<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 9, 1996
Rentrak Corporation
(Exact Name of Registrant as Specified in its Charter)
Oregon 0-15159 93-0780536
(State of Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification No.)
7227 N.E.55th Avenue,
Portland, Oregon 97218
(Address of Principal Executive Offices) (Zip Code)
(503) 284-7581
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changes Since Last Report)
Index to Exhibits appears at page 6.
<PAGE>
Item 2. Acquisition or Disposition of Assets
Pro Image, Inc., a Utah corporation ("Pro Image") is a wholly owned
subsidiary of Rentrak Corporation ("Rentrak"). Pro Image owns and franchises
retail outlets which sell sports-oriented products and apparel featuring
products licensed by college and professional sports teams. On December 9, 1996,
pursuant to an Asset Purchase Agreement by and among Pro Image, PI Acquisition,
L.C., a Utah limited liability company ("PI Acquisition") and Rentrak dated
December 6, 1996 (a copy of which is attached hereto as Exhibit 2.1 and
incorporated herein by reference), Pro Image sold all of its franchise
operations to PI Acquisition for $1.2 million ($800,000 of which was paid on
December 9, 1996 and $400,000 of which was paid on December 23, 1996). Some of
the members of PI Acquisition are former or current employees of Pro Image. In
addition, on November 1, 1996 and December 6, 1996 Pro Image sold 7 of its owned
retail outlets for an aggregate of approximately $930,000 in two separate
transactions. Pro Image continues to own 37 retail outlets. As previously
announced by Rentrak, Pro Image intends to sell or close all of its remaining
outlets by the end of March 1997.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Information.
-------------------------------
Unaudited pro forma financial information for Rentrak Corporation
includes the following:
(1) Pro Forma Consolidated Balance Sheet dated September 30, 1996
(2) Notes to Pro Forma Balance Sheet.
(b) Exhibits.
--------
The following exhibit is filed with this report:
2.1 Asset Purchase Agreement by and among Pro Image, Inc., PI
Acquisition, L.C. and Rentrak Corporation dated December 6,
1996 (without exhibits)
2
<PAGE>
Rentrak Corporation
PROFORMA CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS: BLOWOUT PRO IMAGE
PRO FORMA PRO FORMA
HISTORICAL ADJ. ADJ. PROFORMA
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash equivalents $ 4,879,700 $1,679,781 (c) $ 6,559,481
Accounts receivable, net allowance
for doubtful accounts of 345,259 15,611,237 15,611,237
Accounts receivable - Affiliate 1,437,811 1,437,811
Advances to program suppliers 1,391,151 1,391,151
Inventory 1,492,983 1,492,983
Deferred tax asset 1,427,969 1,427,969
Other current assets 1,793,786 1,100,000 (c) 2,893,786
------------- ---------- --------------
Total current assets 28,034,637 2,779,781 30,814,418
------------- ---------- --------------
PROPERTY AND EQUIPMENT, net 1,016,678 1,016,678
INTANGIBLES, net 345,132 345,132
NOTES RECEIVABLE, - AFFILIATES 2,800,000 2,800,000
OTHER INVESTMENTS, net 1,772,972 (310,869) (a) 1,462,103
DEFERRED TAX ASSET 3,002,538 3,002,538
OTHER L.T. ASSETS 709,178 709,178
NET NONCURRENT ASSETS OF
DISCONTINUED OPERATIONS 14,749,248 (11,122,512) (b) (260,000)(d) 3,366,736
-----------------------------------------------------------------
TOTAL ASSETS 52,430,383 (11,433,381) 2,519,781 43,516,783
=================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 15,783,433 15,783,433
Accrued liabilities 3,097,497 3,097,497
Accrued compensation 1,544,254 1,544,254
Deferred Revenue 1,436,876 1,436,876
Net Current Liabilities of Discontinued Operations 11,942,858 (3,063,649) (b) 2,519,781 (d) 11,398,990
-----------------------------------------------------------------
Total Current Liabilities 33,804,918 (3,063,649) 2,519,781 33,261,050
-----------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value;
Authorized: 10,000,000 shares
Common stock, $.001 par value;
Authorized: 20,000,000 shares
Issued: 12,141,241 shares 12,141 12,141
Capital in excess of par value 49,088,037 49,088,037
Net unrealized gain on investment securities 45,774 45,774
Accumulated deficit (28,813,933) (8,369,732) (b) (37,183,665)
Less - Deferred charges - warrants (1,706,554) (1,706,554)
-----------------------------------------------------------------
18,625,465 (8,369,732) -- 10,255,733
=================================================================
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 52,430,383 (11,433,381) 2,519,781 43,516,783
=================================================================
</TABLE>
<PAGE>
Rentrak Corporation
NOTES TO PROFORMA CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
The accompanying unaudited pro forma balance sheet as of September 30, 1996 has
been prepared to present the effect of (i) the disposition of BlowOut
Entertainment, Inc. and (ii) the disposition of the Pro Image franchise
operations and certain of its corporate stores (the "Pro Image Dispositions"),
as if such dispositions had occurred on the balance sheet date, September 30,
1996. No pro forma statements of operations for the periods ended March 31, 1996
and September 30, 1996 have been presented as such dispositions were already
reflected as discontinued operations in the March 31, 1996 and September 30,
1996 Rentrak Corporation consolidated financial statements.
The disposition of BlowOut Entertainment, Inc. was previously disclosed in
Rentrak Corporation's Form 8-K filed on December 10, 1996.
The pro forma information is not necessarily indicative of the results that
actually would have occurred had the sale been in effect on the date indicated
or that may be obtained in the future. The pro forma financial information
should be read in connection with the Consolidated Financial Statements and
footnotes thereto included in the Rentrak Corporation 1996 Annual Report to
shareholders.
The pro forma balance sheet has been prepared based upon the historical
financial statements of Rentrak Corporation. Pro forma adjustments are described
below.
(a) Adjustment to reflect Rentrak Corporation's 9.9% investment in BlowOut
Entertainment, Inc.
(b) Adjustment to eliminate the net assets and liabilities of BlowOut
Entertainment, Inc.
(c) Adjustment to record the cash received and the notes receivable due related
to the Pro Image Dispositions.
(d) Adjustment to eliminate the net assets and liabilities of the Pro Image
Dispositions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
Dated: December 31, 1996
RENTRAK CORPORATION
(Registrant)
By: /s/ Carolyn Pihl
-----------------------------------
Carolyn A. Pihl
Chief Accounting Officer
5
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Sequential
Page Number
2.1 Asset Purchase Agreement by and among Pro 7
Image, Inc., PI Acquisition, L.C. and
Rentrak Corporation dated December 6, 1996
(without exhibits)
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
by and among
PRO IMAGE, INC.,
PI ACQUISITION, L.C. and
RENTRAK CORPORATION
Dated: December 6, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 6, 1996, by and among Rentrak Corporation, an Oregon
corporation ("Rentrak"), Pro Image, Inc., a Utah corporation ("Seller"), and PI
Acquisition, L.C., a Utah limited liability company ("Buyer").
