As filed with the Securities and Exchange Commission on July 11, 2022
Registration No. 333-265642
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNDER
THE SECURITIES ACT OF 1933
CHICKEN SOUP FOR THE SOUL ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization) |
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7819
(Primary standard industrial
classification code number) |
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81- 2560811
(I.R.S. Employer
Identification Number) |
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132 E. Putnam Avenue, Floor 2W
Cos Cob, Connecticut 06807
(855) 398-0443
Cos Cob, Connecticut 06807
(855) 398-0443
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
William J. Rouhana, Jr.
Chairman and Chief Executive Officer
Chicken Soup for the Soul Entertainment, Inc.
132 E. Putnam Avenue, Floor 2W
Cos Cob, Connecticut 06807
(855) 398-0443
Chairman and Chief Executive Officer
Chicken Soup for the Soul Entertainment, Inc.
132 E. Putnam Avenue, Floor 2W
Cos Cob, Connecticut 06807
(855) 398-0443
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
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David Alan Miller
Brian L. Ross Graubard Miller The Chrysler Building New York, NY 10174 (212) 818-8800 |
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Galen C. Smith
Redbox Entertainment Inc. 1 Tower Lane Suite 800 Oakbrook Terrace, IL 60181 (630) 756-8010 |
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Frederick S. Green
Matthew J. Gilroy Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 (212) 310-8000 |
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Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the transactions contemplated by the Agreement and Plan of Merger described in the included proxy statement/prospectus/information statement have been satisfied or waived.
If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
☐
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Smaller reporting company
☒
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Emerging growth company
☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
![[MISSING IMAGE: lg_chickensoupsoul-4clr.jpg]](https://cdn.kscope.io/bedd72f9fa2a52f9cc1ab2fad7a606fc-lg_chickensoupsoul-4clr.jpg)
Immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will own approximately 76.3% and 23.7%, respectively, of the then outstanding CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined). The CSSE Class A Common Stock and CSSE Class B Common Stock are identical except that each share of CSSE Class A Common Stock entitles the holder thereof to one vote and each share of CSSE Class B Common Stock entitles the holder thereof to ten votes on each matter submitted to the CSSE Stockholders for a vote. Each share of CSSE Class B Common Stock is exchangeable for one share of CSSE Class A Common Stock at any time at the election of the holder. Accordingly, immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will control approximately 93.8% and 6.2%, respectively, of the then total voting power represented by the CSSE capital stock (Class A Common Stock and CSSE Class B Common Stock combined).
At the Effective Time, the outstanding public warrants and private warrants of Redbox shall remain outstanding but become the right to receive upon valid exercise thereof shares of CSSE Class A Common Stock equal to the product of (A) the number of shares of Redbox Class A Common Stock subject to such warrant immediately prior to the Effective Time and (B) the Exchange Ratio, with a corresponding change to the exercise price of such warrant based on the Exchange Ratio. Accordingly, a holder will be required to surrender warrants to acquire 11.494 shares of Redbox Class A Common Stock in order to purchase one share of CSSE Class A Common Stock upon exercise of the warrants. Pursuant to Section 4.4 of the warrant agreements governing the Redbox warrants, the per-share exercise price for such warrants will become $132.18 per share of CSSE Class A Common Stock. This is calculated by dividing the current $11.50 per-share exercise price of such warrants by the 0.087 Exchange Ratio.
The issuance by CSSE of the shares of CSSE Class A Common Stock comprising the Merger Consideration and the reservation for future issuance of shares of CSSE Class A Common Stock upon exercise of Redbox’s warrants is referred to herein as the “CSSE Stock Issuance.”
The board of directors of CSSE (the “CSSE Board”) has unanimously (a) declared that the Merger Agreement, the Mergers and the other Transactions are in the best interests of CSSE and its stockholders (the “CSSE Stockholders”), (b) approved and declared advisable the Merger Agreement and the Transactions, (c) directed that the CSSE Stock Issuance be submitted to the CSSE Stockholders for approval in accordance with and as required under Nasdaq rules, and (d) recommended that the CSSE Stockholders approve the CSSE Stock Issuance (the “CSSE Board Recommendation”).
On May 11, 2022 and in accordance with the Merger Agreement, Chicken Soup for the Soul Productions, LLC, William J. Rouhana, Jr., and Trema, LLC (collectively, the “Principal CSSE Holders”) approved the CSSE Stock Issuance by delivery of a written consent (the “CSSP Written Consent”). As of May 11, 2022, the Principal CSSE Holders held the majority of the voting power represented by the outstanding CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined (collectively, the “CSSE Outstanding Voting Shares”)). Therefore, the delivery of the CSSP Written Consent satisfied the requirement in the Merger Agreement that the affirmative vote of the holders of at least a majority of the voting power of the CSSE Outstanding Voting Shares approve the CSSE Stock Issuance. No additional approval of the CSSE Stockholders is required to approve the CSSE Stock Issuance. No CSSE Stockholder approval is required for the Merger Agreement, the Mergers and the other Transactions. As a result, CSSE has not solicited and will not be soliciting your vote for the approval of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions.
The completion of the Mergers is subject to approval by the stockholders of Redbox at a special meeting thereof to be held on August 9, 2022. Redbox, AP VIII Aspen Holdings, L.P., a Delaware limited partnership (“Aspen”), and Redwood Holdco, LP, a Delaware limited partnership (“Redwood LP”) (each of Aspen and Redwood LP are an “Aspen Stockholder”, and collectively, the “Aspen Stockholders”), and Seaport Global SPAC, LLC, a Delaware limited liability company (“Seaport”, and collectively with the Aspen Stockholders, the “Redbox Majority Stockholders”) entered into a voting and support agreement on April 15, 2022 (“Redbox Voting Agreement”). Redbox has separately agreed with CSSE that it will not permit any amendment, waiver or modification to the Redbox Voting Agreement that would delay or impair obtaining the Requisite Redbox Vote (as defined below) without CSSE’s prior consent. The Redbox Majority Stockholders collectively hold an aggregate of 6,119,738 shares, or 44.7%, of Redbox Class A Common Stock, and 32,770,000 shares, or 100% of Redbox Class B Common Stock, which represent
approximately 83.7% of the total outstanding shares of Redbox Common Stock as of July 8, 2022. The Redbox Class A Common Stock and Redbox Class B Common Stock vote together as a single class, and accordingly, the Redbox Majority Stockholders own shares of Redbox Common Stock constituting approximately 83.7% of the voting power of Redbox, which is more than the majority necessary to approve matters submitted to the stockholders of Redbox for a vote. Pursuant to the Redbox Voting Agreement, the Redbox Majority Holders have agreed, among other things, to vote their shares of Redbox (i) in favor of any strategic transaction approved and recommended by the Redbox Board subject to certain terms and conditions, which would include the Integrated Mergers, (ii) in opposition to any transaction involving Redbox that has not been approved and recommended by the Redbox Board, and (iii) in favor of any directors that are proposed or nominated to the Redbox Board by Redbox at any annual meeting of Redbox.
This notice of action by written consent and the proxy statement/information statement/prospectus shall constitute notice to you from CSSE that the CSSE Stock Issuance has been approved by the holders of a majority of the voting power of the CSSE Outstanding Voting Shares pursuant to the CSSP Written Consent in lieu of a meeting in accordance with the Merger Agreement and Section 228 of the Delaware General Corporation Law.
The proxy statement/information statement/prospectus accompanying this letter provides you with more specific information concerning the CSSE Stock Issuance, the Merger Agreement, the Mergers and the other Transactions contemplated thereby. We encourage you to carefully read the proxy statement/information statement/prospectus and the copy of the Merger Agreement.
Sincerely,
![[MISSING IMAGE: sg_williamjrouhanajr-bw.jpg]](https://cdn.kscope.io/bedd72f9fa2a52f9cc1ab2fad7a606fc-sg_williamjrouhanajr-bw.jpg)
William J. Rouhana, Jr.
Chief Executive Officer
Chief Executive Officer
Cos Cob, Connecticut
July [•], 2022
July [•], 2022
![[MISSING IMAGE: lg_redbox-4clr.jpg]](https://cdn.kscope.io/bedd72f9fa2a52f9cc1ab2fad7a606fc-lg_redbox-4clr.jpg){kind=small}
SUBJECT TO COMPLETION, DATED JULY 11, 2022
MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT
To the Redbox Stockholders:
On behalf of the board of directors of Redbox Entertainment Inc. (“Redbox”), we are pleased to enclose the accompanying proxy statement/information statement/prospectus relating to the acquisition of Redbox by Chicken Soup for the Soul Entertainment, Inc. (“CSSE”). We are requesting that you take certain actions as a Redbox Stockholder.
On May 10, 2022, Redbox entered into a Merger Agreement (the “Merger Agreement”) with CSSE, RB First Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of CSSE (“Merger Sub Inc.”), RB Second Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of CSSE (“Merger Sub LLC”), Redwood Opco Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of CSSE (“Opco Merger Sub LLC”), and Redwood Intermediate LLC, a Delaware limited liability company (“Opco LLC”).
The Merger Agreement provides that, among other things, upon the terms and subject to the conditions set forth in the Merger Agreement; at the Effective Time: (a) Merger Sub Inc. will merge (the “First Company Merger”) with and into Redbox, with Redbox continuing as the surviving entity (the “Surviving Corporation”); (b) simultaneously with the First Company Merger, Opco Merger Sub LLC will merge (the “Opco Merger”) with and into Opco LLC, with Opco LLC continuing as the surviving entity; and (c) immediately following the First Company Merger and Opco Merger, the Surviving Corporation will merge with and into Merger Sub LLC (the “Second Company Merger” and, together with the First Company Merger, the “Integrated Mergers,” and the Integrated Mergers together with the Opco Merger, the “Mergers”), with Merger Sub LLC continuing as the surviving entity.
The Mergers and the other transactions contemplated by the Merger Agreement are collectively referred to herein as the “Transactions.” A copy of the Merger Agreement is included as Annex A to the proxy statement/information statement/prospectus.
If the Mergers are completed, at the Effective Time: (a) each share of Class A common stock of Redbox, par value $0.0001 per share (the “Redbox Class A Common Stock”), will be cancelled and automatically deemed for all purposes to represent the right to receive 0.087 shares of the Class A common stock of CSSE (this Exchange Ratio being referred to herein as the ”Exchange Ratio” and the shares of CSSE Class A Common Stock being issued in the exchange, the “shares of CSSE Class A Common Stock”); (b) each unit of Opco LLC (the “Opco LLC Units”), other than the Excluded Opco LLC Units, will be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio; and (c) each share of Class B common stock of Redbox, par value $0.0001 per share (the “Redbox Class B Common Stock”), will be automatically cancelled for no additional consideration.
At the Effective Time, the vested and unvested restricted stock units of Redbox (each “Redbox RSU Award”) that are outstanding as of immediately prior to the Effective Time held by each holder will automatically be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio multiplied by the number of vested and unvested Redbox RSU Awards held by such holder immediately prior to the Effective Time.
Based on the number of shares of Redbox Class A Common Stock and Opco LLC Units, and Redbox RSU Awards outstanding as of the date of this proxy statement/ information statement/prospectus, an aggregate of approximately 4.6 million shares of CSSE Class A Common Stock will be issued in exchange therefor (the “Merger Consideration”).
Immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will own approximately 76.3% and 23.7%, respectively, of the then outstanding CSSE capital stock (Class A common stock, $0.0001 per share par value (“CSSE Class A Common Stock”) and Class B common stock, $0.0001 per share par value (“CSSE Class B Common Stock”) combined). The CSSE Class A Common Stock and CSSE Class B Common
Stock are identical except that each share of CSSE Class A Common Stock entitles the holder thereof to one vote and each share of CSSE Class B Common Stock entitles the holder thereof to ten votes on each matter submitted to the CSSE Stockholders for a vote. Each share of CSSE Class B Common Stock is exchangeable for one share of CSSE Class A Common Stock at any time at the election of the holder. Accordingly, immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will control approximately 93.8% and 6.2%, respectively, of the then total voting power represented by the CSSE capital stock (i.e., the CSSE Class A Common Stock and CSSE Class B Common Stock combined).
At the Effective Time, the outstanding public warrants and private warrants of Redbox shall remain outstanding but become the right to receive upon valid exercise thereof shares of CSSE Class A Common Stock equal to the product of (A) the number of shares of Redbox Class A Common Stock subject to such warrant immediately prior to the Effective Time and (B) the Exchange Ratio, with a corresponding change to the exercise price of such warrant based on the Exchange Ratio. Accordingly, a holder would be required to surrender warrants to acquire 11.494 shares of Redbox Class A Common Stock in order to purchase one share of CSSE Class A Common Stock upon exercise of the warrants. Pursuant to Section 4.4 of the warrant agreements governing the Redbox warrants, the per-share exercise price for such warrants will become $132.18 per share of CSSE Class A Common Stock. This is calculated by dividing the current $11.50 per-share exercise price of such warrants by the 0.087 Exchange Ratio.
Redbox will be holding a special meeting of stockholders in connection with the Mergers (the “Redbox Special Meeting”) to which this proxy statement/information statement/prospectus relates. At the Redbox Special Meeting, Redbox’s stockholders will be asked to vote on (i) a proposal to approve the Merger Agreement (the “Redbox Merger Proposal”) and (ii) a proposal to approve one or more adjournments of the Redbox Special Meeting, if necessary or appropriate in the view of the Redbox Board, to permit, among other things, further solicitation of proxies, if necessary or appropriate in the view of the Redbox Board, in favor of the Redbox Merger Proposal if there are not sufficient votes at the time of such adjournment to approve the Redbox Merger Proposal (the “Redbox Adjournment Proposal”). The approval of the Redbox Merger Proposal requires the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Class A common stock of Redbox (“Redbox Class A Common Stock”) and the Class B common stock of Redbox (“Redbox Class B Common Stock”, together with Redbox Class A Common Stock, “Redbox Common Stock”), voting together as a single class (the “Requisite Redbox Vote”). The approval of the Redbox Adjournment Proposal requires the affirmative vote of the holders of a majority of the Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class, cast by the Redbox Stockholders at the Redbox Special Meeting, assuming a quorum is present at the Redbox Special Meeting. Pursuant to the Merger Agreement, approval of the Redbox Merger Proposal is a condition to the consummation of the Mergers. If the Redbox Merger Proposal is not approved, the Mergers will not be completed.
Redbox, AP VIII Aspen Holdings, L.P., a Delaware limited partnership (“Aspen”), and Redwood Holdco, LP, a Delaware limited partnership (“Redwood LP”) (each of Aspen and Redwood LP are an “Aspen Stockholder”, and collectively, the “Aspen Stockholders”), and Seaport Global SPAC, LLC, a Delaware limited liability company (“Seaport”, and collectively with the Aspen Stockholders, the “Redbox Majority Stockholders”) entered into a voting and support agreement on April 15, 2022 (“Redbox Voting Agreement”). The Redbox Majority Stockholders collectively hold an aggregate of 6,119,738 shares, or 44.7%, of Redbox Class A Common Stock, and 32,770,000 shares, or 100% of Redbox Class B Common Stock, which represent approximately 83.7% of the total outstanding shares of Redbox Common Stock as of July 8, 2022. The Redbox Class A Common Stock and Redbox Class B Common Stock vote together as a single class, and accordingly, the Redbox Majority Stockholders own shares of Redbox Common Stock constituting approximately 83.7% of the voting power of Redbox, which is more than the majority necessary to form a quorum at the Redbox Special Meeting and to approve matters submitted to the stockholders of Redbox for a vote. Pursuant to the voting and support agreement, the Redbox Majority Holders have agreed, among other things, to vote their shares of Redbox (i) in favor of any strategic transaction approved and recommended by the Redbox Board subject to certain terms and conditions, which would include the Integrated Mergers, (ii) in opposition to any transaction involving Redbox that has not been approved and recommended by the Redbox Board and (iii) in favor of any directors that are proposed or nominated to the Redbox Board by Redbox at any annual meeting of Redbox. Redbox has separately agreed with CSSE that it will not permit any amendment, waiver or modification to the Redbox Voting Agreement that would delay or impair obtaining the Requisite Redbox Vote without CSSE’s prior consent.
The CSSE Class A Common Stock is quoted on Nasdaq Global Market (“Nasdaq”) under the symbol “CSSE,” and Redbox Class A Common Stock is quoted on the Nasdaq under the symbol “RDBX.” The market prices of both CSSE Class A Common Stock and Redbox Class A Common Stock will fluctuate before the Mergers, and you should obtain current stock price quotations for the CSSE Class A Common Stock and Redbox Class A Common Stock.
The issuance by CSSE of the shares of CSSE Class A Common Stock comprising the Merger Consideration and the reservation for future issuance of shares of CSSE Class A Common Stock upon exercise of Redbox’s warrants is referred to herein as the “CSSE Stock Issuance.”
On May 11, 2022 and in accordance with the Merger Agreement, Chicken Soup for the Soul Productions, LLC, William J. Rouhana, Jr., and Trema, LLC (collectively, the “Principal CSSE Holders”) approved the CSSE Stock Issuance by delivery of a written consent (the “CSSP Written Consent”). As of May 11, 2022, the Principal CSSE Holders held the majority of the voting power of CSSE’s outstanding Class A common stock and Class B common stock (collectively, the “CSSE Outstanding Voting Shares”). Therefore, the delivery of the CSSP Written Consent satisfied the requirement in the Merger Agreement that the affirmative vote of the holders of at least a majority of the voting power of the CSSE Outstanding Voting Shares approve the CSSE Stock Issuance.
Redbox has fixed the close of business on July 11, 2022 as the record date for determining holders of issued and outstanding Redbox Common Stock entitled to notice of, and to vote at, the Redbox Special Meeting.
After careful consideration and evaluation of the Transactions in consultation with Redbox’s management and advisors, the Redbox Board has unanimously determined that (i) the Merger Agreement and the Transactions, including the Mergers, are in the best interests of Redbox and its stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions, and (iii) recommended that the Redbox Stockholders approve and adopt the Merger Agreement and the Transactions, including the Integrated Mergers, at a duly held meeting of the Redbox Stockholders called for such purpose. The Redbox Board unanimously recommends that the Redbox Stockholders vote “FOR” the Redbox Merger Proposal and “FOR” the Redbox Adjournment Proposal.
Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Redbox Special Meeting, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the Redbox Special Meeting. Please note that for purposes of the Redbox Merger Proposal, the failure to return your proxy card and other shares not voted (whether by broker non-vote or otherwise) will not be considered present for the purpose of determining the presence of a quorum and will have the same effect as a vote “AGAINST” the Redbox Merger Proposal.
The enclosed document constitutes a prospectus relating to the shares of CSSE Class A Common Stock to be issued to Redbox Class A stockholders and holders of Opco LLC Units, as well as a proxy statement for Redbox to solicit proxies for its meeting of stockholders and an information statement for CSSE. It contains answers to frequently asked questions and a summary of the important terms of the Mergers, the Merger Agreement and related transactions, followed by a more detailed discussion.
The accompanying proxy statement/information statement/prospectus contains important information about Redbox, CSSE, the Merger Agreement, the Transactions and the Redbox Special Meeting. We encourage you to read the accompanying proxy statement/information statement/prospectus carefully before voting, including “Risk Factors” beginning on page 22.
Sincerely,
![[MISSING IMAGE: sg_galencsmith-bwlr.jpg]](https://cdn.kscope.io/bedd72f9fa2a52f9cc1ab2fad7a606fc-sg_galencsmith-bwlr.jpg){kind=small}
Galen C. Smith
Chief Executive Officer
Chief Executive Officer
Oakbrook Terrace, Illinois
July [•], 2022
July [•], 2022
Neither the Securities and Exchange Commission nor any state securities regulatory authority has approved or disapproved of the Mergers or the securities to be issued under the accompanying proxy statement/information statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement/information statement/prospectus. Any representation to the contrary is a criminal offense.
The date of the accompanying proxy statement/information statement/prospectus is [•], 2022, and it is first being mailed or otherwise delivered to Redbox Stockholders on or about [•], 2022.
Redbox Entertainment Inc.
1 Tower Lane
Suite 800
Oakbrook Terrace, IL 60181
(630) 756-8010
Suite 800
Oakbrook Terrace, IL 60181
(630) 756-8010
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 9, 2022
TO BE HELD ON AUGUST 9, 2022
To the Redbox Stockholders:
You are cordially invited to attend a special meeting of stockholders (the “Redbox Special Meeting”) of Redbox Entertainment Inc. (“Redbox”) on August 9, 2022, at 10:00 am Central Time, which will be held solely by means of remote communication in a virtual meeting format and conducted via live audio webcast due to the ongoing public health impact of the coronavirus pandemic and in consideration of the health and well-being of our stockholders and other meeting participants.
You can attend the Redbox Special Meeting via the Internet at www.virtualshareholdermeeting.com/RDBX2022SM by using the 16-digit control number that appears on your proxy card and the voting instruction form that accompanied your proxy materials. During this virtual meeting, you may ask questions and will be able to vote your shares electronically. You may submit a question in advance of the meeting at www.proxyvote.com after logging in with your control number found on your proxy card or voting instruction form. You will also have the ability to submit questions in advance of the Redbox Special Meeting via the meeting website. Redbox will respond to as many inquiries at the Redbox Special Meeting as time allows, although questions may be limited on a per stockholder basis due to time constraints. At the Redbox Special Meeting, you will be asked to consider and vote upon the following matters:
1.
A proposal to approve the Merger Agreement (“Merger Agreement”), dated as of May 10, 2022, by and among Redbox, Chicken Soup for the Soul Entertainment, Inc. (“CSSE”), RB First Merger Sub Inc., (“Merger Sub Inc.”), RB Second Merger Sub LLC (“Merger Sub LLC), Redwood Opco Merger Sub LLC (“Opco Merger Sub LLC”) and Redwood Intermediate LLC (“Opco LLC”) and transactions contemplated by the Merger Agreement, including the Mergers (as defined below), which provides for, among other things, (a) Merger Sub Inc. will merge (the “First Company Merger”) with and into Redbox, with Redbox continuing as the surviving entity (the “Surviving Corporation”); (b) simultaneously with the First Company Merger, Opco Merger Sub LLC will merge (the “Opco Merger”) with and into Opco LLC, with Opco LLC continuing as the surviving entity (“Opco Surviving Company”); and (c) immediately following the First Company Merger and Opco Merger, the Surviving Corporation will merge with and into Merger Sub LLC (the “Second Company Merger” and, together with the First Company Merger, the “Integrated Mergers,” and the Integrated Mergers together with the Opco Merger, the “Mergers”), with Merger Sub LLC continuing as the surviving entity, on the terms and subject to the conditions set forth in the Merger Agreement (the “Redbox Merger Proposal”); and
2.
A proposal to approve one or more adjournments of the Redbox Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the Redbox Merger Proposal if there are insufficient votes at the time of such adjournment to approve such proposal (the “Redbox Adjournment Proposal”).
Redbox will transact no other business at the Redbox Special Meeting or any adjournment or postponement thereof. Please refer to the attached proxy statement/information statement/prospectus for further information with respect to the business to be transacted at the Redbox Special Meeting.
Holders of record of shares of Redbox common stock at the close of business on July 11, 2022 are entitled to notice of, and to vote at, the Redbox Special Meeting and any adjournments or postponements of the Redbox Special Meeting.
The approval by the Redbox Stockholders of the Redbox Merger Proposal is a condition to the completion of the Mergers and the other transactions contemplated by the Merger Agreement. The approval of the Redbox Merger Proposal requires the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Class A common stock of Redbox (“Redbox Class A Common Stock”) and the Class B common stock of Redbox (“Redbox Class B Common Stock”, together with Redbox Class A Common Stock, “Redbox Common Stock”), voting together as a single class (the “Requisite Redbox Vote”). The Redbox Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of Redbox Common Stock, voting as a single class, cast by Redbox Stockholders at the Redbox Special Meeting, assuming a quorum is present at the Redbox Special Meeting. In this regard, it should be noted that under the terms of the Redbox Voting Agreement, the Redbox Majority Holders have agreed, subject to limited exceptions, to vote “FOR” the Redbox Merger Proposal. The Redbox Majority Holders own an aggregate number of shares constituting a majority of the outstanding Redbox Common Stocks as of the record date, and their affirmative vote will be sufficient to approve the Redbox Merger Proposal.
The Redbox Board of Directors unanimously recommends that Redbox Stockholders vote “FOR” the Redbox Merger Proposal and “FOR” the Redbox Adjournment Proposal. Please note that for purposes of the Redbox Merger Proposal, the failure to return your proxy card and other shares not voted (whether by broker non-vote or otherwise) will not be considered present for the purpose of determining the presence of a quorum and will have the same effect as a vote “AGAINST” the Redbox Merger Proposal.
Your vote is important. Whether or not you expect to attend the Redbox Special Meeting, we urge you to authorize a proxy to vote your shares as promptly as possible by: (1) accessing the Internet at www.proxyvote.com; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided so that your shares may be represented and voted at the Redbox Special Meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Redbox Merger Proposal and “FOR” the Redbox Adjournment Proposal. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder.
By Order of the Board of Directors,
Galen C. Smith
Chief Executive Officer
Chief Executive Officer
ADDITIONAL INFORMATION
Both CSSE and Redbox file annual, quarterly and current reports, proxy statements, and other business and financial information with the Securities and Exchange Commission (the “SEC”) electronically, and the SEC maintains a website located at www.sec.gov containing this information. You can also obtain these documents, free of charge, from CSSE at https://ir.cssentertainment.com/ and from Redbox at https://investors.redbox.com. The information contained on, or that may be accessed through, CSSE’s and Redbox’s websites is not incorporated by reference into, and is not a part of, this proxy statement/information statement/prospectus.
CSSE has filed a registration statement on Form S-4 with respect to the shares of CSSE Class A Common Stock to be issued in the Mergers or reserved for issuance in connection with the Mergers, of which this proxy statement/information statement/prospectus forms a part. This proxy statement/information statement/prospectus constitutes the prospectus of CSSE filed as part of the registration statement. This proxy statement/information statement/prospectus also constitutes an information statement of CSSE under Rule 14c-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This proxy statement/information statement/prospectus also constitutes a proxy statement of Redbox under Section 14(a) of the Exchange Act. As permitted by SEC rules, this proxy statement/information statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules, and exhibits, at the SEC’s website mentioned above. Statements contained in this proxy statement/information statement/prospectus as to the contents of any contract or other documents referred to in this proxy statement/information statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable agreement or other document filed as an exhibit to the registration statement.
This proxy statement/information statement/prospectus incorporates important business and financial information about CSSE from documents that are not attached to this proxy statement/information statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this proxy statement/information statement/prospectus, including copies of financial statements and management’s discussion and analysis, free of charge by requesting them in writing or by telephone at the following addresses and telephone numbers:
Chicken Soup for the Soul Entertainment, Inc.
Attn: Investor Relations
132 E. Putnam Ave.
Cos Cob, Connecticut 06807
(855) 398-0443
Attn: Investor Relations
132 E. Putnam Ave.
Cos Cob, Connecticut 06807
(855) 398-0443
If you would like to request any documents, please do so by August 2, 2022, which is five business days prior to the date of the Redbox Special Meeting, in order to receive them before the applicable meeting.
For a more detailed description of the information incorporated by reference into this proxy statement/information statement/prospectus and how you may obtain it, please see “Where You Can Find More Information.”
ABOUT THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS
This proxy statement/information statement/prospectus, which forms part of the registration statement on Form S-4 filed with the SEC by CSSE, constitutes a prospectus of CSSE under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of CSSE Class A Common Stock issuable to Redbox Class A stockholders and Opco LLC Unitholders in connection with the Mergers. This proxy statement/information statement/prospectus also registers the shares of CSSE Class A Common Stock that will be issuable upon exercise of currently outstanding Redbox public warrants and private warrants, which warrants shall remain outstanding after the Mergers but represent the right to purchase, upon exercise thereof, shares of CSSE Class A Common Stock (rather than shares of Redbox Class A Common Stock) based on the Exchange Ratio and correspondingly adjusted exercise prices. This proxy statement/information statement/prospectus also constitutes an information statement for CSSE and a proxy statement for Redbox under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This proxy statement/information statement/prospectus also constitutes a notice of action taken by the CSSE Principal Holder with respect to the approval of the CSSE Stock Issuance and a notice of meeting with respect to the Redbox Special Meeting.
You should rely only on the information contained in or incorporated by reference into this proxy statement/information statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/information statement/prospectus. This proxy statement/information statement/prospectus is dated [•], 2022, and you should assume that the information contained in this proxy statement/information statement/prospectus is accurate only as of such date. You should also assume that the information incorporated by reference into this proxy statement/information statement/prospectus is only accurate as of the date of such information. Neither the mailing of this proxy statement/information statement/prospectus to CSSE Stockholders or Redbox Stockholders nor the issuance by CSSE of shares of CSSE Class A Common Stock pursuant to the Merger Agreement will create any implication to the contrary.
This proxy statement/information statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/information statement/prospectus regarding CSSE has been provided by CSSE, and information contained in this proxy statement/information statement/prospectus regarding Redbox has been provided by Redbox.
GLOSSARY
The following terms have the following meanings in this proxy statement/information statement/prospectus:
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“2021 Opco LLC Agreement” means the Fourth Amended and Restated Limited Liability Company Agreement of Opco LLC, dated as of October 22, 2021, as amended prior to the date hereof, by and among Opco LLC and the Members (as such term is defined therein) from time to time party thereto;
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“Apollo” means Apollo Global Management, LLC and its subsidiaries;
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“Binding Commitment Letter” means the debt commitment letter by and between HPS and CSSE, dated as of May 10, 2022;
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“bylaws” means, with respect to CSSE, the Amended and Restated Bylaws of CSSE and, with respect to Redbox, the Amended and Restated Bylaws of Redbox, in each case as amended;
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“certificate of incorporation” means, with respect to CSSE, the Certificate of Incorporation of CSSE, dated as of March 4, 2016, and, with respect to Redbox, the Second Amended and Restated Certificate of Incorporation of Redbox, dated as of October 22, 2021, in each case as amended;
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“closing date” means the date on which the Effective Time occurs;
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“Confidentiality Agreement” means the Mutual Non-disclosure Agreement, dated April 17, 2020 (as amended on February 3, 2022), between CSSE and Redbox Automated Retail, LLC;
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“CSSE” means Chicken Soup for the Soul Entertainment, Inc., a Delaware corporation;
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“CSSE Board” means the board of directors of CSSE;
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“CSSE Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of CSSE, which votes collectively with the CSSE Class B Common Stock, as a single class, with each share of CSSE Class A Common Stock having one vote;
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“CSSE Class B Common Stock” means the Class B common stock, par value $0.0001 per share, of CSSE, which votes collectively with the CSSE Class A Common Stock, as a single class, with each share of CSSE Class B Common Stock having ten votes;
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“CSSE Common Stock” means the CSSE Class A Common Stock and CSSE Class B Common Stock, collectively;
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“CSSE Part(y)(ies)” means Chicken Soup for the Soul Entertainment, Inc., RB First Merger Sub Inc., RB Second Merger Sub LLC, and Redwood Opco Merger Sub LLC;
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“CSSE Stockholders” means the holders of CSSE Common Stock;
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“CSSP Written Consent” means the written consent executed on May 11, 2022 by the Principal CSSE Holders approving the CSSE Stock Issuance;
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“Duff & Phelps” means Kroll, LLC, operating through its Duff & Phelps Opinion Practice;
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“Effective Time” means the Effective Time of the First Company Merger;
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“End Date” means October 31, 2022;
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“Exchange Ratio” means the ratio of 0.087 shares of CSSE Class A Common Stock per issued and outstanding share of Redbox Class A Common Stock that will be issued to holders of eligible shares of Redbox Class A Common Stock in connection with the First Company Merger and the ratio of 0.087 CSSE Class A Shares per issued and outstanding Opco LLC Unit that will be issued to holders of eligible Opco LLC Units in connection with the Opco Merger;
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“Excluded Opco LLC Units” means Opco LLC Units owned, directly or indirectly, by Redbox or CSSE or any of their subsidiaries immediately prior to the Effective Time;
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“First Company Merger” means the merger of Merger Sub Inc. with and into Redbox pursuant to the Merger Agreement, with Redbox surviving the merger as the Surviving Corporation;
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“GAAP” means accounting principles generally accepted in the United States of America;
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“HPS” means HPS Investment Partners, LLC;
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“Integrated Mergers” means the First Company Merger and the Second Company Merger, collectively;
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“IRS” means the U.S. Internal Revenue Service;
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“Merger Agreement” means the Merger Agreement, dated as of May 10, 2022, by and among CSSE, Merger Sub Inc., Merger Sub LLC, Opco Merger Sub, Redbox, and Opco LLC, as amended from time to time;
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“Merger Consideration” means the shares of CSSE Class A Common Stock issuable to Redbox Stockholders and Opco LLC Unitholders pursuant to the Merger Agreement;
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“Merger Sub Inc.” means RB First Merger Sub Inc., a Delaware corporation and direct wholly-owned subsidiary of CSSE;
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“Merger Sub LLC” means RB Second Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of CSSE;
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“Mergers” means the Integrated Mergers and the Opco Merger, collectively;
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“Opco LLC” means Redwood Intermediate LLC, a majority-owned subsidiary of Redbox;
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“Opco LLC stapled unit” means each Opco LLC Unit, together with its corresponding share of Redbox Class B Common Stock;
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“Opco LLC Units” means the Common Unit (as defined in the 2021 Opco LLC Agreement) of Opco LLC;
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“Opco LLC Unitholders” means the holders of Opco LLC Units;
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“Opco Merger” means the merger of Opco Merger Sub with and into Opco LLC pursuant to the Merger Agreement, with Opco LLC surviving the merger as the Opco Surviving Company;
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“Opco Merger Sub” means Redwood Opco Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of CSSE;
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“Opco Surviving Company” means the surviving entity of the Opco Merger;
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“PJT Partners” means PJT Partners LP;
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“Principal CSSE Holders” means Chicken Soup for the Soul Productions, LLC and William J. Rouhana, Jr., which collectively hold the majority of the voting power of the CSSE Common Stock;
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“Redbox” means Redbox Entertainment Inc., a Delaware corporation;
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“Redbox Adjournment Proposal” means the proposal to approve one or more adjournments of the Redbox Special Meeting;
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“Redbox Board” means the board of directors of Redbox;
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“Redbox Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of Redbox;
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“Redbox Class B Common Stock” means the Class B common stock, par value $0.0001 per share, of Redbox;
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“Redbox Common Stock” means Redbox Class A Common Stock and Redbox Class B Common Stock, collectively;
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“Redbox Merger Proposal” means the proposal to approve the Mergers;
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“Redbox RSU Award” refers to each vested and unvested restricted stock unit of Redbox.
