 -

Concord EFS, Inc. And Subsidiaries

2002 Corporate Directory

Board of Directors 

(and their principal occupation)

Richard P. Kiphart ^ 

Chairman of the Board, Head of Corporate Finance Department, William Blair & Company L.L.C., a broker dealer and investment adviser firm

J. Richard Buchignani, Esq. 

Vice Chairman of the Board, General Counsel, and Secretary, Concord EFS, Inc.

Douglas C. Altenbern # 

Retired Chairman and Chief Executive Officer, Pay Systems of America, Inc., a payroll services company

Richard M. Harter, Esq. * ^ 

Of Counsel, Bingham McCutchen LLP, a law firm

Bond R. Isaacson 

Co-Chief Executive Officer, Concord EFS, Inc.

Edward A. Labry III 

President, Concord EFS, Inc.

Jerry D. Mooney * # 

Director and Officer, BJB Administrative Services, LLC, an asset management company, Mid-South Health Care Associates, LLC, a real estate ownership and leasing company, and LPNH Holdings Limited, LLC, a business investment company

Dan M. Palmer ^ 

Co-Chief Executive Officer, Concord EFS, Inc.

Shirley C. Raines 

President, University of Memphis

George F. Raymond 

President, Buckland Corporation, a consulting company to the information technology industry

Arthur N. Seessel III * 

Independent Consultant for retail grocery firms

Paul L. Whittington * # 

Retired Partner, Ernst & Young LLP

* Audit Committee Member

# Compensation Committee Member

^ Corporate Governance & Nominating Committee Member

Executive Officers

Dan M. Palmer, Co-Chief Executive Officer

Bond R. Isaacson, Co-Chief Executive Officer

-81-

Edward A. Labry III, President

J. Richard Buchignani, Esq., Vice Chairman of the Board, General Counsel, and Secretary

P. Norman Bennett, Senior Vice President, Treasury

Vickie L. Brown, Senior Vice President

Ronald V. Congemi, Senior Vice President and President of Network Services

Donald J. Devine Jr., Senior Vice President and Chief Compliance Officer

Paul W. Finch Jr., Senior Vice President and President of Risk Management Services

Edward T. Haslam, Senior Vice President, Chief Financial Officer, and Treasurer

E. Miles Kilburn, Senior Vice President of Business Strategy and Corporate Development

Steve A. Lynch, Senior Vice President and Chief Information Officer

Christopher S. Reckert, Senior Vice President, Chief Marketing Officer, and President of Payment Services

Corporate Headquarters

2525 Horizon Lake Drive, Suite 120

Memphis, Tennessee 38133

1.800.238.7675

Transfer Agent & Registrar

EquiServe Trust Company, N.A.

c/o Equiserve

P.O. Box 43010

Providence, Rhode Island 02940-3010

1.781.575.3120

Independent Auditors

Ernst & Young LLP

Memphis, Tennessee

Annual Meeting

The annual meeting of stockholders will be held at 9:30 a.m. Central time on Thursday, May 22, 2003 at Colonial Country Club, 2736 Countrywood Parkway, Memphis, Tennessee.

Investor Information

Copies of the Concord EFS, Inc. Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained without charge upon written request to Investor Relations at the corporate address. Concord press releases, product information, and other news are available on Concord’s web site, which is located at http://www.concordefs.com.

Trademarks

STAR, MAC, Cash Station, IDENTITY CHEK, DEPOSIT CHEK, EFSnet, IDLogix, STAR Universal Terminal, and ClientLine are service marks or are registered trademarks of Concord EFS, Inc. and its subsidiaries. All other product or company names mentioned are for identification purposes only and may be trademarks of their respective owners.

- 82 -

EX-21

EXHIBIT 21

CONCORD EFS, INC.