RECITALS
--------
A. Seller is a wholly owned subsidiary of Rentrak.
B. Seller is a franchisor of certain retail sports apparel
stores listed on Schedule 2.1(g) of the Disclosure Schedule (as defined herein)
---------------
pursuant to the terms of certain franchise agreements (the "Franchise
Agreements") listed on Schedule 2.1(g) of the Disclosure Schedule. The franchise
---------------
operations of Seller as franchisor under the Franchise Agreements are
hereinafter referred to as the "Franchise Business" and the franchisees under
the Franchise Agreements are hereinafter referred to as the "Franchisees."
C. Buyer wishes to purchase from Seller and Seller wishes to
sell to Buyer, on the terms and subject to the conditions of this Agreement, the
Acquired Assets (as defined in Section 1.2), which constitute substantially all
of the assets used by Seller in connection with the Franchise Business.
D. Buyer and Seller are ready, willing and able to
effect the transfer of ownership in the Acquired Assets on the terms, and
subject to the conditions, described herein.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
------------------------------------
1.1 The Closing.
-----------
Subject to the conditions set forth herein, the consummation of the
transactions contemplated by this Agreement (the "Closing") shall take place on
or before December 9, 1996, at the offices of Ray, Quinney & Nebeker, 79 South
Main Street, Salt Lake City, Utah, or such other date and place as may be agreed
upon by Buyer and Seller (the date of the Closing being hereinafter referred to
as the "Closing Date"). In the event the Closing has not occurred on or before
December 9, 1996, any party hereto may terminate this Agreement by written
notice to the others, and thereafter no party hereto shall have any continuing
liability under this Agreement to any other party hereto with respect to the
transactions contemplated hereby.
<PAGE>
1.2 Purchase and Sale of Acquired Assets.
-------------------------------------
(a) Subject to the terms of this Agreement, on the Closing
Date, Seller shall sell, convey, transfer, assign and deliver to Buyer, and
Buyer shall purchase from Seller, free and clear of all liens, encumbrances,
charges or claims other than Permitted Liens (as defined in Section 2.1(d)),
substantially all of Seller's assets used in the operation of the Franchise
Business, including without limitation the assets of Seller set forth below
(collectively, the "Acquired Assets"):
(i) the Franchise Agreements and all of Seller's rights
and obligations under the Franchise Agreements;
(ii) all of Seller's accounts receivable from
Franchisees which are due and payable under the Franchise
Agreements or due and payable to Seller or its wholly owned
subsidiary, TPI Distributors, Inc. ("TPI Distributors") (and
assigned to Seller by TPI) as of the Closing Date (the
"Accounts Receivable") (but excluding, and the term "Accounts
Receivable" shall exclude, any accounts receivable due and
payable in connection with the Marketing Fund described in
Section 6.9, any accounts receivable owed by Franchisees whose
stores have all closed prior to the Closing Date, any accounts
receivable attributable to royalties owed by Franchisees for
time periods after November 30, 1996, and any other accounts
receivable specifically identified as being excluded (e.g., by
being stricken through) by Buyer and Seller on the schedule of
accounts receivable to be provided at Closing pursuant to
subsection 5.2(a)(i) below);
(iii) any letters of credit deposited with Seller by
foreign Franchisees as security for certain of the Accounts
Receivable;
(iv) all of Seller's rights to unpaid amounts due the
Marketing Fund described in Section 6.9 from Franchisees, but
excluding the Marketing Fund bank account and all sums on
deposit therein as of the Closing Date;
(v) the Proprietary Rights (as defined in Section
2.1(h)), together with all goodwill associated therewith;
(vi) all (A) records and lists of Seller pertaining
primarily to the Acquired Assets, (B) records and lists of
Seller pertaining primarily to the Franchise Business,
including lists of Franchisees of Seller under the Franchise
Agreements, (C) all books, ledgers, files, reports, plans,
drawings and operating records of every kind and in every form
(including computer records) (collectively, the "Records")
maintained by Seller and pertaining primarily to the Franchise
Business, but excluding, without limitation, (x) the originals
of Seller's minute books, stock books and tax returns and (y)
any copies of such Records that Seller shall make prior to the
Closing which Seller deems necessary or desirable to the
operation of its non-franchise retail sports apparel business
(the "Non-Franchise Business");
2
<PAGE>
(vii) to the extent transferable, all licenses,
permits, franchises, approvals, authorizations, consents or
orders of, or filings with, any governmental authority,
whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated
conduct of, or relating primarily to, the Franchise Business
or the Acquired Assets (subject to the following, the
"Licenses"), excluding any of the same which are used only in
the operation of the Non-Franchise Business, including the
tradename, service mark and trademark "Team Spirit;"
(viii) twenty (20) workstations consisting of the
items listed on Schedule 1.2(a)(viii) of the Disclosure
---------------------
Schedule; provided, however, that Seller is only required to
deliver possession to Buyer at the Closing of a minimum of
twelve (12) workstations (as specifically described on
Schedule 1.2(a)(viii)) and may deliver the remaining
--------------------
workstations to Buyer as provided in Section 6.3;
(ix) the personal property more specifically
described on Schedule 1.2(a)(ix) of the Disclosure Schedule;
-------------------
provided, however, that Buyer and Seller shall work in good
faith to enable Seller to share with Buyer the use of items
(i) and (xii) on a mutually acceptable basis (not involving
the payment of funds by Seller) through April 30, 1997; and
(x) all accounts receivable attributable to royalties
owed by Franchisees for time periods after November 30, 1996.
1.3 Purchase Price of Acquired Assets and Payments.
----------------------------------------------
The purchase price (the "Purchase Price") for the Acquired Assets shall
consist of the following:
(a) $800,000.00 in cash payable by Buyer by wire transfer of
immediately available funds on the Closing Date; plus
(b) $400,000.00 payable by Buyer delivering a promissory note
to Seller at Closing in the form attached hereto as Exhibit A (the
---------
"Purchase Note"), which shall not bear interest (unless and until a
default occurs thereunder) and shall be due and payable in full on
December 23, 1996; plus
(c) The AR Payment as defined and paid pursuant to
Section 6.1 hereof.
The Purchase Note, Buyer's obligation to make the AR Payment to Seller and any
other obligations of Buyer to Seller under this Agreement shall be secured by a
security interest in favor of Seller in all of the Acquired Assets, provided
that Seller agrees that its security interest in the Acquired Assets shall be
fully junior and subordinate to any liens and security interests granted to
Buyer's commercial lenders in the Acquired Assets, up to a maximum amount of
$500,000 of such senior debt. Seller agrees to further evidence this
subordination by signing such further subordination agreements and other
documents as may be requested by Buyer's
3
<PAGE>
commercial lenders, in form reasonably acceptable to Seller and such lenders.