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“Redbox Special Meeting” means the meeting of the Redbox Stockholders in connection with the Mergers, as may be adjourned or postponed from time to time;
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“Redbox Stockholders” means the holders of Redbox Common Stock;
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“Redbox Termination Fee” means $15,000,000;
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“Redwood LP” means Redwood Holdco, LP, a Delaware limited partnership;
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“Requisite Redbox Vote” refers to the affirmative vote of the holders of a majority of the outstanding Redbox Common Stock, voting as a single class;
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“Second Company Merger” means the merger of Redbox with and into Merger Sub LLC pursuant to the Merger Agreement, with Merger Sub LLC surviving the merger as a direct wholly-owned subsidiary of CSSE;
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“Surviving Corporation” means Redbox as the surviving entity of the First Company Merger;
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“Tax Receivable Agreement” or “TRA” means the Tax Receivable Agreement, dated as of October 22, 2021, among Redbox, Redwood, and Opco LLC, as amended;
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“TRA Amendment” means that certain amendment to the Tax Receivable Agreement, dated as of May 10, 2022, by and among Redbox, Redwood LP, Opco LLC and CSSE; and
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“TRA Holder” means Redwood LP.
All currency amounts referenced in this proxy statement/information statement/prospectus are in U.S. dollars.
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QUESTIONS AND ANSWERS ABOUT THE MEETINGS
The following are some questions that you may have regarding the Mergers, the issuance of the shares of CSSE Class A Common Stock to Redbox Class A stockholders and Opco LLC Unitholders in connection with the Mergers, and other matters being considered at the Redbox Special Meeting and the answers to those questions. CSSE and Redbox urge you to carefully read the entirety of this proxy statement/information statement/prospectus, including the annexes hereto and the information incorporated by reference herein, because the information in this section does not provide all the information that might be important to you with respect to the Mergers, the issuance of shares of CSSE Class A Common Stock in connection with the Mergers, and the other matters being considered at the Redbox Special Meeting.
Q:
Why am I receiving this proxy statement/information statement/prospectus?
A:
You are receiving this proxy statement/information statement/prospectus because CSSE and Redbox have entered into the Merger Agreement, pursuant to which, among other things, on the terms and subject to the conditions included in the Merger Agreement, CSSE has agreed to acquire Redbox by means of (i) the merger of Merger Sub Inc. with and into Redbox, with Redbox surviving the merger as a direct wholly-owned subsidiary of CSSE, (ii) simultaneously with the First Company Merger, the merger of Opco Merger Sub LLC with and into Opco LLC, with Opco LLC surviving the merger as a direct and indirect wholly-owned subsidiary of CSSE, and (iii) immediately following the First Company Merger and the Opco Merger, the merger of the Surviving Corporation with and into Merger Sub LLC, with Merger Sub LLC surviving the merger as a direct wholly-owned subsidiary of CSSE. The Merger Agreement, which governs the terms of the Mergers, is attached to this proxy statement/information statement/prospectus as Annex A.
CSSE Stockholders
In order to complete the Mergers, CSSE Stockholders were required to approve the issuance of the shares of CSSE Class A Common Stock in the Mergers and other shares of CSSE Class A Common Stock reserved for issuance in connection with the Mergers (e.g. those issuable upon exercise of Redbox’s outstanding private and public warrants), in each case pursuant to the terms of the Merger Agreement (the “stock issuance” and such proposal, the “CSSE Stock Issuance proposal”). The approval of the stock issuance required the consent of holders of a majority of the votes entitled to be cast on the CSSE Stock Issuance Proposal by the holders of shares of CSSE Common Stock, voting as a single class. This approval was obtained through the execution and delivery by the CSSE Principal Holders of the CSSP Written Consent on May 11, 2022. For CSSE Stockholders, this proxy statement/information statement/prospectus contains important information about the CSSE Stock Issuance approval, the Mergers, the other Transactions in relation thereto, and the other actions taken in connection with the CSSP Written Consent. CSSE is not asking you for a proxy and you are not requested to send CSSE a proxy.
Redbox Stockholders
Also, in order to complete the Mergers, and in accordance with the Delaware General Corporation Law (the “DGCL”), Redbox Stockholders must approve and adopt the Merger Agreement and the transactions contemplated thereby (including the Integrated Mergers) (the “Redbox Merger Proposal”). The approval of the Redbox Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting as a single class.
For Redbox Stockholders, this proxy statement/information statement/prospectus, which you should read carefully, contains important information about the Mergers, the stock issuance and other matters being considered at the Redbox Special Meeting. Redbox is asking you for a proxy.
Q:
When and where is the Redbox Special Meeting?
A:
The Redbox Special Meeting will be held as a virtual only meeting conducted exclusively via live webcast at www.virtualshareholdermeeting.com/RDBX2022SM starting at 10:00 a.m. Central Time (with log-in beginning at 9:45 a.m. Central Time) on August 9, 2022. You will be able to attend the
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Redbox Special Meeting online and vote your shares electronically during the meeting by going to www.proxyvote.com and entering the 16-digit control number included on the proxy card or voting instruction form that you received. Because the Redbox Special Meeting is completely virtual and being conducted via live webcast, stockholders will not be able to attend the meeting in person.
Q:
If I am a Redbox Class A stockholder or an Opco LLC Unitholder, how will I receive the Merger Consideration to which I am entitled?
A:
If you are a holder of book-entry shares representing eligible shares of Redbox Class A Common Stock (“Redbox Class A book-entry shares”), the exchange agent will send you, as promptly as practicable (and in any event, within three business days) after the Effective Time, the Merger Consideration that you have the right to receive.
No interest will be paid or accrued on any amount payable for shares of Redbox Class A Common Stock or Opco LLC Units eligible to receive the Merger Consideration pursuant to the Merger Agreement.
For additional information on the exchange of Redbox Class A Common Stock and Opco LLC Units for the Merger Consideration (and on the corresponding cancellation of Redbox Class B Common Stock for no additional consideration), please see “The Merger Agreement — Exchange and Payment Procedures.”
Q:
What will holders of Redbox equity awards receive in the Mergers?
A:
At the Effective Time the vested and unvested restricted stock units of Redbox (each “Redbox RSU Award”) that are outstanding as of immediately prior to the Effective Time held by each holder will automatically be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio multiplied by the number of vested and unvested Redbox RSU Awards held by such holder immediately prior to the Effective Time. The shares of CSSE Class A Common Stock issued in exchange for the Redbox RSU Awards comprise part of the Merger Consideration. See “The Merger Agreement — Treatment of Redbox Equity-Based Awards.”
Q:
What happens to Redbox’s outstanding warrants?
A:
At the Effective Time the outstanding public warrants and private warrants of Redbox shall remain outstanding but become the right to receive upon valid exercise thereof shares of CSSE Class A Common Stock equal to the product of (A) the number of shares of Redbox Class A Common Stock subject to such warrant immediately prior to the Effective Time and (B) the Exchange Ratio, with a corresponding change to the exercise price of such warrant based on the Exchange Ratio. Accordingly, a holder would be required to surrender warrants to acquire 11.494 shares of Redbox Class A Common Stock in order to purchase one share of CSSE Class A Common Stock upon exercise of the warrants. Pursuant to Section 4.4 of the warrant agreements governing the Redbox warrants, the per-share exercise price for such warrants will become $132.18 per share of Company Class A Common Stock. This is calculated by dividing the current $11.50 per-share exercise price of such warrants by the 0.087 Exchange Ratio. It is anticipated that the Redbox public warrants will continue to be traded on Nasdaq under the current symbol or a new symbol to be publicly announced following the consummation of the Mergers. See “The Merger Agreement — Treatment of Redbox Warrants.”
Q:
Who will own CSSE immediately following the Mergers?
A:
CSSE and Redbox estimate that, immediately following the completion of the Mergers, the persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will own approximately 76.3% and 23.7%, respectively, of the then outstanding CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined). The CSSE Class A Common Stock and CSSE Class B Common Stock are identical except that each share of CSSE Class A Common Stock entitles the holder thereof to one vote and each share of CSSE Class B Common Stock entitles the holder thereof to ten votes on each matter submitted to the CSSE Stockholders for a vote. Each share of CSSE Class B Common Stock is exchangeable for one share of CSSE Class A Common Stock at any time at the election of the holder. Accordingly, immediately following the completion of the Mergers, it is anticipated
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that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will control approximately 93.8% and 6.2%, respectively, of the then total voting power represented by the CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined).
Q:
What will be the composition of the board of directors and management of CSSE following the completion of the Mergers?
A:
Upon completion of the Mergers, the current directors and executive officers of CSSE are expected to continue in their current positions, other than for changes as may be publicly announced by CSSE in the future in the normal course. See “The Mergers — Board of Directors and Management of CSSE Following Completion of the Mergers.”
Q:
How important is my vote?
A:
Your vote “FOR” the merger proposals to be presented at the Redbox Special Meeting is very important and you are encouraged to submit a proxy as soon as possible. The Mergers cannot be completed without, among other things, the approval of the Redbox Merger Proposal by Redbox Stockholders.
The approval of the Redbox Merger Proposal requires the affirmative vote of holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class. Accordingly, a Redbox Stockholder’s abstention from voting, a broker non-vote, or the failure of a Redbox Stockholder to attend the Redbox Special Meeting, virtually or by proxy, and vote will have the same effect as a vote “AGAINST” the Redbox Merger Proposal.
It should be noted that under the terms of the Redbox Voting Agreement, the Redbox Majority Holders have agreed, subject to limited exceptions, to vote “FOR” the Redbox Merger Proposal. The Redbox Majority Holders own an aggregate number of shares constituting a majority of the outstanding Redbox Common Stocks as of the record date, and their affirmative vote will be sufficient to approve the Redbox Merger Proposal.
Q:
How does the Redbox Board recommend that I vote?
A:
The Redbox Board unanimously recommends that Redbox Stockholders vote “FOR” the Redbox Merger Proposal. For additional information regarding how the Redbox Board recommends that Redbox Stockholders vote, see the section titled “The Mergers — Recommendation of the Redbox Board and Reasons for the Mergers.”
Q:
Will the shares of CSSE Class A Common Stock that I acquire in connection with the Mergers receive a dividend?
A:
After the closing of the Mergers, as a holder of CSSE Class A Common Stock, you will receive the same dividends on shares of CSSE Class A Common Stock, if and when declared, that all other holders of CSSE Class A Common Stock will receive for any dividend with a record date that occurs after the Effective Time. CSSE has not paid a regular dividend on the CSSE Class A Common Stock historically and has no present intention of instituting a regular dividend.
Q:
Will the shares of CSSE Class A Common Stock received at the time of completion of the Mergers be traded on an exchange?
A:
Yes. It is a condition to the consummation of the Mergers that the shares of CSSE Class A Common Stock issuable to Redbox Class A stockholders and Opco LLC Unitholders in connection with the Mergers be approved for listing on the Nasdaq Global Market, upon official notice of issuance. Redbox Class A Common Stock currently trades on the Nasdaq Global Market under the stock symbol “RDBX”. When the Mergers are completed, the Redbox Class A Common Stock will cease to be traded on Nasdaq and will be deregistered under the Exchange Act. The private and public warrants of Redbox will be converted into warrants of CSSE and listed on Nasdaq at Closing.
Q:
How will CSSE Stockholders be affected by the Mergers?
A:
Upon completion of the Mergers, each CSSE Stockholder will hold the same number of shares of CSSE Common Stock that such stockholder held immediately prior to completion of the Mergers. As
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a result of the Mergers, CSSE Stockholders will own shares in a larger company with more assets. However, because CSSE will be issuing additional shares of CSSE Class A Common Stock to Redbox Class A stockholders and Opco LLC Unitholders in exchange for their eligible shares of Redbox Class A Common Stock and eligible Opco LLC Units, respectively, in connection with the Mergers, each share of CSSE Common Stock issued and outstanding immediately prior to the Mergers will represent a smaller percentage of the aggregate number of shares of CSSE Common Stock issued and outstanding after the Mergers.
Q:
What are the material U.S. federal income tax consequences of the Integrated Mergers to Redbox Class A stockholders?
A:
Assuming that the Integrated Mergers are completed as currently contemplated, the Integrated Mergers, taken together, should qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Provided that the Integrated Mergers so qualify, a U.S. holder (as defined in “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers”) of Redbox Class A Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers.
It is not, however, a condition to Redbox’s obligation or CSSE’s obligation to complete the Integrated Mergers that the Integrated Mergers qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Moreover, neither CSSE nor Redbox intends to obtain a ruling from the IRS with respect to the tax consequences of the Integrated Mergers. Accordingly, there can be no assurance that the IRS would not challenge such position or that a court would not sustain such a challenge. If the IRS or a court determines that the Integrated Mergers, taken together, should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Redbox Class A Common Stock generally would recognize taxable gain or loss upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers.
Please see “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers” for a more detailed discussion of the U.S. federal income tax consequences of the Integrated Mergers to U.S. holders of Redbox Class A Common Stock. Each Redbox Class A stockholder is urged to consult with a tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Integrated Mergers to it.
Q:
When do CSSE and Redbox expect to complete the Mergers?
A:
CSSE and Redbox currently expect to complete the Mergers in the third quarter of 2022. However, neither CSSE nor Redbox can predict the actual date on which the Mergers will be completed, nor can the parties ensure that the Mergers will be completed, because completion is subject to conditions beyond the control of either company. Please see “The Mergers — Regulatory Approvals” and “The Merger Agreement — Conditions Precedent to the Mergers.”
Q:
What happens if the Mergers are not completed?
A:
If the Redbox Merger Proposal is not approved by the Redbox Stockholders or the Mergers are not completed for any other reason, Redbox Class A stockholders and Opco LLC Unitholders will not receive any payment for shares of Redbox Class A Common Stock or Opco LLC Units they own. Instead, Redbox will remain an independent public company, Redbox Class A Common Stock will continue to be listed and traded on the Nasdaq Global Market and registered under the Exchange Act and Redbox will continue to file periodic reports with the SEC.
Under specified circumstances, Redbox may be required to pay a termination fee upon or subsequent to termination of the Merger Agreement, as described in “The Merger Agreement — Termination Fees.”
An event of default under the Redbox Amended Credit Agreement will occur if (i) the Merger Agreement is terminated (and Redbox does not enter into an acceptable replacement agreement) or (ii) if the Mergers are not completed by October 31, 2022. The occurrence of such event of default could
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result in the outstanding indebtedness under such agreement becoming due and payable, and would allow HPS to exercise secured creditor remedies against Redbox in order to satisfy Redbox’s obligations under such agreement.
Q:
Who can vote at, and what are the record dates of, the Redbox Special Meeting?
A:
All Redbox Stockholders who hold shares of Redbox Common Stock of record at the close of business on July 11, 2022, the record date for the Redbox Special Meeting (the “Redbox record date”), are entitled to receive notice of and to vote at the Redbox Special Meeting.
Q:
How many votes may I cast?
A:
Each issued and outstanding share of Redbox Class A Common Stock and each issued and outstanding share of Redbox Class B Common Stock entitles its holder of record to one vote on each matter to be considered at the Redbox Special Meeting, and the Redbox Class A Common Stock and Redbox Class B Common Stock will vote together as a single class. The Redbox Stockholders of record on the Redbox record date are the only Redbox Stockholders that are entitled to receive notice of, and to vote at, the Redbox Special Meeting or any adjournments or postponements thereof.
Q:
What constitutes a quorum at the Redbox Special Meeting?
A:
In order for business to be conducted at the Redbox Special Meetings, a quorum must be present.
A quorum at the Redbox Special Meeting requires the presence of the holders of a majority of the total issued and outstanding shares of Redbox Common Stock entitled to vote, present virtually or represented by proxy, at the Redbox Special Meeting. A Redbox Stockholder will be considered present at the virtual meeting by logging into the Redbox Special Meeting website using his, her or its unique 16-digit control number or by appointing a proxy. If you submit a properly executed proxy card, or submit a proxy via the internet or by telephone, even if you do not vote for the proposal or vote to “abstain” in respect of the proposal, your shares of Redbox Common Stock will be counted for purposes of calculating whether a quorum is present for the transaction of business at the Redbox Special Meeting. Because it is expected that all of the matters to be voted on at the Redbox Special Meeting will be non-routine under Nasdaq rules, brokers will not have discretionary authority to vote on any such proposal; therefore, if you do not provide voting instructions to your broker, bank or other nominee, your shares will not count towards determining whether a quorum is present and your shares will not be voted on the Redbox Merger Proposal. In this regard, it should be noted that under the terms of the Redbox Voting Agreement, the Redbox Majority Holders have agreed, subject to limited exceptions, to vote “FOR” the Redbox Merger Proposal. The Redbox Majority Holders own an aggregate number of shares constituting a majority of the outstanding Redbox Common Stocks as of the record date, and their affirmative vote will be sufficient to approve the Redbox Merger Proposal.
Q:
What do I need to do now?
A:
After you have carefully read and considered the information contained in or incorporated by reference into this proxy statement/information statement/prospectus, please submit your proxy via the internet or by telephone in accordance with the instructions set forth on the applicable proxy card or voting instruction form you received, or complete, sign, date, and return the applicable proxy card or voting instruction form in the self-addressed, stamped envelope provided as soon as possible so that your shares will be represented and voted at the Redbox Special Meeting, as applicable.
For additional information on voting procedures, please see “Redbox Special Meeting.”
Q:
How will my proxy be voted?
A:
If you submit your proxy via the internet, by telephone, or by completing, signing, dating, and returning the applicable proxy card or voting instruction form, your proxy will be voted in accordance with your instructions. If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy card will be voted in accordance with the recommendation of the Redbox Board.
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For additional information on voting procedures, please see “Redbox Special Meeting.”
Q:
Who will count the votes?
A:
The votes at the Redbox Special Meeting will be tabulated and certified by the inspector of elections appointed by the Redbox Board.
Q:
How do I submit questions for the Redbox virtual special meeting?
A:
Stockholders attending the virtual meeting will be in a listen-only mode and will not be able to speak during the webcast. However, stockholders will be able to submit any questions by 10:59 p.m. Central Time on August 8, 2022 in advance of the Redbox Special Meeting by visiting www.proxyvote.com.
Q:
Who do I contact if I am encountering difficulties attending the Redbox Special Meeting online?
A:
If you encounter any difficulties during the check-in process or during the meeting, please call the Redbox Stockholder Meeting Support Line which can be found on the login screen and is available starting at 9:45 a.m. Central Time on the date of the Redbox Special Meeting and until the meeting has finished. Please give yourself sufficient time to log-in and ensure you can hear the streaming audio before the meeting starts.
Q:
What should I do if I receive more than one set of voting materials for the Redbox Special Meeting?
A:
You may receive more than one set of voting materials for the Redbox Special Meeting, including multiple copies of this proxy statement/information statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold your shares of Redbox Common Stock in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please submit each separate proxy or voting instruction form that you receive by following the instructions set forth in each separate proxy or voting instruction form. If you fail to submit each separate proxy or voting instruction form that you receive, not all of your shares will be voted.
Q:
What is the difference between holding shares of record and holding shares as a beneficial owner of shares of Redbox Common Stock?
A:
If your shares of Redbox Common Stock are registered directly in your name with Redbox’s registrar and transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares, to be the stockholder of record. If you are a stockholder of record, then this proxy statement/information statement/prospectus and your proxy card have been sent directly to you by Redbox.
If your shares of Redbox Common Stock are held through a bank, broker or other nominee, you are considered, with respect to those shares, the beneficial owner, and those shares are held in “street name” by your bank, broker or other nominee. In that case, this proxy statement/information statement/prospectus has been forwarded to you by your bank, broker or other nominee. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting, and you are also invited to attend the Redbox Special Meeting, as applicable. The proxy materials you received include the 16-digit control number that you will need to vote online during the Redbox Special Meeting.
Q:
If my shares of Redbox Common Stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote my shares for me?
A:
No. If your shares of Redbox Common Stock are held in the name of a bank, broker or other nominee, you will receive separate instructions from your bank, broker or other nominee describing how to vote your shares. The availability of internet or telephonic voting will depend on the nominee’s voting process. Please check with your bank, broker or other nominee and follow the voting procedures provided by your bank, broker or other nominee on your voting instruction form.
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You should instruct your bank, broker or other nominee how to vote your shares of Redbox Common Stock, as applicable. Under the rules applicable to broker-dealers, your bank, broker or other nominee does not have discretionary authority to vote your shares on any of the proposals scheduled to be voted on at the Redbox Special Meeting. A so-called “broker non-vote” results when banks, brokers and other nominees return a valid proxy but do not vote on a particular proposal because they do not have discretionary authority to vote on the matter and have not received specific voting instructions from the beneficial owner of such shares. Redbox does not expect any broker non-votes at the Redbox Special Meeting because the rules applicable to banks, brokers and other nominees only provide brokers with discretionary authority to vote on proposals that are considered routine, whereas each of the proposals to be presented at the Redbox Special Meeting are considered non-routine under Nasdaq rules. As a result, no broker will be permitted to vote your shares of Redbox Common Stock at the Redbox Special Meeting without receiving instructions. Failure to instruct your broker on how to vote your shares will have the same effect as a vote “AGAINST” the Redbox Merger Proposal and will have no effect on the Redbox Adjournment Proposal for Redbox Stockholders.
For additional information on voting procedures, please see “Redbox Special Meeting.”
Q:
What do I do if I am a Redbox Stockholder and I want to revoke my proxy?
A:
Redbox Stockholders of record may revoke or change a previously delivered proxy at any time before the meeting by (i) delivering another proxy with a later date to Redbox’s corporate secretary at Redbox’s principal executive offices at 1 Tower Lane, Suite 800, Oakbrook Terrace, Illinois, 60181 no later than 11:59 p.m. Central Time on August 8, 2022, (ii) voting by proxy again via the internet or by telephone, or (iii) delivering written notice of revocation of the proxy to Redbox’s corporate secretary at Redbox’s principal executive offices before the beginning of the Redbox Special Meeting no later than 11:59 p.m. Central Time on August 8, 2022.
All Redbox Stockholders may also revoke their proxies by attending the Redbox Special Meeting virtually, using his, her or its unique 16-digit control number and voting their shares online during the meeting. Note that attendance at the virtual Redbox Special Meeting will not, in and of itself, revoke a valid proxy that was previously delivered unless you give written notice of revocation to the Redbox corporate secretary before the proxy is exercised or unless you vote your shares online during the Redbox Special Meeting.
If a Redbox Stockholder holds shares through a bank, broker or other nominee, such stockholder may change or revoke his, her or its voting instructions before the Redbox Special Meeting by providing instructions again through the means specified on his, her or its voting instruction form (with most having the option to do so by internet, telephone or mail), which must be received before 11:59 p.m. Central Time on August 8, 2022.
For additional information, please see “Redbox Special Meeting.”
Q:
Are there any risks that I should consider as a Redbox Stockholder in deciding how to vote?
A:
Yes. You should read and carefully consider the risks set forth in “Risk Factors.” You also should read and carefully consider the risk factors of CSSE and Redbox contained in the documents that are incorporated by reference into this proxy statement/information statement/prospectus.
Q:
What happens if I sell or otherwise transfer my shares of Redbox Common Stock before the Redbox Special Meeting?
A:
The Redbox record date is prior to the date of the Redbox Special Meeting. If you sell or otherwise transfer your shares of Redbox Common Stock after the Redbox record date but before the Redbox Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares of Redbox Common Stock, you will retain your right to vote such shares at the Redbox Special Meeting but will otherwise transfer ownership of and the economic interest in your shares of Redbox Common Stock.
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Q:
What happens if I sell or otherwise transfer my shares of Redbox Class A Common Stock or Opco LLC Units before the completion of the Mergers?
A:
Only Redbox Class A stockholders and Opco LLC Unitholders as of immediately prior to the Effective Time will become entitled to receive the Merger Consideration. If you sell your shares of Redbox Class A Common Stock or Opco LLC Units prior to the completion of the Mergers, you will not be entitled to receive the Merger Consideration by virtue of the Mergers.
Q:
Do any of the officers or directors of Redbox have interests in the Mergers that may differ from or be in addition to my interests as a Redbox Stockholder?
A:
Yes. In considering the recommendation of the Redbox Board that Redbox Stockholders vote to approve the Redbox Merger Proposal and the Redbox Adjournment Proposal, Redbox Stockholders should be aware that, aside from their interests as stockholders of Redbox, some of Redbox’s directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of Redbox Stockholders generally. The Redbox Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the transactions contemplated therein, in approving the Mergers, and in recommending the approval of the Redbox Merger Proposal and the Redbox Adjournment Proposal.
For more information on these interests and quantification of certain of these interests, please see “The Mergers — Interests of Certain Redbox Directors and Executive Officers in the Mergers.”
Q:
If I am a CSSE Stockholder and I oppose the CSSE Stock Issuance or if I am a Redbox Stockholder and I oppose the Redbox Merger Proposal, but all such proposals are approved, what are my rights?
A:
Under Delaware law, CSSE Stockholders are not entitled to dissenters’ or appraisal rights in connection with the approval of the CSSE Stock Issuance pursuant to the CSSP Written Consent or the resulting issuance of shares of CSSE Class A Common Stock as contemplated by the Merger Agreement.
Because shares of Redbox Class A Common Stock are listed on the Nasdaq Global Market and holders of eligible shares of Redbox Class A Common Stock are not required to receive consideration other than shares of CSSE Class A Common Stock, which are listed on the Nasdaq Global Market, in the Mergers, Redbox Class A stockholders are not entitled to exercise dissenters’ or appraisal rights under Delaware law in connection with the Mergers. Holders of Redbox Class B Common Stock may be entitled to exercise dissenters’ or appraisal rights under Delaware law because shares of Redbox Class B Common Stock will be cancelled in connection with the Mergers with no consideration. However, holders of all of the Redbox Class B Common Stock and Opco LLC Unit have waived the right to exercise appraisal and dissenter rights in connection with the Mergers.
For more information regarding appraisal rights, please see “The Mergers — Appraisal Rights or Dissenters’ Rights”.
Q:
Where can I find voting results of the Redbox Special Meeting?
A:
CSSE and Redbox intend to announce the results of the Redbox Special Meetings and disclose the final voting results in Current Reports on Form 8-K that will be filed with the SEC following the Redbox Special Meetings. All reports that CSSE and Redbox file with the SEC are publicly available when filed. Please see “Where You Can Find More Information.”
Q:
How can I find more information about CSSE and Redbox?
A:
You can find more information about CSSE and Redbox from various sources described in “Where You Can Find More Information.”
Q:
Who can answer any questions I may have about the Redbox Special Meeting or the transactions contemplated by the Merger Agreement, including the Mergers and the CSSE Stock Issuance?
A:
If you have any questions about the Redbox Special Meeting, the Mergers, the CSSE Stock Issuance, the Redbox Merger Proposal and the Redbox Adjournment Proposal or how to submit your proxy, or if
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you need additional copies of this proxy statement/information statement/prospectus or documents incorporated by reference herein, the applicable enclosed proxy card or voting instructions, you should contact:
| |
For CSSE Stockholders:
Chicken Soup for the Soul Entertainment, Inc.
Attn: Investor Relations 132 E. Putnam Ave Cos Cob, Connecticut 06807 (855) 398-0443 |
| |
For Redbox Stockholders:
Redbox Entertainment Inc.
Attn: Investor Relations 1 Tower Lane, Suite 800 Oakbrook Terrace, Illinois 60181 (630) 756-8010 |
|
x
SUMMARY
The following summary highlights selected information described in more detail elsewhere in this proxy statement/information statement/prospectus and the documents incorporated by reference into this proxy statement/information statement/prospectus and may not contain all the information that may be important to you. To understand the Mergers and the matters approved under the CSSP Written Consent and to be voted on by the Redbox Stockholders at the Redbox Special Meeting more fully, and to obtain a more complete description of the legal terms of the Merger Agreement and the agreements related thereto, you should carefully read this entire document, including the annexes and the documents incorporated by reference herein and to which CSSE and Redbox refer you. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information.”
The Parties
Chicken Soup for the Soul Entertainment, Inc.
CSSE is a leading streaming video-on-demand (VOD) company. It operates Crackle Plus, a portfolio of ad-supported VOD streaming services (AVOD) and free ad-supported television linear channels (FAST), as well as Screen Media, Halcyon Television, the newly formed Chicken Soup for the Soul Television Group, and a number of affiliates that collectively enable CSSE to acquire, produce, co-produce and distribute content, including its original and exclusive content, all in support of its streaming services.
CSSE is a Delaware corporation formed on May 4, 2016, and its Class A common stock has been listed and traded on the Nasdaq Global Market under the ticker symbol “CSSE” since its initial public offering in 2016. CSSE’s principal executive office is located at 132 E. Putnam Ave., Cos Cob, Connecticut 06807 and its telephone number is (855) 398-0443. CSSE also maintains offices in New York City and Los Angeles.
Additional information about CSSE and its subsidiaries is included in documents incorporated by reference in this proxy statement/information statement/prospectus. See “Where You Can Find More Information” beginning on page 179.
RB First Merger Sub Inc.
Merger Sub Inc., a direct wholly-owned subsidiary of CSSE, is a Delaware corporation formed on May 6, 2022, for the purpose of effecting the First Company Merger. Under the Merger Agreement, in the First Company Merger, Merger Sub Inc. will merge with and into Redbox, with Redbox surviving the merger as the Surviving Corporation and a direct wholly-owned subsidiary of CSSE. Merger Sub Inc. has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable regulatory filings in connection with the Mergers.
Redwood Opco Merger Sub LLC
Opco Merger Sub LLC, a direct wholly-owned subsidiary of CSSE, is a Delaware limited liability company formed on May 6, 2022, for the purpose of effecting the Opco Merger. Under the Merger Agreement, in the Opco Merger, Opco Merger Sub LLC will merge with and into Opco LLC, with Opco LLC surviving the merger as the Surviving Corporation and a direct, partially-owned subsidiary of the Surviving Corporation and a direct partially-owned subsidiary of CSSE. Opco Merger Sub LLC has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable regulatory filings in connection with the Mergers.
