This filing consists of 98 pages.
The Exhibit Index is on Page 51.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - K
X Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934 for fiscal year
ended March 31, 1997 or
Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number D-15159
RENTRAK CORPORATION
(exact name of registrant as specified in its charter)
Oregon 93-0780536
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number.)
7700 NE Ambassador Place, Portland, Oregon 97220
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:(503)284-7581
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K, or any amendment to this Form 10-K [ ]
As of June 9, 1997, the aggregate market value of the voting
stock held by non-affiliates of the registrant, based on the
last sales price as reported by NASDAQ was $ 39,540,270
(Excludes value of shares of Common Stock held of record by
directors and officers and by shareholders whose record
ownership exceeded five percent of the shares outstanding at
June 9, 1997. Includes shares held by certain depository
organizations.)
As of June 9, 1997, the Registrant had 11,609,005 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1997
ANNUAL MEETING OF THE SHAREHOLDERS ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS FORM 10-K
TABLE OF CONTENTS
PART I
Item Page
1. Business 3
2. Properties 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security
Holders 7
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 10
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
10. Directors and Executive Officers of the
Registrant 48
11. Executive Compensation 48
12. Security Ownership of Certain Beneficial Owners 48
and Management
13. Certain Relationships and Related Transactions 48
PART IV
14. Exhibits, Financial Statement Schedules and 49
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
GENERAL
The Company's primary business is the
distribution of video cassettes to home video
specialty stores using its Pay Per Transaction
system.
In addition, prior to November, 1996, the
Company operated a number of "store within a store"
retail video outlets which rented and sold video
cassettes in Wal-Mart and K-Mart stores through its
BlowOut Entertainment Inc., ("BlowOut") subsidiary.
The Company also operated a number of retail stores
which sold professional and collegiate licensed
sports apparel merchandise through its Pro Image
Inc., (Pro Image) subsidiary, which were either
closed or disposed of during the fiscal year.
At March 31, 1996, the Company accounted for
the operations of Pro Image and BlowOut as
discontinued operations. Disposition of Pro Image
and BlowOut occurred during the fiscal year ended
March 31, 1997. [See Note 14 of the Notes to The
Consolidated Financial Statements and See
"Business/License Sports Apparel" and
"Business/Video Retail".]
PAY-PER-TRANSACTION
The Company distributes pre-recorded video
cassettes ("Cassettes") principally to home video
specialty stores through its Pay Per Transaction
revenue sharing system (the "PPT System"). The PPT
System enables home video specialty stores and other
retailers, including grocery stores and convenience
stores, who rent Cassettes to consumers
("Retailers") to obtain Cassettes at a significantly
lower initial cost than if they purchased the
Cassettes from traditional video distributors. Under
traditional distribution, a Program Supplier sells
the Cassette to a distributor for an average price
of approximately $64. The distributor then sells
the Cassette to a Retailer for an average price of
approximately $70. The Retailer then rents the
Cassette to the consumer at an average price of
$2.50 and retains all of the rental revenue. Under
the PPT System, after the Retailer pays an
application fee (the "Application Fee") to the
Company and is approved for participation in the PPT
System, Cassettes are leased to the Retailer for an
initial fee (the "Order Processing Fee" formerly
referred to as the "Handling Fee") plus a percentage
of revenues generated by retailers from rentals to
consumers (the "Transaction Fee"). The Company
retains a portion of each Order Processing and
Transaction Fee and remits the remainder to the
appropriate owner of the Cassette's distribution
rights, usually motion picture producers, licensees
or distributors ("Program Suppliers"). The expected
benefit to the Retailer is a higher volume of rental
transactions, as well as a reduction in capital cost
and risk. The expected benefit to the Program
Supplier is an increase in the total number of
Cassettes shipped, resulting in increased revenues
and opportunity for profit. The expected benefit to
the consumer is the potential of finding more copies
of certain newly released hit titles and a greater
selection of other titles at Retailers participating
in the PPT System ("Participating Retailers").
The Company markets its PPT System service
throughout the United States and Canada. The
Company also owns a ten percent interest in K.K.
Rentrak Japan ("Rentrak Japan"), a Japanese
corporation which markets a similar service to video
retailers in Japan.
