Redbox 2013 Annual Report Download - page 17

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trademarks. We could be requested to make substantial additional cash contributions to the joint venture, but we do not control
the timing or amount of such requested capital contributions. Under the joint venture agreement, if we do not contribute our pro
rata portion of the first $450.0 million in requested capital contributions, our ownership interest in the joint venture could be
diluted and we could lose certain contractual rights in the joint venture, such as the right to veto certain material decisions by
the joint venture. As long as we fund our pro rata portion of the first $450.0 million in capital contributions, our ownership
interest in the joint venture cannot be diluted below a floor of 10% if the joint venture makes additional capital requests and we
are not able to fund our pro rata portion of such requests. In addition, each of our Credit Facility (as defined hereafter) and the
indenture governing the 6.000% Senior Unsecured Notes due 2019 (the "Senior Notes") restricts our ability to make
investments in the joint venture above certain thresholds. Under the joint venture agreement, we have also agreed to certain
restrictions on our ability in the United States to participate in the marketing or operation of an “over-the-top” video
distribution service, or to provide physical DVD or Blu-Ray disc rental services in connection with certain other video services.
These restrictions may substantially limit our ability to participate in the digital video distribution market except through the
joint venture, which we do not control. In addition, Verizon has certain rights to acquire our ownership interest in the joint
venture following February 3, 2019, or in limited circumstances, following February 3, 2017. These exclusivity provisions and
rights in favor of Verizon could leave us without an interest in an “over the top” video distribution business in the future.
Further, the joint venture agreement contains certain restrictions on the transfer or encumbrance of our ownership interest in the
joint venture, including not generally being able to sell or transfer our interest to an unaffiliated third party before February 3,
2017. After February 3, 2017, we are permitted to transfer our ownership interest in the joint venture only under certain
circumstances. These transfer restrictions as well other restrictions, including those discussed above, could substantially reduce
the value of our ownership interest in the joint venture as well as negatively affect our ability to run our business.
Redbox Instant by Verizon faces competition from many other providers, such as Netflix and Amazon, who may have more
experience, greater or more appealing inventory, better financing, or better relationships with those in the industry. If
consumers do not find the Redbox Instant by Verizon offering compelling, the joint venture may not be successful, which could
materially and adversely affect our business.
Acquisitions and investments involve risks that could harm our business and impair our ability to realize potential
benefits from such acquisitions and investments.
As part of our business strategy, we have in the past sought, and may in the future seek, to acquire or invest in businesses,
products or technologies that we feel could complement or expand our business. For example, in 2012, we entered into a joint
venture to launch Redbox Instant by Verizon and in July 2013 we acquired ecoATM. However, we may be unable to adequately
address the financial, legal and operational risks raised by such acquisitions or investments and may not successfully integrate
these acquisitions or investments, which could harm our business and prevent us from realizing the projected benefits of the
acquisitions and investments. In addition, we may not have the right or power to direct the management or policies of
companies we have invested in. For example, Redbox Instant by Verizon may take action contrary to our interests, although we
may nonetheless be called to invest additional sums. Further, the evaluation and negotiation of potential acquisitions and
investments, as well as the integration of acquired businesses, divert management time and other resources. Accordingly, we
cannot assure you that any particular transaction, even if successfully completed, will ultimately benefit our business. Certain
financial and operational risks related to acquisitions and investments that may have a material impact on our business are:
• the assumption of known and unknown liabilities of an acquired company, including employee and intellectual
property claims and other violations of applicable law;
• losses related to acquisitions and investments;
• managing relationships with other investors and the companies in which we have made investments, including, in
some cases, as minority partner;
• reduced liquidity, including through the use of cash resources and incurrence of debt and contingent liabilities in
funding acquisitions and investments;
• entrance into markets in which we have no direct prior experience, such as the digital market through our joint
venture, Redbox Instant by Verizon, and where we face competition from many other companies, including those
having more experience, better financing, or better relationships with others in the industry, than we have;
• impairment of goodwill and acquired intangible assets arising from our arrangements and investments;
• difficulties and expenses in assimilating the operations, products, technology, information systems or personnel of an
acquired company, acquired assets or joint ventures;
• inability to efficiently divest unsuccessful acquisitions and investments;