RB Second Merger Sub LLC
Merger Sub LLC, a direct wholly-owned subsidiary of CSSE, is a Delaware limited liability company formed on May 6, 2022, for the purpose of effecting the Second Company Merger. Under the Merger Agreement, following the consummation of the First Company Merger and the Opco Merger, in the Second Company Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub
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LLC surviving the merger as the Surviving Corporation and a direct wholly-owned subsidiary of CSSE. Merger Sub LLC has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable regulatory filings in connection with the Mergers.
Redbox Entertainment Inc.
Redbox is an established brand and leading provider in the home entertainment market in the United States. Redbox is focused on providing its customers with the best value in entertainment and the most choice in how they consume it, through physical media and/or digital services. Redbox is undergoing a significant business expansion and digital transformation. Redbox has transitioned from a pure-play DVD rental company to a multi-faceted entertainment company that provides tremendous value and choice by offering DVD rentals as well as multiple digital products across a variety of content windows including transactional (TVOD), ad-supported (AVOD/FLTV) and being a distributor of original feature films with a growing library of content. Redbox currently conducts its business through two operating segments: (1) Legacy Business and (2) Digital Business.
Redbox is a Delaware corporation formed on July 24, 2020 under the name of Seaport Global Acquisition Corp., with the name changing to Redbox Entertainment Inc. on October 22, 2022, and its Redbox Class A Common Stock has been listed and traded on the Nasdaq Global Market under the ticker symbol “RDBX” since October 25, 2021. Redbox’s principal executive office is located at 1 Tower Lane, Suite 800, Oakbrook Terrace, Illinois 60181 and its phone number at that address is (630) 756-8010.
Additional information about Redbox and its subsidiaries is included in documents incorporated by reference into this proxy statement/information statement/prospectus. See “Where You Can Find More Information.”
Redwood Intermediate LLC
Opco LLC is a Delaware limited liability company and a partially-owned subsidiary of Redbox. Opco LLC was formed on August 8, 2016, with its principal office located at 1 Tower Lane, Suite 800, Oakbrook Terrace, Illinois 60181. Redbox is the managing member of Opco LLC with Redwood LP serving as the only other member.
The Mergers (See page 47)
Upon satisfaction or waiver of the conditions to closing in the Merger Agreement, at the Effective Time, Merger Sub Inc. will merge with and into Redbox, with Redbox surviving the First Company Merger as the Surviving Corporation and a direct wholly-owned subsidiary of CSSE. Simultaneously with the First Company Merger, Opco Merger Sub LLC will merge with and into Opco LLC, with Opco LLC surviving the Opco Merger as the Opco Surviving Company and indirect wholly-owned subsidiary of CSSE. Immediately following the Effective Time, Redbox, as the Surviving Corporation of the First Company Merger, will merge with and into Merger Sub LLC, with Merger Sub LLC surviving the Second Company Merger as a direct wholly-owned subsidiary of CSSE.
At the Effective Time, each eligible share of Redbox Class A Common Stock and each eligible Opco LLC Unit will be converted automatically into the right to receive 0.087 shares of CSSE Class A Common Stock, and each issued and outstanding share of Redbox Class B Common Stock will automatically be cancelled for no additional consideration. In addition, Redbox and CSSE will take, or cause to be taken, all actions necessary so that at the Effective Time, the Redbox RSU Awards will be treated as described in “The Merger Agreement — Treatment of Redbox Equity-Based Awards.” In addition, Redbox and CSSE will take, or cause to be taken, all actions necessary so that at the Effective Time, Redbox’s issued and outstanding public and private warrants will be treated as described in “The Merger Agreement — Treatment of Redbox Warrants.”
CSSE Stock Issuance
On May 11, 2022 and in accordance with the Merger Agreement, the Principal CSSE Holders approved the CSSE Stock Issuance by delivery of the CSSP Written Consent. Since the CSSE Stock Issuance will result
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in the issuance of shares of CSSE Class A Common Stock constituting 20% or more of the outstanding CSSE Class A Common Stock, Nasdaq rules require such issuance to be approved by the holders of the majority of outstanding CSSE Common Stock. The CSSP Written Consent constitutes such approval. As of May 11, 2022, the Principal CSSE Holders held the majority of the voting power of the outstanding CSSE Common Stock, with each share of CSSE Class A Common Stock having one vote and each share of CSSE Class B Common Stock having ten votes. Therefore, the delivery of the CSSP Written Consent satisfied the requirement in the Merger Agreement that the affirmative vote of the holders of at least a majority of the voting power of the CSSE Common Stock approve the CSSE Stock Issuance. No additional approval of the stockholders of CSSE is required to approve the CSSE Stock Issuance, Merger Agreement, the Mergers and the other Transactions. As a result, CSSE has not solicited and will not be soliciting your vote for the approval of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions. A copy of the CSSP Written Consent is attached to this proxy statement/information statement/prospectus as Annex B. For information on the recommendation of the CSSE Board, please see “The Mergers — Recommendation of the CSSE Board and Reasons for the Mergers.”
Redbox Special Meeting (See page 41)
The Redbox Special Meeting will be held via a virtual meeting conducted exclusively via live webcast starting at 10:00 a.m. Central Time (with log-in beginning at 9:45 a.m. Central Time) on August 9, 2022. Redbox Stockholders will be able to attend the Redbox Special Meeting online and vote shares electronically at the meeting by going to www.virtualshareholdermeeting.com/RDBX2022SM and entering the 16-digit control number included on the proxy card or voting instruction form you received. Because the Redbox Special Meeting is completely virtual and being conducted via live webcast, stockholders will not be able to attend the meeting in person. The Redbox Special Meeting is being held to consider and vote on the following proposal:
•
Redbox Merger Proposal: To approve and adopt the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/information statement/prospectus, and the transactions contemplated thereby (including the Integrated Mergers), pursuant to which, among other things, upon consummation of the Mergers (i) each eligible share of Redbox Class A Common Stock will be converted automatically into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio, (ii) each eligible Opco LLC Unit, other than the Excluded Opco LLC Units, will be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio, and (iii) each share of Redbox Class B Common Stock will automatically be cancelled for no additional consideration therefor.
The record date for the determination of the Redbox Stockholders entitled to receive notice of, and to vote at, the Redbox Special Meeting is the close of business on July 11, 2022. Only Redbox Stockholders who held Redbox Common Stock of record on the Redbox record date are entitled to vote at the Redbox Special Meeting or any adjournments or postponements of the Redbox Special Meeting. Each issued and outstanding share of Redbox Common Stock entitles its holder of record to one vote on each matter to be considered at the Redbox Special Meeting. Redbox Stockholders are entitled to vote on each proposal presented.
In order for business to be conducted at the Redbox Special Meeting, a quorum must be present. A quorum at the Redbox Special Meeting requires the presence of the holders of a majority of the total issued and outstanding shares of Redbox Common Stock entitled to vote, present virtually or represented by proxy, at the Redbox Special Meeting. Abstentions will be counted for purposes of determining whether there is a quorum at the Redbox Special Meeting. Shares represented by broker non-votes will not be considered present and entitled to vote at the Redbox Special Meeting for the purpose of determining the presence of a quorum. Because it is expected that all of the matters to be voted on at the Redbox Special Meeting will be non-routine under Nasdaq rules, brokers will not have discretionary authority to vote on any such proposal; therefore, if you do not provide voting instructions to your broker, bank or other nominee, your shares will not count towards determining whether a quorum is present and your shares will not be voted at the Redbox Special Meeting. If a quorum is not present or represented or if there are not sufficient
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votes for the approval of the Redbox Merger Proposal, Redbox expects that the Redbox Special Meeting will be adjourned by the chairman of the Redbox Special Meeting to solicit additional proxies. At any subsequent reconvening of the Redbox Special Meeting at which a quorum shall be present or represented, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the Redbox Special Meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent meeting.
The approval of the Redbox Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class. Accordingly, a Redbox Stockholder’s abstention from voting, a broker non-vote or the failure of a Redbox Stockholder to attend the Redbox Special Meeting, virtually or by proxy, and vote will have the same effect as a vote “AGAINST” the Redbox Merger Proposal.
As of July 7, 2022, there were 13,685,098 shares of Redbox Class A Common Stock and 32,770,000 shares of Redbox Class B Common Stock issued and outstanding, held by approximately 26,235 beneficial holders. Each issued and outstanding share of Redbox Common Stock as of the record date entitles its holder of record to one vote on each matter to be considered at the Redbox Special Meeting. Redbox Stockholders are entitled to vote on each proposal presented. In this regard, it should be noted that under the terms of the Redbox Voting Agreement, the Redbox Majority Holders have agreed, subject to limited exceptions, to vote “FOR” the Redbox Merger Proposal. The Redbox Majority Holders own an aggregate number of shares constituting a majority of the outstanding Redbox Common Stock as of the record date, and their affirmative vote will be sufficient to approve the Redbox Merger Proposal.
The Redbox Board unanimously recommends that the Redbox Stockholders vote “FOR” the Redbox Merger Proposal.
For additional information on the recommendation of the Redbox Board, please see “The Mergers — Recommendation of the Redbox Board and Reasons for the Mergers.”
Voting and Support Agreement
Redbox, AP VIII Aspen Holdings, L.P., a Delaware limited partnership (“Aspen”), and Redwood Holdco, LP, a Delaware limited partnership (“Redwood LP”) (each of Aspen and Redwood LP are an “Aspen Stockholder”, and collectively, the “Aspen Stockholders”), and Seaport Global SPAC, LLC, a Delaware limited liability company (“Seaport”, and collectively with the Aspen Stockholders, the “Redbox Majority Stockholders”) entered into a voting and support agreement on April 15, 2022 (“Redbox Voting Agreement”). Redbox has separately agreed with CSSE that it will not permit any amendment, waiver or modification to the Redbox Voting Agreement that would delay or impair obtaining the Requisite Redbox Vote without CSSE’s prior consent. The Redbox Majority Stockholders collectively hold an aggregate of 6,119,738 shares, or 44.7%, of Redbox Class A Common Stock, and 32,770,000 shares, or 100% of Redbox Class B Common Stock, which represent approximately 83.7% of the total outstanding shares of Redbox Common Stock as of July 8, 2022. The Redbox Class A Common Stock and Redbox Class B Common Stock vote together as a single class, and accordingly, the Redbox Majority Stockholders own shares of Redbox Common Stock constituting approximately 83.7% of the voting power of Redbox, which is more than the majority necessary to approve matters submitted to the stockholders of Redbox for a vote. Pursuant to the Redbox Voting Agreement, the Redbox Majority Holders have agreed, among other things, to vote their shares of Redbox (i) in favor of any strategic transaction approved and recommended by the Redbox Board, subject to certain terms and conditions, which would include the Integrated Mergers, (ii) in opposition to any transaction involving Redbox that has not been approved and recommended by the Redbox Board, and (iii) in favor of any directors that are proposed or nominated to the Redbox Board by Redbox at any annual meeting of Redbox. Prior to consummation of the Mergers, Redbox may consider and agree, subject to the provisions of existing agreements, to release Seaport or other security holders of their transfer restrictions with respect to the common stock or warrants of Redbox held by such security holders. Any such release could have an adverse impact on the trading price for such securities. A copy of the Redbox Voting Agreement, is attached to this proxy statement/information statement/prospectus as Annex C.
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Sponsor Lock-Up Agreement
Concurrently with the execution of Redbox’s business combination with Seaport Global Acquisition Corp. (the “Business Combination”) on May 16, 2021, Redbox and Seaport entered into a lock-up agreement (the “Sponsor Lock-Up Agreement”), pursuant to which Seaport, with respect to the Class A Common Stock and private placement warrants of Seaport Global Acquisition Corp. (the “Restricted Securities”) held by Seaport agreed to, among other things, be subject to a lock-up period which will last from the closing of the Business Combination until the earlier of (i) the first anniversary of the closing of the Business Combination, (ii) the date after the closing of the Business Combination on which Redbox completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Redbox’s shareholders having the right to exchange their Redbox Class A Common Stock for cash, securities or other property, and (iii) the trading day, if any, on which the last sale price of the Redbox Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the closing of the Business Combination (the “Sponsor Lock-Up Period”). During the Sponsor Lock-Up Period, Seaport may not transfer any Restricted Securities or engage in any short sales or other hedging or derivative transactions, subject to certain limited exceptions.
The consummation of the Mergers will result in termination of the Sponsor Lock-Up Period, upon which time Seaport will be released of its transfer restrictions with respect to the Restricted Securities held by Seaport. Such release could have an adverse impact on the trading price for such securities. Further, prior to consummation of the Mergers, Redbox may consider and agree to release Seaport or other security holders of their transfer restrictions with respect to the common stock or warrants of Redbox held by such security holders. Any such release could have an adverse impact on the trading price for such securities.
The foregoing description of the Sponsor Lock-Up Agreement does not purport to be complete and is qualified in its entirety by the full text of the Sponsor Lock-Up Agreement, a copy of which is filed as exhibit 10.2 to Redbox’s Current Report on Form 8-K filed on May 17, 2021.
Warrant Exercise Agreement
On June 17, 2022, Redbox entered into a Warrant Exercise Letter Agreement (the “Warrant Exercise Agreement”) with Seaport, pursuant to which Seaport and Redbox agreed that:
1.
Seaport would exercise, or cause its affiliate to exercise, an aggregate of 1,000,000 private placement warrants, which Seaport and certain of its affiliates purchased pursuant to that certain Private Placement Warrant Agreement, dated November 27, 2020 (the “Private Placement Warrants”), on a cash basis. The exercise price for each warrant is $11.50 per share. Redbox would receive $11.5 million in cash from the exercise of the warrants by Seaport. Redbox would not receive any proceeds from the sale of the shares underlying such warrants.
2.
Redbox would waive any applicable transfer restrictions in any contract to which Redbox and Seaport are parties, including the Redbox Voting Agreement and that certain Sponsor Lock-Up Agreement dated as of May 16, 2021, to the extent necessary to permit (i) the sale of the 1,005,197 Private Placement Warrants by Seaport to certain investors to whom Seaport previously transferred such Private Placement Warrants and the sale by such transferees of such Private Placement Warrants, and (ii) to permit the sale by Seaport and/or its affiliates of the 1,000,000 shares of Redbox Class A Common Stock to be received by Seaport upon the exercise of the Private Placement Warrants described in paragraph 1 above.
As of July 8, 2022, Seaport had exercised the 1,000,000 Private Placement Warrants pursuant to paragraph 1 above and sold the resulting 1,000,000 shares of Redbox Class A Common Stock pursuant to paragraph 2 above.
Further, prior to consummation of the Mergers, Redbox may consider and agree to release Seaport or other security holders of their transfer restrictions with respect to the common stock or warrants of Redbox held by such security holders. Any such release could have an adverse impact on the trading price for such securities.
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The foregoing description of the Warrant Exercise Agreement does not purport to be complete and is qualified in its entirety by the full text of the Warrant Exercise Agreement, a copy of which is filed as exhibit 2.1 to Redbox’s Current Report on Form 8-K filed on June 17, 2022.
Opinion of CSSE’s Financial Advisor (See page 74 and Annex D)
Pursuant to an engagement letter, CSSE retained Guggenheim Securities, LLC (“Guggenheim Securities”) as its financial advisor in connection with the proposed Mergers.
On May 10, 2022, Guggenheim Securities delivered its written opinion to the CSSE Board to the effect that, as of May 10, 2022 and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Exchange Ratio was fair, from a financial point of view, to CSSE.
The full text of the written opinion of Guggenheim Securities, dated May 10, 2022, which sets forth the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement/information statement/prospectus as Annex D and is incorporated herein by reference. The summary of Guggenheim Securities’ opinion contained in this proxy statement/information statement/prospectus is qualified in its entirety by reference to the full text of Guggenheim Securities’ written opinion. CSSE’s Stockholders are encouraged to read the Guggenheim opinion carefully in its entirety. Guggenheim Securities’ opinion was addressed to the CSSE Board (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed Merger, was directed only to the Exchange Ratio in the proposed Merger and did not address any other aspect of the proposed Merger. Such opinion does not constitute advice or a recommendation to any holder of CSSE common stock, RDBX common stock or Opco LLC Units as to how to vote or act in connection with the Mergers or otherwise.
For more information, see the section titled “The Mergers — Opinion of CSSE’s Financial Advisor” beginning on page 74 of this proxy statement/information statement/prospectus and the full text of the written opinion of Guggenheim Securities is attached as Annex D to this proxy statement/information statement/prospectus.
Opinion of Redbox’s Financial Advisor (See page 84 and Annex E)
On April 20, 2022, Redbox engaged Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, to serve as an independent financial advisor to the Redbox Board (solely in their capacity as members of Redbox Board) specifically to provide an opinion (the “Opinion”) as of the date of the Opinion as to the fairness, from a financial point of view, to the public stockholders of Redbox of the consideration to be received by the public stockholders of Redbox in the Mergers. On May 10, 2022, Duff & Phelps delivered its Opinion, dated May 10, 2022, to the Redbox Board that, as of the date of the Opinion and subject to and based on the assumptions made therein, the consideration to be received by the public stockholders of Redbox was fair, from a financial point of view, to the public stockholders of Redbox.
This Opinion only speaks to the Merger Consideration received by Redbox’s public stockholders, the holders of the Redbox Class A Common Stock. This Opinion does not address, from financial point of view, consideration received by any holder of Redbox Class B Common Stock or any Redbox warrant holder. The Opinion also does not address any other aspects of the Mergers and was not intended to, and does not, constitute advice or a recommendation as to how the Redbox Board or the Redbox Stockholders should vote at any meeting related to the Mergers or to take any other action with respect to the Mergers. For more information, see the section titled “The Mergers — Opinion of Redbox’s Financial Advisor” beginning on page 84 of this proxy statement/information statement/prospectus and the full text of the written opinion of Duff & Phelps attached as Annex E to this proxy statement/information statement/prospectus.
Credit Agreements
Under that certain credit agreement, dated as of October 20, 2017 (as amended through the Sixth Incremental Assumption and Amendment Agreement, dated April 15, 2022 (the “Sixth Amendment”), the “Redbox Amended Credit Agreement”), by and among Opco LLC and certain of its subsidiaries, HPS Investment Partners, LLC (“HPS”), as administrative agent and collateral agent, and the lenders party
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thereto, $50.0 million in Sixth Amendment Incremental Revolving Loans (as defined in the Redbox Amended Credit Agreement) was made available to Redbox’s subsidiary, Redbox Automated Retail, LLC, a Delaware limited liability company (“Redbox Automated”), subject to certain conditions. At entry into the Sixth Amendment, borrowings of Sixth Amendment Incremental Revolving Loans were limited to no more than $15.0 million in the aggregate.
Entry into the Merger Agreement permitted Redbox Automated to draw additional Sixth Amendment Incremental Revolving Loans (subject to any restrictions on incurring such debt as set forth in the Merger Agreement). An event of default under the Redbox Amended Credit Agreement will occur if (i) the Merger Agreement is terminated (and is not replaced by another Acceptable Purchase Agreement (as defined in the Redbox Amended Credit Agreement)) or (ii) the consummation of the Mergers does not occur on or before October 31, 2022 (or such later date as HPS may agree).
CSSE’s obligation to consummate the Mergers is subject to HPS and its affiliates executing and delivering a definitive credit agreement that amends or refinances the obligations under the Redbox Amended Credit Agreement and provides for certain other financing. In connection with the execution of the Merger Agreement, CSSE and HPS executed a commitment letter pursuant to which, at the Effective Time, CSSE would obtain from HPS and its affiliates (i) a term loan facility consisting of the conversion, and assumption by CSSE, of all “Senior Obligations” under (and as defined in) the Redbox Amended Credit Agreement (other than any outstanding Sixth Amendment Incremental Revolving Loans under the Redbox Amended Credit Agreement) and (ii) an $80 million revolving credit facility (with any outstanding the Sixth Amendment Incremental Revolving Loans under the Redbox Amended Credit Agreement being deemed, and assumed by CSSE as, revolving loans thereunder). In the proposed New Credit Agreement with HPS, the Redbox Legacy Business is defined as the “Redbox Traditional Business” and includes Redbox’s kiosk rental business and service business. Further, at closing date of such facility, HPS will receive warrants issued by CSSE exercisable for the number of shares of CSSE Class A common stock representing 4.50% of the total voting and economic equity interests of CSSE for an exercise price of $.0001 per share, which warrants may be exercised from and after the closing date of such facility for a period of five (5) years. A copy of the proposed form of credit agreement between CSSE and HPS is attached hereto as Annex F (the “New Credit Agreement”) and is incorporated by reference.
Interests of Certain Redbox Directors and Executive Officers in the Mergers (See page 99)
In considering the recommendation of the Redbox Board that Redbox Stockholders vote to approve the Redbox Merger Proposal and the Redbox Adjournment Proposal, Redbox Stockholders should be aware that, aside from their interests as stockholders of Redbox, Redbox’s directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of Redbox Stockholders generally. These interests are described in more detail in the section titled “The Mergers — Interests of Certain Redbox Directors and Executive Officers in the Mergers” beginning on page 99. The Redbox Board was aware of and considered these potential interests, among other matters, in evaluating and negotiating the Merger Agreement and the transactions contemplated therein, in approving the Mergers and in recommending the approval of the Redbox Merger Proposal and the Redbox Adjournment Proposal. See “The Mergers — Background of the Mergers” and “The Mergers — Recommendation of the Redbox Board and Reasons for the Mergers.” Redbox Stockholders should take these interests into account in deciding whether to vote “FOR” the Redbox Merger Proposal. These interests are described in more detail below, and certain of them are quantified in the narrative and the tables below.
Board of Directors and Management of CSSE Following Completion of the Mergers (See page 103)
Upon completion of the Mergers, the current directors and executive officers of CSSE are expected to continue in their current positions, other than for changes CSSE may publicly announce in the future in the normal course. See “The Mergers — Board of Directors and Management of CSSE Following Completion of the Mergers.”
Appraisal Rights or Dissenters’ Rights (See page 107)
Under Delaware law, CSSE Stockholders are not entitled to dissenters’ or appraisal rights in connection with the approval of the CSSE Stock Issuance pursuant to the CSSP Written Consent or the resulting issuance of shares of CSSE Class A Common Stock as contemplated by the Merger Agreement.
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Because shares of Redbox Class A Common Stock are listed on the Nasdaq Global Market and holders of eligible shares of Redbox Class A Common Stock are not required to receive consideration other than shares of CSSE Class A Common Stock, which are listed on the Nasdaq Global Market, in the Mergers, Redbox Class A stockholders are not entitled to exercise dissenters’ or appraisal rights under Delaware law in connection with the Mergers.
Holders of Redbox Class B Common Stock may be entitled to exercise dissenters’ or appraisal rights under Delaware law because shares of Redbox Class B Common Stock will be cancelled in connection with the Mergers with no consideration. However, holders of all of the Redbox Class B Common Stock and Opco LLC Unit have waived the right to exercise appraisal and dissenter rights in connection with the Mergers.
Material U.S. Federal Income Tax Consequences of the Integrated Mergers (See page 103)
Assuming that the Integrated Mergers are completed as currently contemplated, the Integrated Mergers, taken together, should qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Provided that the Integrated Mergers so qualify, a U.S. holder (as defined in “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers”) of Redbox Class A Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers.
It is not, however, a condition to Redbox’s obligation or CSSE’s obligation to complete the Integrated Mergers that the Integrated Mergers qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Moreover, neither CSSE nor Redbox intends to obtain a ruling from the IRS with respect to the tax consequences of the Integrated Mergers. Accordingly, there can be no assurance that the IRS would not challenge such position or that a court would not sustain such a challenge. If the IRS or a court determines that the Integrated Mergers, taken together, should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Redbox Class A Common Stock generally would recognize taxable gain or loss upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers.
Please see “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers” for a more detailed discussion of the U.S. federal income tax consequences of the Integrated Mergers to U.S. holders of Redbox Class A Common Stock. Each Redbox Class A stockholder is urged to consult with a tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Integrated Mergers to it.
Accounting Treatment of the Mergers (See page 106)
CSSE prepares its financial statements in accordance with GAAP. The Mergers will be accounted for as a business combination, using the acquisition method of accounting with CSSE being considered the acquirer of Redbox for accounting purposes. This means that CSSE will record all assets acquired and liabilities assumed from Redbox at their acquisition date fair values at the closing date of the Mergers.
Regulatory Approvals (See page 106)
Antitrust Clearance
The completion of the Mergers may be subject to antitrust review in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder, if certain HSR transaction size thresholds are triggered, the Mergers cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated.
At any time before or after consummation of the Mergers, notwithstanding any prior expiration or termination of the applicable waiting period under the HSR Act, the FTC, the DOJ or any state could take
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such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Mergers or seeking the divestiture of substantial assets of CSSE or Redbox or their respective subsidiaries. Private parties may also seek to take legal action under antitrust laws under certain circumstances.
Securities and Exchange Commission
In connection with the CSSE Stock Issuance, CSSE has filed a registration statement on Form S-4 with the SEC under the Securities Act, of which this proxy statement/information statement/prospectus forms a part, pursuant to which the issuance of shares of CSSE Class A Common Stock issuable upon the Effective Time will be registered with the SEC.
Nasdaq
In addition, the completion of the Mergers is subject to approval for listing of the shares of CSSE Class A Common Stock to be issued as Merger Consideration and the other shares of CSSE Class A Common Stock reserved for issuance in connection with the Mergers on the Nasdaq Global Market, subject to official notice of issuance.
Treatment of Redbox Equity-Based Awards (See page 110)
At the Effective Time, the vested and unvested restricted stock units of Redbox (each “Redbox RSU Award”) that are outstanding as of immediately prior to the Effective Time held by each holder will automatically be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio multiplied by the number of Redbox RSU Awards held by such holder immediately prior to the Effective Time. See “The Merger Agreement — Treatment of Redbox Equity-Based Awards.”
Treatment of Redbox Warrants (see page 110)
At the Effective Time, the outstanding public warrants (Nasdaq Symbol: RDBXW) and private warrants of Redbox will remain outstanding but become the right to receive upon valid exercise thereof shares of CSSE Class A Common Stock equal to the product of (A) the number of shares of Redbox Class A Common Stock subject to such warrant immediately prior to the Effective Time and (B) the Exchange Ratio, with a corresponding change to the exercise price of such warrant based on the Exchange Ratio. Accordingly, a holder would be required to surrender warrants to acquire 11.494 shares of Redbox Class A Common Stock in order to purchase one share of CSSE Class A Common Stock upon exercise of the warrants. Pursuant to Section 4.4 of the warrant agreements governing the Redbox warrants, the per-share exercise price for such warrants will become $132.18 per share of Company Class A Common Stock. This is calculated by dividing the current $11.50 per-share exercise price of such warrants by the 0.087 Exchange Ratio. See “The Merger Agreement — Treatment of Redbox Warrants.”
Listing of Shares CSSE Class A Common Stock; Delisting and Deregistration of Redbox Class A Common Stock (See page 107)
It is a condition to the consummation of the Mergers that the shares of CSSE Class A Common Stock issuable to Redbox Class A stockholders and Opco LLC Unitholders in connection with the Mergers and the other shares of CSSE Class A Common Stock issuable upon exercise of Redbox’s public and private warrants be approved for listing on the Nasdaq Global Market, subject to official notice of issuance.
Shares of Redbox Class A Common Stock currently trade on the Nasdaq Global Market under the stock symbol “RDBX.” When the Mergers are completed, the Redbox Class A Common Stock will cease to exist and will no longer be traded on Nasdaq and will be deregistered under the Exchange Act.
It is anticipated that the Redbox public warrants will continue to be listed on Nasdaq under the symbol “RDBXW” or will be listed under a new symbol to be publicly announced.
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No Solicitation; Recommendations (See page 117)
Subject to certain exceptions, the Merger Agreement limits Redbox’s ability to solicit, knowingly encourage or facilitate or discuss or negotiate with any person, or furnish any nonpublic information or data to any person, with respect to a Takeover Proposal (as defined herein). For a more detailed discussion on Redbox and the ability of its board of directors to consider other proposals, please see “The Merger Agreement — No Solicitation; Recommendations.”
Conditions Precedent to the Mergers (See page 122)
The obligations of the parties to consummate the Mergers are subject to the satisfaction at or prior to the Effective Time of the following mutual conditions:
•
the Merger Agreement shall have been duly adopted by the Requisite Redbox Vote;
•
any waiting period (and any extension thereof) under the HSR Act relating to the Mergers shall have expired or been terminated and all required filings shall have been made and all required approvals have been obtained under applicable antitrust laws;
•
no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree or other legal restraint or prohibition issued by any governmental entity having jurisdiction over any party shall be in effect, and no law shall have been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that prohibits or makes illegal consummation of the Mergers, the CSSE Stock Issuance or the other transactions contemplated by the Merger Agreement;
•
the shares of CSSE Class A Common Stock to be issued in the Mergers, and the CSSE Class A Common Stock to be reserved for issuance in connection with the Mergers (i.e., those shares issuable upon exercise of Redbox’s public and private warrants), shall have been approved for listing on the Nasdaq Global Market, subject to official notice of issuance;
•
the registration statement on Form S-4, of which this proxy statement/information statement/prospectus forms a part, shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened and the Form S-4 shall not have been withdrawn; and
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HPS and its affiliates shall have executed and delivered to CSSE definitive financing agreements consistent with the form credit agreement made part of the debt commitment letter by and between HPS and CSSE, dated as of May 10, 2022 (the “Binding Commitment Letter”).
The obligations of CSSE, Merger Sub Inc., Merger Sub LLC and Opco Merger Sub LLC to effect the Mergers are also subject to the satisfaction, or waiver by CSSE, at or prior to the Effective Time of the following additional conditions:
•
the accuracy of the representations and warranties of Redbox and Opco LLC set forth in the Merger Agreement, subject to the materiality standards set forth in the Merger Agreement, as of the date of the Merger Agreement and as of the closing date (except to the extent such representations and warranties speak as of a specified date, in which case such representations and warranties will be true and correct as of such date), and CSSE’s receipt of an officer’s certificate from Redbox to that effect;
•
performance of, or compliance with, in all material respects, all covenants and obligations required to be performed or complied with pursuant to the Merger Agreement by Redbox and Opco LLC at or prior to the Effective Time, and CSSE’s receipt of an officer’s certificate from Redbox to that effect; and
•
since the date of the Merger Agreement, there shall not have been any Material Adverse Effect (as defined in the Merger Agreement) with respect to Redbox or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to Redbox.
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The obligations of Redbox and Opco LLC to effect the Mergers are also subject to the satisfaction, or waiver by Redbox, at or prior to the Effective Time of the following additional conditions:
•
the accuracy of the representations and warranties of CSSE, Merger Sub Inc., Merger Sub LLC and Opco Merger Sub LLC set forth in the Merger Agreement, subject to the materiality standards set forth in the Merger Agreement, as of the date of the Merger Agreement and as of the closing date (except to the extent such representations and warranties speak as of a specified date, in which case such representations and warranties will be true and correct as of such date), and Redbox’s receipt of an officer’s certificate from CSSE to that effect;
•
performance of, or compliance with, in all material respects, all covenants and obligations required to be performed or complied with pursuant to the Merger Agreement by CSSE, Merger Sub Inc., Merger Sub LLC and Opco Merger Sub LLC at or prior to the Effective Time, and Redbox’s receipt of an officer’s certificate from CSSE to that effect; and
•
since the date of the Merger Agreement, there shall not have been any Material Adverse Effect (as defined in the Merger Agreement) with respect to CSSE or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to CSSE.
As further discussed under the section titled “Risk Factors,” neither CSSE nor Redbox can be certain when, or if, the conditions to the Mergers will be satisfied or waived, or that the Mergers will be completed.
Termination of the Merger Agreement (See page 123)
CSSE and Redbox may mutually agree in writing to terminate the Merger Agreement before consummating the Mergers, notwithstanding the existing approval of the CSSE Stock Issuance by the Principal CSSE Holders or any approval of the Redbox Merger Proposal by the Redbox Stockholders.