LISTING OF SUBSIDIARIES

Subsidiary	State of Incorporation	Percentage Ownership
BUYPASS Corporation1	Georgia	100	%
BUYPASS Inco Corporation	Delaware	100	%
CheckLogix, Inc.	Colorado	100	%
CIFS Corporation	Delaware	100	%
CIFS LLC	Delaware	100	%
Concord Computing Corporation	Delaware	100	%
Concord EFS Financial Services, Inc.2	Delaware	100	%
Concord Equipment Sales, Inc.	Tennessee	100	%
Concord NN LLC	Delaware	100	%
Concord One LLC	Delaware	100	%
Concord Processing LP	Texas	100	%
Concord Processing, Inc.3	Delaware	100	%
EFS National Bank4	Delaware	100	%
EFS Services, Inc.	Tennessee	100	%
EFS Transportation Services, Inc.	Tennessee	100	%
EFTLogix, Inc.	Nevada	100	%
Electronic Payment Services, Inc.5	Delaware	99.9	%
EPSF Corporation	Delaware	100	%
H & F Services, Inc.	Tennessee	100	%
IDLogix, Inc.	Delaware	100	%
JOT, Inc.	Nevada	100	%
MAS Inco Corporation	Delaware	100	%
MAS Ohio Corporation	Delaware	100	%
MONEY ACCESS SERVICE INC.6	Delaware	100	%
National Payment Systems Inc.7	New York	100	%

¹ Effective January 1, 2003, BUYPASS Corporation changed its name to Concord Payment Services, Inc.

² Concord EFS Financial Services, Inc. became a subsidiary of Concord EFS, Inc. on January 1, 2003.

³ Effective December 31, 2002, Core Data Resources, Inc. merged into Concord Processing, Inc.

⁴ Effective January 1, 2003, EFS National Bank changed its name to Concord EFS National Bank.

⁵ Effective January 1, 2003, Electronic Payment Services, Inc. changed its name to Concord Corporate Services, Inc.

⁶ Effective January 1, 2003, MONEY ACCESS SERVICE INC. changed its name to STAR Processing, Inc.

⁷ Effective January 1, 2003, National Payment Systems Inc. began doing business as Concord Payment Systems.

Subsidiary	State of Incorporation	Percentage Ownership
NPSF Corporation	Delaware	100	%
Primary Payment Systems, Inc.	Delaware	85.49	%
Solspark Inc.8	Delaware	100	%
Star Networks, Inc.	Delaware	100	%
Star Systems Assets, Inc.	Delaware	100	%
Star Systems, Inc.	Delaware	100	%
Star Systems, LLC	Delaware	100	%
Virtual Cyber Systems, Inc.9	Arizona	100	%

⁸ Effective January 1, 2003, Solspark Inc. changed its name to Concord Financial Technologies, Inc.

⁹ Effective January 1, 2003, Virtual Cyber Systems, Inc. changed its name to Concord Emerging Technologies, Inc.

-2-

EX-23.1

EXHIBIT 23.1

CONCORD EFS, INC.

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Concord EFS, Inc. and subsidiaries of our report dated March 19, 2003 (except for Note I, as to which the date is March 24, 2003), included in the 2002 Annual Report to Stockholders of Concord EFS, Inc.

We consent to the incorporation by reference in the Registration Statements (Form S-8: Nos. 033-60871, 333-74213, 333-74215, 333-56066 and 333-90678) of Concord EFS, Inc. and subsidiaries and in the related Prospectuses of our report dated March 19, 2003 (except for Note I, as to which the date is March 24, 2003), with respect to the consolidated financial statements of Concord EFS, Inc. and subsidiaries incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2002.

/S/  ERNST & YOUNG LLP

Memphis, Tennessee

March 24, 2002

EX-23.2

EXHIBIT 23.2

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 033-60871, 333-74213, 333-74215, 333-56066, and 333-90678 on Form S-8 of Concord EFS, Inc. of our report dated March 2, 2001 (relating to the 2000 consolidated financial statements of Star Systems, Inc. not presented separately therein) appearing in this Form 10-K.

/s/ DELOITTE & TOUCHE LLP

Orlando, Florida

March 24, 2003

EX-99.1

EXHIBIT 99.1

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

 Star Systems, Inc.:

We have audited the consolidated statements of income, stockholders’ equity, and cash flows of Star Systems, Inc. and subsidiaries (the Company) for the year ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.

