NetSpend 2013 Annual Report Download - page 59

with the Company. The Company does not believe
that it will fail to meet its contractual commitments to
an extent that will result in a material adverse effect
on its financial position, results of operations or cash
flows.
CONTINGENCIES:
Legal Proceedings — General
The Company is subject to various legal proceedings
and claims and is also subject to information requests,
inquiries and investigations arising out of the ordinary
conduct of its business. The Company establishes
reserves for litigation and similar matters when those
matters present loss contingencies that TSYS
determines to be both probable and reasonably
estimable in accordance with ASC 450,
“Contingencies.” In the opinion of management,
based on current knowledge and in part upon the
advice of legal counsel, all matters not specifically
discussed below are believed to be adequately
covered by insurance, or, if not covered, the
possibility of losses from such matters are believed to
be remote or such matters are of such kind or involve
such amounts that would not have a material adverse
effect on the financial position, results of operations or
cash flows of the Company if disposed of unfavorably.
Settlement of Certain Litigation
As previously disclosed, a putative class action
entitled Koehler v. NetSpend Holdings, Inc. et. al.
(the “Koehler action”) was filed in the Court of
Chancery of the State of Delaware on March 1, 2013
and a putative class action entitled Bushansky v.
NetSpend Holdings, Inc. et al. (together with the
Koehler action, the “Actions”) was filed in the District
Court of Travis County, Texas on February 25, 2013,
each in connection with TSYS’ proposed merger with
NetSpend pursuant to the Merger Agreement. On
May 21, 2013, the Delaware Chancery Court issued a
memorandum opinion in the Koehler action denying
the plaintiff’s motion for a preliminary injunction,
which sought to enjoin a shareholder vote on the
proposed merger.
While TSYS and the other defendants believed that
each of the Actions was without merit, in an effort to
minimize the cost and expense of any litigation
relating to such Actions, on May 29, 2013, the
defendants reached an agreement in principle with
the plaintiffs regarding settlement of the Actions. In
connection with the settlement contemplated by that
agreement in principle, and, later, a Settlement
Agreement, dated as of September 20, 2013 (the
“Settlement Agreement”), the Actions and all claims
asserted therein would be dismissed. In addition,
pursuant to the terms of the Settlement Agreement,
TSYS and/or NetSpend, where applicable, agreed
(a) to make certain amendments to the Merger
Agreement; (b) that, consistent with the terms of the
Merger Agreement, prior to the receipt of approval
of the NetSpend stockholders, NetSpend could
furnish information to, and engage in discussions and
negotiations with, third parties who make unsolicited
bona fide acquisition proposals if certain conditions
were met; (c) that the special meeting of NetSpend
stockholders that was scheduled to be held on
May 31, 2013 would be adjourned to June 18, 2013;
(d) that NetSpend would not take certain positions
with respect to any appraisal proceeding perfected
under Delaware law; (e) that certain information
would be provided to counsel for the plaintiffs in the
Actions in connection with any perfected appraisal
proceeding; and (f) without admitting that any of the
claims in the Actions have merit or that any
supplemental disclosure was required under any
applicable statute, rule, regulation or law, that they
would acknowledge that the filing and prosecution of
the Actions were the cause, in whole or in part, of
certain supplemental disclosures made in connection
with the proposed merger.
The Settlement Agreement was submitted to the
Court of Chancery on October 4, 2013, and on
December 18, 2013, after considering the terms of
the settlement, the Delaware Chancery Court entered
an order approving the proposed settlement and
dismissing the Actions with prejudice. Under the
terms of the Settlement Agreement, the settlement
became final upon the expiration of the time for any
appeal of the court’s December 18, 2013 order, or
thirty days following December 18, 2013.
GUARANTEES AND INDEMNIFICATIONS: The
Company has entered into processing and licensing
agreements with its clients that include intellectual
property indemnification clauses. Under these
clauses, the Company generally agrees to indemnify
its clients, subject to certain exceptions, against legal
claims that TSYS’ services or systems infringe on
certain third party patents, copyrights or other
proprietary rights. In the event of such a claim, the
Company is generally obligated to hold the client
harmless and pay for related losses, liabilities, costs
and expenses, including, without limitation, court
costs and reasonable attorney’s fees. The Company
has not made any indemnification payments pursuant
to these indemnification clauses.
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