In addition, either CSSE or Redbox may terminate the Merger Agreement if:
•
the Mergers have not been consummated on or before October 31, 2022 (the “End Date”); provided that the right to terminate the Merger Agreement as described in this bullet shall not be available to any party whose failure to fulfill in any material respect any of its obligations under the Merger Agreement has been the proximate cause of, or proximately resulted in, the failure of the Mergers to be consummated by the End Date; and provided further that the End Date may be extended further initially to January 31, 2023 and thereafter to April 30, 2023 if certain conditions outside the control of the parties have not been satisfied;
•
any court of competent jurisdiction or other governmental entity shall have issued any judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the Merger Agreement, and such judgment, order, injunction, rule, decree or other action shall have become final and nonappealable; provided, that the party seeking to terminate the Merger Agreement as described in this bullet shall have used its reasonable best efforts to contest, appeal and remove such judgment, order, injunction, rule, decree, ruling or other action in accordance with the terms of the Merger Agreement;
•
the approval of the Redbox Merger Proposal by the Redbox Stockholders shall not have been obtained at the Redbox Special Meeting duly convened for such purpose or at any adjournment or postponement thereof at which a vote on the Redbox Merger Proposal was taken; or
•
the other party has breached any representation, warranty, covenant or agreement contained in the Merger Agreement such that the conditions to closing the Mergers would not be satisfied, and such breach is incapable of being cured by the End Date or has not been cured by the earlier of the End Date and 30 days after the giving of written notice to the breaching party of such breach or failure (a “terminable breach”); provided, that the terminating party is not then in terminable breach of any covenant or agreement contained in the Merger Agreement.
In addition, the Merger Agreement may be terminated under the following circumstances:
•
by CSSE, if (i) the Redbox Board has effected a Redbox adverse recommendation change, (ii) Redbox has approved or adopted any definitive agreement for a Takeover Proposal; or (iii) Redbox has
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breached the “no solicitation” and related covenants of the Merger Agreement in any material respect, in which case CSSE shall be entitled to payment of the Redbox Termination Fee as defined herein and described below in the section titled “The Merger Agreement — Termination Fee;” or
•
by Redbox, prior to, but not after, the time the Redbox Stockholders approve the Redbox Merger Proposal, in order to enter into a definitive agreement with respect to a Superior Proposal (as defined below in the section titled “The Merger Agreement — No Solicitation; Recommendation”); provided that Redbox shall have contemporaneously with such termination tendered payment to CSSE of the Redbox Termination Fee as defined herein and described below in the section titled “The Merger Agreement — Termination Fee”.
Termination Fee (See page 125)
The Merger Agreement requires Redbox to pay CSSE a termination fee of $15,000,000 (“Redbox Termination Fee”) if:
•
CSSE terminates the Merger Agreement because a Redbox Adverse Recommendation Change shall have occurred or Redbox shall have approved or adopted, or recommended the approval or adoption of, any Acquisition Agreement;
•
Redbox terminates the Merger Agreement because prior to the receipt of the Requisite Redbox Vote at the Redbox Stockholders Meeting, the Redbox Board authorizes Redbox to enter into an Acquisition Agreement in respect of a Superior Proposal;
•
either CSSE or Redbox terminates the Merger Agreement because (i) the Mergers have not been consummated on or before the End Date or (ii) the Merger Agreement has been submitted to the Redbox Stockholders for adoption at a duly convened Redbox Stockholders Meeting and the Requisite Redbox Vote shall not have been obtained at such meeting (and in each case a Takeover Proposal has been made, communicated or publicly disclosed prior to such termination; provided that, for all purposes of this bullet point, each reference in the definition of “Takeover Proposal” to “20% or more” shall be “more than 50%”) and within 12 months following the date of such termination of the Merger Agreement (A) Redbox shall have entered into a definitive agreement with respect to any Takeover Proposal, and such Takeover Proposal is subsequently consummated or (B) a Takeover Proposal shall have been consummated.
In no event shall Redbox be required to pay the termination fee on more than one occasion.
Specific Performance (See page 125)
In addition to any other remedy that may be available to each party prior to the termination of the Merger Agreement, each of the parties will be entitled to an injunction, specific performance and other equitable relief to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement.
Closing and Effective Time of the Mergers (See page 110)
Unless the parties agree otherwise, the closing of the Mergers will take place on a date that is three business days following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to closing (other than any such conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions).
As soon as practicable on the closing date, a certificate of merger with respect to the First Company Merger will be filed with the Secretary of State of the State of Delaware and, concurrently therewith, a certificate of merger with respect to the Opco Merger will be filed with the Secretary of State of the State of Delaware. The First Company Merger and the Opco Merger will each become effective at the same time on the closing date as the parties agree in writing and specify in the applicable certificate of merger. In addition, on the closing date, a certificate of merger with respect to the Second Company Merger will be filed with the Secretary of State of the State of Delaware and the Second Company Merger will become effective one minute after the Effective Time, as will be specified in the certificate of merger.
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CSSE and Redbox have targeted to complete the Mergers in the third quarter of 2022, subject to receipt of the Redbox Stockholder approval, any required regulatory approvals. and the satisfaction or waiver of the other conditions to the Mergers (Please see “The Merger Agreement — Conditions Precedent to the Mergers”).
Comparison of Equityholder Rights (See page 171)
Redbox Class A stockholders and Opco LLC Unitholders receiving CSSE Class A Common Stock in connection with the Mergers will have different rights once they become stockholders of CSSE due to differences between the governing documents of CSSE and Redbox. These differences are described in more detail in “Comparison of Equityholder Rights.”
TRA Amendment
On May 10, 2022, in connection with the execution of the Merger Agreement, Redbox, Redwood LP and Opco LLC (the parties to the Tax Receivable Agreement) and CSSE entered into an amendment to the Tax Receivable Agreement (the “TRA Amendment”).
The TRA Amendment provides, that immediately prior to the Effective Time, the Tax Receivable Agreement shall be terminated in its entirety as a result of and upon the closing of the Mergers at no cost to the TRA parties or any of their respective affiliates and shall be of no further force or effect, and no party shall have any further obligations under the Tax Receivable Agreement for any reason, and that Redwood LP waives, releases, remises and forever discharges the Corporate Taxpayer (as defined in the Tax Receivable Agreement), its affiliates and their respective shareholders, directors, officers and employees from any obligations under the Tax Receivable Agreement, including as a result of past, present or future actions or events.
The foregoing description of the TRA Amendment does not purport to be complete and is qualified in its entirety by the full text of the TRA Amendment, a copy of which is attached hereto as Annex G and is incorporated herein by reference.
Mutual Release
On May 10, 2022, CSSE entered into the release agreement (the “Mutual Release”) by and among (i) Redwood LP, AP VIII Aspen Holdings, L.P., a Delaware limited partnership (“Aspen”), and Apollo Global Management, Inc. (“AGM,” and together with Redwood LP and Aspen, the “Apollo Parties”), (ii) CSSE, Merger Sub Inc., Merger Sub LLC and Opco Merger Sub LLC, and together with CSSE, Merger Sub Inc., Merger Sub LLC and Opco Merger Sub LLC, the “CSSE Parties”), (iii) HPS, (iv) Opco LLC and Redbox Automated (together with Redbox and Opco LLC, the “Redbox Parties”), and (v) Seaport Global SPAC, LLC, a Delaware limited liability company (“Seaport”). The CSSE Parties, Redbox Parties, and Seaport are collectively referred to as the “Mutual Release Parties.”
In connection with the execution of the Merger Agreement, but effective as of the closing of the Mergers, each of CSSE, Redbox, Apollo, HPS, and Seaport, severally and not jointly, on behalf of itself and its respective Mutual Release Parties and its and their respective subsidiaries or affiliates unconditionally, irrevocably and forever releases and discharges each of the other Mutual Release Parties and each of the former, current and future directors of Redbox and CSSE, to the fullest extent permitted by applicable law, from all past and present claims of (i) the Redbox Group Parties and the CSSE Group Parties (including the management, ownership, activities, failure to act or operation or activities thereof); (ii) indebtedness incurred by, or equity interests in, any of the Redbox Group Parties, or any merger, asset sale, equity issuance or other transaction involving any of the Redbox Group Parties; (iii) indebtedness incurred by, or equity interests in, any of the CSSE Group Parties, or any merger, asset sale, equity issuance or other transaction involving any of the CSSE Group Parties; (iv) the Merger Agreement, including the formulation, preparation, negotiation or execution of any of the agreements or documents contemplated thereby or related thereto; and (v) any other act or omission taking place before the Effective Time that relates to the foregoing.
The foregoing description of the Mutual Release does not purport to be complete and is qualified in its entirety by the full text of the Mutual Release, a copy of which is attached hereto as Annex H and is incorporated herein by reference.
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B-2 Exchange Agreement
On May 10, 2022, Redbox, Opco LLC, and Redbox Automated Retail, LLC entered into a Contribution and Exchange Agreement (the “B-2 Exchange Agreement”) with Redwood LP, New Outerwall, Inc., a Delaware corporation (“New Outerwall”), Aspen Parent, Inc., a Delaware corporation (“Aspen Parent”) and HPS. The B-2 Exchange Agreement provides that, before the Effective Time, Aspen Parent shall cause to be exchanged the aggregate outstanding Term B-2 Loan Obligations (as defined in the Amended Credit Agreement) for 4,035,943 shares of Redbox Class B Common Stock and an equal number of Class A common units of Opco LLC. As of May 31, 2022, the aggregate outstanding Term B-2 Loan Obligations was approximately $28 million.
The foregoing description of the B-2 Exchange Agreement does not purport to be complete and is qualified in its entirety by the full text of the B-2 Exchange Agreement, a copy of which is attached hereto as Annex I and is incorporated herein by reference.
Risk Factors (See page 22)
Before voting at the Redbox Special Meeting, you should carefully consider all of the information contained in or incorporated by reference into this proxy statement/information statement/prospectus, including the specific risk factors in the section titled “Risk Factors.”
14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CSSE
The following table sets forth selected historical consolidated financial data that has been derived from CSSE’s audited consolidated financial statements as of and for each of the three years in the period ended December 31, 2021, as well as from CSSE’s unaudited consolidated financial statements as of and for the three months ended March 31, 2022 and 2021, and the related notes thereto. This disclosure does not include the effects of the Mergers. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of CSSE or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, CSSE’s consolidated financial statements, the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in CSSE’s Annual Report on Form 10-K for the year ended December 31, 2021 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, each of which is incorporated by reference into this proxy statement/information statement/prospectus. For more information, please see “Where You Can Find More Information.”
| | | |
Three Months
Ended March 31, |
| |
Year Ended December 31,
|
| ||||||||||||||||||||||||
| | | |
2022
|
| |
2021
|
| |
2021
|
| |
2020
|
| |
2019
|
| |||||||||||||||
| | | |
(unaudited)
|
| |
(audited)
|
| ||||||||||||||||||||||||
| | | |
(in thousands, except per share data)
|
| |||||||||||||||||||||||||||
|
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Total net revenue
|
| | | $ | 29,206 | | | | | $ | 23,197 | | | | | $ | 110,395 | | | | | $ | 66,357 | | | | | $ | 55,364 | | |
|
Operating (loss) income
|
| | | $ | (10,755) | | | | | $ | (5,839) | | | | | $ | (45,962) | | | | | $ | (44,257) | | | | | $ | (26,131) | | |
|
Net (loss) income attributable to common stockholders
|
| | | $ | (14,127) | | | | | $ | (9,193) | | | | | $ | (59,420) | | | | | $ | (44,552) | | | | | $ | (34,977) | | |
| PER SHARE DATA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Net loss per share attributable to common stockholders:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Basic and diluted
|
| | | $ | (0.92) | | | | | $ | (0.67) | | | | | $ | (3.96) | | | | | $ | (3.62) | | | | | $ | (2.92) | | |
|
Dividends declared
|
| | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | — | | |
|
Weighted average shares outstanding:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Basic and diluted
|
| | | | 15,331,743 | | | | | | 13,635,759 | | | | | | 15,018,421 | | | | | | 12,301,185 | | | | | | 11,987,292 | | |
|
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Net cash provided by (used in):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Operating activities
|
| | | $ | (13,047) | | | | | $ | (8,265) | | | | | $ | (30,370) | | | | | $ | (18,045) | | | | | $ | (18,699) | | |
|
Investing activities
|
| | | $ | (7,970) | | | | | $ | 1,136 | | | | | $ | (15,376) | | | | | $ | (2,792) | | | | | $ | (6,429) | | |
|
Financing activities
|
| | | $ | (1,768) | | | | | $ | 16,966 | | | | | $ | 75,298 | | | | | $ | 29,123 | | | | | $ | 24,373 | | |
|
CONSOLIDATED BALANCE SHEET DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Cash and cash equivalents
|
| | | $ | 21,499 | | | | | $ | 24,570 | | | | | $ | 44,286 | | | | | $ | 14,733 | | | | | $ | 6,447 | | |
|
Total assets
|
| | | $ | 270,944 | | | | | $ | 166,231 | | | | | $ | 245,426 | | | | | $ | 156,281 | | | | | $ | 167,665 | | |
|
Total debt
|
| | | $ | 67,902 | | | | | $ | 39,091 | | | | | $ | 56,679 | | | | | $ | 44,055 | | | | | $ | 20,200 | | |
|
Total liabilities
|
| | | $ | 196,583 | | | | | $ | 86,232 | | | | | $ | 153,827 | | | | | $ | 91,179 | | | | | $ | 76,645 | | |
|
Total equity
|
| | | $ | 74,362 | | | | | $ | 79,999 | | | | | $ | 91,599 | | | | | $ | 65,102 | | | | | $ | 91,021 | | |
15
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF REDBOX
The following table sets forth selected historical consolidated financial data that has been derived from Redbox’s audited consolidated financial statements as of and for each of the three years in the period ended December 31, 2021, as well as from Redbox’s unaudited consolidated financial statements as of and for the three months ended March 31, 2022 and 2021, and the related notes thereto. This disclosure does not include the effects of the Mergers. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Redbox or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, Redbox’s consolidated financial statements, the related notes thereto beginning on page F-1 and “Redbox Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 132.
| | | |
Three Months
Ended March 31, |
| |
Year Ended December 31,
|
| ||||||||||||||||||||||||
| | | |
2022
|
| |
2021
|
| |
2021
|
| |
2020
|
| |
2019
|
| |||||||||||||||
| | | |
(unaudited)
|
| |
(audited)
|
| ||||||||||||||||||||||||
|
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Total net revenue
|
| | | $ | 63,227 | | | | | $ | 76,730 | | | | | $ | 288,540 | | | | | $ | 546,191 | | | | | $ | 858,370 | | |
|
Operating (loss) income
|
| | | $ | (48,191) | | | | | $ | (29,227) | | | | | $ | (143,268) | | | | | $ | (62,185) | | | | | $ | 29,755 | | |
|
Net loss attributable to common
stockholders |
| | | $ | (1,444) | | | | | | N/A | | | | | $ | (112,789) | | | | | | N/A | | | | | | N/A | | |
| PER SHARE DATA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Net loss per share attributable to common
stockholders: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Basic and diluted
|
| | | $ | (0.11) | | | | | | N/A | | | | | $ | (0.58) | | | | | | N/A | | | | | | N/A | | |
|
Dividends declared
|
| | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 53 | | | | | $ | (297) | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Basic and diluted
|
| | | | 12,618,516 | | | | | | N/A | | | | | | 12,618,516 | | | | | | N/A | | | | | | N/A | | |
|
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Operating activities
|
| | | $ | (14,823) | | | | | $ | (14,110) | | | | | $ | (29,240) | | | | | $ | 29,693 | | | | | $ | 102,797 | | |
|
Investing activities
|
| | | $ | (2,832) | | | | | $ | (3,518) | | | | | $ | (12,190) | | | | | $ | (19,042) | | | | | $ | (31,765) | | |
|
Financing activities
|
| | | $ | 12,835 | | | | | $ | 25,843 | | | | | $ | 50,981 | | | | | $ | (9,102) | | | | | $ | (74,100) | | |
|
CONSOLIDATED BALANCE SHEET DATA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Cash and cash equivalents
|
| | | $ | 13,658 | | | | | $ | 17,142 | | | | | $ | 18,478 | | | | | $ | 8,927 | | | | | $ | 7,378 | | |
|
Total assets
|
| | | $ | 361,514 | | | | | $ | 459,146 | | | | | $ | 378,032 | | | | | $ | 473,091 | | | | | $ | 637,059 | | |
|
Total debt
|
| | | $ | 342,910 | | | | | $ | 340,371 | | | | | $ | 321,566 | | | | | $ | 307,474 | | | | | $ | 308,538 | | |
|
Total liabilities
|
| | | $ | 463,531 | | | | | $ | 484,313 | | | | | $ | 440,983 | | | | | $ | 471,629 | | | | | $ | 566,148 | | |
|
Total equity
|
| | | $ | (102,017) | | | | | $ | (25,167) | | | | | $ | (62,951) | | | | | $ | 1,462 | | | | | $ | 70,911 | | |
16
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following summary unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations based upon the combined historical financial statements of CSSE and Redbox, after giving effect to the consummation of the Mergers contemplated by the Merger Agreement and the related adjustments described in the accompanying notes. The Mergers will be accounted for under the acquisition method of accounting, which requires determination of the accounting acquirer. The accounting guidance provides that in identifying the acquiring entity in a business combination effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including; the relative voting rights of the stockholders of the constituent companies in the combined company, the existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of equity securities in the business combination, including payment of any premium.
The unaudited pro forma condensed combined balance sheet data as of March 31, 2022 gives effect to the Mergers as if they occurred on that date. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2022, and for the year ended December 31, 2021, gives effect to the Mergers as if they had occurred on January 1, 2021. Additionally, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to CSSE’s acquisition of certain assets of Sonar Entertainment, Inc. (“Sonar”) on May 21, 2021, as if it had occurred on January 1, 2021.
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with business combination accounting guidance as provided in FASB ASC Topic 805 and reflect the preliminary allocation of the estimated merger consideration to the acquired assets and liabilities assumed based upon their estimated fair values, using the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. CSSE’s historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are (1) directly attributable to the merger transaction, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger transaction had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. In connection with the pro forma condensed combined financial information, CSSE allocated the estimated purchase price using its best estimates of fair value. The allocation is dependent upon certain valuation and other analyses that are not yet final. Accordingly, the pro forma acquisition price adjustments are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed. There can be no assurances that the final valuations will not result in material changes to the preliminary estimated purchase price allocation. The unaudited pro forma condensed combined financial information also does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transaction or any integration costs. Furthermore, the unaudited pro forma condensed combined statements of operations do not include certain nonrecurring charges and the related tax effects that result directly from the transaction as described in the notes to the unaudited pro forma condensed combined financial information.
The pro forma financial statements should be read in conjunction with the separate historical consolidated financial statements and related notes of each of CSSE and Redbox included elsewhere in this proxy statement/prospectus and incorporated herein. For more information, see the sections titled “Unaudited Pro Forma Condensed Combined Financial Information,” “Selected Historical Consolidated Financial Data of CSSE,” “Selected Historical Consolidated Financial Data of Redbox,” and “Where You Can Find More Information” and the risk factors described in the section titled “Risk Factors.”
17
| | | |
Three Months
Ended March 31, |
| |
Year Ended
December 31, |
| ||||||
| | | |
2022
|
| |
2021
|
| ||||||
| | | |
(unaudited)
|
| |||||||||
| | | |
(in thousands, except per share data)
|
| |||||||||
| Pro Forma Condensed Combined Statement of Operations Data: | | | | | | | | | | | | | |
|
Net Revenue
|
| | | $ | 92,433 | | | | | $ | 404,889 | | |
|
Net loss attributable to common stockholders
|
| | | $ | (40,879) | | | | | $ | (190,234) | | |
|
Basic and diluted net loss per share attributable to common stockholders
|
| | | $ | (2.05) | | | | | $ | (9.71) | | |
| | | |
As of March 31,
|
| |||
| | | |
2022
|
| |||
| | | |
(unaudited)
|
| |||
| | | |
(in thousands)
|
| |||
| Pro Forma Condensed Combined Balance Sheet Data: | | | | | | | |
|
Total assets
|
| | | $ | 728,659 | | |
|
Total liabilities
|
| | | $ | 658,144 | | |
|
Total equity
|
| | | $ | 70,515 | | |
UNAUDITED COMPARATIVE PER SHARE DATA
The following tables present CSSE’s and Redbox’s historical and pro forma per share data as of and for the three months ended March 31, 2022 and as of and for the year ended December 31, 2021. The pro forma information is provided as if the Mergers had been completed on January 1, 2021.
The unaudited pro forma comparative per share data is based on the following information, which has been incorporated by reference into this proxy statement/information statement/prospectus: (i) CSSE’s and Redbox’s audited consolidated financial statements as of and for the year ended December 31, 2021, and (ii) CSSE’s and Redbox’s unaudited consolidated financial statements as of and for the three months ended March 31, 2022. Please see “Where You Can Find More Information.”
Unaudited pro forma combined per share data as of and for the three months ended March 31, 2022 and as of and for the year ended December 31, 2021 were derived and should be read in conjunction with the unaudited pro forma combined financial data included in “Unaudited Pro Forma Combined Financial Statements” and the related notes thereto in this proxy statement/information statement/prospectus. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Mergers had been completed as of the beginning of the period or the combined financial position of the companies as of March 31, 2022.
| | | |
Three Months
Ended March 31, |
| |
Year Ended
December 31, |
| ||||||
| | | |
2022
|
| |
2021
|
| ||||||
| | | |
(unaudited)
|
| |||||||||
| CSSE Historical Data | | | | | | | | | | | | | |
|
Basic and diluted net loss per share attributable to common stockholders
|
| | | $ | (0.92) | | | | | $ | (3.96) | | |
|
Book value per share
|
| | | $ | 5.29 | | | | | $ | 5.51 | | |
| Redbox Historical Data | | | | | | | | | | | | | |
|
Basic and diluted net loss per share attributable to common stockholders
|
| | | $ | (0.11) | | | | | $ | (4.34) | | |
|
Book value per share
|
| | | $ | (8.08) | | | | | $ | (4.99) | | |
| CSSE Pro Forma Combined Data | | | | | | | | | | | | | |
|
Basic and diluted net loss per share attributable to common stockholders
|
| | | $ | (2.05) | | | | | $ | (9.71) | | |
|
Book value per share
|
| | | $ | 3.78 | | | | | | N/A | | |
18
MARKET PRICE INFORMATION
CSSE Class A Common Stock is listed on the Nasdaq Global Market under the symbol “CSSE”. Redbox Class A Common Stock is listed on the Nasdaq Global Market under the symbol “RDBX”.
The high and low trading prices for the CSSE Class A Common Stock as of May 10, 2022, the last trading day immediately before the public announcement of the Mergers, were $8.56 and $7.61, respectively. The high and low trading prices for the Redbox Class A Common Stock as of May 10, 2022, the last trading day immediately before the public announcement of the Mergers, were $5.99 and $5.16, respectively.
As of July 8, 2022, the latest practicable date, there were 7,253,794 shares of CSSE Class A common (and 7,654,506 shares of CSSE Class B Common Stock, each share convertible into one share of CSSE Class A Common Stock at any time) issued and outstanding, and 13,685,098 shares of Redbox Class A Common Stock and 32,770,000 shares of Redbox Class B Common Stock issued and outstanding.
Because the Exchange Ratio will not be adjusted for changes in the market price of either CSSE Class A Common Stock or Redbox Class A Common Stock, the market value of CSSE Class A Common Stock that Redbox Class A stockholders and Opco LLC Unitholders will have the right to receive on the date the Mergers are completed may vary significantly from the market value of the CSSE Class A Common Stock that Redbox Class A stockholders and Opco LLC Unitholders would receive if the Mergers were completed on the date of this proxy statement/information statement/prospectus. As a result, you should obtain recent market prices of CSSE Class A Common Stock and Redbox Class A Common Stock prior to voting your shares. Please see “Risk Factors — Risk Factors Relating to the Mergers.”
The following table sets forth the closing sale price per share of Redbox Class A Common Stock as reported on the Nasdaq Global Market and the closing sale price per share of CSSE Class A Common Stock as reported on the Nasdaq Global Market, in each case on May 10, 2022, the last trading day before the public announcement of the parties entering into the Merger Agreement, and on July 8, 2022, the latest practicable date. The table also shows the estimated implied value of the Merger Consideration proposed for each share of Redbox Class A Common Stock as of the same two dates. The implied value was calculated by multiplying the Nasdaq Global Market closing price of a share of CSSE Class A Common Stock on the relevant date by the Exchange Ratio of 0.087 shares of CSSE Class A Common Stock for each share of Redbox Class A Common Stock.
| | | |
Redbox
|
| |
CSSE
|
| ||||||
|
Price as of May 10, 2022
|
| | | $ | 5.60 | | | | | $ | 7.92 | | |
|
Price as of July 8, 2022
|
| | | $ | 6.22 | | | | | $ | 7.93 | | |
|
Implied Value for each Redbox Share as of May 10, 2022
|
| | | $ | 0.69 | | | | | | | | |
|
Implied Value for each Redbox Share as of July 8, 2022
|
| | | $ | 0.69 | | | | | | | | |
19
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/information statement/prospectus, and the documents to which CSSE and Redbox refer you within this proxy statement/information statement/prospectus, as well as oral statements made or to be made by CSSE and Redbox, include “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the United States Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, included in this proxy statement/information statement/prospectus, including those that address activities, events or developments that CSSE or Redbox expects, believes or anticipates will or may occur in the future, are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the Mergers, the expected timetable for completing the Mergers, the results, effects, benefits and synergies of the Mergers, pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities, and anticipated future performance and any other statements regarding CSSE’s or Redbox’s future expectations, beliefs, plans, objectives, financial conditions, assumptions, or future events or performance that are not historical facts. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “should,” “could,” “would,” “may,” “might,” “foresee,” “plan,” “will,” “guidance,” “outlook,” “future,” “assume,” “forecast,” “focus,” “target,” “continue,” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking.
CSSE and Redbox caution investors that any forward-looking statements are subject to known and unknown risks and uncertainties, many of which are outside CSSE’s and Redbox’s control, and which may cause actual results and future trends to differ materially from those matters expressed in, or implied or projected by, such forward-looking statements, which speak only as of the date of this proxy statement/information statement/prospectus. Investors are cautioned not to place undue reliance on these forward-looking statements. Risks and uncertainties that could cause actual results to differ from those described in forward-looking statements include the following:
•
the Merger Agreement may be terminated in accordance with its terms and the Mergers may not be completed;
•
Redbox Stockholders may not approve the Redbox Merger Proposal;
•
the parties may not be able to satisfy the conditions to the completion of the Mergers in a timely manner or at all;
•
Immediately following the consummation of the Mergers, the combined companies will have significant aggregate indebtedness in excess of the indebtedness for which each company is currently separately liable, and will have significant monthly, quarterly and annual debt and preferred stock dividend obligations, which will need to be meet from operational cash flow, existing and future credit facilities, debt financings and/or equity financings, which may not be available to CSSE as and when required or on commercially reasonable terms.
•
the Mergers may not be accretive, and may be dilutive, to CSSE’s earnings per share, return on capital employed, cash flow and/or free cash flow, which may negatively affect the market price of CSSE Class A Common Stock;
•
CSSE and Redbox may incur significant transaction and other costs in connection with the Mergers in excess of those anticipated by CSSE or Redbox;
•
the combined company may fail to realize anticipated synergies or other benefits expected from the Mergers in the timeframe expected or at all;
•
the ultimate timing, outcome and results of integrating the operations of CSSE and Redbox and the risk that CSSE’s and Redbox’s businesses may not be integrated successfully;
•
the effect of the Mergers and their announcement and/or completion on CSSE’s and Redbox’s business or employee relationships;
20
•
the risk related to disruption of management time from ongoing business operations due to the Mergers;
•
the Mergers may disrupt current plans and operations that may harm CSSE’s and Redbox’s respective businesses;
•
the effects of the business combination on CSSE and Redbox, including the combined company’s future financial condition, results of operations, strategy, credit ratings and plans;
•
changes in capital markets and the ability of the combined company to finance operations in the manner expected;
•
regulatory approval of the transaction;
•
any litigation relating to the Mergers;
•
risks to CSSE’s and Redbox’s operating results and businesses generally, including the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, and the other risks, contingencies and uncertainties applicable to CSSE and Redbox disclosed in CSSE’s and Redbox’s other filings with the SEC incorporated herein by reference; and
•
the uncertainty of the value of the Merger Consideration due to the fixed Exchange Ratio and potential fluctuation in the market price of CSSE Class A Common Stock.
The foregoing list of factors is not exhaustive. For further discussion of these and other risks, contingencies, and uncertainties applicable to CSSE and Redbox, please see “Risk Factors” in this proxy statement/information statement/prospectus as well as CSSE’s and Redbox’s other filings with the SEC incorporated herein by reference. Please see “Where You Can Find More Information” for more information about the SEC filings incorporated by reference into this proxy statement/information statement/prospectus.
All subsequent written or oral forward-looking statements attributable to CSSE, Redbox or any person acting on its or their behalf are expressly qualified in their entirety by the cautionary statements contained in this section. All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither CSSE nor Redbox assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
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RISK FACTORS
In addition to the other information included or incorporated by reference in this proxy statement/information statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote. In addition, you should read and carefully consider the risks associated with each of CSSE and Redbox and their respective businesses. These risks can be found in CSSE’s and Redbox’s Annual Reports on Form 10-K for the year ended December 31, 2021 and subsequent Quarterly Reports on Form 10-Q, each of which is filed with the SEC and incorporated by reference into this proxy statement/information statement/prospectus. For further information regarding the documents incorporated into this proxy statement/information statement/prospectus by reference, please see the section titled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described in the documents incorporated by reference could have a material adverse effect on CSSE’s, Redbox’s or the combined company’s businesses, financial condition, cash flows and results of operations.
Risks Relating to the Mergers
Because the market price of CSSE Class A Common Stock will fluctuate, Redbox Class A stockholders and Opco LLC Unitholders cannot be sure of the value of the shares of CSSE Class A Common Stock they will receive in connection with the Mergers. In addition, because the Exchange Ratio is fixed, the number of shares of CSSE Class A Common Stock to be received by Redbox Class A stockholders and Opco LLC Unitholders in connection with the Mergers will not change between now and the time the Mergers are completed to reflect changes in the trading prices of CSSE Class A Common Stock or Redbox Class A Common Stock.
In connection with the Mergers, each eligible share of Redbox Class A Common Stock and each eligible Opco LLC Unit will be converted automatically into the right to receive 0.087 shares of CSSE Class A Common Stock. The Exchange Ratio is fixed except for certain adjustments on account of any stock split, split-up, reverse stock split, stock dividend or distribution of securities convertible into Redbox Class A Common Stock, or CSSE Class A Common Stock, or any reorganization, recapitalization, reclassification or other like change with respect to Redbox Class A Common Stock, or CSSE Class A Common Stock, in each case having a record date occurring on or after the date of the Merger Agreement and prior to the Effective Time, which means that it will not change between now and the Closing, regardless of whether the market price of either CSSE Class A Common Stock or Redbox Class A Common Stock changes.
Changes in the market price of shares of CSSE Class A Common Stock prior to the Mergers will affect the market value of the Merger Consideration that Redbox Stockholders will be entitled to receive on the closing date of the Mergers. Stock price changes may result from a variety of factors (many of which are beyond the control of CSSE and Redbox), including the following:
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changes in the respective businesses, operations, assets, liabilities and prospects of CSSE and Redbox;
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changes in market assessments of the business, operations, financial position and prospects of CSSE or Redbox;
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market assessments of the likelihood that the Mergers will be completed;
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interest rates, general market and economic conditions and other factors generally affecting the market prices of CSSE Class A Common Stock and Redbox Class A Common Stock;
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federal, state and local legislation, governmental regulation and legal developments in the business in which CSSE and Redbox operate; and
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other factors, including those described or referred to elsewhere under this heading “Risk Factors.”
The market price of CSSE Class A Common Stock at the Closing may vary from its price on the date the Merger Agreement was executed, on the date of this proxy statement/information statement/prospectus and on the date of the Redbox Special Meeting and may be greater than, less than or the same as the price per share of CSSE Class A Common Stock at each of the aforementioned times. As a result, the market
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value of the Merger Consideration represented by the Exchange Ratio will also vary. For example, based on the range of closing prices of CSSE Class A Common Stock during the period from May 10, 2022, the last trading day before public announcement of the Mergers, through July 8, 2022, the latest practicable date before the date of this proxy statement/information statement/prospectus, the Exchange Ratio of 0.087 shares of CSSE Class A Common Stock per Redbox Class A Common Stock represented a market value ranging from a low of $0.45 to a high of $0.76 per Redbox Class A Common Stock.