We conducted our audit 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements (not presented separately herein) referred to above present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Orlando, Florida

March 2, 2001

EX-99.2

EXHIBIT 99.2

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Concord EFS, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dan M. Palmer, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: March 27, 2003	By:	/s/ Dan M. Palmer
		Dan M. Palmer
		Co-Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Concord EFS, Inc. and will be retained by Concord EFS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.3

EXHIBIT 99.3

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Concord EFS, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bond R. Isaacson, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: March 27, 2003	By:	/s/ Bond R. Isaacson
		Bond R. Isaacson
		Co-Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Concord EFS, Inc. and will be retained by Concord EFS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.4

EXHIBIT 99.4

Certification Pursuant to 18 U.S.C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Concord EFS, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward T. Haslam, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: March 27, 2003	By:	/s/ Edward T. Haslam
		Edward T. Haslam Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Concord EFS, Inc. and will be retained by Concord EFS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.5

EXHIBIT 99.5

CONCORD EFS, INC.

CAUTIONARY STATEMENTS

Press releases and the reports and other documents we file with the Securities and Exchange Commission may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management’s expectations, estimates, and assumptions, based on information available at the time the document, or any document incorporated therein by reference, was prepared. These forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives, and expectations. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” “likely,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors which may cause our actual performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements. Important factors that could cause our actual results to differ materially from those in forward-looking statements include, but are not limited to, those indicated below. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. You are cautioned not to rely on forward-looking statements.

1.    If we fail to successfully execute our corporate consolidation plans, our business, operating results, and financial condition could be adversely affected.

We typically initiate consolidation plans to integrate our acquisitions, to exit existing businesses, and to improve the efficiency of our operations. The plans are intended, among other things, to eliminate operational redundancies and functionally integrate acquired organizations into Concord. We cannot assure you that we will be able to implement our consolidation plans without encountering difficulties or experiencing the loss of key employees or customers or that the expected benefits from such consolidation plans will be realized. If we are unsuccessful in executing our consolidation plans, our business, operating results, and financial condition could be adversely affected.

2.    If we lose key personnel or are unable to attract additional qualified personnel as we grow, our business could be adversely affected.

We are dependent upon the ability and experience of a number of our key management personnel who have substantial experience with our operations, the rapidly changing electronic payment processing industry, and the selected markets in which we offer our services. It is possible that the loss of the services of one or a combination of our senior executives or key managers would have an adverse effect on our operations. Our success also depends on our ability to continue to attract, manage, and retain other qualified middle management and technical and clerical personnel as we grow. We cannot assure you that we will continue to attract or retain such personnel.

3.    Loss of key customers could adversely affect our business, operating results, and financial condition.

Customer attrition is due to several factors, including losses to competitors, business acquisitions and mergers, and business closures. We cannot assure you that any of our customer contracts will be renewed or, if renewed, will be renewed on terms as favorable to us as at present. If they are not renewed, or if they are renewed on less favorable terms, we may not be able to reduce our costs in proportion to the lost revenue, because many of our costs are fixed. For example, we have a number of significant contracts that by their terms terminate on December 31, 2004. Increased attrition or renewal on less favorable terms could have an adverse effect on our business, operating results, and financial condition. In addition, the loss of several of these large customers could have an additional adverse effect on our business, operating results, and financial condition due to the interdependency of participants in the STAR_sm network. The loss of a significant number of STAR-branded cards, ATMs, or POS terminals could cause other financial institutions or merchants to evaluate their contractual participation in the STAR network.

4.    We face significant competition in each of our lines of business.

All the businesses we are engaged in are highly competitive. The level of competition has increased in recent years, and other service providers have established a sizable market share in some of the service areas in which we compete. We expect that the level of competition will continue to increase. For example, competitors to our debit network, which consist of other national and regional debit networks, continue to consolidate as large banks merge and combine their debit networks and as shared debit networks continue to combine into larger, super-regional conglomerates. The continued expansion of the national debit networks operated by VISA and MasterCard also places increasing competitive pressure on other networks as banks seek to consolidate their network affiliations. Further, several of our competitors and potential competitors have greater capital and technological, management, and marketing resources than we have, and we cannot assure you that we will continue to be able to compete successfully with such entities. The competitive pricing pressures resulting in an increase in competition could adversely affect our margins and may have an adverse effect on our business, operating results, and financial condition.