Seller's junior security interest in the Acquired Assets shall be granted
pursuant to the terms of a Security Agreement in the form of Exhibit B attached
--------
hereto.
1.4 Assumed Liabilities and Obligations.
-----------------------------------
In connection with the purchase by Buyer of the Acquired Assets, Buyer
shall assume (i) any liability or obligation of Seller (a) to refund the
Marketing Fund in accordance with Section 6.9, but only to the extent of
liabilities or obligations owed to Franchisees (in an aggregate amount not to
exceed $136,009), or (b) to repay to any Franchisees the deposits made by
Franchisees identified on Schedule 1.4 hereto (the "Distribution Deposits"), in
------------
each case whether such obligation arose or arises prior to, on or after the
Closing Date, and (ii) all obligations and liabilities accruing, arising out of,
or relating to the period commencing at 12:01 a.m. on the Closing Date under the
Franchise Agreements (collectively, the "Assumed Liabilities"). Subject to
Section 4.3, the Assumed Liabilities are the only obligations and liabilities of
Seller assumed by Buyer in connection with Buyer's purchase of the Acquired
Assets and, notwithstanding anything to the contrary contained herein, Buyer
shall not be deemed to have assumed any other liabilities or obligations of
Seller of any kind, including without limitation, debts, liabilities or
obligations in respect of any breach of any Franchise Agreement occurring prior
to 12:01 a.m. on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of Seller and Rentrak.
----------------------------------------------------
As an inducement to Buyer to enter into this Agreement, Seller and
Rentrak hereby jointly and severally represent and warrant to Buyer that, except
as set forth in the written disclosure schedule delivered to Buyer herewith (the
"Disclosure Schedule"), as of the date hereof:
(a) Corporate Existence. Seller is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of the State of
Utah and Rentrak is a corporation duly organized, validly existing and in good
standing under the laws of the State of Oregon.
(b) Corporate Power and Authorization. Each of Seller and
---------------------------------
Rentrak has the requisite corporate power and authority to execute, deliver and
perform this Agreement and all other documents required to be executed and
delivered by it hereunder, the execution, delivery and performance of which have
been duly authorized by all necessary corporate action by Seller and Rentrak.
(c) Binding Obligations. This Agreement and all documents
-------------------
required to be executed and delivered by Seller and Rentrak hereunder,
constitute or will constitute, when executed and delivered, legal, valid and
binding obligations of Seller and Rentrak, enforceable against Seller and
Rentrak in accordance with their terms except as limited by bankruptcy,
4
<PAGE>
reorganization, moratorium or other similar laws relating to creditors' rights
generally, or by equitable principles, whether considered in an action at law or
equity.
(d) Title. Seller has good and marketable title to the
-----
Acquired Assets, free and clear of any liens, encumbrances, charges or claims
(collectively, "Liens"), except for minor liens which in the aggregate are not
substantial in amount, do not materially detract from the value of the assets
subject thereto or interfere with the present use thereof, and have not arisen
other than in the ordinary course of business (collectively, the "Permitted
Liens"), and at Closing Seller will convey good and marketable title to the
Acquired Assets to Buyer, free and clear of all Liens other than Permitted
Liens. Notwithstanding the foregoing, the parties acknowledge that Wells Fargo
Bank National Association ("Wells Fargo") has filed liens against the Acquired
Assets. Seller shall cause such liens to be released within five (5) days after
the Closing Date. The Acquired Assets constitute all of the material assets
required to operate the Franchise Business, except for the distribution business
operated by TPI Distributors (which is not being transferred hereby).
(e) Litigation and Claims. No suit, action or other proceeding
---------------------
or investigation is pending or, to Seller's knowledge, threatened before or by
any governmental agency or by any third party questioning the legality of this
Agreement or the consummation of the transactions contemplated hereby in whole
or in part. Except as set forth in Schedule 2.1(e), there are no pending, or to
Seller's knowledge, threatened or anticipated claims, actions, suits, criminal
prosecutions, governmental audits or investigations, arbitrations or proceedings
by or against Seller or its affiliates relating to or affecting the Acquired
Assets or the Franchise Business.
(f) No Conflict or Violation. Neither the execution, delivery
------------------------
or performance by Seller or Rentrak of this Agreement nor the consummation by
Seller or Rentrak of the transactions contemplated hereby, nor compliance by
Seller or Rentrak with any of the provisions hereof, will (i) violate or
conflict with any provision of the Certificate or Articles of Incorporation or
Bylaws of Seller or Rentrak, (ii) violate, conflict with, or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any
encumbrance, lien, charge or claim upon any of the Acquired Assets (other than
as contemplated hereby) under, any of the terms, conditions or provisions of any
contract, lease, permit or other written instrument (including the Franchise
Agreements) (1) to which Seller or Rentrak is a party or (2) by which any
Acquired Assets are bound, (iii) violate any statute, rule, regulation,
ordinance, code, order, judgment, ruling, writ, injunction, decree or award or
(iv) impose any encumbrance, lien, restriction or charge on any of the Acquired
Assets or the Franchise Business (other than as contemplated hereby).
(g) Franchise Agreements; Franchisees. Schedule 2.1(g) of the
--------------------------------- ---------------
Disclosure Schedule lists all of the Franchise Agreements that Seller is a party
to with respect to the Franchise Business and accurately sets forth the current
royalty fee for each such Franchise Agreement. True and correct copies of all of
the Franchise Agreements together with all amendments, schedules and exhibits
thereto have been delivered to Buyer. All of the Franchise
5
<PAGE>
Agreements constitute legal, valid and binding obligations of Seller and, to
Seller's knowledge, the third parties thereto, and are in full force and effect
and will be in full force and effect immediately after the Closing Date. Except
as described in Schedule 2.1(g) of the Disclosure Schedule, (i) Seller has
---------------
complied and, to Seller's knowledge, all other parties to the Franchise
Agreements have complied, in all material respects with the provisions thereof,
(ii) no party is in material default thereunder (other than a default of a
payment obligation which is disclosed in Schedule 2.1(g) of the Disclosure
---------------
Schedule), (iii) as of the Closing Date, no party to a Franchise Agreement is
more than 60 days in default of a payment obligation under a Franchise
Agreement, (iv) no Franchisee has any rescission right with respect thereto, and
(v) no notice of any claim of default thereunder has been given to Seller or
Rentrak. With respect to the Franchisees, (i) Seller has entered into written
Franchise Agreements with all of its Franchisees, (ii) except as described in
Schedule 2.1(g) of the Disclosure Schedule, all rights under the Franchise
- ---------------
Agreements shall continue unchanged after the Closing Date pursuant to their
terms without the consent of any person or the payment of any penalty, the
incurrence of any additional obligation or change of any term or provision
thereof, (iii) all agreements and understandings with regard to the Marketing
Fund are set forth in the Franchise Agreements or the Marketing Fund By-Laws.