Because the Mergers will be completed after the date of the Redbox Special Meeting, at the time of the Redbox Special Meeting, Redbox Stockholders will not know the exact market value of the CSSE Class A Common Stock that they will receive upon completion of the Mergers. Redbox Stockholders should consider, among other things:
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if the price of CSSE Class A Common Stock increases between the date the Merger Agreement was signed and the Closing, Redbox Stockholders will receive shares of CSSE Class A Common Stock that have a market value upon completion of the Mergers that is greater than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed; and
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if the price of CSSE Class A Common Stock declines between the date the Merger Agreement was signed and the Closing, Redbox Stockholders will receive shares of CSSE Class A Common Stock that have a market value upon the completion of the Mergers that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed.
Therefore, while the number of shares of CSSE Class A Common Stock to be issued per Redbox Class A Common Stock is fixed, Redbox Stockholders and CSSE stockholders cannot be sure of the market value of the Merger Consideration that Redbox Stockholders will receive upon the Closing. The market price of CSSE Class A Common Stock is subject to general price fluctuations in the market for publicly traded equity securities and has experienced volatility in the past. You should obtain current market price quotations for CSSE Class A Common Stock; however, as noted above, the prices at the Effective Time may be greater than, the same as or less than such price quotations.
The market price for CSSE Class A Common Stock following the closing may be affected by factors different from those that historically have affected or currently affect CSSE Class A Common Stock and Redbox Class A Common Stock.
Upon completion of the Mergers, Redbox Class A stockholders and Opco LLC Unitholders will receive shares of CSSE Class A Common Stock. CSSE’s financial position may differ from its financial position before the completion of the Mergers, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting the results of operations of CSSE and those currently affecting the results of operations of Redbox. Accordingly, the market price and performance of CSSE Class A Common Stock is likely to be different from the performance of Redbox Class A Common Stock in the absence of the Mergers. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, CSSE Class A Common Stock, regardless of CSSE’s actual operating performance. For a discussion of the businesses of CSSE and Redbox and important factors to consider in connection with those businesses, see the documents incorporated by reference herein and referred to in “Where You Can Find More Information.”
CSSE Stockholders and Redbox Stockholders, in each case as of immediately prior to the Mergers, will have reduced ownership in the combined company.
Based on the number of issued and outstanding shares of Redbox Class A Common Stock and Opco LLC Units as of July 8, 2022 and the number of issued and outstanding Redbox equity awards currently estimated to be payable in shares of CSSE Class A Common Stock in connection with the Mergers, CSSE anticipates issuing approximately 4.6 million shares of CSSE Class A Common Stock as Merger Consideration pursuant to the Merger Agreement. The actual number of shares of CSSE Class A Common Stock to be issued pursuant to the Merger Agreement will be determined at the completion of the Mergers based on the number of shares of Redbox Class A Common Stock and Opco LLC Units issued and outstanding immediately prior to such time and the number of issued and outstanding Redbox equity awards payable in shares of CSSE Class A Common Stock in connection with the Mergers. The issuance of these new
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shares could have the effect of depressing the market price of CSSE Class A Common Stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, CSSE’s earnings per share could cause the price of CSSE Class A Common Stock to decline or increase at a reduced rate.
Immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will own approximately 76.3% and 23.7%, respectively, of the then outstanding CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined). The CSSE Class A Common Stock and CSSE Class B Common Stock are identical except that each share of CSSE Class A Common Stock entitles the holder thereof to one vote and each share of CSSE Class B Common Stock entitles the holder thereof to ten votes on each matter submitted to the CSSE Stockholders for a vote. Each share of CSSE Class B Common Stock is exchangeable for one share of CSSE Class A Common Stock at any time at the election of the holder. Accordingly, immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will control approximately 93.8% and 6.2%, respectively, of the then total voting power represented by the CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined). CSSE’s current stockholders and Redbox’s current stockholders will have less influence on the policies of the combined company than they currently have on the policies of CSSE and Redbox, respectively.
CSSE and Redbox must obtain certain regulatory approvals and clearances to consummate the Mergers, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the Mergers, result in additional expenditures of money and resources or reduce the anticipated benefits of the Mergers.
The completion of the Mergers may be subject to antitrust review in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and the rules promulgated thereunder, if certain HSR Act transaction size thresholds are triggered, the Mergers cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated.
At any time before or after consummation of the Mergers, notwithstanding any prior expiration or termination of the applicable waiting period under the HSR Act, the FTC, the DOJ or any state could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Mergers or seeking the divestiture of substantial assets of CSSE or Redbox or their respective subsidiaries. Private parties may also seek to take legal action under antitrust laws under certain circumstances.
The Mergers are subject to a number of conditions to the obligations of both CSSE and Redbox to complete the Mergers, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the Mergers or result in termination of the Merger Agreement.
The respective obligations of each of Redbox and CSSE to effect the Mergers are subject to the satisfaction at or prior to the Effective Time of the following conditions:
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the Merger Agreement shall have been duly adopted by the Requisite Redbox Vote;
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any waiting period (and any extension thereof) under the HSR Act relating to the Mergers shall have expired or been terminated and all required filings shall have been made and all required approvals have been obtained under applicable antitrust laws;
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no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree or other legal restraint or prohibition issued by any governmental entity having jurisdiction over any party shall be in effect, and no law shall have been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that prohibits or makes illegal consummation of the Mergers, the CSSE Stock Issuance or the other transactions contemplated by the Merger Agreement;
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the shares of CSSE Class A Common Stock to be issued in the Mergers, and the CSSE Class A Common Stock to be reserved for issuance in connection with the Mergers (i.e., those shares issuable
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upon exercise of Redbox’s public and private warrants), shall have been approved for listing on the Nasdaq Global Market, subject to official notice of issuance;
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the registration statement on Form S-4, of which this proxy statement/information statement/prospectus forms a part, shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened and the Form S-4 shall not have been withdrawn; and
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HPS and its affiliates shall have executed and delivered to CSSE definitive financing agreements consistent with the form credit agreement made part of the Binding Commitment Letter.
Many of the conditions to completion of the Mergers are not within either CSSE’s or Redbox’s control, and neither company can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to the End Date, it is possible that the Merger Agreement may be terminated. Although CSSE and Redbox have agreed in the Merger Agreement to use reasonable best efforts, subject to certain limitations, to complete the Mergers as promptly as practicable, these and other conditions to the completion of the Mergers may fail to be satisfied. In addition, satisfying the conditions to and completing the Mergers may take longer, and could cost more, than CSSE and Redbox expect. Neither CSSE nor Redbox can predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the Mergers for a significant period of time or prevent them from occurring. Any delay in completing the Mergers may adversely affect the cost savings and other benefits that CSSE and Redbox expect to achieve if the Mergers and the integration of the companies’ respective businesses are completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date. For additional information, please see “The Merger Agreement — Conditions Precedent to the Mergers.”
If the Integrated Mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Redbox Class A stockholders may be required to pay substantial U.S. federal income taxes.
Assuming that the Integrated Mergers are completed as currently contemplated, the Integrated Mergers, taken together, should qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Provided that the Integrated Mergers so qualify, a U.S. holder (as defined in “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers”) of Redbox Class A Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers.
It is not, however, a condition to Redbox’s obligation or CSSE’s obligation to complete the Integrated Mergers that the Integrated Mergers qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Moreover, neither CSSE nor Redbox intends to obtain a ruling from the IRS with respect to the tax consequences of the Integrated Mergers. Accordingly, there can be no assurance that the IRS would not challenge such position or that a court would not sustain such a challenge. If the IRS or a court determines that the Integrated Mergers, taken together, should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Redbox Class A Common Stock generally would recognize taxable gain or loss upon the exchange of Redbox Class A Common Stock for shares of CSSE Class A Common Stock pursuant to the Integrated Mergers. See “The Mergers — Material U.S. Federal Income Tax Consequences of the Integrated Mergers”.
CSSE’s ability to utilize its historic U.S. net operating loss carryforwards and those of Redbox may be limited.
As of December 31, 2021, CSSE and Redbox had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $54.0 million and $5.8 million, respectively, $10.8 million and $0, respectively, of which were incurred prior to January 1, 2018 and will begin to expire, if unused, in 2031 and 2037, respectively, and $43.1 and $5.8 million, respectively, of which were incurred on or after January 1, 2018 and will not expire and will be carried forward indefinitely. CSSE’s ability to utilize these NOLs and other tax attributes to reduce future taxable income following the consummation of the Mergers depends on many
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factors, including its future income, which cannot be assured. Section 382 of the Code (“Section 382”) generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of such corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change occurs, utilization of the relevant corporation’s NOLs would be subject to an annual limitation under Section 382, generally determined, subject to certain adjustments, by multiplying (i) the fair market value of such corporation’s stock at the time of the ownership change by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs (2.36% for the month of June). Any unused annual limitation may be carried over to later years.
Redbox is expected to undergo an ownership change under Section 382 as a result of the Mergers, which, based on information currently available, may trigger a limitation (calculated as described above) on CSSE’s ability to utilize any historic Redbox NOLs. Although CSSE’s issuance of stock in the Mergers would, standing alone, be insufficient to result in an ownership change with respect to CSSE, we cannot assure you that CSSE will not undergo an ownership change as a result of the Mergers taking into account other changes in ownership of CSSE stock occurring within the relevant three-year period described above. If CSSE were to undergo an ownership change, it may be prevented from fully utilizing its historic NOLs incurred prior to January 1, 2018.
Uncertainties associated with the Mergers may cause a loss of management personnel and other key employees of Redbox, which could adversely affect the future business and operations of CSSE following the Mergers.
CSSE and Redbox are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. CSSE’s success after the Mergers will depend in part upon its ability to retain key management personnel and other key employees. Current and prospective employees of Redbox may experience uncertainty about their roles within CSSE following the Mergers or other concerns regarding the timing and completion of the Mergers or the operations of CSSE following the Mergers, any of which may have an adverse effect on the ability of Redbox to retain or attract key management and other key personnel. In addition, the loss of key Redbox personnel could diminish the anticipated benefits of the Mergers. No assurance can be given that CSSE, following the Mergers, will be able to retain or attract key management personnel and other key employees of Redbox to the same extent that CSSE and Redbox have previously been able to retain or attract their own employees.
The business relationships of CSSE and Redbox may be subject to disruption due to uncertainty associated with the Mergers, which could have a material adverse effect on the results of operations, cash flows and financial position of CSSE or Redbox pending and following the Mergers.
Parties with which CSSE or Redbox do business may experience uncertainty associated with the Mergers, including with respect to current or future business relationships with CSSE or Redbox following the Mergers. CSSE’s and Redbox’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than CSSE or Redbox following the Mergers. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of CSSE or Redbox, regardless of whether the Mergers are completed, as well as a material and adverse effect on CSSE’s ability to realize the expected cost savings and other benefits of the Mergers. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Mergers or termination of the Merger Agreement.
The Merger Agreement subjects CSSE and Redbox to restrictions on their respective business activities prior to the Effective Time.
The Merger Agreement subjects CSSE and Redbox to restrictions on their respective business activities prior to the Effective Time. The Merger Agreement obligates each of CSSE and Redbox to use its commercially reasonable efforts to carry on its business in the ordinary course in all material respects, and the Merger
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Agreement obligates Redbox to use its commercially reasonable efforts to preserve substantially intact its business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having material business dealings with it. These restrictions could prevent CSSE and Redbox from pursuing certain business opportunities that arise prior to the Effective Time and are outside the ordinary course of business. See “The Merger Agreement — Conduct of Business” for additional details.
Redbox directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of the Redbox Stockholders generally.
In considering the recommendation of the Redbox Board that Redbox Stockholders vote in favor of the Redbox Merger Proposal and the Redbox Adjournment Proposal, Redbox Stockholders should be aware of and take into account the fact that certain Redbox directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of Redbox Stockholders generally. These interests include, among others, change of control bonus payments, severance rights and rights to continuing indemnification and directors’ and officers’ liability insurance. See “The Mergers — Interests of Certain Redbox Directors and Executive Officers in the Mergers” for a more detailed description of these interests. The Redbox Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and overseeing the negotiation, of the Mergers, in approving the Merger Agreement and the transactions contemplated thereby, including the Mergers, and in recommending that the Redbox Stockholders approve the Redbox Merger Proposal.
The Merger Agreement contains provisions that could discourage a potential competing acquirer of Redbox from making a favorable proposal, could result in any such competing proposal being at a lower price than it might otherwise be and, in specified circumstances, could require Redbox to make a substantial termination payment to CSSE.
Pursuant to the Merger Agreement, Redbox, subject to certain exceptions, agreed not to (i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to Redbox or Opco LLC or any of their respective subsidiaries to, afford access to the business, properties, assets, books, or records of Redbox or Opco LLC or any of their respective subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party (or its potential sources of financing) that is seeking to make, or has made, any Takeover Proposal, (ii) (A) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Redbox or Opco LLC or any of their respective subsidiaries, or (B) approve any transaction under, or any third party becoming an “interested stockholder” under, Section 203 of the DGCL; or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any Takeover Proposal. Notwithstanding such “no-shop” restrictions, prior to obtaining the approval of the Redbox Stockholders for the Redbox Merger Proposal, under certain specified circumstances and in accordance with Redbox Board’s duties as directors under applicable law, the Redbox Board may change the Redbox Board recommendations and terminate the Merger Agreement to accept a Superior Proposal. The Merger Agreement provides that, in connection with the termination of the Merger Agreement by Redbox under certain specified circumstances, Redbox will be required to pay to CSSE a termination fee of $15 million. See “The Merger Agreement — No Solicitation; Recommendations” beginning on page 117 and “The Merger Agreement — Termination Fee” beginning on page 125.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Redbox from considering or proposing such an acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Mergers, or might result in a potential competing acquirer proposing to pay a lower per share value than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.
If the Mergers are not consummated by the End Date, either Redbox or CSSE may terminate the Merger Agreement.
Either Redbox or CSSE may terminate the Merger Agreement if the Mergers have not been consummated by the End Date, which is October 31, 2022, subject to certain extensions of the End Date if
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conditions related to certain regulatory approvals have not been satisfied. However, this termination right will not be available to a party if that party’s failure to comply with any provision of the Merger Agreement has been the contributing cause of, or was a contributing factor that resulted in, the failure of the Mergers to be consummated on or before the End Date. See “The Merger Agreement — Termination of the Merger Agreement” beginning on page 123. In the event the Merger Agreement is terminated by either party due to the failure of the Mergers to close by the End Date, Redbox and CSSE will have incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities without realizing the anticipated benefits of the Mergers.
The financial forecasts are based on various assumptions that may not be realized.
The financial estimates set forth in the forecasts included under the sections “The Mergers — Certain CSSE Unaudited Prospective Financial and Operating Information” and “The Mergers — Certain Redbox Unaudited Prospective Financial and Operating Information” were based on assumptions of, and information available to, CSSE’s management and Redbox’s management, as applicable, when prepared, and these estimates and assumptions are subject to uncertainties, many of which are beyond CSSE’s and Redbox’s control and may not be realized. CSSE and Redbox used different assumptions with respect to their evaluation of the future prospects of the Legacy Business of Redbox in connection with their consideration of the Mergers. Many factors mentioned in this proxy statement/information statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining the combined company’s future results. As a result of these contingencies, actual future results may vary materially from CSSE’s and Redbox’s estimates. In view of these uncertainties, the inclusion of financial estimates in this proxy statement/information statement/prospectus does not and should not be viewed as a representation that the forecasted results will necessarily reflect actual future results.
CSSE’s and Redbox’s financial estimates were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and neither CSSE nor Redbox undertakes any obligation, other than as required by applicable law, to update the financial estimates herein to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.
The financial estimates of CSSE and Redbox included in this proxy statement/information statement/prospectus have been prepared by, and are the responsibility of, CSSE and Redbox, as applicable. Moreover, neither CSSE’s nor Redbox’s independent accountants, nor any other independent accountants, have compiled, examined or performed any procedures with respect to CSSE’s or Redbox’s prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or the achievability thereof, and, accordingly, such independent accountants assume no responsibility for, and disclaim any association with, CSSE’s and Redbox’s prospective financial information. The reports of such independent accountants included or incorporated by reference herein, as applicable, relate exclusively to the historical financial information of the entities named in those reports and do not cover any other information in this proxy statement/information statement/prospectus and should not be read to do so. See “The Mergers — Certain CSSE Unaudited Prospective Financial and Operating Information” and “The Mergers — Certain Redbox Unaudited Prospective Financial and Operating Information” for more information.
The opinions of CSSE’s and Redbox’s respective financial advisors will not reflect changes in circumstances between the signing of the Merger Agreement and the completion of the Mergers.
Each of CSSE and Redbox has received opinions from its financial advisors in connection with the signing of the Merger Agreement, but has not obtained any updated opinion from its financial advisors as of the date of this proxy statement/information statement/prospectus. Changes in the operations and prospects of CSSE or Redbox, general market and economic conditions and other factors that may be beyond the control of CSSE or Redbox, and on which the companies’ respective financial advisors’ opinions were based, may significantly alter the value of CSSE or Redbox or the prices of the shares of CSSE Class A Common
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Stock or Redbox Class A Common Stock by the time the Mergers are completed. The opinions do not speak as of the time the Mergers will be completed or as of any date other than the date of such opinions. Because neither CSSE nor Redbox currently anticipates asking its financial advisors to update their opinions, the opinions will not address the fairness of the Merger Consideration from a financial point of view at the time the Mergers are completed. The CSSE Board’s recommendation that CSSE Stockholders vote in favor of the CSSE Stock Issuance proposal and the Redbox Board’s recommendation that Redbox Stockholders vote in favor of the Redbox Merger Proposal, however, are made as of the date of this proxy statement/information statement/prospectus.
Failure to complete the Mergers could negatively impact CSSE’s or Redbox’s stock price and have a material adverse effect on their results of operations, cash flows and financial positions.
If the Mergers are not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals or if the Redbox Stockholders fail to approve the applicable proposals, the ongoing businesses of CSSE and Redbox may be materially adversely affected and, without realizing any of the benefits of having completed the Mergers, CSSE and Redbox would be subject to a number of risks, including the following:
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CSSE and Redbox may experience negative reactions from the financial markets, including negative impacts on their respective stock prices;
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CSSE and Redbox and their respective subsidiaries may experience negative reactions from their respective customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;
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CSSE and Redbox will still be required to pay certain significant costs relating to the Mergers, such as legal, accounting, financial advisor and printing fees;
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Redbox may be required to pay a termination fee as required by the Merger Agreement;
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the Merger Agreement places certain restrictions on the conduct of the respective businesses pursuant to the terms of the Merger Agreement, which may delay or prevent the respective companies from undertaking business opportunities that, absent the Merger Agreement, may have been pursued;
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failure to consummate the Mergers by the End Date is an event of default under the Redbox Amended Credit Agreement, and the occurrence of such event of default could result in the outstanding indebtedness under such agreement becoming due and payable. Redbox may not be able to obtain an waiver from HPS with respect to the event of default, in which case Redbox may be required to seek protection under chapter 11 of the US Bankruptcy Code that could and likely would result in lower value for Redbox Stockholders than would be obtained in the Mergers;
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matters relating to the Mergers (including integration planning) require substantial commitments of time and resources by each company’s management, which may have resulted in the distraction of each company’s management from ongoing business operations and pursuing other opportunities that could have been beneficial to the companies; and
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litigation related to any failure to complete the Mergers or related to any enforcement proceeding commenced against CSSE or Redbox to perform their respective obligations pursuant to the Merger Agreement.
If the Mergers are not completed, the risks described above may materialize and they may have a material adverse effect on CSSE’s or Redbox’s results of operations, cash flows, financial position and stock prices.
The market prices and trading volume that the shares of Redbox Class A Common Stock have recently experienced, and may continue to experience, extreme volatility, which could cause the Redbox Class A stockholders or stockholders of the combined companies following the consummation of the Mergers to incur substantial losses.
The market prices and trading volume volatility that the shares of Redbox Class A Common Stock have recently experienced, and may continue to experience, could cause the Redbox Class A stockholders or
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stockholders of the combined companies following the consummation of the Mergers to incur substantial losses. For example, so far during 2022, the market price of the shares of Redbox Class A Common Stock has fluctuated from an intra-day low of $1.68 per share on February 2, 2022 to an intra-day high on the Nasdaq of $18.20 on June 13, 2022. The reported sale price of the shares of Redbox Class A Common Stock on the Nasdaq on July 8, 2022 was $6.22 per share. So far during 2022, daily trading volume ranged from approximately 54,236 to 159,892,438 shares.
Redbox believes that the recent volatility and Redbox’s current market prices reflect market and trading dynamics unrelated to the underlying business of Redbox, the consideration Redbox Class A stockholders will receive if the Mergers are successfully consummated, or macro or industry fundamentals, and Redbox does not know how long these dynamics will last. Extreme fluctuations in the market price of the shares of Redbox Class A Common Stock have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums. The market volatility and trading patterns Redbox has experienced create several risks for investors, including the following:
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the market price of the shares of Redbox Class A Common Stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to Redbox’s operating performance or prospects, the consideration Redbox Class A stockholders will receive if the Mergers are successfully consummated or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that Redbox continues to face; and
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factors in the public trading market for the shares of Redbox Class A Common Stock may include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in Redbox’s securities, access to margin debt, trading in options and other derivatives on the shares of Redbox Class A Common Stock and any related hedging and other trading factors.
Redbox may continue to incur rapid and substantial increases or decreases in its stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting Redbox. Accordingly, the market price of shares of Redbox Class A Common Stock may fluctuate dramatically and may decline rapidly, regardless of any developments in Redbox’s business. Overall, there are various factors, many of which are beyond Redbox’s control, that could negatively affect the market price of the shares of Redbox Class A Common Stock or result in fluctuations in the price or trading volume of the share of Redbox Class A Common Stock prior to the consummation of the Mergers, including:
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the ongoing impacts and developments relating to the COVID-19 pandemic;
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actual or anticipated variations in Redbox’s annual or quarterly results of operations, including its earnings estimates and whether Redbox meets market expectations with regard to its earnings prior to the consummation of the Mergers;
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Redbox’s current inability to pay dividends or other distributions;
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publication of research reports by analysts or others about Redbox or its industry, which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis;
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changes in market interest rates that may cause purchasers of Redbox’s shares to demand a different yield;
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changes in market valuations of similar companies;
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market reaction to the transaction with CSSE;
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market reaction to any additional equity, debt or other securities that Redbox may issue in the future, and which may or may not dilute the holdings of Redbox’s existing stockholders prior to the consummation of the Mergers;
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additions or departures of key personnel;
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actions by institutional or significant stockholders;
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short interest in the Redbox stock and the market response to such short interest;
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the dramatic increase in the number of individual holders of Redbox stock and their participation in social media platforms targeted at speculative investing;
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speculation in the press or investment community about Redbox or the industry in which it operates;
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strategic actions by Redbox or its competitors, such as acquisitions or other investments; and
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investigations, proceedings, or litigation that involve or affect Redbox.
The combined companies following the Mergers will have significant indebtedness that in the aggregate exceeds their current individual debt obligations.
Immediately following the consummation of the Mergers, the combined companies will have significant aggregate indebtedness in excess of the indebtedness for which each company is currently separately liable, and will have significant monthly, quarterly and annual debt and preferred stock dividend obligations, which will need to be met from operational cash flow, existing and future credit facilities, debt financings and/or equity financings, which may not be available to CSSE as and when required or on commercially reasonable terms.
The shares of CSSE Class A Common Stock to be received by Redbox Class A stockholders and Opco LLC Unitholders upon completion of the Mergers will have different rights from shares of Redbox Common Stock or Opco LLC Units.
Upon completion of the Mergers, Redbox Class A stockholders and Opco LLC Unitholders (other than Redbox) will no longer be stockholders of Redbox or unitholders of Opco LLC. Instead, former Redbox Class A stockholders and Opco LLC Unitholders (other than Redbox) will become CSSE Stockholders, and, while their rights as CSSE Stockholders will continue to be governed by the laws of the state of Delaware, their rights will be subject to and governed by the terms of the CSSE certificate of incorporation and the CSSE bylaws. The laws of the state of Delaware and terms of the CSSE certificate of incorporation and the CSSE bylaws are in some respects different than the terms of the Redbox certificate of incorporation, the Redbox bylaws and the Opco LLC agreement, which currently govern the rights of Redbox Stockholders and Opco LLC Unitholders, as applicable. See “Comparison of Equityholder Rights” for a discussion of the different rights associated with shares of CSSE Class A Common Stock, shares of Redbox Common Stock and Opco LLC Units.
Completion of the Mergers may trigger change in control or other provisions in certain agreements to which Redbox is a party.
The completion of the Mergers may trigger change in control or other provisions in certain agreements to which Redbox, Opco LLC or another subsidiary of Redbox is a party. If CSSE, Redbox or their respective subsidiaries are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements, or seeking monetary damages. Even if CSSE and Redbox are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Redbox. Additionally, the completion of the Mergers will constitute a change of control under certain Redbox employment agreements.
For additional details, see “The Mergers — Interests of Certain Redbox Directors and Executive Officers in the Mergers.”
CSSE and Redbox are expected to incur significant transaction costs in connection with the Mergers, which may be in excess of the amount anticipated by them.
CSSE and Redbox have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Mergers, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by CSSE and Redbox whether or not the Mergers are completed. A substantial majority of non- recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs and filing fees. CSSE will also incur costs related to formulating and implementing integration plans, including
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facilities and systems consolidation costs and other employment-related costs. CSSE and Redbox will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Mergers and the integration of the two companies’ businesses. While CSSE and Redbox have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by CSSE or Redbox even if the Mergers are not completed, could have an adverse effect on CSSE’s or Redbox’s financial condition and operating results.
Litigation relating to the Mergers could result in an injunction preventing the completion of the Mergers and/or substantial costs to CSSE and Redbox.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger, or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on CSSE’s and Redbox’s respective liquidity and financial condition.
Lawsuits that may be brought against CSSE, Redbox or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Mergers. In May 2022, CSSE received a request for access to the books and records of CSSE relating to the terms of the Merger Agreement and the transactions contemplated thereby.
One of the conditions to the closing of the Mergers is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the Mergers. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Mergers, that injunction may delay or prevent the Mergers from being completed within the expected timeframe or at all, which may adversely affect CSSE’s and Redbox’s respective business, financial position and results of operation. Either CSSE or Redbox may terminate the Merger Agreement if any court of competent jurisdiction or other governmental entity issues any judgment, order, injunction, rule or decree, or takes any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the Merger Agreement, and such judgment, order, injunction, rule, decree or other action becomes final and nonappealable, so long as the party seeking to terminate the Merger Agreement has used its reasonable best efforts to contest, appeal and remove such judgment, order, injunction, rule, decree, ruling or other action in accordance with the terms of the Merger Agreement.
There can be no assurance that any of the defendants will be successful in the outcome of any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Mergers are completed may adversely affect CSSE’s or Redbox’s business, financial condition, results of operations and cash flows.
The Mergers may be completed even though material adverse changes subsequent to the announcement of the Mergers, such as industry-wide changes or other events, may occur.
In general, either party can refuse to complete the Mergers if there is a material adverse change affecting the other party. However, some types of changes do not permit either party to refuse to complete the transaction, even if such changes would have a material adverse effect on either of the parties. For example, a worsening of CSSE’s or Redbox’s conditions or developments generally applicable to the industry in the United States or any other country where CSSE or Redbox, as applicable, has material operations would not give the other party the right to refuse to complete the Mergers. In addition, the parties have the ability, but are under no obligation, to waive any material adverse change that results in the failure of a closing condition and instead proceed with completing the Mergers. If adverse changes occur that affect either party but the parties are still required or voluntarily decide to complete the transaction, CSSE’s share price, business and financial results after the Mergers may suffer.
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Redbox Class A stockholders are not entitled to appraisal rights in connection with the Mergers.
Appraisal rights are statutory rights that enable stockholders to dissent from certain extraordinary transactions, such as certain Mergers, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the applicable transaction. Under the DGCL, Redbox Class A stockholders will not have rights to an appraisal of the fair value of their shares in connection with the Mergers because they are receiving shares of CSSE Class A Common Stock, and the CSSE Class A Common Stock is expected to continue to be traded on the Nasdaq Global Market during the pendency of and following the effectiveness of the Mergers. Holders of Redbox Class B Common Stock may be entitled to exercise dissenters’ or appraisal rights under Delaware law because shares of Redbox Class B Common Stock will be cancelled in connection with the Mergers with no consideration. However, holders of Redbox Class B Common Stock and Opco LLC Unit have waived the right to exercise appraisal and dissenter rights in connection with the Mergers. See “The Mergers — Appraisal Rights or Dissenters’ Rights” for more information about appraisal rights in connection with the Mergers.
The COVID-19 outbreak may adversely affect CSSE’s and Redbox’s ability to timely consummate the Mergers.
COVID-19 and the various precautionary measures attempting to limit its spread taken by many governmental authorities worldwide has had a severe effect on global markets and the global economy. The extent to which the COVID-19 pandemic continues to impact CSSE’s and Redbox’s respective business operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 variants and the nature and extent of governmental actions taken to contain it or treat its impact, among others. COVID-19 and official actions in response to it have made it more challenging for CSSE, Redbox and relevant third parties to adequately staff their respective businesses and operations, and may cause delay in the companies’ ability to obtain the relevant approvals for the consummation of the Mergers.
There may be unexpected delays in the completion of the Mergers or the Mergers may not be completed at all.
The Mergers are currently expected to close in the third quarter of 2022, assuming that all of the conditions in the Merger Agreement are either satisfied or waived. The Merger Agreement provides that either CSSE or Redbox may terminate the Merger Agreement, under circumstances set forth in the Merger Agreement. Certain events may delay the completion of the Mergers or result in a termination of the Merger Agreement. Some of these events are outside the control of CSSE and Redbox. In particular, completion of the Mergers requires the Requisite Redbox Vote on the Redbox Merger Proposal at the Redbox Special Meeting. If the Requisite Redbox Vote is not obtained at the Redbox Special Meeting (including any postponement or adjournment thereof), either CSSE or Redbox may terminate the Merger Agreement.
CSSE and Redbox may incur significant additional costs in connection with any delay in completing the Mergers or the termination of the Merger Agreement, in addition to significant transaction costs, including legal, financial advisory, accounting and other costs CSSE and Redbox have already incurred. In addition, if the Mergers are terminated under certain circumstances specified in the Merger Agreement, Redbox will be required to pay to CSSE a termination fee of $15 million. Neither CSSE nor Redbox can assure you that the conditions to the completion of the Merger Agreement will be satisfied or waived or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur.
Risks Relating to CSSE Following the Mergers
CSSE may be unable to integrate the business of Redbox successfully or realize the anticipated benefits of the Mergers.
The Mergers involve the combination of two companies that currently operate as independent public companies. The combination of two independent businesses is complex, costly and time consuming, and each of CSSE and Redbox will be required to devote significant management attention and resources to
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integrating their respective business practices and operations. Potential difficulties that the companies may encounter as part of the integration process include the following:
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the inability to successfully combine the business of Redbox in a manner that permits CSSE to achieve, on a timely basis or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the Mergers;
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complexities associated with managing the combined businesses, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
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the assumption of contractual obligations with less favorable or more restrictive terms; and
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potential unknown liabilities and unforeseen increased expenses or delays associated with the Mergers.
In addition, CSSE and Redbox have previously operated and, until the completion of the Mergers, will continue to operate, independently. It is possible that the integration process could result in:
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diversion of the attention of each company’s management; and
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the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.
Any of these issues could adversely affect each company’s ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the Mergers, or could reduce each company’s earnings or otherwise adversely affect the business and financial results of CSSE following the Mergers.
The synergies attributable to the Mergers may vary from expectations.