5.    Current or future card association rules and practices could adversely affect our business, transaction volumes, operating results, and financial condition.

Concord EFS National Bank is a member of the VISA and MasterCard organizations and is a registered processor of Discover, American Express, and Diners Club transactions. We compete directly with VISA and MasterCard in the provision of network and transaction processing services. Further, the rules of the credit card associations are set by member banks or, in the case of Discover, American Express, and Diners Club, by the card issuers, and some of those banks and issuers are our competitors with respect to these services. With respect to our electronic benefits transfer (EBT) business, the governmental issuers of the benefits set the rules governing such transactions, and the financial institutions or processors hired by the government

2

administer them. We cannot assure you that the credit card associations will maintain our registrations or that the current card association or EBT rules allowing us to market and provide transaction processing services will remain in effect. The termination of our member registration or our status as a certified processor and changes in card association or EBT rules, including any that limit our ability to provide transaction processing and marketing services, could have an adverse effect on our business, transaction volumes, operating results, and financial condition. In addition, if we were precluded from processing any of these card association transactions, there can be no assurance that our processing clients would continue to use us to process transactions in other networks.

In addition, our STAR network, as a result of the combination of the STAR, MAC_®, and Cash Station^® networks, is the first regional debit network that may potentially be viewed as achieving national status in terms of size and geographic coverage. Current VISA and MasterCard rules prohibit their members from issuing the debit cards or credit cards of any competing national network, with the exception of each other. These rules also prohibit the coexistence of competing national marks on their credit and branded debit cards. If VISA or MasterCard were to determine that STAR is a competing national network and mark, they could attempt to prohibit their members from issuing STAR-branded cards and/or prohibit the coexistence of the STAR mark with the VISA and/or MasterCard marks on debit and credit cards. If this occurred, we cannot predict whether, when forced to choose between us and other brands, issuing banks would favor us over VISA or MasterCard. Further, we could lose access to the VISA or MasterCard network and cardholders, which could adversely affect our business, automated teller machine (ATM) transactions, personal identification number (PIN)-secured and signature debit transactions, credit card transactions, operating results, and financial condition.

Card issuers who participate in both STAR and VISA or MasterCard networks also may provide incentives for cardholders to use VISA or MasterCard signature-based systems instead of our STAR PIN-based system. Such incentives may adversely affect our business, operating results, and financial condition.

In addition, VISA’s combined PIN-based and signature debit product called VISA Check Card II could adversely impact our Network Services business if a significant number of financial institutions issue the product or if VISA reinstitutes its original rule prohibiting the placement of competing debit marks on the product.

6.    We must remain current with rapid technological change.

Our ability to provide services is heavily dependent upon our use of and access to computing and telecommunications technology. The businesses we are engaged in have been characterized by rapid technological change. We cannot assure you that we will be able to continue to incorporate new developments in technology or that the costs involved in doing so will not be substantial.

3

7.    Acquisitions involve risks that could cause our actual growth to differ from our expectations.

We expect to continue to seek selective acquisitions as an element of our growth strategy. It is possible that recent or future acquisitions could have an adverse effect upon our operating results, particularly in the fiscal quarters immediately following the completion of such transactions while the operations of the acquired entities are being integrated into our operations. For example, we may not be able to successfully integrate acquired businesses in a timely manner. We may also incur substantial costs, delays, or other operational or financial problems in connection with such acquisitions, including during the integration process. In addition, we could incur additional indebtedness to finance acquisitions.

8.    If additional state taxes are imposed on us, our business, operating results, and financial condition could be adversely affected.