(h) Trademarks and Copyrights. For purposes of this Agreement,
-------------------------
the phrase "Proprietary Rights" means all service marks, trademarks, trade
names, logos, designs, good will pertaining to the foregoing, advertising,
promotional materials, sales materials, sound recordings, artwork, designs,
prints, visuals, graphics, software, computer programs, source codes, object
codes, moral rights, copyrights, copyright protected works, inventions, devices,
patents, patent rights, shop rights, trade secrets, confidential information,
know-how, technological information, all derivative works, variations and
modifications to the foregoing, all documents, items and materials that relate
to or arise from the foregoing, all registrations, renewals, pending
applications and rights under the laws of the United States, foreign countries
and international conventions that relate to or arise from the foregoing, all
contract rights, claims, causes of action, benefits and advantages that relate
to or arise from the foregoing, whether finished, under development or
otherwise, whether in tangible, magnetic, digital or any other form, format or
medium, whether or not published, copyrighted, patented, registered or suitable
therefore, that have been or are used or contemplated for use in the operation
of Seller's Franchise Business, including, but not limited to, those listed in
Schedule 2.1(h) attached hereto and by this reference made a part hereof. Each
- ---------------
item of the Proprietary Rights has been duly applied for, registered with, filed
in, or issued by the appropriate domestic or foreign governmental authority, to
the extent described in Schedule 2.1(h) of the Disclosure Schedule, and, to such
---------------
extent, each such application, registration, filing or issuance remains in full
force and effect. Seller has the right to use all of the Proprietary Rights
throughout the geographic area in which Seller currently conducts its business
and, on the Closing Date, to the knowledge of Seller, the use by Buyer of the
Proprietary Rights will not infringe or conflict with valid intellectual
property rights of others. Each Franchisee has the right to use the Proprietary
Rights as provided in, and in accordance with, its Franchise Agreement (to the
extent in compliance with the Franchise Agreement). Except as described in
Schedule 2.1(h) of the Disclosure Schedule, neither Seller nor Rentrak has
- ---------------
received any notice of invalidity or infringement of any rights of others with
respect to such Proprietary Rights. The use of the Proprietary Rights by Seller
and its affiliates (including the use by any Franchisee in accordance with its
Franchise
6
<PAGE>
Agreement) is not infringing upon or otherwise violating the rights of any third
party in or to such Proprietary Rights or similar rights or interests, and no
proceedings have been instituted against or notices received by Seller that are
presently outstanding alleging that Seller's or its affiliates' use or proposed
use (including the use or proposed use by any Franchisee in accordance with its
Franchise Agreement) of the Proprietary Rights infringes upon or otherwise
violates any rights of a third party in or to such Proprietary Rights. All of
the Proprietary Rights constitute valid and enforceable rights of Seller and
will not cease to be valid and in full force and effect by reason of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated by this Agreement. The representations and warranties
contained in this Section 2.1(h) are limited in their application to the
existing store locations of Seller, and Buyer shall have no right to
indemnification under said representations and warranties with respect to store
locations opened or acquired by Buyer after the Closing. To the knowledge of
Seller and Rentrak, except as disclosed in Schedule 2.1(h) of the Disclosure
---------------
Schedule, there is no restriction on Seller's right to export merchandise to any
existing store location which is operated by a Franchisee as of the date hereof.
Seller does not have or use in the conduct of the Franchise Business any patents
or inventions and has not filed any patent applications.
(i) Consents and Registrations. Schedule 2.1(i) lists all
-------------------------- ---------------
material authorizations, consents, waivers, approvals, orders, or filings or
registrations with any governmental authority, commission, board or other
regulatory body of the United States or any state or political subdivision
thereof, or any other person or entity, required to be made or obtained by
Seller for or in connection with the execution and delivery by Seller of this
Agreement or the consummation of the transactions contemplated hereby.
(j) Licenses. Except as disclosed in Schedule 2.1(j) of the
-------- ---------------
Disclosure Schedule, all Licenses are, as of the date hereof and as of the
Closing Date, in full force and effect. Schedule 2.1(j) of the Disclosure
---------------
Schedule contains a list of all Licenses and applications for Licenses currently
held by Seller, none of which are transferable or are being transferred to Buyer
at Closing. Seller is not in material default, nor has it received any notice of
any claim of default, with respect to any such License. No present or former
shareholder, directors, officer or employee of Seller, or any affiliate of any
of them, or any other person, firm, corporation or other entity owns or has any
proprietary, financial or other interest (direct or indirect) in any License
which the Seller owns, possesses or uses in connection with the Franchise
Business.
(k) Tangible Personal Property. The Acquired Assets consisting
--------------------------
of tangible personal property are in good operating condition and repair and are
usable in the ordinary course of business consistent with past practice and
conform in all material respects to all applicable governmental requirements
relating to their use and operation.
(l) Marketing Fund. Seller has previously provided Buyer with
--------------
a true and correct copy of the Pro Image National Marketing Fund By-Laws (the
"Marketing Fund By-Laws"), as in effect as of the date hereof. As of the date
hereof, Seller has borrowed approximately $291,527 from the Marketing Fund.
7
<PAGE>
(m) Material Misstatements or Omissions; Disclosure Schedule. No
--------------------------------------------------------
representations or warranties by Seller or Rentrak in this Agreement, nor any
document, exhibit, statement, certificate or schedule furnished to Buyer
pursuant hereto, including with out limitation the Disclosure Schedule, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact necessary to make the statements or facts contained
therein not misleading. The Disclosure Schedule shall be deemed for all
purposes of this Agreement to constitute an integral part of this Agreement and
of the representations and warranties of Seller and Rentrak herein.
2.2 Representations and Warranties of Buyer.
---------------------------------------
As an inducement to Seller and Rentrak to enter into this Agreement, Buyer
makes the following representations and warranties as of the date hereof:
(a) Company Existence. Buyer is a limited liability company duly
-----------------
organized, validly existing and in good standing under the laws of the State of
Utah.
(b) Company Power and Authorization. Buyer has the requisite limited
-------------------------------
liability company power and authority to execute, deliver and perform this
Agreement and all other documents required to be executed and delivered by Buyer
hereunder, the execution, delivery and performance of which have been duly
authorized by all necessary company action.
(c) Binding Obligations. This Agreement and all documents required
-------------------
to be executed and delivered by Buyer hereunder, constitute or will constitute,
when executed and delivered, legal, valid and binding obligations of Buyer
enforceable against Buyer in accordance with their terms except as limited by
bankruptcy, reorganization, moratorium or other similar laws relating to
creditors' rights generally, or by equitable principles, whether considered in
an action at law or equity.
