Redbox 2011 Annual Report Download - page 93

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arrangements. The LLC Agreement governs the relationship of the parties with respect to a joint venture (the
“Joint Venture”) formed for the primary purpose of developing, launching, marketing and operating a nationwide
“over-the-top” video distribution services providing consumers with access to video programming content,
including linear content, delivered via broadband networks to video-enabled viewing devices and offering rental
of physical DVDs and Blu-ray Discs®from Redbox kiosks. Redbox is initially acquiring a 35.0% ownership
interest in the Joint Venture and will make an initial capital contribution of $14.0 million in cash. The Joint
Venture board may request each member to make additional capital contributions, on a pro rata basis relative to
its respective ownership interest. If a member does not make any or all of its requested capital contributions, as
the case may be, the other contributing member generally may make such capital contributions. So long as
Redbox contributes its pro rata share of the first $450.0 million of capital contributions to the Joint Venture,
Redbox’s interest cannot be diluted below 10.0%. In addition, Redbox has certain rights to cause Verizon to
acquire Redbox’s interest in the Joint Venture (generally following the fifth anniversary of the LLC Agreement
or in limited circumstances, at an earlier period of time) and Verizon has certain rights to acquire Redbox’s
interest in the Joint Venture (generally following the seventh anniversary of the LLC Agreement, or, in limited
circumstances, the fifth anniversary of the LLC Agreement). Redbox’s ownership interest in the Joint Venture
will be accounted for using the equity method of accounting.
Acquisition of NCR Entertainment Business
On February 3, 2012, Redbox entered into a purchase agreement with NCR Corporation (“NCR”) (the “NCR
Agreement”), to acquire certain assets of NCR related to NCR’s self-service entertainment DVD kiosk business.
The purchased assets include, among others, self-service DVD kiosks, DVD inventory, intellectual property, and
certain related contracts. The purchase price includes a $100.0 million cash payment, as adjusted if certain
contracts are not transferred at closing, and the assumption of certain liabilities of NCR related to the purchased
assets. We expect the transaction will be recorded as a business combination. Closing of the transaction is subject
to certain customary closing conditions, including appropriate governmental approval under the Hart Scott
Rodino Antitrust Improvements Act, as amended (“HSR”). If the NCR Agreement is terminated under certain
circumstances relating to failure to obtain appropriate antitrust approvals, Redbox is required to pay NCR a $10.0
million break fee within five days of such termination. In addition, in connection with the NCR Agreement, we
intend to enter into a strategic arrangement with NCR for manufacturing and services during the five-year period
post-closing. At the end of the five-year period, if the aggregate amount paid in margin to NCR for
manufacturing and services delivered equaled less than $25.0 million, we would pay NCR the difference between
such aggregate amount and $25.0 million. Assuming HSR approval, we expect the transaction to close no later
than the third quarter of 2012.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Management, with the participation of our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this report and has determined that
such disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and
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