CSSE may fail to realize the anticipated benefits and synergies expected from the Mergers, which could adversely affect its business, financial condition and operating results. The success of the Mergers will depend, in significant part, on CSSE’s ability to successfully integrate the acquired business and realize the anticipated strategic benefits and synergies from the combination. CSSE believes that the addition of Redbox will complement CSSE’s strategy by providing operational and financial scale, increasing free cash flow, and enhancing CSSE’s corporate rate of return. However, achieving these goals requires, among other things, realization of the targeted cost synergies expected from the Mergers. The anticipated benefits of the transaction may not be realized fully or at all, or may take longer to realize than expected. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than expected or may take longer to achieve than anticipated. If CSSE is not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Mergers within the anticipated timing or at all, CSSE’s business, financial condition and operating results may be adversely affected.
The future results of CSSE following the Mergers will suffer if CSSE does not effectively manage its expanded operations.
Following the Mergers, the size and geographic footprint of the business of CSSE will increase. CSSE’s future success will depend, in part, upon its ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. CSSE may also face increased scrutiny from governmental authorities as a result of the increase in the size of its business. There can be no assurances that CSSE will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the Mergers.
The Mergers may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the termination of existing contracts.
Following the Mergers, some of the customers, distributors, producers, suppliers, vendors, landlords, joint venture partners and other business partners of CSSE or Redbox may terminate or scale back their
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current or prospective business relationships with CSSE or Redbox. In addition, CSSE and Redbox have contracts with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners that may require CSSE or Redbox to obtain consents from these other parties in connection with the Mergers, which may not be obtained on favorable terms or at all. If relationships with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners are adversely affected by the Mergers, or if CSSE, following the Mergers, loses the benefits of the contracts of CSSE or Redbox, CSSE’s business and financial performance could suffer.
As a result of the Mergers, the existing indebtedness of Redbox will be added to CSSE’s consolidated debt. Any inability to support debt repayment requirements, will materially adversely affect CSSE, its operations and financial condition.
As of March 31, 2022, Redbox had aggregate indebtedness of $349.3 million, including its obligations under the Redbox Amended Credit Agreement and under its credit facility with MUFG Union Bank. As of March 31, 2022, CSSE had aggregate indebtedness of $67.9 million, including its obligations under its existing credit facility with Midcap, and under its outstanding publicly traded 9.50% notes (Nasdaq Symbol: CSSEN). In addition, in connection with the execution of the Merger Agreement, CSSE and HPS executed a commitment letter pursuant to which, at the Effective Time, CSSE would obtain from HPS and its affiliates (i) a term loan facility consisting of the conversion, and assumption by CSSE, of all “Senior Obligations” under (and as defined in) the Redbox Amended Credit Agreement (other than any outstanding Sixth Amendment Incremental Revolving Loans under the Redbox Amended Credit Agreement) and (ii) an $80 million revolving credit facility (with any outstanding the Sixth Amendment Incremental Revolving Loans under the Redbox Amended Credit Agreement being deemed, and assumed by CSSE as, revolving loans thereunder). Based on the foregoing, the consolidated indebtedness (excluding debt issuance costs and discounts) of CSSE and Redbox immediately following the Mergers, assuming it occurred on March 31, 2022 would be $389.4 million, with combined monthly and annual debt service obligations of $2.6 million and $32.0 million, respectively. If the combined company’s monthly and annual cash flow is not adequate to cover such debt service obligations, other existing capital resources of CSSE would need to be utilized. If these resources also prove inadequate to service all debt obligations, CSSE will need to secure additional financing through debt and/or equity financings. Any such financings would have the effect of further leveraging CSSE and/or diluting its existing stockholders. If needed, such additional financing may not be available as and when required, or on terms that are commercially reasonable. In the event, CSSE is unable to satisfy its debt service obligations following the Mergers from cash flows from operations and existing resources, and is unable to secure additional financing as and when needed, it may be required to curtail all or some of its operations and/or dispose of assets or take other measures required to diminish such debt service obligations or raise capital resources as necessary to satisfy same. In addition, substantially all of the assets of each of CSSE and Redbox are or will be pledged in connection with such indebtedness, and any event of default under such indebtedness could lead to foreclosure of some or all of such assets.
The market price and trading volume of CSSE Common Stock may be volatile.
The United States stock markets, including the Nasdaq, on which CSSE Common Stock will continue to be listed under the symbol “CSSE” after the Mergers, have experienced significant price and volume fluctuations. As a result, the market price of shares of CSSE Common Stock is likely to be similarly volatile, and investors in shares of CSSE Common Stock may experience a decrease in the value of their shares, including decreases unrelated to CSSE’s operating performance or prospects. Neither CSSE nor Redbox can assure you that the market price of CSSE Common Stock will not fluctuate or decline significantly in the future.
In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect CSSE’s share price or result in fluctuations in the price or trading volume of CSSE Common Stock, including:
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equity issuances by CSSE, or future sales of substantial amounts of CSSE Common Stock by its existing or future stockholders, or the perception that such issuances or future sales may occur;
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changes in market valuations of similar companies;
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fluctuations in stock market prices and volumes;
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additions or departures of executive officers or other key employees;
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CSSE’s operating performance and the performance of other similar companies;
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actual or anticipated differences in CSSE’s quarterly operating results;
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changes in expectations of future financial performance or changes in estimates of securities analysts;
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publication of research reports about CSSE or its industry by securities analysts;
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adverse market reaction to indebtedness CSSE incurs in the future;
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strategic decisions by CSSE or its competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;
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legislative or other regulatory developments that adversely affect CSSE or the industry in which it operates;
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speculation in the press or investment community;
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changes in CSSE’s earnings;
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failure to satisfy the listing requirements of the Nasdaq;
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failure to comply with the requirements of Sarbanes Oxley Act of 2002, as amended;
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actions by institutional stockholders of CSSE;
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changes in accounting principles; and
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general economic and/or market conditions, including factors unrelated to CSSE’s performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert CSSE’s management’s attention and resources, which could have a material adverse effect on CSSE’s cash flows and its ability to execute its business strategy.
The market price of shares of CSSE Common Stock following the Transactions may be affected by factors different from those affecting the price of shares of CSSE Common Stock before the Transactions.
The results of operations of CSSE, as well as the market price of CSSE Common Stock, after the Mergers may be affected by factors different from those currently affecting CSSE’s results of operations and the market prices of CSSE Common Stock. These factors include:
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a greater number of shares of CSSE Common Stock outstanding;
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different stockholders owning shares of CSSE; and
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CSSE owning new assets with different strategic or other requirements than its current operations.
Accordingly, the historical market prices and financial results of CSSE and Redbox may not be indicative of these matters for CSSE after the Transactions.
The market price of CSSE Common Stock may decline as a result of the Transactions.
The market price of CSSE Common Stock may decline as a result of the Transactions if CSSE does not achieve the perceived benefits of the Transactions as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the Transactions on CSSE’s financial results is not consistent with the expectations of financial or industry analysts.
In addition, upon consummation of the Transactions, Redbox shareholders and CSSE stockholders will own interests in a company operating an expanded business with a different mix of properties, risks and liabilities. Current Redbox shareholders and CSSE stockholders may not wish to continue to invest in CSSE, or for other reasons may wish to dispose of some or all of their shares of CSSE Common Stock. If, following the closing of the Transactions, significant amounts of CSSE Common Stock are sold, the price of CSSE Common Stock could decline.
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The CSSE Stock Issuance may cause the market price of CSSE Common Stock to decline.
In connection with the consummation of the Mergers, based on the number of shares of Redbox Class A Common Stock outstanding on July 8, 2022, CSSE expects to issue approximately 4.6 million shares of CSSE Class A Common Stock, which will represent approximately 23.7% of the issued and outstanding shares of CSSE Common Stock (i.e., the CSSE Class A Common Stock and CSSE Class B Common Stock outstanding, as a single class) after consummation of the Mergers. CSSE expects that some Redbox shareholders who receive shares of CSSE Class A Common Stock are likely to sell such shares promptly after the consummation of the Mergers. Both the issuance of this amount of new shares and any subsequent sales of these shares may cause the market price of CSSE Common Stock to decline.
CSSE may need to incur additional indebtedness in the future.
In connection with executing CSSE’s business strategies following the Transactions, CSSE expects to continue to evaluate additional acquisitions and other strategic investment opportunities, and CSSE may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for CSSE, including:
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hindering CSSE’s ability to adjust to changing market, industry or economic conditions;
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limiting CSSE’s ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses;
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limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;
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making CSSE more vulnerable to economic or industry downturns, including interest rate increases; and
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placing CSSE at a competitive disadvantage compared to less leveraged competitors.
The impact of any of these potential adverse consequences could have a material adverse effect on CSSE’s results of operations, financial condition and liquidity.
The unaudited pro forma financial statements included in this proxy statement/information statement/prospectus are presented for illustrative purposes only and may not be an indication of CSSE’s financial condition or results of operations after the Transactions.
The unaudited pro forma financial statements contained in this proxy statement/information statement/prospectus are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates and may not be an indication of CSSE’s future financial condition or results of operations resulting from the Transactions. The actual financial condition and results of operations of CSSE following the Transactions may not be consistent with, or evident from, these unaudited pro forma financial statements. In addition, the assumptions used in preparing the unaudited pro forma financial statements may not prove to be accurate, and other factors may affect CSSE’s financial condition or results of operations following the Transactions. Any potential decline in CSSE’s financial condition or results of operations may cause significant variations in the market price of CSSE Common Stock following the Transactions.
Other Risks Relating to CSSE
As a result of entering into the Merger Agreement and for other reasons, CSSE’s and Redbox’s businesses are and will be subject to the risks described above. In addition, CSSE is, and following completion of the Mergers, CSSE will be, subject to the risks described in CSSE’s Annual Report on Form 10-K for the year ended December 31, 2021 as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are filed with the SEC and incorporated by reference into this proxy statement/information statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement/information statement/prospectus.
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THE CSSE STOCK ISSUANCE
On May 10, 2022, CSSE entered into the Merger Agreement with Redbox Entertainment Inc., Merger Sub Inc., Merger Sub LLC, Opco Merger Sub LLC and Opco LLC. The Merger Agreement provides that, among other things, upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time (a) the First Company Merger shall be consummated in which Merger Sub Inc. with and into Redbox, with Redbox continuing as the Surviving Corporation; (b) simultaneously with the First Company Merger, the Opco Merger shall be consummated in which Opco Merger Sub LLC will merge with and into Opco LLC, with Opco LLC continuing as the surviving entity; and (c) immediately following the First Company Merger and Opco Merger, the Second Company Merger will be consummated in which Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity.
Pursuant to the Merger Agreement, at the Effective Time: (a) each share of Redbox Class A Common Stock will be cancelled and automatically deemed for all purposes to represent the right to receive, 0.087 shares of CSSE Class A Common Stock in accordance with the Exchange Ratio; (b) each Opco LLC Unit, other than the Excluded Opco LLC Units, will be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio; and (c) each share of Redbox Class B Common Stock will be automatically cancelled for no additional consideration. Based on the number of shares of Redbox Class A Common Stock and Opco LLC Units outstanding as of the date of this proxy statement/ information statement/prospectus, an aggregate of approximately 4.6 million shares of CSSE Class A Common Stock would be issued in exchange therefor as the Merger Consideration.
At the Effective Time, the Redbox RSU Awards that are outstanding as of immediately prior to the Effective Time held by each holder will automatically be converted into the right to receive a number of shares of CSSE Class A Common Stock equal to the Exchange Ratio multiplied by the number of vested and unvested Redbox RSU Awards held by such holder immediately prior to the Effective Time.
Immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will own approximately 76.3% and 23.7%, respectively, of the then outstanding CSSE capital stock (CSSE Class A Common Stock and CSSE Class B Common Stock combined). The CSSE Class A Common Stock and CSSE Class B Common Stock are identical except that each share of CSSE Class A Common Stock entitles the holder thereof to one vote and each share of CSSE Class B Common Stock entitles the holder thereof to ten votes on each matter submitted to the CSSE Stockholders for a vote. Each share of CSSE Class B Common Stock is exchangeable for one share of CSSE Class A Common Stock at any time at the election of the holder. Accordingly, immediately following the completion of the Mergers, it is anticipated that persons who were stockholders of CSSE and Redbox immediately prior to the Mergers will control approximately 93.8% and 6.2%, respectively, of the then total voting power represented by the CSSE capital stock (i.e., the CSSE Class A Common Stock and CSSE Class B Common Stock combined).
At the Effective Time, the outstanding public warrants and private warrants of Redbox shall remain outstanding but become the right to receive upon valid exercise thereof shares of CSSE Class A Common Stock equal to the product of (A) the number of shares of Redbox Class A Common Stock subject to such warrant immediately prior to the Effective Time and (B) the Exchange Ratio, with a corresponding change to the exercise price of such warrants based on the Exchange Ratio. Accordingly, a holder would be required to surrender warrants to acquire 11.494 shares of Redbox Class A Common Stock in order to purchase one share of CSSE Class A Common Stock upon exercise of the warrants. Pursuant to Section 4.4 of the warrant agreements governing the Redbox warrants, the per-share exercise price for such warrants will become $132.18 per share of CSSE Class A Common Stock. This is calculated by dividing the current $11.50 per-share exercise price of such warrants by the 0.087 Exchange Ratio.
The issuance by CSSE of the shares of CSSE Class A Common Stock comprising the Merger Consideration and the reservation for future issuance of shares of CSSE Class A Common Stock upon exercise of Redbox’s warrants is referred to herein as the “CSSE Stock Issuance.”
The CSSE Board has unanimously (a) declared that the Merger Agreement, the Mergers and the other Transactions are in the best interests of, CSSE and the CSSE Stockholders, (b) approved and declared
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advisable the Merger Agreement and the Transactions, (c) directed that the CSSE Stock Issuance be submitted to the CSSE Stockholders for approval in accordance with and as required under Nasdaq rules, and (d) recommended that the CSSE Stockholders approve the CSSE Stock Issuance (the “CSSE Board Recommendation”).
On May 11, 2022 and in accordance with the Merger Agreement, the Principal CSSE Holders approved the CSSE Stock Issuance by delivery of the CSSP Written Consent. As of May 11, 2022, the Principal CSSE Holders held the majority of the voting power of outstanding CSSE capital stock (CSSE Class A common stock and CSSE Class B Common Stock combined), with each share of CSSE Class A Common Stock having one vote and each share of CSSE Class B Common Stock having ten votes. Since the CSSE Stock Issuance will result in the issuance of shares of CSSE Class A Common Stock constituting 20% or more of the outstanding CSSE Class A Common Stock, Nasdaq rules require such issuance to be approved by the holders of the majority of outstanding CSSE Common Stock. The CSSP Written Consent constitutes such approval. Therefore, the delivery of the CSSP Written Consent satisfied applicable Nasdaq rules and the requirement in the Merger Agreement that the affirmative vote of the holders of at least a majority of the voting power of the outstanding CSSE Common Stock approve the CSSE Stock Issuance.
No additional approval of the stockholders of CSSE is required to approve the CSSE Stock Issuance, the Merger Agreement, the Mergers and the other Transactions. As a result, CSSE has not solicited and will not be soliciting your vote for the approval of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the CSSE Stock Issuance, the Merger Agreement, the Mergers or the other Transactions.
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PROPOSALS SUBMITTED TO THE REDBOX STOCKHOLDERS
Redbox Proposal 1: The Redbox Merger Proposal
Redbox Stockholders are being asked to approve the Merger Agreement and the Transactions. For a summary and detailed information regarding this proposal, see the information about the Transactions and the Merger Agreement throughout this proxy statement/information statement/prospectus, including the information set forth in sections entitled “The Mergers” beginning on page 47 and “The Merger Agreement” beginning on page 109. A copy of the Merger Agreement is attached as Annex A to this proxy statement/information statement/prospectus.
Pursuant to the Merger Agreement, approval of the Redbox Merger Proposal is a condition to the consummation of the Mergers. If the Redbox Merger Proposal is not approved, the Mergers will not be completed.
Approval of the Redbox Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class.
The Redbox Board unanimously recommends that Redbox Stockholders vote “FOR” the Redbox Merger Proposal.
Redbox Proposal 2: The Redbox Adjournment Proposal
The Redbox Special Meeting may be adjourned one or more times to another time or place, if necessary or appropriate in the view of the Redbox Board, to permit, among other things, further solicitation of proxies, if necessary or appropriate in the view of the Redbox Board, in favor of the Redbox Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.
Redbox is asking the Redbox Stockholders to approve the adjournment of the Redbox Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the Redbox Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.
The approval of the Redbox Adjournment Proposal requires the affirmative vote of the holders of a majority of the Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class, cast by the Redbox Stockholders at the Redbox Special Meeting.
Redbox does not intend to call a vote on the Redbox Adjournment Proposal if the Redbox Merger Proposal considered at the Redbox Special Meeting has been approved at the Redbox Special Meeting.
The Redbox Board unanimously recommends that Redbox Stockholders vote “FOR” the Redbox Adjournment Proposal.
Other Business
At this time, Redbox does not intend to bring any other matters before the Redbox Special Meeting, and Redbox does not know of any matters to be brought before the Redbox Special Meeting by others. If, however, any other matters properly come before the Redbox Special Meeting, the persons named in the enclosed proxy, or their duly constituted substitutes, acting at the Redbox Special Meeting or any adjournment or postponement thereof will be deemed authorized to vote shares of Redbox Class A Common Stock and Redbox Class B Common Stock represented thereby in accordance with the judgment of management on any such matter.
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REDBOX SPECIAL MEETING
This proxy statement/information statement/prospectus is being furnished in connection with the solicitation of proxies from Redbox Stockholders for use at the Redbox Special Meeting. This proxy statement/information statement/prospectus and accompanying form of proxy are first being mailed to the Redbox Stockholders on or about [•], 2022.
Date, Time, Place and Purpose of the Redbox Special Meeting
The Redbox Special Meeting will be held virtually at www.virtualshareholdermeeting.com/RDBX2022SM at 10:00 am Central Time, on August 9, 2022.
At the Redbox Special Meeting, Redbox Stockholders will be asked to consider and vote upon the following matters:
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the Redbox Merger Proposal; and
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the Redbox Adjournment Proposal.
Only business within the purposes described in the Notice of Special Meeting of Redbox’s stockholders may be conducted at the Redbox Special Meeting. Any action may be taken on the items of business described above at the Redbox Special Meeting on the date specified above, or on any date or dates to which the Redbox Special Meeting may be postponed or to which, by original or later adjournment, the Redbox Special Meeting may be adjourned.
Recommendation of the Redbox Board of Directors
After careful consideration and evaluation of the Transactions in consultation with Redbox’s management and advisors, the Redbox Board has unanimously determined that (i) the Merger Agreement and the Transactions, including the Integrated Mergers, are in the best interests of Redbox and its stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions, and (iii) recommended that Redbox Stockholders approve and adopt the Merger Agreement and the Transactions, including the Integrated Mergers, at a duly held meeting of the Redbox Stockholders called for such purpose. The Redbox Board has determined that adjourning the Redbox Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Redbox Merger Proposal is in the best interests of Redbox and its stockholders and has unanimously approved such proposal.
The Redbox Board unanimously recommends the Redbox Stockholders vote “FOR” the Redbox Merger Proposal and “FOR” the Redbox Adjournment Proposal.
Record Date; Voting Rights; Proxies
Redbox has fixed the close of business on July 11, 2022 as the record date for determining holders of issued and outstanding Redbox Class A Common Stock and Redbox Class B Common Stock entitled to notice of, and to vote at, the Redbox Special Meeting. Only the Redbox Stockholders holding issued and outstanding shares at the close of business on the record date will be entitled to notice of, and to vote at, the Redbox Special Meeting, unless a new record date is set in connection with any adjournment or postponement of the Redbox Special Meeting. As of the record date, there were 46,455,098 issued and outstanding shares of Redbox Class A Common Stock and Redbox Class B Common Stock. Each holder of record of Redbox Class A Common Stock and Redbox Class B Common Stock on the record date is entitled to one vote per share. As of the record date, the issued and outstanding Redbox Class A Common Stock and Redbox Class B Common Stock were held by approximately 26,235 beneficial owners. You may submit your proxy either via the Internet, by telephone or by mailing the enclosed proxy card, or you may vote virtually at the Redbox Special Meeting.
Directors and Executive Officers of Redbox
On the record date, less than 1,471,772 of the outstanding shares of Redbox Class A Common Stock and Redbox Class B Common Stock were held by Redbox directors and executive officers and their respective affiliates. Redbox currently expects that the directors and executive officers of Redbox will vote their
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shares in favor of the Redbox Merger Proposal and the Redbox Adjournment Proposal, although none has entered into any agreements obligating them to do so.
Redbox Voting Agreement
Redbox and each of the Redbox Majority Stockholders entered into the Redbox Voting Agreement on April 15, 2022. The Redbox Majority Stockholders collectively hold an aggregate of 6,119,738 shares, or 44.7%, of Redbox Class A Common Stock, and 32,770,000 shares, or 100% of Redbox Class B Common Stock, which represent approximately 83.7% of the total outstanding shares of Redbox Common Stock as of July 8, 2022. Pursuant to the Redbox Voting Agreement, the Redbox Majority Holders have agreed to vote their shares of Redbox (i) in favor of any strategic transaction approved and recommended by the Redbox Board subject to certain terms and conditions, which would include the Integrated Mergers, (ii) in opposition to any transaction involving Redbox that has not been approved and recommended by the Redbox Board, and (iii) in favor of any directors that are proposed or nominated to the Redbox Board by Redbox at any annual meeting of Redbox. Redbox has separately agreed with CSSE that it will not permit any amendment, waiver or modification to the Redbox Voting Agreement that would delay or impair obtaining the Requisite Redbox Vote without CSSE’s prior consent.
The Redbox Voting Agreement, including the irrevocable proxy granted thereunder, will terminate upon the date the Merger Agreement is validly terminated in accordance with its terms. The Redbox Voting Agreement is attached to this proxy statement/information statement/prospectus as Annex C.
Attending the Redbox Special Meeting
In consideration of public health concerns relating to COVID-19, the Redbox Special Meeting will be held virtually. Redbox Stockholders will not be able to attend the Redbox Special Meeting in person. You are entitled to participate in the Redbox Special Meeting if you were a stockholder as of the close of business on July 11, 2022, the record date for the Redbox Special Meeting.
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Attending the Redbox Special Meeting. To attend the Redbox Special Meeting, visit www.virtualshareholdermeeting.com/RDBX2022SM. You will be asked to enter the 16-digit control number found on the proxy card and the voting instruction form that accompanied your proxy materials.
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Voting During the Redbox Special Meeting. If you are a stockholder as of the record date, you may vote during the Redbox Special Meeting by following the instructions available on the meeting website during the meeting.
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Technical Support for the Redbox Special Meeting. If you encounter any difficulties during the check-in process or during the meeting, please call the Redbox Stockholder Meeting Support Line which can be found on the login screen and is available starting at 9:45 a.m. Central Time and until the meeting has finished. Please give yourself sufficient time to log-in and ensure you can hear the streaming audio before the meeting starts.
Whether or not you plan to attend the Redbox Special Meeting, we urge you to vote and submit your proxy in advance of the meeting.
Manner of Submitting Proxies
Each copy of this proxy statement/information statement/prospectus mailed to the Redbox Stockholders is accompanied by a form of proxy card with instructions for voting. If you are a stockholder of record, you may instruct the proxy holders named in the proxy card how to vote your shares of Redbox Class A Common Stock or Redbox Class B Common Stock in one of the following ways:
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Vote by Internet. In order to vote via the Internet, you must go to www.proxyvote.com, have your proxy card or voting instruction form in hand and follow the instructions. If you vote via the Internet, you do not need to return your proxy card. Proxies submitted via the Internet must be received by 11:59 pm Central Time, on August 8, 2022, the day prior to the Redbox Special Meeting
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Vote by Phone. In order to vote by telephone, you must call the toll-free number listed on your proxy card, have your proxy card or voting instruction form in hand and follow the instructions. If you vote by telephone, you do not need to return your proxy card. Proxies submitted by telephone must be received by 11:59 pm Central Time, on August 8, 2022, the day prior to the Redbox Special Meeting.
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Vote by Mail. To vote by mail, sign, date and mail the proxy card in the postage-paid envelope provided. Properly signed and returned proxies will be voted in accordance with the instructions contained therein. Proxies submitted by mail must be received by 11:59 pm Central Time, on August 8, 2022, the day prior to the Redbox Special Meeting.
If you are the beneficial owner of shares of Redbox Class A Common Stock or Redbox Class B Common Stock held in “street name” (that is, through a bank, broker or other nominee), then you should follow the instructions provided to you by your broker, bank or other nominee.
All shares of Redbox Class A Common Stock and Redbox Class B Common Stock that are entitled to vote and are represented at the Redbox Special Meeting by properly executed proxies received before or at the Redbox Special Meeting and not revoked, will be voted at such special meeting in accordance with the instructions indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares will be voted:
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“FOR” the Redbox Merger Proposal; and
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“FOR” the Redbox Adjournment Proposal.
Revocability of Proxies or Voting Instructions
You may revoke a previously granted proxy at any time before it is exercised by any of the following actions:
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Notifying Redbox’s Secretary in writing that you would like to revoke your proxy;
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Completing a proxy card on the Internet, by telephone or by mail with a later date prior to 11:59 p.m. Central Time, on August 8, 2022, the day prior to the Redbox Special Meeting; or
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Attending the Redbox Special Meeting (virtually) and following the instructions available on the meeting website during the meeting.
Any written notice of revocation or subsequent proxy card should be sent to Attention: Corporate Secretary, Redbox Entertainment Inc., 1 Tower Lane, Suite 800, Oakbrook Terrace, IL 60181.
If your shares of Redbox Class A Common Stock or Redbox Class B Common Stock are held on your behalf by a broker, bank or other nominee, you must contact them to receive instructions as to how you may revoke your proxy voting instructions.
Quorum; Abstentions and Broker Non-Votes
The presence in person (virtually) or by proxy of the holders of a majority of the total issued and outstanding shares of Redbox Common Stock entitled to vote at the Redbox Special Meeting as of July 11, 2022 will constitute a quorum, permitting the stockholders to conduct business at the Redbox Special Meeting. If you have returned valid proxy instructions or if you hold your shares of Redbox Class A Common Stock or Redbox Class B Common Stock in your own name as a holder of record and attend the Redbox Special Meeting (virtually), your shares will be counted for the purpose of determining whether there is a quorum. For purposes of the Redbox Merger Proposal, the failure to return your proxy card and other shares not voted (whether by broker non-vote or otherwise) will not be considered present for the purpose of determining the presence of a quorum and will have no effect on the Redbox Merger Proposal. Abstentions will be considered as votes cast and, accordingly, will have the same effect as votes “AGAINST” the Redbox Merger Proposal. Abstentions and the failure to return a proxy card will have no effect on the outcome of the Redbox Adjournment Proposal provided a quorum is otherwise present at the Redbox Special Meeting.
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Broker non-votes occur when nominees, such as banks and brokers holding shares in “street name” on behalf of beneficial owners, do not receive voting instructions from the beneficial owners on how their shares should be voted. If that happens, the nominees may vote those shares of common stock only on matters deemed “routine”, the exchange on which Redbox Common Stock is listed. On “non-routine” matters, nominees holding shares for a beneficial owner cannot vote without instructions from the beneficial owner, resulting in a so-called “broker non-vote.” As each of the proposals to be voted upon at the Redbox Special Meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Redbox Common Stock, your shares of Redbox Common Stock will not be considered present at the Redbox Special Meeting and will not be voted on any of the proposals.
Required Vote
The approval of the Redbox Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class, assuming a quorum is present at the Redbox Special Meeting. In this regard, it should be noted that under the terms of the Redbox Voting Agreement, the Redbox Majority Holders have agreed, subject to limited exceptions, to vote “FOR” the Redbox Merger Proposal. The Redbox Majority Holders own an aggregate number of shares constituting a majority of the outstanding Redbox Common Stock as of the record date, and their affirmative vote will be sufficient to approve the Redbox Merger Proposal.
The approval of the Redbox Adjournment Proposal requires the affirmative vote of the holders of a majority of the Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class, cast by the Redbox Stockholders at the Redbox Special Meeting, assuming a quorum is present at the Redbox Special Meeting.
Regardless of the number of shares you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today or vote via the Internet or by phone.
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THE REDBOX MERGER PROPOSAL
The Redbox Board, after due and careful discussion and consideration, unanimously declared that the Merger Agreement and the transactions contemplated thereby (including the Integrated Mergers) were in the best interests of the Redbox Stockholders and approved and declared advisable the Merger Agreement and the transactions contemplated thereby (including the Integrated Mergers).
The Redbox Board accordingly unanimously recommends that Redbox Stockholders vote “FOR” the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereby (including the Integrated Mergers), as disclosed in this proxy statement/information statement/prospectus, particularly the related narrative disclosures in the sections of this proxy statement/information statement/prospectus titled “The Mergers” and “The Merger Agreement,” and as attached as Annex A to this proxy statement/information statement/prospectus.
The Mergers cannot be completed without the affirmative vote of the holders of a majority of the outstanding Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class. Accordingly, a Redbox Stockholder’s abstention from voting, a broker non-vote or the failure of a Redbox Stockholder to attend the Redbox Special Meeting, virtually or by proxy, and vote will have the same effect as a vote “AGAINST” the Redbox Merger Proposal.
IF YOU ARE A REDBOX STOCKHOLDER, THE REDBOX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE REDBOX MERGER PROPOSAL.
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ADJOURNMENT PROPOSAL
The Redbox Special Meeting may be adjourned one or more times to another time or place, if necessary or appropriate in the view of the Redbox Board, to permit, among other things, further solicitation of proxies, if necessary or appropriate in the view of the Redbox Board, in favor of the Redbox Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.
Redbox is asking the Redbox Stockholders to approve the adjournment of the Redbox Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the Redbox Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.
The approval of the Redbox Adjournment Proposal requires the affirmative vote of the holders of a majority of the Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as a single class, cast by the Redbox Stockholders at the Redbox Special Meeting.
Redbox does not intend to call a vote on the Redbox Adjournment Proposal if the Redbox Merger Proposal considered at the Redbox Special Meeting has been approved at the Redbox Special Meeting.
IF YOU ARE A REDBOX STOCKHOLDER, THE REDBOX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE REDBOX ADJOURNMENT PROPOSAL.
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THE MERGERS
This section of the proxy statement/information statement/prospectus describes the material aspects of the proposed Mergers. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated by reference into this proxy statement/information statement/prospectus, including the full text of the Merger Agreement, a copy of which is attached to this proxy statement/information statement/prospectus as Annex A, for a more complete understanding of the proposed Mergers and the transactions related thereto. In addition, important business and financial information about each of CSSE and Redbox is included in or incorporated by reference into this proxy statement/information statement/prospectus. Please see “Where You Can Find More Information.”
Background of the Mergers
As part of its ongoing review of the business of Redbox, the Redbox Board, together with its senior management, from time to time reviews and assesses Redbox’s strategic business plans, including potential strategic alternatives and other strategies and opportunities to increase stockholder value.
In the first quarter of 2020, Redbox’s predecessor (the “Prior Redbox Entity”) was introduced to CSSE to evaluate various commercial and strategic opportunities between the two companies. On April 17, 2020, the Prior Redbox Entity and CSSE executed a mutual non-disclosure agreement in connection with a potential transaction (the “CSSE NDA”). Over the next several months, the parties negotiated a non-binding term sheet, which was entered into on November 20, 2020 and included a 90-day exclusivity period during which time extensive due diligence was conducted between the parties. The parties failed to reach agreement on the definitive terms of a transaction and the exclusivity period expired in February 2021, following which the Prior Redbox Entity continued to evaluate potential strategic alternatives, resulting in a business combination agreement, dated as of May 16, 2021, with Seaport Global Acquisition Corp., which was consummated on October 22, 2021.
During 2020, the CSSE Board discussed potential transactions with Redbox at regularly scheduled general meetings of the CSSE Board held on each of June 20, 2020, August 19, 2020, October 22, 2020, and December 7, 2020. There was no discussion of any potential transaction with Redbox during any meetings of the CSSE Board during 2021.
Redbox’s business has been negatively impacted by the effects of the ongoing COVID-19 pandemic, which resulted in fewer releases on its platforms than management previously expected and materially worse financial performance. In late 2021 and early 2022, the COVID-19 resurgence with the Omicron variant caused further disruption to the physical movie rentals market due to the reduction in customer traffic resulting from regulatory restrictions on retail stores intended to prevent the spread of COVID-19 and a material decline in new movie releases available to consumers resulting from broad-based movie theater closures and a material slowdown in new productions. On January 28, 2022, Redbox borrowed the remaining availability under its revolving credit facility with HPS Investment Partners, LLC (“HPS”) (the “HPS Credit Agreement”).