The Company currently offers substantially all
of the titles of a number of companies, including
Twentieth Century Fox Home Entertainment (formerly
Fox Video), a subsidiary of Twentieth Century Fox
Film Corporation, and Buena Vista Pictures
Distribution, Inc., a subsidiary of The Walt Disney
Company. The Company's arrangements with Program
Suppliers have been of varying duration, scope and
formality. In some cases, the Company has obtained
Cassettes pursuant to contracts or arrangements with
Program Suppliers on a title-by-title basis and in
other cases the contracts or arrangements provide
that all titles released for distribution by such
Program Supplier will be provided to the Company for
the PPT System. Many of the Company's agreements
with suppliers may be terminated upon relatively
short notice. There can be no assurance that any of
the Program Suppliers will continue to distribute
through the Company's PPT System, continue to have
available for distribution titles which the Company
can distribute on a profitable basis, or continue to
remain in business. Even if titles are otherwise
available from Program Suppliers to the Company,
there can be no assurance that they will be made
available on terms acceptable to the Company.
During the last three years, the Company has not
experienced any material deficiency in its ability
to acquire cassettes which are suitable for the
Company's markets on acceptable terms and conditions
from Program Suppliers who have agreed to provide
the same to the Company. The Company has one Program
Supplier that supplied product that generated 43
percent, a second that generated 23 percent, and a
third that generated 15 percent of Rentrak revenues
for the year ended March 31, 1997. There were no
other program suppliers who provided product
accounting for more than 10 percent of sales for the
year ended March 31, 1997.
Certain Program Suppliers have requested and
the Company has provided financial or performance
commitments from the Company, including advances,
warrants, letters of credit or guarantees as a
condition of obtaining certain titles. The Company
has provided such commitments primarily to induce
Program Suppliers to begin participation in the PPT
System and to demonstrate its financial benefits.
The Company determines whether to provide such
commitments on a case-by-case basis, depending upon
the Program Supplier's success with such titles
prior to home video distribution and the Company's
assessment of expected success in home rental
distribution. The Company intends to continue this
practice of providing such commitments and there can
be no assurance that this practice will not in the
future result in losses which may be material.
One customer, Hollywood Entertainment
Corporation, accounted for 13 percent of the
Company's revenues in 1997.
Distribution of Cassettes
The Company's proprietary Rentrak Profit Maker
Software (the "RPM Software") allows the Retailer to
order Cassettes through their Point of Sale (POS)
system and provides the Retailer with substantial
information regarding all offered titles. Ordering
occurs via a networked computer interface. To
further assist the Retailer in ordering, the Company
also produces a monthly product catalogue called
"Ontrak."
To be competitive, Retailers must be able to
rent their Cassettes on the "street date" announced
by the Program Supplier for the title. The Company
distributes its Cassettes via overnight air courier
to assure delivery to Participating Retailers on the
street date. The freight costs of such distribution
comprise a portion of the Company's cost of sales.
Computer Operations
To participate in the Company's PPT System,
Retailers must have approved computer software and
hardware to process all of their rental and sale
transactions. Retailers are required to use one of
the POS software vendors approved by the Company as
conforming to the Company's specifications. The
Company's RPM Software resides on the Retailer's POS
computer system and transmits a record of PPT
transactions to the Company over a
telecommunications network. The RPM Software also
assists the Retailer in ordering newly released
titles and in managing the inventory of Cassettes.
The Company's computer processes these
transactions and prepares reports for Program
Suppliers and Retailers. In addition, it determines
variations from statistical norms for potential
audit action. The Company's computer also transmits
information on new titles and confirms orders made
to the RPM Software at the Retailer location.
Retailer Auditing
The Company audits Participating Retailers in
order to verify that they are reporting all rentals
and sales on a consistent, accurate and timely
basis. Several different types of exception reports
are produced weekly. These reports are designed to
identify any Participating Retailers who vary from
the Company's statistical norms. Depending upon the
results of the Company's analysis of the reports,
the Company may conduct an in-store audit. Audits
are conducted with and without notice and refusal to
allow such an audit is cause for immediate
termination from the PPT System. If audit
violations are found, the Participating Retailer is
subject to fines, audit penalties, immediate removal
from the PPT System and/or repossession of all
leased Cassettes.