Transaction processing companies like us may be subject to state taxation of certain portions of their fees charged to customers for their services. Application of this tax is an ongoing issue in the industry, and the states have not yet adopted uniform guidelines implementing these regulations. If we are required to pay these taxes and are unable to pass this tax expense through to our customers, our business, operating results, and financial condition could be adversely affected.

9.    Continued consolidation in the banking and retail industries could adversely affect our growth.

Ÿ Our Network Services business could be adversely affected. As banks consolidate, our ability to successfully offer our Network Services will depend in part on whether the institutions that survive those consolidations are willing to outsource their ATM and debit processing to third-party vendors like us and whether those institutions have pre-existing relationships with any of our competitors. Larger institutions with more geographically dispersed customer bases may wish to consolidate their network participation with fewer networks having the broadest geographic coverage and the best service offerings. As regional networks continue to consolidate, we may lose network business if we are unable to continue to offer a range of products that is competitive in terms of geographic distribution as well as quality and breadth of service. Larger banks that continue to participate in our network may also process proportionately fewer ATM transactions through our network as more transactions can be handled within the bank’s own internal systems, and larger banks with larger transaction volumes may demand lower fees which could result in lower operating margins for us.

Ÿ Our Payment Services business could lose customers, and fee revenue could decrease. Continued consolidation in the retail industry, which makes up a substantial portion of our customer base for Payment Services, could impede our ability to grow as the survivors of such consolidation may have relationships with competitors or may be more interested in pursuing internal processing options due to

4

their increased scale. Larger merchants with larger transaction volumes may also demand lower fees which could result in lower operating margins for us.

10.    We are subject to the business cycles and credit risk of our merchant customers.

A recessionary economic environment could have a negative impact on our customers, particularly smaller merchants and trucking companies, which could, in turn, negatively impact our business, operating results, and financial condition. If our customers make fewer sales of their products and services, we will have fewer transactions to process, resulting in lower revenue. Similarly, if the dollar amount of those sales is smaller, we will have smaller transactions to process, also resulting in lower revenue.

In addition, in a recessionary environment our merchant customers could experience a higher rate of bankruptcy filings which could adversely affect us financially. For example, we bear credit risk for billing disputes between credit card holders and bankrupt merchants. In the event a billing dispute between a credit card holder and a merchant is not resolved in favor of the merchant, the transaction is normally charged back to the merchant, and the purchase price is refunded to the cardholder. However, if that merchant files for bankruptcy or is otherwise unable or unwilling to pay, we must bear the credit risk for the full transaction amount of these chargebacks. Billing disputes would include instances where a customer ordered goods or services on credit, but those goods and services are not delivered by the defunct merchant. We cannot assure you that chargebacks will not increase in the future. Increases in chargebacks that are not paid by merchants could have an adverse effect on our business, operating results, and financial condition.

11.    The outcome of litigation involving VISA and MasterCard could have a negative impact on our business.

VISA and MasterCard have been sued by the Department of Justice (DOJ) for alleged violation of the federal antitrust laws arising out of their respective functionally identical policies of (1) allowing members in the respective organization to issue cards participating in the other organization’s system and (2) prohibiting their members from issuing cards in competing systems other than VISA, MasterCard, or Citigroup, one of the largest owners/members of VISA and MasterCard. The potential impact of this litigation on us depends upon whether or not the DOJ is successful, and if it is successful, the relief ordered by the court. We do not currently issue cards in either system and have not been deemed to operate a competing system by either VISA or MasterCard. If VISA and MasterCard are permitted to prohibit members from issuing cards in competing systems, however, there could be a significant negative impact on us if VISA or MasterCard were then to deem the STAR debit network to be a competing system for these purposes.

VISA and MasterCard also have been sued in a class action case brought by merchants who allege that VISA and MasterCard have (1) unlawfully tied merchant acceptance of VISA and MasterCard signature debit cards to merchant acceptance of VISA and MasterCard credit cards and (2) attempted and conspired to monopolize the market for debit cards, a market in which we compete against VISA and MasterCard. The potential impact of this litigation on us

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depends upon whether or not the plaintiffs are successful and, if they are successful, the relief ordered by the court or, if they are not successful, the business practices adopted by VISA and MasterCard as a result.

