NetSpend 2010 Annual Report Download - page 21

Table of Contents
of negotiations with ACE regarding possible modifications to our distribution agreement, ACE initiated arbitration against us alleging breach
of our agreement based on certain activities of our direct-to-consumer and online marketing programs and seeking, among other things,
termination of our agreement. We filed a response setting forth the reasons we believed the claims to be without merit, as well as a
counterclaim. We have resolved the dispute and entered into a mutual agreement to release and dismiss with prejudice all claims in the
arbitration, and reached an agreement on the terms of certain modifications to our existing distribution agreement. In September 2010, we
entered into an amendment to our distribution agreement to reflect these modifications, which we do not expect to have a material impact on
our business, financial condition or operating results. However, ACE, or other of our retail distributors, may in the future object to competition
from our direct-to-consumer and online marketing programs, and may seek modifications to our agreements or make claims against us, which
could have a material adverse effect on our business, financial condition and operating results.
The success of our business depends substantially on our ability to attract and retain retailers with a large number of locations that are
convenient for our cardholders to purchase and reload our GPR cards. In the future, some of our retail distributors may endeavor to internally
develop their own prepaid debit card programs or enter into exclusive relationships with our competitors to distribute their products. The loss
of, or a substantial decrease in revenues from, one or more of our top retail distributors could have a material adverse effect on our business and
operating results. Most of our retail distribution agreements have terms ranging from three to five years and are typically renewable
automatically for subsequent terms of at least one year unless we or the distributor affirmatively elect to discontinue the agreement within the
required notice period. If we want to continue a contractual relationship with a retail distributor after the expiration of the agreement, we are
typically required to renegotiate the terms of the agreement upon its expiration, and in some circumstances we may be forced to modify the
terms of the agreement before it expires. Our negotiations to renew some distribution agreements have resulted in, and in the future may result
in, financial and other terms that are less favorable to us than the terms of the prior agreements, such as terms that permit the distributors to
market prepaid debit cards that compete with our GPR cards. We may not succeed in renewing these agreements when they expire, which
would result in a complete loss of revenue from these distributors. If we are required to pay higher revenue-sharing amounts or agree to other
less favorable terms to retain our retail distributors, or we are not able to renew our relationships with our retail distributors upon the expiration
of our agreements, our business, financial condition and operating results would be harmed.
We depend on our distributors' sale and promotion of our products and services, but their interests and operational decisions might not
always align with our interests.
A significant portion of our operating revenues are derived from our products and services sold at the stores of our retail distributors. Our
reliance on these retail distributors means that we do not have direct control over the sales of our cards and, as a result, our future growth is
inherently unpredictable. Because we often compete with many other providers of consumer and financial products for placement and
promotion of products in the stores of our retail distributors, our success depends on our retail distributors and their willingness to promote our
products and services successfully. In general, our contracts with these third parties allow them to exercise significant discretion over the
placement and promotion of our products in their stores, and they could give higher priority to the products and services of other prepaid debit
card providers. In many instances, our retail distributors have greater incentives to promote other products or services to consumers. If our
retailers do not actively and effectively promote the sale of our cards, our growth will be limited and our operating results will suffer.
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