(d) Consents and Registrations. Schedule 2.2(d) lists all material
-------------------------- ---------------
authorizations, consents, waivers, approvals, orders, or filings or
registrations with any governmental authority, commission, board or other
regulatory body of the United States or any state or political subdivision
thereof, or any other person or entity, required to be made or obtained by Buyer
for or in connection with the execution and delivery by Buyer of this Agreement
or the consummation of the transactions contemplated hereby.
(e) Financial Ability. Buyer has the financial, business and
-----------------
franchise experience and resources available to enable Buyer to consummate the
transactions contemplated hereby and to operate the Franchise Business after the
Closing.
(f) Identity of Certain Investors. No investor in Buyer is a current
-----------------------------
or former franchisee of Seller. With the exceptions of David E. Riley, Cory
Setterburg, Ryan Laws, Shane Prescott, Cory Kennedy, Mike Stevens, Craig Spencer
and Jana Bennett, no investor in Buyer has been an employee of Seller at any
time during the past two years.
8
<PAGE>
ARTICLE III
PRE-CLOSING COVENANTS OF SELLER
-------------------------------
Subject to the terms and conditions contained herein, Seller hereby
covenants and agrees with Buyer as follows:
3.1 Execution and Delivery of Documents.
-----------------------------------
On or prior to the Closing Date, Seller shall deliver to Buyer each of
the documents listed in Section 5.2(a).
3.2 Brokers and Finders.
-------------------
Seller shall pay any fees or commission incurred in connection with
any brokers or finders that it has retained on account of the transactions
contemplated by this Agreement. Seller shall indemnify Buyer and hold it
harmless from and against any claims for such fees or commissions to the full
extent of such claims, notwithstanding anything to the contrary contained in
Section 6. 1
ARTICLE IV
PRE-CLOSING COVENANTS OF BUYER
------------------------------
Subject to the terms and conditions contained herein, Buyer hereby
covenants and agrees with Seller and Rentrak as follows:
4.1 Execution and Delivery of Documents.
-----------------------------------
On or prior to the Closing Date, Buyer shall deliver to Seller each of
the documents listed in Section 5.3(b).
4.2 Brokers and Finders.
-------------------
Buyer shall pay any fees or commission incurred in connection with any
brokers or finders that it has retained on account of the transactions
contemplated by this Agreement. Buyer shall indemnify Seller and hold it
harmless from and against any claims for such fees or commissions to the full
extent of such claims, notwithstanding anything to the contrary contained in
Section 6.1
4.3 JBI Agreement
-------------
Buyer hereby acknowledges that on October 18, 1996, Seller entered
into a Termination Agreement (the "JBI Agreement") with Jazz Basketball
Investors, Inc., a Utah corporation ("JBI"), a copy of which is attached as
Exhibit C hereto, pursuant to which Seller and JBI, among other things,
- ---------
terminated various franchise agreements. Buyer agrees to be
9
<PAGE>
bound by all of the provisions set forth in the JBI Agreement, including,
without limitation (i) the right of JBI to use the name "Pro Image" during the
time period and in the manner described in Section 4 thereof and (ii) the non-
competition covenant contained in Section 4 thereof; provided, however, Buyer
does not assume, and shall have no obligation to indemnify JBI under Section 6
of the JBI Agreement for, any liability or damages under the JBI Agreement
caused by Seller or its affiliates. It is intended by the parties hereto that
JBI be a third-party beneficiary of Buyer's obligations in this Section 4.3.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
5.1 Mutual Conditions.
-----------------
The respective obligations of each party to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
on or prior to the Closing Date of the following conditions:
(a) No Suit. No suit, action or other proceeding or investigation
-------
shall to the knowledge of any party hereto be threatened or pending before
or by any governmental agency or by any third party questioning the
legality of this Agreement or the consummation of the transactions
contemplated hereby in whole or in part.
(b) Board Approval. Prior to the Closing Date, the board of
--------------
directors of each of Buyer and Seller shall have approved the transactions
contemplated in this Agreement.
5.2 Conditions to Buyer's Obligations.
---------------------------------
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
(a) Seller shall have delivered to Buyer the following documents on
or prior to the Closing Date:
(i) a schedule setting forth Seller's good faith determination
as to the Accounts Receivable as of the Closing Date (which shall reflect
all credits due to Franchisees which are known to Seller as of the Closing
Date);
(ii) an executed assignment and assumption agreement
substantially in the form attached as Exhibit D hereto, assigning all of
---------
Seller's rights and obligations under the Franchise Agreements to Buyer
(the "Franchise Assignment and Assumption Agreement");
10
<PAGE>
(iii) an executed assignment substantially in the form attached
as Exhibit E hereto, assigning the Proprietary Rights to Buyer (the
---------
"Proprietary Rights Assignment Agreement");
(iv) one or more executed bills of sale substantially in the
form attached as Exhibit F hereto, conveying in the aggregate all of the
---------
Acquired Assets (the "Bills of Sale"); and
(v) all other documents, certificates and instruments
reasonably requested by counsel for Buyer or which are necessary to effect
the transfer and assignment to Buyer of all right, title and interest in
and to the Acquired Assets or to effectuate and carry out all of the
provisions of this Agreement.
(b) All representations and warranties made by Seller contained in
this Agreement shall be true and correct in all material respects on the
date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Seller shall have duly
performed or complied with all of the obligations to be performed or
complied with by it under the terms of this Agreement on or prior to the
Closing Date.
(c) Rentrak and Seller hereby waive any non-compete or other
restrictions that would prevent Buyer from hiring former employees of
Seller.
(d) Buyer shall have been provided a copy of a payoff letter from
Wells Fargo indicating the total amount required to repay in full all
obligations of Seller to Wells Fargo, and Buyer shall have received
reasonable assurances from Wells Fargo that upon payment at Closing of the
$800,000 portion of the Purchase Price, Seller will have repaid in full all
sums owed by it to Wells Fargo and Wells Fargo will release all of its
security interests and liens against the Acquired Assets.
5.3 Conditions to Seller's Obligations.
----------------------------------
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
(a) Buyer shall have tendered for delivery to Seller $800,000.00
pursuant to Section 1.3(a).
(b) Buyer shall have delivered to Seller the following documents:
(i) the executed Promissory Note, related Security Agreement and
any related UCC-1 financing statements;
11
<PAGE>
(ii) an executed Franchise Assignment and Assumption Agreement
pursuant to which Buyer assumes all of Seller's rights and obligations
under the Franchise Agreements;
(iii) releases in form reasonably acceptable to Seller and the
individuals involved, signed by each of Buyer's investors who has been an
employee of Seller at any time during the last two years, releasing Seller
from any claims of each such individual against Seller or Rentrak relating
to such individual's prior employment by Seller (provided that such
individuals will not be required to sign such a release until their
employment with Seller has in fact terminated and until they have
satisfactorily settled all outstanding claims for unpaid vacation,
commissions and other salary related claims against Seller); and
(iv) all other documents, certificates and instruments
reasonably requested by counsel for Seller which are necessary to
effectuate and carry out all of the provisions of this Agreement.