Following Redbox’s business combination with Seaport Global Acquisition Corp., CSSE monitored Redbox’s business and operations through review of Redbox’s public filings and held occasional calls with Redbox management.
On February 2, 2022, at the direction of the Redbox Board, Redbox publicly announced that it was evaluating strategic alternatives. Following the announcement, representatives of Apollo Global Management, LLC (“Apollo”), an affiliate of Redbox’s majority stockholder, Redwood Holdco, LP (“Redwood LP”), reached out to CSSE to gauge CSSE’s interest in exploring a potential strategic transaction with Redbox. Later that day, representatives of CSSE contacted Redbox’s Chief Executive Officer to express CSSE’s interest in exploring a potential strategic transaction with Redbox. Also on February 2, 2022, Redbox management spoke with representatives of HPS to discuss additional financing.
On February 3, 2022, Redbox and CSSE executed an amendment to the CSSE NDA.
On February 7, 2022, Redbox engaged Weil, Gotshal & Manges LLP (“Weil”) in connection with its evaluation and execution of various strategic or liability management alternatives, including a potential restructuring of Redbox or its indebtedness.
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On February 8, 2022, Redbox received a financing proposal from HPS for a senior $20 million incremental term loan facility with terms substantially similar to the existing HPS Credit Agreement (the “February 8 HPS Proposal”). Among other things, the February 8 HPS Proposal contemplated a cost-cutting plan and changes to the Redbox Board. The February 8 HPS Proposal further provided that, as a condition to the financing, Redwood LP, the majority stockholder of Redbox, would be required to transfer its equity interests in Redbox to HPS.
On February 10, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox, representatives of Weil and board observers from Apollo at which, among other things, the Redbox Board discussed retaining an investment bank to assist with Redbox’s exploration of strategic alternatives, including potential financings, assets sales, or other strategic transactions. Following the February 10, 2022 Redbox Board meeting, Redbox interviewed several investment banks to serve in various financial advisory roles to Redbox.
On February 14, 2022, the Redbox Board held a videoconference meeting also attended by representatives of Weil and board observers from Apollo at which, among other things, the Redbox Board discussed the retention of Alvarez & Marsal North America, LLC (“A&M”) as a financial advisor to advise with respect to improving Redbox’s financial and operating performance. Redbox and A&M executed an engagement letter on February 14, 2022.
On February 16, 2022, Redbox determined to engage PJT Partners LP (“PJT Partners”) as a financial advisor to Redbox in connection with a possible transaction, restructuring, capital raise and/or amendment to the HPS Credit Agreement. On February 19, 2022, Weil, as counsel to and on behalf of Redbox, and PJT Partners executed an engagement letter under which PJT Partners agreed to provide investment banking services to Redbox in connection with such matters.
On March 2, 2022 and March 3, 2022, PJT Partners held calls with 16 potential third party lenders and circulated non-disclosure agreements to 9 of such potential third-party lenders. Of the 9 potential third party lenders who received non-disclosure agreements, 4 of such potential lenders executed non-disclosure agreements with Redbox. One of the 4 potential third party lenders that executed non-disclosure agreements submitted a financing proposal to Redbox on March 4, 2022 for a superpriority first-lien term loan for up to $50 million, contingent on HPS’s consent (the “March 4 Proposal”). On March 24, 2022, HPS indicated it would not consent to such financing.
On March 3, 2022, at the direction of Redbox, PJT Partners conducted due diligence calls with each of Apollo and HPS with respect to potentially raising $50 million of financing (the “Potential Financing Transaction”). After discussing with Redbox, PJT Partners addressed follow-up due diligence questions to each of Apollo and HPS following the due diligence calls.
On March 7, 2022, Redbox received a financing proposal from Apollo which contemplated a joint financing by Apollo and HPS for a $45 million incremental revolving facility, that, among other things, would provide a limited consent right to HPS with respect to a sale transaction involving Redbox (the “March 7 Apollo Proposal”). The March 7 Apollo Proposal did not contemplate Redwood LP being required to transfer its equity interests in Redbox to HPS.
On March 8, 2022, the Redbox Board, management and A&M discussed A&M's initial observations of management's non-product cost-reduction initiatives.
On March 9, 2022, at the direction of Redbox, PJT Partners held a call with HPS with respect to the March 7 Apollo Proposal, at which time HPS advised that it did not agree to the terms of the March 7 Apollo Proposal.
On March 9, 2022, Redbox management, its advisors and representatives of Apollo had a meeting to discuss A&M’s initial observations of management's non-product cost-reduction initiatives for Redbox and on March 10, 2022, Redbox, its advisors and HPS had a meeting to discuss the same.
On March 10, 2022, the Redbox Board determined that it would be in the best interests of the Company and its stockholders to appoint new board members and establish a strategic review committee (the “Strategic Review Committee”) comprised of disinterested and independent directors to, among other things,
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evaluate and approve strategic alternatives (including financings) that might be available to Redbox. The Redbox Board appointed Kimberly Kelleher and Charles Yamarone to the Strategic Review Committee, in addition to Emanuel Pearlman (who was appointed to the Redbox Board on March 8, 2022).
On March 11, 2022, Party 1, a finance company, contacted PJT Partners to discuss Redbox and potential strategic opportunities.
Throughout this period, CSSE indicated interest in acquiring Redbox to Apollo, HPS, and Redbox which resulted in a tentative structure relating to a proposed acquisition of Redbox and the assumption by CSSE of Redbox’s existing indebtedness owed to HPS.
On March 12, 2022, Redbox opened a virtual data room to share confidential information related to the Potential Financing Transaction for three of the four potential financing parties that had executed non-disclosure agreements with Redbox on March 4, 2022.
Also on March 12, 2022, Redbox received a proposal from HPS, which HPS represented that it had provided to Apollo on or around March 3, 2022 (the “March 12 HPS Proposal”). The March 12 HPS Proposal provided for, among other things, a $30 million incremental revolving credit facility and a consent right for HPS over any sale transactions involving Redbox. The March 12 HPS Proposal did not contemplate Redwood LP being required to transfer its equity interests in Redbox to HPS.
On March 13, 2022, the Strategic Review Committee held its first meeting, which was also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M. The Strategic Review Committee reviewed and discussed with its advisors the terms of the March 4 Proposal, the March 7 Apollo Proposal and the March 12 HPS Proposal as well as the process to be followed in soliciting additional proposals for financing or strategic alternatives from third parties. The Strategic Review Committee authorized the delivery of a counterproposal of Redbox to HPS and Apollo on March 13, 2022, which requested a $50 million incremental revolving credit facility from Apollo and HPS (the “March 13 Counterproposal”). The March 13 Counterproposal retained the right of HPS to consent to a sale of Redbox, but provided that, if the Strategic Review Committee determined that a sale of Redbox was for fair market value, such sale would be deemed to be reasonably acceptable to HPS.
On March 13, 2022, at the direction of Redbox, PJT Partners sent a non-disclosure agreement to Party 1.
Between March 14, 2022 and April 14, 2022, the chairman of the Strategic Review Committee conducted regular update calls with Redbox Management and representatives of Weil, PJT Partners and A&M.
On March 14, 2022, Redbox granted access to a virtual data room to share confidential information related to the financing for an additional potential financing party that executed a non-disclosure agreement with Redbox on the same day.
On March 16, 2022, Redbox received a detailed term sheet for an acquisition proposal from CSSE (the “March 16 CSSE Term Sheet”) which contemplated the assumption of Redbox’s existing indebtedness owed to HPS; an increase of the HPS indebtedness by $55 million to address Redbox’s near-term liquidity pressures; exclusivity; a 45 day go-shop period; and indemnification from Apollo for certain matters. The March 16 CSSE Term Sheet implied an equity valuation of Redbox of approximately $4.5 million, based on the trading prices of Redbox and CSSE at the time of delivery of the March 16 CSSE Term Sheet. The March 16 CSSE Term Sheet also proposed a $15 million termination fee in the event that Redbox decided to pursue an alternative transaction. HPS indicated to CSSE that it was supportive of the proposal outlined in the March 16 CSSE Term Sheet, which support CSSE conveyed to the advisors.
On March 16, 2022, after continued conversations with Apollo and HPS, Redbox provided a revised proposal to HPS and Apollo, which provided for (among other things) a $50 million incremental revolving credit facility from HPS and that HPS would receive warrants for the issuance of equity securities not to exceed 19.9% of the voting and beneficial economic equity interests in Redbox (the “HPS Warrants”).
During the week of March 20, 2022, Redbox engaged in discussions with Party 2, a private equity firm, Party 3, a financial services firm, and Party 4, an investment bank, regarding a potential equity line of credit
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to sell shares at the market price. On March 21, 2022, Redbox received a proposal from Party 2 to purchase up to $75 million of common stock of Redbox over a term of up to 24 months, but not more than 19.9% of Redbox Common Stock, unless shareholder approval was obtained to issue additional shares (the “March 21 Party 2 Proposal”).
On March 20, 2022, Redbox received a revised financing proposal from HPS which provided for a $50 million incremental revolving credit facility from HPS, a signing deadline for a sale transaction of Redbox of April 15, 2022, and a $10 million cap on draws under the proposed incremental credit facility prior to the signing deadline. The terms of the proposal were otherwise similar to the terms of prior proposals received from HPS.
On March 21, 2022, Redbox received an indicative term sheet from Party 3 for a $25-50 million committed equity facility with a term of 18-36 months (the “March 21 Party 3 Proposal”).
On March 22, 2022, Redbox received a revised term sheet from CSSE (the “March 22 CSSE Term Sheet”) which provided for CSSE to acquire all outstanding shares of Redbox for (i) 1,000,000 shares of CSSE Class A Common Stock and (ii) 400,000 shares of CSSE preferred stock. The March 22 CSSE Term Sheet also proposed a 14-day exclusivity period and a $15 million termination fee in the event that Redbox decided to pursue an alternative transaction. The other terms of the March 22 CSSE Term Sheet were substantially the same as the terms in the March 16 CSSE Term Sheet.
On March 22, 2022, at the direction of the Strategic Review Committee, PJT Partners discussed with Apollo and Redbox management a potential minority preferred equity investment in Redbox by Party 5, a company in the theatrical exhibit business, and, with Redbox’s assistance and at its direction, PJT Partners subsequently began preparing materials to share with Party 5 with respect to such investment.
On March 23, 2022, at the direction of the Strategic Review Committee, Redbox sent to HPS a counterproposal which contemplated a June 30, 2022 signing deadline for either a sale transaction or entry into a binding commitment for $50 million of equity financing and/or subordinated debt financing. Redbox’s counterproposal also contemplated an extension of the signing deadline to March 2023 if the Strategic Review Committee decided that such sale transaction was not in the best interests of the loan parties and their relevant stakeholders, or that such sale transaction would otherwise be inconsistent with the exercise of the fiduciary duties of the members of the Strategic Review Committee.
On March 23, 2022, Party 1 and Redbox executed a non-disclosure agreement and Party 1 received materials with respect to a potential strategic investment in Redbox. Party 1 sent due diligence questions to Redbox on March 24, 2022 and Party 1, Redbox and PJT Partners had a due diligence call on March 25, 2022. On March 26, 2022, Redbox declined to share additional materials with Party 1 without receiving a proposal from Party 1 because Party 1 indicated that it would be unable to enter into a strategic transaction on an expedited basis.
On March 23, 2022, at the direction of the Strategic Review Committee, PJT Partners engaged with Party 6, a streaming television service provider, with respect to a potential strategic investment. On April 4, 2022, Party 6 declined the opportunity without signing a non-disclosure agreement or receiving any materials.
On March 23, 2022, Redbox received a due diligence request list from CSSE via CSSE’s financial advisor, Guggenheim Securities.
On March 24, 2022, Redbox management and Party 5 had a discussion with respect to potential commercial opportunities in addition to a potential strategic investment.
On March 24, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil and PJT Partners at which, among other things, the Strategic Review Committee authorized PJT Partners to begin engaging in due diligence with CSSE while Redbox continued to pursue other strategic alternatives in parallel, including the potential equity line transaction with Party 2, a capital raise from Redbox’s existing stockholders, a debt financing transaction with HPS or another financing source and contingency planning for a potential restructuring. In connection with discussing a potential equity line of credit, the Strategic Review Committee discussed that the filing of a Registration Statement on Form S-1 would require review by the U.S. Securities and Exchange
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Commission which could take an additional five to seven days post-filing and a minimum of four to five weeks before potential sales of the shares would occur subsequent to any such filing. Later on March 24, 2022, a member of the Strategic Review Committee, Weil and PJT Partners held a videoconference with HPS and its counsel to further discuss Redbox’s counterproposal sent to HPS on March 23, 2022.
Between March 24, 2022 and May 10, 2022, Redbox engaged with CSSE regarding CSSE’s due diligence requests.
On March 25, 2022, at the direction of the Strategic Review Committee, PJT Partners held a call with Party 4 to discuss the potential opportunity regarding a potential equity line of credit to sell shares at the market price, during which Party 4 declined to move forward with submitting a proposal.
On March 25, 2022, Redbox received revised financing proposals from each of HPS (the “March 25 HPS Proposal”) and Apollo (the “March 25 Apollo Debt Financing Proposal”). The March 25 HPS Proposal required that Redbox enter into a sale transaction by April 20, 2022 and capped draws under the incremental revolving credit facility at $10 million prior to such signing deadline. The March 25 HPS Proposal also provided that if definitive documents for a sale transaction were not executed by such date, the HPS Warrants would become exercisable. The March 25 Apollo Debt Financing Proposal contemplated that HPS would provide a $50 million incremental revolving credit facility and required that Redbox enter into either a sale transaction or equity financing commitment to repay the HPS Credit Agreement by June 30, 2022; if definitive documents for such a sale transaction or the equity financing commitment were not entered into or incremental loans were not paid in full by such date, the HPS Warrants would become exercisable. Additionally, the March 25 Apollo Debt Financing Proposal did not cap borrowing on the proposed $50 million incremental revolving credit facility pre-signing, and provided for an extension of the sale milestone to March 2023 if the Redbox Board exercised a termination right to enter into a superior proposal, and otherwise proposed terms substantially similar to previous financing proposals. That same day, Apollo provided an alternative proposal in connection with a proposed equity financing that contemplated a $50 million secured revolving loan from Apollo, Party 2 and Seaport (the “Second March 25 Apollo Debt Financing Proposal”). The Second March 25 Apollo Debt Financing Proposal contemplated that Apollo and Seaport would collectively receive an additional 19.9% of Redbox’s equity if Redbox did not receive equity proceeds sufficient to repay the incremental financing in full and terminate commitments by June 30, 2022. On March 27, 2022, Redbox sent Apollo a counterproposal which provided, among other things, that capital to be invested in Redbox would be in the form of preferred equity. On March 30, 2022, Apollo rejected Redbox’s terms and reaffirmed its willingness to engaged in a transaction on the terms of the Second March 25 Apollo Debt Financing Proposal.
Also on March 25, 2022, Redbox received a draft of a common stock purchase agreement and registration rights agreement from Party 2 in connection with the March 21 Party 2 Proposal. The common stock purchase agreement contemplated an approximately $75 million purchase of newly issued Redbox Class A Common Stock (i.e., 19.9% of Redbox Class A Common Stock, with the purchase of any shares above this cap requiring shareholder approval) and registration of such shares on a Registration Statement on Form S-1 by May 6, 2022. On March 27, 2022, Redbox executed a non-disclosure agreement with Party 2.
On March 28, 2022, Redbox shared an investor presentation and delivered an illustrative term sheet which outlined a $50 million convertible preferred equity investment opportunity to Party 5 (the “March 28 Party 5 Term Sheet”). Additionally, on March 29, 2022 and March 30, 2022, at the direction of the Strategic Review Committee, PJT Partners separately contacted Seaport and an investment firm, respectively, seeking potential equity financing, both of which declined to provide such financing.
On March 30, 2022, Redbox received comments from Party 2’s counsel on the common stock purchase agreement and registration rights agreement.
On March 31, 2022, the Strategic Review Committee held a videoconference meeting, also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, PJT Partners reviewed with the Strategic Review Committee Redbox’s efforts to raise capital, the status of negotiations with HPS and Apollo regarding potential incremental financing and PJT Partners’ outreach efforts relating to debt and equity financing from third parties. The Strategic Review Committee discussed PJT Partners’ continued outreach efforts to strategic parties and also discussed the March 21 Party 2 Proposal and the March 25 HPS Proposal.
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On March 31, 2022, Redbox was unable to file its Annual Report on Form 10-K (the “Form 10-K”), which resulted in Redbox’s existing Registration Statement on Form S-1 being suspended for purposes of resales by selling stockholders of Redbox’s Class A Common Stock and warrants.
During this period, CSSE, together with Guggenheim, engaged in extensive due diligence regarding Redbox, which included videoconferences with Redbox, its Strategic Review Committee, and HPS.
On April 1, 2022, Redbox filed a Notification of Late Filing on Form 12b-25 with respect to its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and disclosed that it was continuing to assess whether substantial doubt existed about its ability to continue as a going concern. The Form 12b-25 also disclosed that Redbox had been exploring a number of potential strategic alternatives with respect to Redbox’s corporate or capital structure and seeking financing to fund operations and one-time restructuring costs.
In early April 2022, at the direction of the Strategic Review Committee, PJT Partners (i) engaged with Party 7, a publicly traded company that designs and sells home theatre systems, Party 8, a hardware digital media manufacturer and also a streaming media content provider, Party 9, a TV network, and Party 10, a global digital sports platform, with respect to a potential strategic investment in Redbox and (ii) again contacted Party 6, which informed PJT Partners that it did not wish to participate in a potential strategic investment.
On April 4, 2022, at the direction of the Strategic Review Committee, Redbox sent to HPS a financing counterproposal which provided for, among other things, an extension of the signing deadline for a sale transaction from April 20, 2022 to May 31, 2022, no interim cap on borrowings under the proposed incremental revolving credit facility, and a waiver of HPS’s consent rights over any sale transaction of Redbox that repaid HPS in full in cash. The terms of the counterproposal were otherwise similar to the March 25 HPS Proposal.
On April 5, 2022, Party 2 informed Redbox that it would not be able to proceed with the equity line financing transaction, as it was unable to secure approval from its internal investment committee.
On April 5, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Strategic Review Committee discussed Redbox’s counterproposal to HPS, the CSSE proposal, Party 2’s decision not to pursue any transaction with Redbox and PJT Partners’ outreach to other potential third parties in respect of a Potential Financing Transaction.
On April 5, 2022, Party 5 rejected the March 28 Party 5 Term Sheet. On April 6, 2022, at the direction of the Strategic Review Committee, PJT Partners sent Party 5 a revised term sheet that provided for a convertible preferred investment of $25 million from Party 5 and $25 million from Apollo and other investors. However, Party 5 did not engage on the revised proposal.
Given Apollo’s majority voting interest in Redbox and certain consent rights pursuant to that certain Stockholders Agreement dated October 22, 2021 (the “Stockholders Agreement”), any sale transaction contemplated by the proposals received from HPS, such as the March 25 HPS Proposal, would require Apollo’s consent. On April 6, 2022, Apollo indicated to Weil that it would consent to such proposal if, among other things, the outstanding loan amount of Redbox under that certain credit facility with MUFG Union Bank (which loan is guaranteed by Apollo) would not exceed $5 million and any undrawn commitments thereunder would be terminated, and that any repayments of such facility would permanently terminate such commitments. Additionally, Apollo expressed its willingness to support any sale transaction approved by the Strategic Review Committee if certain specified conditions were satisfied.
On April 6, 2022, at the direction of the Strategic Review Committee, PJT Partners had an initial call with Party 8 to discuss the potential for a strategic investment in Redbox.
On April 6, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Strategic Review Committee discussed the exchange ratio proposed by CSSE in the
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March 22 CSSE Term Sheet and the terms of a potential counterproposal to CSSE, as well as PJT Partners’ outreach efforts to Party 7, Party 8 and Party 9 as potential counterparties to a strategic investment in Redbox.
Later that day, Redbox responded to the March 22 CSSE Term Sheet and proposed that CSSE acquire all outstanding shares of Redbox Common Stock at an exchange ratio of 0.115 share of CSSE Class A Common Stock per share of Redbox Common Stock and 0.25 CSSE warrants per Redbox warrant and that the definitive documentation include a go-shop period for the Redbox Board to solicit alternative proposals for a sale transaction and a termination fee of $2 million.
On April 7, 2022, Redbox received the initial draft of the Sixth Amendment to the HPS Credit Agreement from HPS, which provided, among other things, that (i) HPS would provide $10 million of incremental revolving credit financing at closing of the Sixth Amendment, and an additional $40 million of incremental revolving credit financing if an acceptable sale transaction was signed by April 30, 2022, or it would constitute an event of default under the HPS Credit Agreement, and that (ii) the sale transaction must be consummated by September 30, 2022, or it would constitute an event of default under the HPS Credit Agreement.
On April 7, 2022, Weil received access to a data room hosted by CSSE to review diligence materials requested by Redbox in contemplation of a potential sale transaction with CSSE providing for the payment of CSSE stock consideration to Redbox Stockholders.
On or around April 7, 2022, at the direction of the Strategic Review Committee, Redbox requested that Redwood LP grant a waiver of certain rights under the Tax Receivable Agreement among Redbox, Opco LLC and Redwood LP to any payments that would be due to Redwood LP in connection with a transaction that resulted in a change of control (within the meaning of the Tax Receivable Agreement).
On April 8, 2022, Redbox received a revised term sheet from CSSE (the “April 8 CSSE Term Sheet”), which provided for the holders of Redbox Common Stock to receive 2,000,000 newly issued shares of Series B preferred stock of CSSE with an implied value of approximately $20 million. The April 8 CSSE Term Sheet also provided for a “force-the-vote” construct whereby, in the event that a superior proposal was received by Redbox following execution of a merger agreement with CSSE, the Redbox Board could change its recommendation that Redbox Stockholders vote in favor of the CSSE transaction but Redbox would not be permitted to terminate the merger agreement with CSSE in order to accept the superior proposal and would still be required to hold the Redbox Stockholders Meeting seeking approval of the CSSE transaction. In such case, Apollo’s affiliates would be required to vote a specified percentage of their shares of Redbox Common Stock in favor of the transaction. The April 8 CSSE Term Sheet also rejected Redbox’s request for a go-shop period and included an exclusivity period of 14 days.
On April 8, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Strategic Review Committee discussed an update on the status of negotiations with CSSE and Redbox’s request that Redwood LP waives certain rights under the Tax Receivable Agreement to any payments that would be due to Redwood LP in connection with a transaction that resulted in a change of control (within the meaning of the Tax Receivable Agreement).
On April 9, 2022, Redbox received feedback from Apollo on the April 8 CSSE Term Sheet and HPS’s proposal to provide financing. Apollo indicated that it would consent to a sale transaction provided that such sale transaction was on terms no less favorable than those set forth on the CSSE term sheet, and the following conditions were satisfied: (i) Redbox’s B-2 term loan would remain outstanding or be converted into stock in the surviving company in accordance with the April 8 CSSE Term Sheet, (ii) the transaction would provide for customary post-closing director and officer indemnification and insurance provisions, and (iii) there would be customary mutual releases among the parties.
On April 10, 2022, at the direction of the Strategic Review Committee, Redbox sent initial drafts to HPS and Apollo of (i) the Voting and Support Agreement among Redbox, Seaport and Apollo, (ii) the Omnibus Consent among Apollo, Seaport and HPS and (iii) the Waiver Under Tax Receivable Agreement among Redbox, Redwood LP and Opco LLC in order to effect the terms of the HPS financing proposal, each as described in the Current Report on Form 8-K which was filed by Redbox on April 15, 2022.
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On April 10, 2022, at the direction of the Strategic Review Committee, Redbox responded to HPS’s draft of the Sixth Amendment to the HPS Credit Agreement. Redbox requested that HPS provide $15 million of incremental revolving credit financing at closing of the Sixth Amendment to the HPS Credit Agreement, and an additional $35 million of incremental revolving credit financing if definitive documentation with respect to an acceptable sale transaction was signed by May 20, 2022. On April 11, 2022, Apollo responded to the Redbox revised draft of the Sixth Amendment to the HPS Credit Agreement and indicated additional conditions for Apollo to agree to support any sale transaction, including customary registration rights for CSSE securities. In addition, Apollo indicated that Redwood LP would agree, in connection with the HPS financing, to waive any change of control under the Tax Receivable Agreement involving a change in the composition of the Redbox Board and, in connection with a strategic transaction that satisfies certain conditions, to terminate the Tax Receivable Agreement in full and waive any rights to payments thereunder.
On April 10, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Strategic Review Committee reviewed the status of negotiations with CSSE and Redbox’s alternatives to signing the Sixth Amendment to the HPS Credit Agreement, including filing for chapter 11.
On April 10, 2022, Redbox received an initial draft of the proposed Merger Agreement from CSSE which was substantially consistent with the terms of the April 8 CSSE Term Sheet.
During this period, CSSE continued its due diligence on Redbox with a focus on synergy analysis conducted with Guggenheim and Redbox.
Between April 11, 2022 and April 13, 2022, at the direction of the Strategic Review Committee, PJT Partners engaged in separate follow-up discussions with Party 7, Party 9 and Party 10 in respect of a potential strategic investment in Redbox. Following such discussions, Redbox and Party 9 executed a non-disclosure agreement and Party 10 informed PJT Partners that it would not proceed with the potential strategic investment opportunity. Thereafter, Party 9 was provided with materials with respect to a potential strategic investment and PJT Partners and Redbox engaged with Party 9 on due diligence matters.
On April 12, 2022, HPS responded to the revised draft of the Sixth Amendment to the HPS Credit Agreement circulated by Redbox on April 10, 2022, and agreed to provide $15 million of incremental revolving credit financing at closing of the amendment and an additional $35 million of incremental revolving credit financing if definitive documentation with respect to an acceptable sale transaction with HPS was signed by April 30, 2022. Further, HPS’s proposal provided that such acceptable sale transaction would have to be consummated by October 31, 2022, or it would be an event of default under the HPS Credit Agreement.
On April 12, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Strategic Review Committee discussed with Redbox’s advisors the terms of the April 8 CSSE Term Sheet and terms for a potential counterproposal to CSSE. The Strategic Review Committee also reviewed and discussed with Redbox’s advisors a preliminary, illustrative waterfall analysis of the projected recoveries prepared by A&M and the comparison of projected recoveries in an out-of-court transaction as compared to an in-court process. The Strategic Review Committee authorized Redbox to provide to CSSE the counterproposal on the terms discussed at the meeting. Later that day, Redbox sent to CSSE its revised proposal which provided options that would be acceptable to the Strategic Review Committee, including exchanging all of the outstanding Redbox Common Stock for (i) 2,711,000 newly issued shares of Series B preferred stock of CSSE with liquidation preference of $20 per share and dividend rate of 5%, (ii) CSSE Class A Common Stock based on an exchange ratio of 0.055 shares of CSSE Class A Common Stock per share of Redbox Common Stock and warrants in CSSE based on an exchange ratio of 0.125 warrants per share of Redbox Common Stock or (iii) CSSE Class A Common Stock based on an exchange ratio of 0.055 shares of CSSE Class A Common Stock per share of Redbox Common Stock and 800,000 shares of CSSE Series A Preferred Stock with liquidation preference of $25 of share and dividend rate of 9.75%. The revised Redbox proposal also provided for the option of Redbox to be the surviving issuer and CSSE stockholders to receive Redbox Common Stock in an exchange, such that former Redbox Stockholders would retain approximately 18.25% of the surviving combined company, without taking into
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effect dilution for Apollo’s B-2 term loan being converted into stock in the surviving company. The Redbox proposal further provided for a customary fiduciary-out provision, a go-shop provision and eliminated the exclusivity period in exchange for an increased termination fee of $5 million.
On April 13, 2022, CSSE sent to Redbox a revised proposal reflecting Redbox as the surviving issuer in the proposed transaction (the “April 13 CSSE Term Sheet”). The April 13 CSSE Term Sheet provided that that former Redbox Stockholders would retain approximately 18.25% of the surviving combined company, provided that such amount would be on a fully-diluted basis (and would take into account dilution for Apollo’s B-2 term loan being converted into stock in the surviving company). The April 15 CSSE Term Sheet again proposed a “force-the vote” construct and 14-day exclusivity period, and provided that, in the event that Redbox exercised its right to change its recommendation, CSSE would receive a $2 million termination fee.
On April 13, 2022, at the direction of the Strategic Review Committee, Redbox responded to HPS’s revised draft of the Sixth Amendment to the HPS Credit Agreement and requested that HPS provide $15 million of incremental revolving credit financing at closing of the amendment, and an additional $35 million of revolving credit financing if definitive documentation for an acceptable transaction was signed by May 10, 2022 (rather than April 30, 2022). HPS agreed to these requested changes in a revised draft of the Sixth Amendment to the HPS Credit Agreement sent to Redbox on April 14, 2022.
On April 14, 2022, a representative on behalf of Redbox contacted Party 11, a multinational electronics corporation, regarding a potential strategic investment in Redbox. A follow-up outreach was made on April 18, 2022 and again on April 23, 2022, and Party 11 declined to engage in further discussions.
On April 14, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners and A&M at which, among other things, the Redbox Board and the Strategic Review Committee discussed the merits and advisability of Redbox entering into the Sixth Amendment to the HPS Credit Agreement in light of, among other things, Redbox’s liquidity position and the lack of other better or viable debt or equity financing transactions or other alternatives available to Redbox. After PJT Partners provided its summary of its efforts to engage in discussions with potential third party financing sources, the Strategic Review Committee determined that there were no actionable financing options preferable to the financing proposed by HPS in the Sixth Amendment to the HPS Credit Agreement. Members of the Strategic Review Committee discussed, among other things, (i) Redbox’s need for liquidity, absent which, Redbox would likely need to file for bankruptcy and (ii) the additional time negotiated for under the Sixth Amendment to the HPS Credit Agreement to execute a sale transaction or other agreement (which provided that Redbox would be required to execute a sale transaction on or before May 10, 2022 (rather than April 30, 2022)), both of which supported their decision to approve entering into the Sixth Amendment to the HPS Credit Agreement. The Strategic Review Committee also discussed Redbox’s entry into certain ancillary agreements including the Voting and Support Agreement, the Waiver under the Tax Receivable Agreement and the Omnibus Consent and approved Redbox entering into the Sixth Amendment to the HPS Credit Agreement and related ancillary agreements. Following such approval, a meeting of the Redbox Board was held to update the Board on the Strategic Review Committee’s decision.
On April 15, 2022, Redbox executed the Sixth Amendment to the HPS Credit Agreement which provided up to $50 million in additional financing with $15 million of incremental revolving loan commitments made available on April 15, 2022, and an additional $35 million to be made available if an acceptable transaction was signed by May 10, 2022. Redbox: (a) simultaneously signed the Voting and Support Agreement with Apollo and its affiliates, which provided that Apollo would vote (i) in favor of any transaction approved and recommended by the Redbox Board, subject to satisfying certain conditions, (ii) against any transaction involving Redbox that had not been approved and recommended by the Redbox Board, and (iii) in favor of any directors that were proposed or nominated to the Redbox Board by Redbox at any annual meeting of Redbox; (b) agreed to implement certain changes to its board of directors; and (c) issued to HPS the HPS Warrants with an exercise price of $0.0001 per share to purchase 11,416,700 shares of Redbox Class A Common Stock not to exceed 19.9% of Redbox’s outstanding Equity Interests (as defined in the Warrant Agreement). The stockholder parties to the Stockholders Agreement agreed to provide such consents as required under the Stockholders Agreement, and to waive certain rights, as applicable, under the Stockholders Agreement, or under any other applicable organizational document,
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stockholder agreement, investor rights or similar agreement of Redbox as to which the stockholder may be a party to or beneficiary of, in connection with its agreement to support a transaction. Upon signing the Merger Agreement, the HPS Warrants would become void and all rights and interests of the HPS warrant holders would no longer be in effect thereunder. In connection with entry into the Voting Rights Agreement, pursuant to the Waiver Under Tax Receivable Agreement acknowledged by Redbox and Opco LLC, Redwood LP agreed to permanently and irrevocably waive certain rights to a potentially material payment that would be due to Redwood LP in connection with certain current and future changes of control (within the meaning of the Tax Receivable Agreement, to the extent involving changes in the membership of the board of directors of Redbox). In addition, under the Voting and Support Agreement, Redbox and Redwood LP agreed, in connection with the consummation of a transaction, to (a) terminate the Tax Receivable Agreement upon the consummation of a Transaction and (b) waive all claims under the Tax Receivable Agreement with such waiver being effective upon the consummation of such transaction. In connection with executing the Sixth Amendment to the HPS Credit Agreement and the Voting and Support Agreement, Redbox, Apollo and HPS also agreed that the B-2 term loan would be converted into stock in the surviving company in a sale transaction (the “B-2 Exchange”) and that the parties would execute customary mutual releases among CSSE, Redbox, HPS, and Apollo (the “Mutual Release”) in connection with signing definitive documents for a sale transaction.