Seasonality
The Company believes that the home video
industry is seasonal because Program Suppliers tend
to introduce hit titles at two periods of the year,
early summer and Christmas. Since the release to
home video usually follows the theatrical release by
approximately six months (although significant
variations do occur on certain titles), the seasonal
peaks for home video also generally occur in early
summer and at Christmas. The Company believes its
volume of rental transactions reflects, in part,
this seasonal pattern, although the growth of
Program Suppliers, titles available to the Company,
and Participating Retailers may tend to obscure any
seasonal effect. The Company believes such seasonal
variations may be reflected in future quarterly
patterns of its revenues and earnings.
Retailer Financing Program
The Company has established a retailer
financing program whereby on a selective basis, the
Company will provide financing to participating
retailers which the Company believes have the
potential for substantial growth in the industry.
In connection with these financings, the Company
typically makes a loan and/or equity investment in
the retailer. In some cases, a warrant to purchase
stock may be obtained. As part of such financing,
the retailer typically agrees to cause all of its
current and future retail locations to participate
in the PPT System for a designated period of time
(usually 5 - 20 years). Under these agreements,
retailers are typically required to obtain all of
their requirements of cassettes offered under the
PPT system or obtain a minimum amount of cassettes
based on a percentage of the retailer's revenues.
Notwithstanding the long term nature of such
agreements, both the Company and the retailer may,
in some cases, retain the right to terminate such
agreement upon 30-90 days prior written notice.
These financings are highly speculative in nature
and involve a high degree of risk and no assurance
of a satisfactory return on investment can be given.
The Board of Directors has authorized the Company to
make loans and or investments such that the total
amount of outstanding loans and investments is
$18,000,000 or less. As of May 1997, the Company has
invested or loaned approximately $13,100,000 in
various video retailers. [See Note 4 of the Notes to
the Consolidated Financial Statements.]
As of March 31, 1997, the Company had
approximately $13,100,000 in loans and investments
outstanding under the program and reserves of
approximately $10,300,000 of the total original loan
or investment amount. At March 31, 1996, the
Company had invested or loaned approximately
$7,300,000 under the program and had provided
reserves of approximately $6,000,000.
Competition
The home video industry is highly competitive.
The Company has one direct competitor presently
distributing cassettes on a revenue sharing basis.
The company, SuperComm, Inc., is a wholly-owned
subsidiary of The Walt Disney Co. and has thus far
concentrated its efforts in the supermarket
industry. In addition, the Company faces
substantial competition from traditional
distributors. The Company's competitors include
organizations which have existing distribution
networks, long-standing relationships with Program
Suppliers and Retailers, and/or significantly
greater financial resources than the Company.
In addition to the direct competition described
above, the Company faces indirect competition from
alternative delivery technologies which are intended
to provide video entertainment directly to the
consumer. These technologies include: 1) direct
broadcast satellite transmission systems, which
broadcast movies in digital format direct from
satellites to small antennas in the home; 2) cable
systems which may transmit digital format movies to
the home over cable systems employing fiber-optic
technology and 3) pay cable television systems. All
of these may employ digital data compression
techniques to increase the number of channels
available and hence the number of movies which can
be transmitted. Another source of indirect
competition comes from Program Suppliers releasing
titles intended for "sell-through" rather than
rental to consumers at approximately $20 to $30. To
date, such "sell-through" pricing has generally been
limited to certain newly released hit titles with
wide general family appeal. As the Company's
business is dependent upon the existence of a home
video rental market, a substantial shift in the
video business to alternative technologies or "sell-
through" policies could have a material adverse
effect on the Company's business.
Foreign Operations
On December 20, 1989, the Company entered into
an agreement with Culture Convenience Club, Co.,
Ltd. (CCC), a Japanese corporation, which is Japan's
largest video specialty retailer. CCC believes it
represents over ten (10%) percent of the retail
video rental market in Japan. Pursuant to the
agreement, the parties formed Rentrak Japan, a
corporation, which is presently owned 10 percent by
the Company and 90 percent by CCC's shareholder,
Tsutaya Shoten Co., Ltd. Rentrak Japan was formed
to implement the Company's PPT Program in Japan,
with future expansion to The Philippines, Singapore,
Taiwan, Hong Kong, South Korea, North Korea, China,
Thailand, Indonesia, Malaysia and Vietnam. The
Company provided its PPT technology and the use of
certain trademarks and service marks to Rentrak
Japan, and CCC provided management personnel,
operating capital, and adaptation of the PPT
technology to meet Japanese requirements. On August
6, 1992, the Company entered into an expanded
definitive agreement with CCC to develop Rentrak's
PPT Program in certain markets throughout the world.