12.    Utility and system interruptions or processing errors could adversely affect our business, operating results, and financial condition.

In order to process transactions promptly, our computer equipment and network servers must be functional on a 24-hour basis, which requires access to telecommunications facilities and the availability of electricity. Telecommunications services and the electricity supply are susceptible to disruption. Computer system interruptions and other processing errors may result from such disruptions or from human error or other unrelated causes. There is also the potential threat of telecommunications disruptions caused by the malicious acts of computer criminals, who may attempt to compromise specific systems or generally propagate malicious software, such as viruses and worms. The loss of one or more of our data centers could result in a significant delay in resuming normal business activities and functions. Any extensive or long-term disruptions in our processing services could cause us to incur substantial additional expense, which could have an adverse effect on our business, operating results, and financial condition.

13.    Information theft could adversely affect our business, operating results, and financial condition.

An active and lucrative black market has developed in stolen credit card numbers and other personal information of consumers. This has led to organized criminal attempts to steal credit card databases from banks, merchants, and processors. Notwithstanding our efforts to counteract such theft, the risk is real, and any such theft could adversely affect our business, operating results, and financial condition.

14.    We may be susceptible to merchant fraud as well as credit and fraud risk of entities we sponsor into debit, credit, and EBT networks.

Merchant fraud includes recording false sales transactions or false credits by the merchant or its customers. Under some circumstances we bear the risk of incidents of merchant fraud. It is possible that incidents of merchant fraud could increase in the future. Increased incidents of merchant fraud could have an adverse effect on our business, operating results, and financial condition. As part of our processing business, we sponsor the participation of a variety of independent sales organizations, financial institutions, and other entities into debit, credit, and EBT networks. As sponsor, we could bear the credit and fraud risk of those entities under some circumstances. Increased bankruptcy or incidence of fraud among these institutions could have an adverse effect on our business, operating results, and financial condition.

15.    Changes in card association fees or products could increase our costs or otherwise limit our operations.

From time to time, VISA, MasterCard, Discover, American Express, and Diners Club increase the organization and/or processing fees (known as interchange fees) that they charge.

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For example, in April 2002 MasterCard increased its fees, and in October 2002 VISA increased its fees. It is possible that competitive pressures will result in our absorbing a portion of such increases in the future, which would increase our operating costs, reduce our profit margin, and adversely affect our business, operating results, and financial condition. Furthermore, the rules and regulations of the various card associations and networks prescribe certain capital requirements. Any increase in the capital level required would further limit our use of capital.

16.    Revenue growth in ATM processing could slow because of market saturation or restrictions on surcharging.

Revenue from “convenience fees” or “surcharges” imposed by owners of ATMs, including us, has been a significant factor in the recent growth in our ATM processing business, since such fees have encouraged ATM owners to deploy additional terminals. There have been initiatives at the federal, state, and local levels to limit surcharges. To the extent that ATM deployment does not continue to grow at recent rates due to the enactment and successful enforcement of statutory restrictions on surcharges, the availability of fewer favorable retail ATM locations, market saturation, or other factors, demand for our ATM processing services may not continue to grow at recent rates or may decline.

17.    Rules and regulations governing financial institutions and changes to those rules and regulations could limit our business.

We are a financial holding company and a bank holding company subject to regulation under the Bank Holding Company Act of 1956, as amended, and to regulation by the Board of Governors of the Federal Reserve System (Federal Reserve). Our bank subsidiary, Concord EFS National Bank, is a national banking association established under the National Bank Act and is subject to additional regulation by the Office of the Comptroller of the Currency as well as the Federal Reserve. The Federal Deposit Insurance Corporation insures the domestic deposits of Concord EFS National Bank under the Federal Deposit Insurance Act. The restrictions imposed by these and other laws governing the activities of national banks and their holding companies and related regulations and restrictions imposed by regulatory agencies limit our discretion and the discretion of Concord EFS National Bank and its affiliates in operating their businesses. These limitations include:

Ÿ restrictions on engaging in activities that are not approved by the Federal Reserve as financial in nature or incidental or complementary to a financial activity,

Ÿ restrictions on mergers and acquisitions involving companies engaged in activities other than those approved by the Federal Reserve as financial in nature or incidental or complementary to a financial activity,

Ÿ narrower constraints on activities, mergers, and acquisitions if Concord EFS National Bank does not remain well capitalized and well managed or does not maintain “satisfactory” ratings under the Community Reinvestment Act,

Ÿ minimum capital requirements at both the holding company and bank levels,

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Ÿ restrictions on dividends by Concord EFS National Bank,

Ÿ restrictions on intercompany transactions, and

Ÿ restrictions on tie-ins involving the products or services of Concord EFS National Bank.

Our failure to comply with financial institution rules and regulations applicable to us could have a material adverse effect on us, including regulatory enforcement proceedings, incurring financial or other penalties, being subject to cease and desist orders, and, in certain cases, being required to divest our depository institution subsidiary Concord EFS National Bank.

Material changes in applicable federal or state regulation of financial institutions could increase our operating costs, change the competitive environment, or otherwise adversely affect us. We cannot assure you that these laws and regulations will not be amended or interpreted differently by regulatory authorities, or that new laws and regulations will not be adopted, which could adversely affect our business, operating results, and financial condition.

In addition, we are subject to the financial privacy provisions of the Gramm-Leach-Bliley Act (the GLB Act). As a result, certain consumer financial information that we receive may be subject to limitations on reuse and redisclosure under the GLB Act. Additionally, pending legislation at the state and federal levels may further restrict our information gathering and disclosure practices. Existing and potential future privacy laws may limit our ability to develop new products and services that make use of certain data gathered through our Network Services and Payment Services businesses.

The USA Patriot Act, which includes a number of provisions designed to enhance the United States regime for combating money laundering and terrorist financing, also may affect our business, operating results, and financial condition. We offer products and services that assist financial institutions in complying with the USA Patriot Act. However, the USA Patriot Act, and particularly its requirements for verification of the identity of customers engaging in various types of financial transactions, may also depress demand for other transaction processing services. These new provisions to address money laundering and terrorist financing also create new compliance risks, with potentially significant consequences from violations, including monetary penalties and adverse consideration in regulatory applications.

18.    The timing and extent of changes in interest rates could have a significant impact on the returns on our investments.

Expectations regarding and the actual timing of changes in the Federal Funds interest rate could impact the returns on our investable funds. A significant portion of our available-for-sale securities are fixed income securities with values that generally move in the opposite direction of changes in interest rates. This has little impact if we hold the securities to maturity, but if we sell a fixed income security before maturity, the amount of our gain or loss could vary dramatically with fluctuations in interest rates.

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The Federal Reserve generally lowers interest rates to stimulate the economy and generally raises interest rates to fight inflation. Given that the Federal Reserve has lowered interest rates several times in the past two years, our investment income has been and could continue to be negatively affected as our cash flow from receipt of interest payments and proceeds from securities sold, called, or matured is reinvested in lower yielding securities due to declining interest rates.

In the event that interest rates rise, our investment portfolio could decrease in value and some expected maturities could lengthen, which would impact our investment strategies.

19.    The price of our common stock could be volatile.

In recent years, there has been and may continue to be significant volatility in the market price for our common stock. Factors such as changes in quarterly operating results, the gain or loss of significant contracts, the entry of new competitors into our markets, changes in management, announcements of technological innovations or new products by us or our competitors, and general events and circumstances beyond our control could have a significant impact on the future market price of our common stock and the relative volatility of such market price. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. Following volatility in the market price of our common stock, various securities fraud class action lawsuits and shareholder derivative actions were filed against us, our directors, and certain of our officers.

20.    We face certain litigation risks.

We and certain of our directors and certain of our officers have been named as defendants in a number of securities fraud class action lawsuits and shareholder derivative actions. Also, we are party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution or settlement of a particular lawsuit could have an adverse effect on our business, operating results, and financial condition.

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