Redbox 2010 Annual Report Download - page 76

The Notes are convertible, upon the occurrence of certain events or maturity, into cash up to the aggregate
principal amount of the Notes and shares of our common stock, in respect of the remainder, if any, of the
conversion obligation in excess of the aggregate principal amount. The initial conversion rate is 24.8181 shares
of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of
approximately $40.29 per share of common stock. The events for conversion include: (i) at any time during the
period beginning on June 1, 2014 and ending on the close of business on the business day immediately preceding
the stated maturity date; (ii) during any quarter commencing after December 31, 2009 in which the closing price
of our common stock exceeds 130% of the conversion price for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the preceding calendar quarter; (iii) during any five
business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal
amount of the Notes for each day of that period is less than 98% of the product of the closing sale price of our
common stock and the applicable conversion rate; (iv) we elect to distribute to substantially all holders of our
common stock the right to purchase common stock at a price per share less than the average price of the closing
price for the 10 consecutive trading day periods preceding the date of such announcement; or we elect to
distribute to substantially all holders of our common stock the assets, debt securities, or rights to purchase
securities of us, which distribution has a par value exceeding 10% of the closing price of the common stock
preceding the declaration date for such distribution; and (v) upon specified corporate transactions including a
consolidation or merger.
The closing price of our common stock exceeded 130% of the conversion price for more than 20 trading days
during the period of 30 consecutive trading days ending December 31, 2010, thereby satisfying one of the early
conversion events. As a result, our callable convertible debt became convertible on demand and the Notes’
holders were notified that they can elect to submit the Notes for conversion between the notification date and
March 31, 2011. This conversion event is reset each quarter and we will reassess on the last day of each fiscal
quarter. If the closing price of our common stock does not exceed 130% of the conversion price for more than 20
trading days during the period of 30 consecutive trading days ended March 31, 2011, our callable convertible
debt will be reclassified as convertible debt in the long-term liabilities section of the Consolidated Balance
Sheets.
Accordingly, we reported the carrying value of the callable convertible debt of $173.1 million within the current
liabilities section of our Consolidated Balance Sheets on December 31, 2010 as we are required to settle the Notes
at the request of the Note’s holders after the balance sheet date in and for the first quarter of 2011. No gain or loss
was recognized when the debt became convertible. The gain or loss on the extinguishment of the debt is the
difference between the fair value and carrying value of the Notes and will be recognized at the time when the Notes
are settled. The estimated fair value of the Notes was approximately $180.9 million as of December 31, 2010.
In addition, upon becoming convertible, a portion of the equity component of the callable convertible debt was
considered redeemable and that portion of the equity was reclassified to temporary equity as reported under debt
conversion feature in our Consolidated Balance Sheets. Such amount was determined based on the cash
considerations to be paid upon conversion and the carrying amount of the debt. As the holders of the Notes will
be paid in cash for the principal amount of the Notes and issued shares of our common stock for the remaining
value of the Notes, the reclassification into temporary equity as of December 31, 2010 was $26.9 million based
on the Notes’ principal of $200 million and the carrying value of $173.1 million. If a conversion event takes
place in the following quarter, this temporary equity balance will be recalculated based on the difference between
the Note’s principal and the debt carrying value. If the Notes are settled during the first quarter of 2011, then the
redeemable portion of equity would be determined based on the difference between the Notes’ principal and
aggregate fair value of the Notes including the conversion feature. If the Notes are not converted, the
reclassification between equity and temporary equity will change as the carrying value of the Notes increases.
The Notes are general senior unsecured obligations and rank equal in right of payment with all of our existing
and future unsecured and unsubordinated indebtedness. The Notes will be structurally subordinated to all existing
and future indebtedness incurred by us (including trade payables and guarantees under our senior secured credit
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