Prior to June 16, 1994 the Company owned a
thirty three and one-third percent interest in
Rentrak Japan. On June 16, 1994, the Company and
CCC entered into an amendment to the definitive
agreement (the "agreement"). Pursuant to this
agreement, the Company will receive a royalty of
1.67% for all sales of up to $47,905,000 plus one-
half of one percent of sales greater than
$47,905,000 in each royalty year which is June 1 -
May 31. The amendment provides for payment to the
Company of a one time royalty of $2,000,000 payable
$1,000,000 by July 31, 1994, which the Company
received, and $1,000,000 no later than March 31,
1999. As part of this transaction, the Company also
sold to CCC 34 shares of Rentrak Japan reducing the
Company's ownership in Rentrak Japan to twenty-five
percent from thirty three and one-third percent.
The term of the Agreement was extended from the year
2001 to the year 2039.
In August 1996, the Company sold 60 shares of
Rentrak Japan stock to a Japanese corporation for
$110,000. This reduced the company's interest in
Rentrak Japan from 25 percent to 10 percent. In
addition, as part of this transaction, the Company
received a one-time royalty payment from Rentrak
Japan of $4,390,000 in August, 1996. This one-time
royalty payment is included in other revenue in the
Company's Consolidated Financial Statements.
Trademarks, Copyrights, and Proprietary Rights
The Company has registered its "RENTRAK",
"PPT", "Pay Per Transaction", "Ontrak",
"BudgetMaker", "DataTrak", "Prize Find" , "BlowOut
Video", "GameTrak", and "VidAlert" marks under
federal trademark laws. The Company has applied and
obtained registered status in several foreign
countries for many of its trademarks. The Company
claims a copyright in its RPM Software and considers
it to be proprietary.
Employees
As of March 31, 1997, including all
subsidiaries, the Company employs 162 full-time
employees. The Company considers its relations with
its employees to be good.
LICENSED SPORTS APPAREL
During fiscal year 1997, the Company disposed
of substantially all the net assets of Pro Image
Inc. (Pro Image) through either sale or closure of
the stores. [See Note 14 of the Notes to the
Consolidated Financial Statements.]
VIDEO RETAIL
On November 26, 1996, the Company made a
distribution to its shareholders of 1,457,343 shares
of common stock (the BlowOut Common Stock) of
BlowOut pursuant to a Reorganization and
Distribution Agreement (Distribution Agreement)
dated as of November 11, 1996, between the Company
and BlowOut. Pursuant to the Distribution, each
holder of common stock of the Company received one
share of BlowOut Common Stock for every 8.34 shares
of the Company common stock owned of record held by
such holder on November 18, 1996. The distributed
shares of BlowOut Common Stock represented
approximately 60% of the outstanding shares of
BlowOut Common Stock. Following the distribution
the Company continues to own 9.9 percent of the
outstanding BlowOut Common Stock. [See Note 14 of
the Notes to the Consolidated Financial Statements.]
Financial Information About Industry Segments
See Note 13 of the Notes to the Consolidated
Financial Statements.
ITEM 2. PROPERTIES
The Company currently maintains its executive
offices in Portland, Oregon where it leases 53,566
square feet of office space. The lease began on
January 1, 1997 and expires on December 31, 2006.
The Company maintains its distribution facilities in
Wilmington, Ohio where it leases 102,400 square
feet. The Company's lease expires on June 7, 2002.
Management believes its office and warehouse space
is adequate and suitable for its current and
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and
claims which arise in the ordinary course of its
business. In the opinion of management, the amount
of any ultimate liability with respect to these
actions should not materially affect the financial
position or results of operations of the Company as
a whole.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY
HOLDERS
No matter was submitted to a vote of security
holders of the Company through the solicitation of
proxies or otherwise during the fourth quarter of
the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's common stock, $.001 par value, is
traded on the Nasdaq National Market and prices are
quoted on the Nasdaq National Market under the
symbol "RENT". Prior to the Company's public
offering on November 14, 1986, there was no public
market for the common stock. As of June 9, 1997
there were approximately 376 holders of record of
the Company's common stock. On June 9, 1997, the
closing sales price of the common stock as quoted on
the Nasdaq National Market was $4.125.
