Redbox 2011 Annual Report Download - page 16

related to operations, finances, intellectual property, technology, legal and regulatory issues, or other challenges,
for which we may have limited or no prior experience. In addition, if we fail to timely establish or maintain
relationships with significant retailers and suppliers, we may not be able to provide our consumers with desirable
new products and services. Further, in order to develop and commercialize new products and services, we will
need to enhance the capabilities of our DVD and coin-counting kiosks or create new kiosks, as well as adapt our
related networks and systems through appropriate technological solutions, and establish market acceptance of
such products or services. We cannot assure you that new products or services that we provide will be successful
or profitable.
We have substantial indebtedness.
As of December 31, 2011, $170.6 million and $179.7 million was reflected on our Consolidated Balance Sheets
as the outstanding principal balance of our new term loan and revolving credit facility (the “New Credit
Facility”) and convertible senior notes, respectively. We may generally prepay amounts borrowed under the New
Credit Facility without premium or penalty (other than LIBOR breakage costs). The New Credit Facility bears
interest at variable rates determined by prevailing interest rates and our leverage ratio. As a result, our costs of
borrowing are exposed to risks of fluctuations in interest rates, as well as our financial condition and operating
results, which affect our leverage ratio. Loans made pursuant to the New Credit Facility are secured by a first
priority security interest in substantially all of our assets and substantially all of the assets of our domestic
subsidiaries, as well as a pledge of a substantial portion of the equity interests in our subsidiaries.
This New Credit Facility may limit our ability to obtain future financings and may negatively impact our
business, financial condition, results of operations and growth. Due to substantial financial leverage, we may not
be able to generate sufficient cash flow to service the indebtedness, or to adequately fund our operations.
Moreover, the New Credit Facility contains negative covenants and restrictions relating to such things as certain
stock repurchases, liens, investments, capital expenditures, other indebtedness, payments of dividends, and
fundamental changes and dispositions of our assets that could impair our flexibility to pursue growth
opportunities. In addition, the New Credit Facility requires that we meet certain financial covenants, including a
maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, all as defined in the
New Credit Facility. If the financial covenants are not met or any other event of default occurs under the New
Credit Facility, our lenders would be entitled to declare our indebtedness immediately due and payable and
exercise other remedies.
We may not have the ability to pay interest on our convertible notes, to repurchase the convertible notes
upon a fundamental change or to settle conversions of the convertible notes, as may be required.
The $200.0 million in aggregate principal amount of our 4.00% Convertible Senior Notes due 2014 (the “Notes”)
bear interest semi-annually, payable March 1 and September 1 of each year. If a fundamental change occurs
under the indenture governing the Notes, holders of the Notes may require us to repurchase, for cash, all or a
portion of their Notes. In addition, upon satisfaction of certain conversion conditions (including conditions
outside of our control, such as market price or trading price) and proper conversion of the Notes by a holder, we
will be required to make cash payments of up to $1,000 for each $1,000 in principal amount of such Notes (as
well as deliver shares of our common stock if applicable). For example, at December 31, 2010, our Notes became
convertible in and for the first quarter of 2011 at the option of each holder because the closing sale price of our
common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading
day of the fourth quarter of 2010 exceeded 130% of the applicable conversion price. Although no holder
converted their Notes, depending on the amount and timing of the payment requirements, we may not have been
able to meet all of the obligations relating to Note conversions, which could have had a material adverse effect.
In addition, our New Credit Facility prohibits us from making any cash payments due upon the repurchase or
conversion of the Notes if (i) an event of default then exists or would result from the relevant payment under that
facility or (ii) after giving effect to the relevant cash payment, we would not be in pro forma compliance with our
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