(c) All representations and warranties made by Buyer contained in
this Agreement shall be true and correct in all material respects on the
date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Buyer shall have duly
performed or complied with all of the obligations to be performed or
complied with by it under the terms of this Agreement on or prior to the
Closing Date.
ARTICLE VI
COVENANTS OF SELLER AND BUYER AFTER THE CLOSING
-----------------------------------------------
6.1 Calculation and Payment of Accounts Receivable.
----------------------------------------------
(a) As soon as practicable following the Closing, but in no event
more than 30 days thereafter, Seller and Buyer shall agree in good faith upon
the actual amount of the Accounts Receivable transferred by Seller to Buyer on
the Closing Date, giving effect to any verifiable credits which were due any
Franchisee as of the Closing Date which were not credited against the account of
such Franchisee as of the Closing Date on the schedule of Accounts Receivable
delivered to Buyer by Seller pursuant to Section 5.2(a)(i). From and after the
Closing Date, until February 28, 1997, Buyer shall use commercially reasonable
efforts to collect Accounts Receivable. Subject to the provisions of subsection
6.1(b) below, on the fifteenth day of each month immediately following the
Closing until February 28, 1997 (or if such day is not a business day, the
immediately following business day), Buyer shall pay to Seller, by cashiers
check in immediately available funds, an amount equal to 80% of all Accounts
Receivable collected by Seller in the preceding month (or, if less than a full
month, the preceding period). For purposes of the preceding sentence, (a) any
draw by Seller against letters of credit transferred by Seller to Buyer at the
Closing from any Franchisee shall be deemed to be monies "collected" for
purposes of the preceding sentence, (b) if Buyer shall disband the Marketing
Fund and if Buyer sets off against any Accounts Receivable any refund
12
<PAGE>
or reimbursement due any Franchisee from the Marketing Fund, then the aggregate
amount of such setoff shall be deemed to be monies "collected" for purposes of
the preceding sentence, and (c) any setoff by Buyer of Distribution Deposits
against Accounts Receivable (which setoffs shall be deemed to reduce the balance
of Accounts Receivable remaining uncollected) will not be deemed to be monies
"collected" for purposes of the preceding sentence. On March 15, 1997, Buyer
shall pay Seller, by cashiers check in immediately available funds, an amount
equal to (a) 40% of the uncollected Accounts Receivable as of February 28, 1997,
less (b) all Distribution Deposits outstanding on such date which have not been
used by Buyer to setoff against Accounts Receivable. The aggregate amount of
payments payable by Buyer to Seller pursuant to this Section 6.1 shall be
referred to herein as the "AR Payment."
(b) Notwithstanding the provisions of subsection 6.1(a) above, Buyer shall
be entitled to retain (and not pay over to Seller) the first $170,011 [the
Marketing Fund amount attributable to Franchisees, divided by .8] of Accounts
Receivable collected from the Franchisees, and such sum shall be deemed to
reduce the balance of Accounts Receivable remaining uncollected. Said amount is
intended to reimburse Buyer for that portion of the Marketing Fund attributable
to the Franchisees.
6.2 Collection.
----------
On and after the Closing Date, Seller shall not undertake or continue
any collection efforts with respect to any Accounts Receivable or other amounts
owed by Franchisees to Seller or its affiliates. Seller shall have the right,
however, to collect accounts receivable that are not being sold and transferred
to Buyer pursuant to this Agreement.
6.3 Delivery of Additional Workstations
-----------------------------------
If, pursuant to Section 1.2, less than twenty (20) workstations are
delivered by Seller at the Closing, Seller shall deliver to Buyer on or before
March 31, 1997, additional workstations such that, including the workstations
delivered pursuant to Section 1.2, a total of twenty (20) workstations are
delivered to Buyer.
6.4 Seller's Name Change.
--------------------
Seller shall change its corporate name within five (5) business days
after the Closing Date to a name that does not include the words "Pro Image."
6.5 Noncompete.
----------
Each of Seller and Rentrak hereby agrees that it will not at anytime
for a period of two years after the date of the Closing (i) operate any retail
sports apparel store (other than any retail sports apparel store included in the
Non-Franchise Business as of the Closing Date) within five (5) miles of any of
the retail sports apparel stores constituting the Franchise Business, or (ii)
sell any retail sports apparel franchise.
13
<PAGE>
6.6 Confidentiality.
---------------
Except in connection with, and to the limited extent necessary for,
the operation or sale of the Seller-owned stores or as may be required or, upon
advise of counsel, deemed advisable under applicable securities laws, neither
Seller nor Rentrak will use or disclose to any third party any confidential
information relating to the Franchise Business or the Acquired Assets
6.7 Consents and Registrations.
--------------------------
As expeditiously as practicable after the Closing, Buyer shall take
the necessary steps to become a franchisor with respect to the Franchise
Business in each state within the United States in which Seller currently
operates retail sports apparel stores as part of its Non-Franchise Business.
6.8 Buyer-Seller Franchise Agreement
--------------------------------
On or before March 31, 1998, Buyer shall, if so requested by Seller,
enter into with Seller Buyer's then standard franchise agreement with respect to
any Seller-owned store; provided, however, under no circumstances shall the
royalty fee to be paid by Seller thereunder exceed 4.0% and provided further
that if 20 or more Seller-owned stores elect to continue in the franchise system
after March 31, 1998, Seller shall enter into a 10 year franchise agreement with
respect to such stores, at a royalty rate not to exceed 2.0%.
6.9 Post-Closing Administration of Marketing Fund.
---------------------------------------------
Buyer and Seller each acknowledge that Seller currently operates a
national marketing fund (the "Marketing Fund") on behalf of the Franchisees and
the Non-Franchise Business stores currently operated by Seller. Seller
terminated the Marketing Fund effective as of November 1, 1996. As of the
Closing Date, the Marketing Fund includes $136,009 attributable to stores
operated by the Franchisees. After the Closing and in any event on or before
February 28, 1997, as and proportionately to the extent Buyer actually collects
funds pursuant to subsection 6.1(b) above, Buyer agrees to refund (or, if it so
chooses, setoff against uncollected Accounts Receivable) that portion of the
Marketing Fund attributable to the Franchisees (in an aggregate amount not to
exceed $136,009).
6.10 Further Assurances.
------------------
(a) On and after the Closing Date, each of Seller, Rentrak and Buyer
shall take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary to carry out any of
the provisions hereof. Furthermore, Seller and Rentrak agree, upon Buyer's
reasonable request, to cooperate with and to take commercially reasonable steps
to assist Buyer after the Closing Date to obtain any consents or approvals
necessary for Buyer to continue to operate the Franchise Business in
substantially the same manner as operated by Seller prior to the Closing;
provided, however, nothing herein shall require either Rentrak or Seller to
provide financial assistance of any sort to Buyer after the Closing or to
otherwise spend any monies in connection with seeking such consents or
approvals.