On April 15, 2022, Redbox sent to CSSE a revised proposal which increased the consideration that Redbox Stockholders would receive to result in former Redbox Stockholders retaining approximately 21% of the surviving combined company on a fully-diluted basis and increased the termination fee to $6 million in exchange for dropping the “force-the vote” construct and the exclusivity period.
That same day, Redbox received a revised proposal back from CSSE (the “April 15 CSSE Term Sheet”). The Strategic Review Committee reviewed and discussed with Redbox’s advisors the April 15 CSSE Term Sheet, which accepted the structure of Redbox as the surviving issuer and CSSE stockholders receiving Redbox Common Stock in an exchange, such that former Redbox Stockholders would retain approximately 21.9% of the surviving combined company, with such percentage determined on a fully-diluted basis (and would take into account dilution for Apollo’s B-2 term loan being converted into stock in the surviving company). The April 15 CSSE Term Sheet again proposed a “force-the vote” construct and 14-day exclusivity period, and provided that, in the event that Redbox exercised its right to change its recommendation, CSSE would receive a $2 million termination fee.
On April 17, 2022, Redbox sent to CSSE a revised proposal which increased the consideration that Redbox Stockholders would receive to result in former Redbox Stockholders retaining approximately 23.5% of the surviving combined company on a fully-diluted basis and increased the termination fee to $6 million in exchange for dropping the “force-the vote” construct and the exclusivity period. Later that night, CSSE agreed to eliminate the “force-the vote” construct and the exclusivity period in exchange for a $15 million termination fee (the “Final CSSE Term Sheet”).
On April 17, 2022, the Strategic Review Committee held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil and PJT Partners at which, among other things, the Strategic Review Committee discussed with Redbox’s advisors the Final CSSE Term Sheet and authorized Redbox to send CSSE a non-binding letter of intent, together with the Final CSSE Term Sheet. On April 17, 2022, Guggenheim Securities informed PJT Partners that CSSE was prepared to move forward with the proposed transaction on the terms outlined in the Final CSSE Term Sheet.
In accordance with the Sixth Amendment to the HPS Credit Agreement, on April 17, 2022 Messrs. Jay Burnham, Emanuel R. Pearlman, Reed Rayman, Michael Redd, David B. Sambur, Lee J. Solomon, and Charles Yamarone each resigned from the Redbox Board and the Strategic Review Committee was dissolved. Messrs. Gregory Frenzel, Neal Goldman, and Robert Warshauer, who were all determined to be independent, were appointed to the Redbox Board as of April 18, 2022.
On April 19, 2022 the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil and PJT Partners at which, among other things, the Redbox Board reviewed with its advisors the history of the financing and the strategic review process and discussed the parties that PJT Partners had contacted to seek financing as well as the parties that PJT Partners contacted in connection with a potential strategic transaction. The Redbox Board instructed
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PJT Partners to continue to seek to engage with potential counterparties to a potential strategic transaction with Redbox. The Redbox Board discussed with its advisors the potential retention of Duff & Phelps to provide a fairness opinion in connection with the potential transaction with CSSE. On April 20, 2022, Redbox and Duff & Phelps executed an engagement letter for Duff & Phelps to provide a fairness opinion in connection with the proposed transaction between Redbox and CSSE.
On April 21, 2022, CSSE held a regularly scheduled meeting of the CSSE Board at which the CSSE Board was provided an update by CSSE’s management on the potential acquisition of Redbox.
On April 22, 2022, at the direction of Redbox, PJT Partners contacted Party 9 to discuss a potential strategic investment in Redbox.
Also on April 22, 2022, Redbox and CSSE, together with their respective advisors, discussed certain issues regarding the structure of the proposed transaction, and agreed to revise the structure to have CSSE as the acquirer, without altering any economic or other terms. On April 24, 2022, Redbox sent a revised draft of the Merger Agreement to CSSE reflecting the structure of CSSE acquiring Redbox with the same economic and other terms as previously agreed between Redbox and CSSE.
Between April 23, 2022 and April 25, 2022, at the direction of the Redbox Board, PJT Partners contacted 9 additional potential financial buyers, 7 of which declined to pursue a potential acquisition opportunity. Also on April 25, 2022, Party 9 submitted additional due diligence questions after receiving internal approval to engage in further discussions with Redbox. Redbox responded to these additional questions on April 27, 2022.
Between April 25, 2022 and April 28, 2022, Weil circulated (i) to CSSE, HPS and Apollo a draft agreement to effect the B-2 Exchange (the “B-2 Exchange Agreement”) and a draft agreement terminating the Tax Receivable Agreement at closing of a definitive transaction (the “TRA Amendment”) and (ii) to CSSE, HPS, Apollo and Seaport a draft Mutual Release (the “Release Agreement”). Between April 25, 2022 and May 10, 2022, Redbox, CSSE, HPS, Apollo and Seaport negotiated and finalized the B-2 Exchange Agreement, TRA Amendment and Release Agreement.
On April 26, 2022 and April 27, 2022, the Redbox Board held videoconference meetings also attended by members of senior management of Redbox and representatives of Weil and PJT Partners at which, among other things, the Redbox Board reviewed with its advisors the status of the documentation on the proposed transaction with CSSE, including the negotiation with CSSE of the terms relating to the termination fee and fiduciary out provisions. The Redbox Board directed Redbox to request an extension of the May 10, 2022 signing deadline for a sale transaction from HPS under the HPS Credit Agreement to allow Redbox additional time to pursue options for alternative financing or a potential sale transaction with parties other than CSSE.
On April 28, 2022, Redbox requested a 30-day extension of the signing deadline for a sale transaction from HPS under the HPS Credit Agreement and that HPS advance funds under the incremental facility for budgeted expenditures through such extended deadline. On April 29, 2022, HPS responded to the extension request with a list of questions with respect to, among others, the additional funding Redbox expected to need during the proposed extension period.
On April 28, 2022, an investment services company requested and signed a non-disclosure agreement following an initial call with PJT Partners.
On April 29, 2022, Redbox received a revised draft of the Merger Agreement from CSSE, which generally was consistent with the Final CSSE Term Sheet, as modified by discussions between the parties.
On April 29, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners, Duff & Phelps and A&M at which, among other things, the Redbox Board reviewed with its advisors the status of the documentation on the proposed transaction with CSSE, PJT Partners’ continued outreach efforts to other potential strategic or financial transaction counterparties and contingency planning for a chapter 11 filing if the potential transaction with CSSE could not be agreed and signed.
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On May 3, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners, A&M and Duff & Phelps at which, among other things, the Redbox Board reviewed with its advisors the status of the documentation on the proposed transaction with CSSE, PJT Partners’ continued outreach efforts to other potential strategic transaction counterparties, Redbox’s discussion with HPS regarding the extension of the signing deadline for a sale transaction and PJT Partners’ previous discussions with Party 2 regarding a potential committed equity line transaction and whether such discussions could be reopened. The Redbox Board discussed the current trading price of the Redbox Class A Common Stock and discussed whether any alternative transaction to raise additional equity funding could be pursued at this time. Representatives of PJT Partners highlighted potential execution risks associated with alternatives to the CSSE transaction, including, among other things, the elevated level of risk an investor would be required to accept, the size of the investment that would be required to address Redbox’s liquidity needs, the potential disclosure and timing requirements to put in place an effective registration statement required by such investment and the attendant impact any such investment may have on negotiations with CSSE, and the deadline under the credit agreement with HPS. Representatives of PJT Partners discussed with the Redbox Board the considerations relating to a potential transaction with CSSE if Redbox obtained additional time from HPS to seek to pursue an equity raise solution. Representatives of A&M reviewed its preliminary, illustrative waterfall analysis of the projected recoveries to stakeholders in a chapter 11 bankruptcy case versus an out-of-court merger transaction. Representatives of PJT Partners further discussed with the Redbox Board the potential benefits of the CSSE transaction compared to a chapter 11 scenario.
On May 3, 2022, Redbox provided responses to HPS with respect to its questions regarding an extension of the May 10, 2022 deadline to execute a definitive documentation for a sale transaction.
On May 3, 2022, Redbox executed non-disclosure agreements with Party 8 and Party 12, a private equity company. On May 5, 2022, Party 8 was granted access to the virtual data room and, at the direction of Redbox, PJT Partners held a call with Party 8 to discuss a potential strategic transaction. On May 10, 2022, at the direction of Redbox, PJT Partners had a follow-up call with Party 12.
Between May 3, 2022 and May 10, 2022, Redbox and CSSE engaged in negotiations and exchanged drafts of the Merger Agreement.
On May 4, 2022, Redbox sent an initial draft of the disclosure schedule of Redbox (the “Redbox Disclosure Schedule”) to CSSE. Between May 4, 2022 and May 10, 2022, Redbox and CSSE negotiated and finalized the Redbox Disclosure Schedule.
On May 4, 2022, a special meeting of the CSSE Board was held via videoconference at which members of senior management of CSSE also attended to discuss the proposed transactions between CSSE and Redbox. At this meeting, the members of the CSSE Board were presented with a current draft of the Merger Agreement and information materials relating to the terms of the proposed transactions, the business and operations of Redbox, management’s evaluation of the synergies between CSSE and Redbox, information relating to the capital and debt structure of Redbox (and the combined companies following the proposed transactions), and various risks related to the transactions. It was noted by management of CSSE to the CSSE Board that the transactions were still being evaluated by CSSE, were not yet definitive, and terms were still being negotiated and that the CSSE Board was not being asked to approve any transactions at this meeting.
On May 5, 2022, HPS declined to grant Redbox’s request for the 30-day extension of the May 10, 2022 signing deadline for definitive documentation for a sale transaction.
On May 6, 2022, Redbox received a revised draft of the CSSE Disclosure Schedule. Between May 6, 2022 and May 10, 2022, Redbox and CSSE negotiated and finalized the CSSE Disclosure Schedule.
On May 6, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners, A&M and Duff & Phelps at which, among other things, representatives of Weil reviewed with the Redbox Board the fiduciary duties of the Redbox Board, representatives of PJT Partners provided the Redbox Board with an update on the process in respect of the potential transaction with CSSE, including the status of CSSE’s due diligence process and reverse due diligence findings regarding CSSE. Representatives of PJT Partners also presented to the Redbox Board
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a preliminary and illustrative financial analysis regarding the potential transaction with CSSE and a public market overview. Representatives of Duff & Phelps then provided the Redbox Board with a preliminary fairness analysis regarding the potential transaction with CSSE. Representatives of Weil then provided the Redbox Board with an overview of the key legal diligence findings as well an overview of key transaction terms with respect to the potential transaction with CSSE. Representatives of A&M provided the Redbox Board with a liquidity and cash flow update.
On May 9, 2022, the CSSE Board held a special meeting via videoconference at which the Board was updated that the negotiations had made meaningful progress that day. Members of senior management of CSSE and representatives of Guggenheim Securities also attended, at which, among other things, representatives of Guggenheim Securities reviewed their preliminary financial analysis of the potential transaction with Redbox with the CSSE Board. The CSSE Board reviewed and discussed with its financial advisor the key business-related due diligence findings on Redbox, and the Binding Commitment Letter with HPS with respect to the New Credit Agreement. During the meeting, representatives of Guggenheim Securities informed the CSSE Board that Guggenheim Securities has reviewed the potential transaction with its Fairness Opinion and Valuation Committee earlier in the day and was prepared, subject to review of the final terms of the transaction and the definitive documentation for the transaction, to deliver to the CSSE Board an opinion as to the fairness of the exchange ratio for the potential transaction from a financial point of view, to CSSE.
On May 9, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners, A&M and Duff & Phelps at which, among other things, representatives of PJT Partners presented to the Redbox Board an update to its preliminary and illustrative financial analysis of the potential transaction with CSSE. Representatives of Weil reviewed and discussed the Redbox Board’s fiduciary duties under Delaware law. Representatives of Duff & Phelps then presented the Redbox Board with an update of the fairness analysis regarding the potential transaction with CSSE. Representatives of Weil then presented the Redbox Board with an overview of the key legal diligence findings and an overview of key transaction terms with respect to the potential transaction with CSSE. Representatives of A&M provided the Redbox Board with a liquidity and cash flow forecast update. The Redbox Board then discussed Redbox’s ongoing liquidity issues, the process undertaken by Redbox and its advisors to explore strategic alternatives to the CSSE transaction, the lack of any actionable alternative that would offer greater value to Redbox Stockholders, Redbox’s efforts to seek additional time from HPS to explore strategic alternatives, the analysis presented by PJT Partners, the analysis presented by Duff & Phelps, Redbox’s ability to respond to a superior proposal if one should emerge after announcement of the CSSE transaction, and the impact to stakeholder recoveries in the absence of such transaction, including the likelihood that there would be no value for the Redbox Stockholders in the event of a bankruptcy filing, as well as the potential destruction of value for other stakeholders in the event of a bankruptcy filing, and potential harm to Redbox’s critical commercial relationships in the event of a bankruptcy filing. Following the discussion, the Redbox Board concluded that the CSSE transaction was the best alternative available to Redbox and its stockholders in light of all the circumstances, including the lack of any actionable alternatives, an imminent default under the HPS Credit Agreement and the likelihood of a bankruptcy filing in the absence of the CSSE transaction, and that pursuit of the CSSE transaction would be in the best interests of Redbox, its stockholders and other stakeholders. The Redbox Board also discussed Redbox’s entry into the Release Agreement, and representatives of Weil provided an overview and answered questions regarding potential claims that would be released pursuant thereto. The Redbox Board discussed and determined that, in light of the circumstances facing Redbox, the benefits and value of agreeing to the Release Agreement contemplated by the CSSE transaction in order to execute a value maximizing transaction for the benefit of the Redbox and its stockholders as well as other stakeholders, outweighed the risk of not agreeing to the release of claims and losing the opportunity to execute a value-maximizing transaction.
On May 10, 2022, the Redbox Board held a videoconference meeting also attended by members of senior management of Redbox and representatives of Weil, PJT Partners, A&M and Duff & Phelps at which, among other things, representatives of Weil reviewed and discussed the Redbox Board’s fiduciary duties under Delaware law. The Redbox Board then reviewed and discussed with its advisors the key due diligence findings on CSSE, the key terms of the Merger Agreement, the ancillary documents and the Binding Commitment Letter with HPS. During the meeting, representatives of Duff & Phelps delivered to the
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Redbox Board an oral opinion (later confirmed by delivery of a written opinion dated May 10, 2022) that, as of that date and subject to the factors and assumptions set forth in such written opinion, the consideration to be received by the Redbox public stockholders (the holders of the Redbox Class A Common Stock) in the CSSE transaction is fair from a financial point of view to Redbox Stockholders (without giving effect to any impact of the CSSE transaction on any particular stockholder other than in its capacity as a stockholder). The opinion does not address, from a financial point of view, consideration received by any holder of Redbox Class B Common Stock or any Redbox warrant holder. The opinion of Duff & Phelps is more fully described in the section entitled “The Mergers — Opinion of Redbox’s Financial Advisor” beginning on page 84. The Redbox Board again discussed the process undertaken by Redbox and its advisors to explore strategic alternatives to the CSSE transaction, the lack of any actionable alternative that would offer greater value to the Redbox Stockholders, Redbox’s efforts to seek additional time from HPS to explore strategic alternatives, and the impact to stakeholder recoveries in the absence of such transaction, including the likelihood that there would be no value for the Redbox Stockholders in the event of a bankruptcy filing, as well as the potential destruction of value for other stakeholders in the event of a bankruptcy filing, and potential harm to Redbox’s critical commercial counterparties. The Redbox Board reaffirmed its prior conclusion that the proposed transactions with CSSE was the best alternative available to Redbox and its stockholders in light of all the circumstances, and, with the advice and assistance of its financial advisors and outside legal counsel and Redbox’s management, the Redbox Board evaluated and discussed the terms of the Merger Agreement, the ancillary documents, the Binding Commitment Letter and the transactions contemplated thereby, taking into consideration a variety of factors, including those described in the section entitled “The Mergers — Recommendations of the Redbox Board and Its Reasons for the Transactions” beginning on page 63, and unanimously (i) declared that the Merger Agreement and the Transactions (including the Integrated Mergers) were in the best interests of, the Redbox Stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions (including the Integrated Mergers) and (iii) recommended that the Redbox Stockholders approve and adopt the Merger Agreement and the Transactions, including the Integrated Mergers, at a duly held meeting of the Redbox Stockholders called for such purpose.
On May 10, 2022, the CSSE Board held a meeting via videoconference that was also attended by members of senior management of CSSE and representatives of Graubard Miller, counsel to CSSE, at which, among other things, the CSSE Board reviewed and discussed with its legal advisors the key due diligence findings on Redbox, the key terms of the Merger Agreement, the ancillary documents and the Binding Commitment Letter with HPS with respect to the New Credit Agreement. The CSSE Board, taking into consideration a variety of factors, including those described in the section entitled “The Mergers — Recommendations of the CSSE Board and Its Reasons for the Transactions” beginning on page 61, unanimously (i) declared that the Merger Agreement and the Transactions (including the Integrated Mergers) were in the best interests of, the CSSE Stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions (including the Integrated Mergers) and (iii) recommended that the CSSE Stockholders approve the issuance of the shares of CSSE Class A Common Stock to be issued in exchange for the outstanding Redbox Class A Common Stock, and Opco LLC Units and to be reserved for issuance under the existing Redbox public and private warrants.
Also on May 10, 2022, Guggenheim Securities delivered a written opinion to the CSSE Board dated as of May 10, 2022, to the effect that, as of such date, and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, as described in such written opinion, the Exchange Ratio was fair, from a financial point of view, to CSSE. The opinion is more fully described in the section entitled “The Mergers — Opinion of CSSE’s Financial Advisor” beginning on page 74 and the full text of the Guggenheim Securities’ opinion is attached as Annex D to this proxy statement/information statement/prospectus.
Following the meetings of the CSSE Board and the Redbox Board, the parties and their respective advisors worked to finalize and, on the night of May 10, 2022, execute the Merger Agreement (and the related CSSE disclosure letter and the Redbox disclosure letter), the TRA Amendment, the Release Agreement, the B-2 Exchange Agreement as well as the Binding Commitment Letter, which attached an amendment to the HPS Credit Agreement to be entered into between CSSE and HPS at the closing of the transaction. Shortly following receipt of the executed Merger Agreement, CSSE delivered the Written Consent
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of CSSE Controlling Shareholder to Redbox, which satisfied CSSE’s requirement under the Merger Agreement to provide the executed Written Consent within twenty-four hours of execution of the Merger Agreement.
On the morning of May 11, 2022, prior to the opening of trading of Redbox Class A Common Stock and CSSE Class A Common Stock on Nasdaq, Redbox and CSSE issued a joint press release announcing the execution of the Merger Agreement.
Recommendation of the CSSE Board and Reasons for the Mergers
At a meeting held on May 10, 2022, the CSSE Board unanimously determined that the Mergers and the other transactions contemplated by the Merger Agreement were in the best interests of, and were advisable to, CSSE and its stockholders, approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, directed that the CSSE Stock Issuance proposal be submitted to CSSE Stockholders for approval as acquired by Nasdaq rules, and resolved to recommend that CSSE Stockholders approve the CSSE Stock Issuance. The CSSE Board unanimously recommended that CSSE Stockholders vote “FOR” the CSSE Stock Issuance proposal.
In deciding to approve the Merger Agreement and to recommend that CSSE Stockholders approve the CSSE Stock Issuance proposal, the CSSE Board consulted with CSSE’s management and financial and legal advisors and considered several factors.
The CSSE Board considered a number of factors when evaluating the Mergers, many of which support the CSSE Board’s determination that the Mergers and the other related transactions contemplated by the Merger Agreement were in the best interests of, and were advisable to, CSSE and its stockholders. The CSSE Board considered these factors as a whole and without assigning relative weights to each such factor, and overall considered the relevant factors to be favorable to, and in support of, its determinations and recommendations. These factors included:
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the belief that the Mergers will be accretive on key financial metrics beginning in 2022, including cash flow and free cash flow per share, earnings per share and return on capital employed;
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the belief that the combined company will benefit from increased cash flows, further strengthening CSSE’s investment framework by creating a more robust free cash flow profile;
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the belief that the Mergers will result in annual cost savings of approximately $39.0 million through operational efficiencies and reductions in general and administrative and interest expenses, with an expected present value in excess of $258.0 over a ten-year period;
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the belief that the combined company will provide consumers with a powerful and differentiated media platform through the scaled combination of Redbox’s 40 million loyalty members and nationwide footprint of 38,000 rental kiosks and CSSE’s 40 million MAUs and leading film and TV AVOD library;
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the perceived synergies between the companies, including potential revenue generation through marketing and cross-selling across the companies’ respective large customer bases and larger combined library, cost savings with respect to combined library content and new content acquisition and general and administrative savings as a singular public company, including in the areas of insurance, executive compensation, marketing payroll and non-payroll savings;
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the belief that the combined company will use CSSE’s wide content libraries, technology platform and expertise to accelerate the transaction of Redbox’s operation from physical to digital;
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that CSSE will continue to be led by the current experienced CSSE management team and that the addition of key employees of Redbox in connection with the Mergers will add valuable expertise and experience and in-depth familiarity with Redbox’s assets and operations, which will enhance the likelihood of attaining the strategic benefits that CSSE expects to derive from the Mergers;
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the terms of the Merger Agreement, including the structure of the transaction and the conditions to each party’s obligation to complete the Mergers;
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the belief that the restrictions imposed on CSSE’s business and operations during the pendency of the Mergers are reasonable and not unduly burdensome;
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that the Exchange Ratio is fixed and will not fluctuate in the event that the market price of Redbox Class A Common Stock increases relative to the market price of CSSE Class A Common Stock between the date of the Merger Agreement and the closing of the Mergers;
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the likelihood of consummation of the Mergers and the CSSE Board’s evaluation of the likely time frame necessary to close the Mergers;
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the CSSE Board’s knowledge of, and discussions with CSSE management and its advisors regarding, CSSE’s and Redbox’s business operations, financial conditions, results of operations and prospects, taking into account CSSE’s due diligence investigation of Redbox;
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that certain Redbox Stockholders holding, as of May 8, 2022, more than a majority of the combined voting power of the issued and outstanding shares of Redbox Common Stock have entered into voting agreements obligating such stockholders to vote or cause to be voted, as applicable, all of their shares of Redbox Class A Common Stock and Redbox Class B Common Stock in favor of the adoption of the Merger Agreement, as more fully described in the sections titled “Redbox Special Meeting — Voting and Support Agreement with Redbox Principal Holders;” and
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the written opinion of Guggenheim Securities to the CSSE Board, dated as of May 10, 2022, to the effect that, as of such date, and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Exchange Ratio was fair, from a financial point of view, to CSSE. The full text of Guggenheim Securities’ opinion is attached as Annex D to this proxy statement/information statement/prospectus. For more information, see “The Mergers — Opinion of CSSE’s Financial Advisor.”
The CSSE Board also considered a variety of risks and other potentially negative factors concerning the Merger Agreement and the related transactions contemplated thereby. These factors included:
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the possibility that the Mergers may not be completed or that completion may be unduly delayed for reasons beyond the control of CSSE or Redbox;
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that the Exchange Ratio in the Merger Agreement provides for a fixed number of shares of CSSE Class A Common Stock and, as such, CSSE Stockholders cannot be certain prior to closing of the transactions of the market value of the Merger Consideration to be paid, and the possibility that CSSE Stockholders could be adversely affected in the event that the market price of CSSE Class A Common Stock increases relative to the market price of Redbox Class A Common Stock between the date of the Merger Agreement and the closing of the Mergers;
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that there are significant risks inherent in integrating the operations of Redbox into CSSE, including that the expected synergies may not be realized, and that successful integration will require the dedication of significant management resources, which will temporarily detract attention from the day-to-day businesses of the combined company;
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that CSSE will be increasing its indebtedness through Redbox’s existing credit facilities and the New Credit Facility by an aggregate of $321.5 million as of March 31, 2022;
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that the Mergers might not be completed as a result of a failure to satisfy the conditions contained in the Merger Agreement;
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that Redbox’s obligation to close the Mergers is conditioned on the approval of the holders of a majority of the outstanding shares of Redbox Class A Common Stock and Redbox Class B Common Stock, voting together as one class, with respect to the Redbox Merger Proposal;
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Redbox’s ability, under certain circumstances, to terminate the Merger Agreement in order to enter into an agreement providing for a Superior Proposal, provided that Redbox concurrently with such termination pays to CSSE a termination fee of $15 million;
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the substantial costs to be incurred in connection with the Mergers, including the costs of integrating the businesses of CSSE and Redbox;
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that certain Redbox directors and executive officers have interests in the Mergers that are different from, or in addition to, the interests of Redbox Stockholders generally, including, among others, severance rights and rights to continuing indemnification and directors’ and officers’ liability insurance described in the section titled “The Mergers — Interests of Certain Redbox Directors and Executive Officers in the Mergers”;
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the possibility that the $15 million Redbox Termination Fee that Redbox would be required to pay under the Merger Agreement upon termination of the Merger Agreement under certain circumstances would be insufficient to compensate CSSE for its costs incurred in connection with the Merger Agreement and the loss of alternative opportunities;
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the possibility of losing key employees and skilled workers as a result of the expected consolidation of CSSE’s and Redbox’s personnel when the Mergers are completed; and
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other risks of the type and nature described in the section titled “Risk Factors.”
This discussion of the information and factors considered by the CSSE Board in reaching its conclusion and recommendations includes all of the material factors considered by the CSSE Board but is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the CSSE Board in evaluating the Merger Agreement and the related transactions contemplated thereby, and the complexity of these matters, the CSSE Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the CSSE Board may have given different weight to different factors. The CSSE Board did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall analysis of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement and the issuance of CSSE Class A Common Stock pursuant to the Merger Agreement.
It should be noted that this explanation of the reasoning of the CSSE Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section titled “Cautionary Statement Regarding Forward-Looking Statements.”
Recommendation of the Redbox Board and Reasons for the Mergers
By unanimous vote at a meeting held on May 10, 2022, the Redbox Board (i) determined that the Merger Agreement and the Transactions, including the Mergers, are in the best interests of Redbox and its stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions, including the Mergers, and (iii) recommended that Redbox Stockholders approve and adopt the Merger Agreement and the Transactions, including the Integrated Mergers, at a duly held meeting of the Redbox Stockholders called for such purpose. The Redbox Board unanimously recommends that the Redbox Stockholders vote “FOR” the Redbox Merger Proposal and “FOR” the Redbox Adjournment Proposal.
In evaluating the Merger Agreement, the Mergers and the other transaction documents (including the Transactions contemplated by those documents), the Redbox Board consulted with Redbox’s senior management, outside legal counsel and financial advisors. The Redbox Board determined that entering into the Merger Agreement with CSSE provided the best alternative reasonably available to Redbox for maximizing stockholder value, including when compared to continuing to operate on a stand-alone basis and other available, actionable alternatives, including strategic combinations with other counterparties and potential financing opportunities.
In recommending that Redbox Stockholders vote their shares of Redbox Common Stock to approve and adopt the Merger Agreement, the Redbox Board also considered a number of factors, including the following, non-exhaustive list of factors (and not necessarily in order of relative importance):
Consideration. The Redbox Board considered that the acquisition by CSSE provides, in the view of the Redbox Board, (a) the highest consideration payable to Redbox Stockholders that was reasonably obtainable and (b) a price per share of Redbox Class A Common Stock that was unlikely to be achieved on a standalone basis in the near future given Redbox’s liquidity requirements.
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Financing. The Redbox Board considered Redbox’s standalone business plan, financial projections and the risks associated with Redbox’s ability to meet such projections and to execute on its strategic plan given that additional financing, beyond an initial $15 million draw, under the terms of the Sixth Amendment to the HPS Credit Agreement was conditioned on Redbox entering into a sale transaction with a counterparty reasonably acceptable to HPS by May 10, 2022, and that Redbox did not have any alternative sources of debt or equity financing despite efforts to obtain such financing.
Impact on Redbox if a Sale Transaction was not Executed. The Redbox Board considered that the Sixth Amendment to the HPS Credit Agreement required definitive documentation for a sale transaction to be executed by May 10, 2022; failure to enter into an acceptable sale transaction by such date would be an event of default under the Redbox Amended Credit Agreement and would trigger (i) the required lenders’ right thereunder to (a) increase the applicable interest rate by 2.0% and/or (b) accelerate the loans thereunder and require repayment thereof, together with the applicable make-whole amount thereunder, (ii) the issuance of 19.9% of Redbox’s equity to HPS under the HPS Warrants upon exercise thereof, and (iii) the payment of a 4.0% amendment fee.
Avoidance of Chapter 11. The Redbox Board considered that (i) based on advice provided by its advisors, a chapter 11 filing would likely result in no recovery to holders of Redbox Common Stock and Redbox’s creditors’ claims being impaired, as compared to an out-of-court transaction, which would likely result in greater value to the holders of Redbox Common Stock and creditors of Redbox than a chapter 11 filing, and (ii) avoidance of a value-destructive bankruptcy filing would better maintain relationships with Redbox’s studio partners, customers and other vendors.
Potential Synergies. The Redbox Board considered significant cost and revenue synergy opportunities with CSSE, including a unique physical and digital distribution platform and the opportunity to leverage common owned and committed content assets, existing partnerships and access to licensed content.
Termination of the Tax Receivable Agreement. The Redbox Board considered that, in connection with entering into a Merger Agreement with CSSE, affiliates of Apollo agreed to terminate the Tax Receivable Agreement and waive certain payments which would have otherwise been triggered upon a “change in control” under the Tax Receivable Agreement.
Potential Strategic Alternatives. The Redbox Board considered (1) potential alternatives to the acquisition by CSSE, including the possibility of continuing to operate Redbox as an independent entity, filing for bankruptcy, raising equity capital and/or obtaining additional financing and the availability and risks of such alternatives, (2) the potential benefits to Redbox Stockholders of these alternatives and the timing and likelihood of effecting such alternatives, including the impact to stakeholder recoveries in the absence of the CSSE transaction, the likelihood that there would be no value for the Redbox Stockholders in the event of a bankruptcy filing, as well as the potential destruction of value for other stakeholders in a bankruptcy, and potential harm to Redbox’s critical commercial relationships resulting from a bankruptcy filing, (3) the Redbox Board’s assessment that, besides a chapter 11 filing, none of the alternatives considered by the Redbox Board and the Redbox management was reasonably likely to be capable of being consummated prior to the deadline imposed by HPS to enter into a sale transaction or to provide greater certainty and value for Redbox Stockholders and other stakeholders than the CSSE transaction and (4) the fact that Redbox negotiated for a later deadline and HPS declined to grant Redbox’s request for an extension of the May 10, 2022 signing deadline for definitive documentation for a sale transaction.
Fixed Exchange Ratio; Certainty of Value. The Redbox Board considered the fact that the Merger Consideration involves a fixed exchange ratio, providing Redbox Stockholders with certainty as to the consideration to be received in the Mergers and liquidity between signing of the Merger Agreement and the Closing, in comparison to the risks, uncertainty and potential need to file for chapter 11 as would be inherent in remaining a standalone company in light of the circumstances, including the lack of any actionable strategic alternatives, lack of liquidity and an imminent default under the HPS Credit Agreement coupled with an absence of any other viable source of financing to continue the business.
Potential Interested Counterparties. The Redbox Board considered that, since February 2022, at the direction of Redbox, PJT Partners communicated with 26 potential counterparties with respect to a third party financing and 9 potential counterparties regarding an alternative strategic transaction and that Redbox
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