14
<PAGE>
(b) Without limiting the generality of the foregoing, Seller agrees
to cooperate with Buyer in amending any letters of credit previously provided by
Franchisees (heretofore naming Seller or its affiliates as beneficiary) so as to
name Buyer as the beneficiary thereof, and in the event Buyer and Seller are
unable to obtain such an amendment to any letter of credit against which Buyer
deems it necessary to make a draw, Seller agrees to make the draw on Buyer's
behalf (as requested by Buyer) and to cause the proceeds of the draw to be paid
immediately to Buyer.
6.11 Seller's Right to Use Name.
--------------------------
Until March 31, 1998, Buyer and Seller agree that Seller shall retain
a nonexclusive, nonassignable (except as provided below) right to use the
tradename, service mark and trademark "Pro Image" (the "Mark") in connection
with Seller's company stores constituting its Non-Franchise Business, as
currently engaged, provided that: (i) Seller shall not be required to make any
royalty, license or other payments to Buyer for use of said Mark until March 31,
1998; (ii) the nature and quality of all services and goods offered or sold by
Seller at all Seller owned stores in connection with the Mark shall conform to
standards furnished in writing to Seller by Buyer from time to time, provided
such standards are consistent with those applicable to Franchisees after the
Closing; (iii) Seller shall permit Buyer and its designees the opportunity to
inspect Seller's Non-Franchise retail store operations, upon reasonable notice
and during normal working hours, to the extent necessary to assure compliance
with the above-described standards, and Seller shall obtain the approval of
Buyer with respect to all advertising and other items bearing the Mark prior to
use thereof (which approval shall not be unreasonably withheld), use the Mark in
the form and manner and with appropriate legends and notices as prescribed from
time to time by Buyer (to the extent consistent with restrictions imposed on
Franchisees after the Closing), and otherwise cooperate with Buyer with respect
to the foregoing; (iv) Seller may transfer its rights under this Section to a
purchaser of one or more of Seller's company stores (other than Dan Dixon),
provided that such purchaser, in connection with such assignment, enters into a
new franchise agreement with Buyer on Buyer's then current form of franchise
agreement, providing, among other things, that after December 31, 1997, Buyer's
then effective royalty rates shall apply to such franchise agreement, and also
provided that the term of such franchise agreement shall be at least equal in
length to the period of time remaining under any existing franchise agreement
between such purchaser and Buyer, and (v) after March 31, 1998, Seller shall, as
to each of its Seller owned stores, either (a) cease to use the Mark and all
names and marks similar or related thereto, and cease to be a part of the
Buyer's franchise system, or (b) enter into a new franchise agreement with
Buyer, as provided for in Section 6.8 hereof; and (vi) in all events, the rights
retained under this Section 6.11 shall terminate and be of no further force or
effect on and after March 31, 1998.
6.12 Buyer's Investors.
-----------------
For a period of twelve (12) months after the Closing Date, Buyer
agrees that it will not sell any equity interest in Buyer to any current or
former franchisee or employee of Seller, unless said investor signs a release in
a form mutually acceptable to Seller and said investor, releasing any claims of
such investor against Seller or Rentrak relating to such investor's prior
employment or franchisee relationship with Seller (provided that former
15
<PAGE>
employees will not be required to sign such a release until their employment or
other relationship with Seller has in fact terminated and until they have
satisfactorily settled all outstanding claims for unpaid vacation, commissions
and other salary related claims against Seller).
6.13 International Leads.
-------------------
Seller agrees to use commercially reasonable efforts to cause any
nonemployee consultants used by Seller to provide Buyer with information
concerning any potential international franchisees; provided that nothing herein
shall require Seller to pay any sums of money for such information.
6.14 Office Lease.
------------
Buyer and Seller agree to cooperate after the Closing in negotiations
with Seller's current office landlord in Bountiful, Utah, to attempt to enter
into separate leases for mutually acceptable portions of the current office
space occupied by Seller; provided, however, that no provision of this Agreement
shall be deemed to require Seller to modify its existing lease in a manner
unacceptable to Seller or to require Buyer to enter into a lease on terms
unacceptable to Buyer.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 Indemnification.
---------------
(a) Seller and Rentrak shall, jointly and severally, defend,
indemnify, save and hold harmless Buyer and its affiliates, officers,
directors, principals, attorneys, agents, employees or other
representatives (collectively, the "Buyer Indemnified Parties") from and
against any and all litigation, costs, liabilities, obligations, damages,
taxes, losses, deficiencies, claims, demands and expenses (including legal
fees and expenses) (collectively, "Damages") incurred in connection with,
arising out of, resulting from or incident to (i) any breach of any
representation or warranty made by Seller in or pursuant to this Agreement,
(ii) any breach of any covenant or agreement made by Seller in or pursuant
to this Agreement or (iii) the operation of the Franchise Business
(including without limitation the formation and operation of the Marketing
Fund) prior to the Closing Date. Buyer shall defend, indemnify, save and
hold harmless Seller and its affiliates, officers, directors, principals,
attorneys, agents, employees or other representatives (collectively, the
"Seller Indemnified Parties") from and against any and all Damages incurred
in connection with, arising out of, resulting from or incident to (t) any
liability or obligation to repay to any Franchisee any Distribution
Deposit, (u) any obligation to Franchisees for amounts due such Franchisee
from the Marketing Fund (as and to the extent of sums collected by Buyer
pursuant to subsection 6.1(b) above, in an aggregate amount not to exceed
$136,009), (v) any breach of any representation or warranty made by Buyer
in or pursuant to this Agreement, (w) any breach of any covenant or
agreement made by Buyer in or pursuant to this Agreement, (x) the
16
<PAGE>
performance of all duties and obligations under the Franchise Agreements
which Buyer has expressly assumed pursuant to the terms of this Agreement
or the Franchise Assignment and Assumption Agreement with respect to time
periods after the Closing Date, (y) any violations on or after the Closing
Date of any exclusive territory provision contained in any Franchise
Agreement resulting from the operation of any retail sports apparel store
by Buyer, any affiliate of Buyer or any existing franchisee or future
franchisee (not including any Franchisee) of Buyer or (z) the failure of
Buyer to be qualified as a franchisor in any jurisdiction or be qualified
to sell any franchise within the Franchise Business after the Closing.
Notwithstanding the foregoing, (a) no Buyer Indemnified Party or Seller
Indemnified Party (collectively, the "Indemnified Parties") shall be
entitled to seek indemnification pursuant to this Section 6.1 unless and
until the aggregate amount of Damages suffered by such Indemnified Party
exceeds $37,500 (the "Threshold Amount"), in which event such Indemnified
Party shall be entitled to seek indemnification pursuant to this Section
6.1 for only the amount of Damages actually incurred by such Indemnified
Party in excess of the Threshold Amount, (b) no Buyer Indemnified Party
shall be entitled to seek indemnification pursuant to this Section 6.1
after the aggregate amount of all Damages actually indemnified by Seller
hereunder equals (I) $800,000 until the Purchase Note has been paid, or
(II) $1,200,000 after the Purchase Note has been paid, and (c) no Seller
Indemnified Party shall be entitled to seek indemnification pursuant to
this Section 6.1 after the aggregate amount of all Damages actually
indemnified by Buyer hereunder equals (I) $800,000 until the Purchase Note
has been paid, or (II) $1,200,000 after the Purchase Note has been paid.
(b) If a claim by a third party is made against an Indemnified Party,
and if such party intends to seek indemnity with respect thereto under this
Section 6.1, such Indemnified Party shall promptly notify the Indemnitor in
writing of such claims, setting forth such claims in reasonable detail.
The party obligated to provide indemnification to such Indemnified Party
(the "Indemnitor") shall have twenty (20) days after receipt of such notice
to undertake, conduct and control, through counsel of its own choosing and
at its own expense, the settlement or defense thereof, and the Indemnified
Party shall cooperate with it in connection therewith; provided that the
Indemnified Party may participate in such settlement or defense through
counsel chosen and paid for by such Indemnified Party. So long as the
Indemnitor is reasonably contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim without the
consent of the Indemnitor. If the Indemnitor does not notify the
Indemnified Party within twenty (20) days after receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement. The Indemnitor
shall not, except with the consent of the Indemnified Party, enter into any
settlement that does not include as an unconditional term thereof the
giving by the person or persons asserting such claim to all Indemnified
Parties (i.e. the Seller Indemnified Party or the Buyer Indemnified Party,
as the case may be) of unconditional release from all liability with
respect to such claim or consent to entry of any judgment.
17
<PAGE>
(c) Buyer may withhold and set off against any amounts otherwise due
to Seller any amount as to which Seller or Rentrak is obligated to
indemnify Buyer hereunder.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties made by each of the parties in this Agreement or pursuant hereto
shall survive until January 31, 1998. The covenants of the parties hereto shall
survive the Closing pursuant to the terms of this Agreement.
8.2 No Assignment. This Agreement may not be assigned or transferred by
-------------
either party hereto without the prior written consent of the other party.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
8.3 Waivers. The waiver in any particular instance or series of instances
-------
of any term of this Agreement or any breach hereof by either party shall be in
writing and shall not constitute a waiver of such term or condition or of any
breach thereof in any other instance.
8.4 Amendment. This Agreement is subject to amendment only by subsequent
---------
written agreement among, and executed by, the parties hereto.
8.5 Expenses. Unless otherwise provided herein, each party shall bear and
--------
pay all expenses incurred by it, including legal and accounting fees and
expenses.
8.6 Arbitration. If there is a dispute or claim concerning the
-----------
interpretation of this Agreement, and the relative rights and obligations of the
parties hereunder, the parties agree that each party will provide written notice
of any claim or dispute under this Agreement, and will use best efforts for a
period of 15 days following delivery of such notice to agree upon a mutually
acceptable attorney to act as an arbitrator of such claim or dispute. If the
parties are not able to agree on a mutually satisfactory arbitrator within the
foregoing 15-day period, each party will designate an attorney and the two
attorneys so designated will select a third attorney to act as an arbitrator of
such claim or dispute. Any such arbitration shall be conducted in Denver,
Colorado in accordance with the rules of the American Arbitration Association.
The decision of any arbitrator selected in accordance with this Section 8.6 will
be final and binding upon the parties. The fees of any arbitrator will be borne
by the non-prevailing party as determined by said arbitrator. The fees for any
attorney designated by a party for purposes of selecting an arbitrator will be
borne by such party. In order to be selected as an arbitrator pursuant to this
Section 8.6, an attorney must be an equity partner (or comparable) of a law firm
located in Denver, Colorado with 25 or more attorneys and must be experienced in
commercial transactions.
18
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8.7 Notices. Unless otherwise provided herein, all notices and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally, upon receipt (with telephonic verification thereof) if
telecopied, telexed or sent by facsimile or upon receipt if mailed, such mailing
to be by registered, overnight or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Buyer: PI ACQUISITION, L.C.
1866 North 150 East
Centerville, Utah 84014
with a copy to: Ray, Quinney & Nebeker
79 South Main Street, 5th Floor
Salt Lake City, Utah 84111
Attn: James M. Dester
(b) if to Seller: PRO IMAGE, INC.
c/o Rentrak Corporation
7227 N.E. 55th Avenue
Portland, Oregon 97218
Attn: F. Kim Cox
with a copy to: Latham & Watkins
505 Montgomery St., Suite 1900
San Francisco, California 94111
Attn: Scott R. Haber
8.8 Public Announcements. Neither Buyer nor Seller nor any of their
--------------------
respective affiliates shall make any public announcements (including, without
limitation, any announcement to any employees, customers or suppliers) in
respect of this Agreement or otherwise communicate with any news media prior to
the Closing Date; provided, however, that Seller and its affiliates may make
such announcements as may be required or, upon advise of counsel, deemed
advisable under applicable securities laws, and provided further that Buyer may
make such announcements as it deems appropriate after the Closing Date.
8.9 Separability. In the event that any Article, Section or portion
------------
hereof is declared invalid, illegal or unenforceable, the remainder of this
Agreement shall remain in full force and effect.
8.10 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit, control or otherwise affect the meaning or
construction of the provisions of this Agreement.
8.11 Governing Law. The construction and performance of this Agreement
-------------
shall be governed by the laws of the State of Utah, without regard to its
principles of conflicts of laws.
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8.12 Counterparts. This Agreement, together with the exhibits hereto,
------------
may be executed in one or more counterparts, each of which will be deemed an
original, and all of which together will constitute one and the same instrument.
8.13 Entire Agreement. This Agreement, together with the exhibits hereto,
----------------
constitute the sole and entire existing agreement between the parties in respect
of the subject matter contained herein. All prior agreements, conditions,
practices, customs, usages and obligations are completely superseded and revoked
insofar as any such prior agreement, conditions, practice, custom, usage or
obligations might have given rise to any enforceable right.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date first written above.
PI ACQUISITION, L.C.
a Utah limited liability company
By: /s/ David Riley
-----------------------------------
Name: David Riley
Title: Manager
PRO IMAGE, INC., a
Utah corporation
By: /s/ F. Kim Cox
-----------------------------------
Name: F. Kim Cox
Title: Secretary
RENTRAK CORPORATION, an
Oregon corporation
By: /s/ F. Kim Cox
-----------------------------------
Name: F. Kim Cox
Title: Vice President
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