The following table sets forth the reported
high and low sales prices of the common stock for
the period indicated as regularly quoted on the
Nasdaq National Market. The over-the-counter market
quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
<S> <C> <C>
JUNE 30, 1995 $7.000 $4.575
SEPTEMBER 30, 1995 $6.625 $5.375
DECEMBER 31, 1995 $6.625 $4.625
MARCH 31, 1996 $5.875 $4.250
JUNE 30, 1996 $5.625 $4.250
SEPTEMBER 30, 1996 $4.875 $3.844
DECEMBER 31, 1996 $4.375 $3.125
MARCH 31, 1997 $3.500 $2.625
</TABLE>
DIVIDENDS:
Holders of common stock are entitled to receive
dividends if, as, and when declared by the Board of
Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of
any preferred stock that may be issued and subject
to the dividend restrictions in the Company's bank
credit agreement described in Note 5 of the Notes to
the Consolidated Financial Statements.
No cash dividends have been paid or declared
during the last five fiscal years. The present
policy of the Board of Directors is to retain
earnings to provide funds for operation and
expansion of the Company's business. The Company
does not intend to pay cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Year Ended March 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net revenues:
Application fees $ 354 $ 551 $ 1,114 $ 1,662 $ 2,299
Order processing fees 22,720 25,716 18,052 13,712 12,170
Transaction fees 70,467 70,187 49,904 40,967 33,399
Sell-through 11,101 10,601 8,923 5,665 4,980
Other 11,634 6,211 6,555 1,955 1,237
International operations 0 0 0 116 200
Total net revenues 116,276 113,266 84,548 64,077 54,285
Cost of sales 90,882 95,168 66,375 49,697 41,297
Gross profit 25,394 18,098 18,173 14,380 12,988
Selling and administrative expense 16,160 20,860 15,527 14,008 14,742
Suspension of European operations 0 0 0 901 0
Other income 999 681 3,522 538 521
Income (loss) from continuing operations before
benefit (provision) for income taxes, minority
partner interests and extraordinary item 10,233 (2,081) 6,168 9 (1,233)
Income tax benefit (provision) (3,950) 595 (768) 764 (305)
Income (loss) from continuing operations before
minority partner interests, discontinued
operations, and extraordinary item 6,283 (1,486) 5,400 773 (1,538)
Losses attributable to minority partner
interests 0 0 0 131 649
Income (loss) from continuing operations before
discontinued operations and extraordinary item 6,283 (1,486) 5,400 904 (889)
Discontinued Operations: (1)
Loss from operations of discontinued
subsidiaries
less applicable income tax provision
(benefit) 0 (18,700) (287) (91) (286)
Loss on disposal of subsidiaries 0 (12,100) 0 0 0
Extraordinary item, income tax benefit from
carryforward of net operating losses 0 0 0 0 280
Net income (loss) $ 6,283 $ (32,286) $ 5,113 $ 813 $ (895)
Net income (loss) per share - assuming
issuance of all dilutive contingent shares
Continuing operations $ 0.45 $ (0.12) $ 0.42 $ 0.09 $ (0.07)
Discontinued operations 0.00 (2.56) (0.02) (0.01) (0.03)
Net income (loss) $ 0.45 $ (2.68) $ 0.40 $ 0.08 $ (0.10)
Common shares and common share equivalents
outstanding 16,242 12,019 14,317 10,162 9,306
1997 1996 1995 1994 1993
Balance Sheet Data (2)
Working Capital $ 1,488 $(12,579) $12,897 $16,155 $17,116
Total Assets 43,048 56,252 64,818 44,620 34,824
Long-term Debt 0 0 0 0 0
Stockholders' Equity 11,272 14,404 40,292 29,523 22,722
(1) Discontinued Operations includes the operations of Pro Image and BlowOut. Results of operations in 1993 reflect only
those of BlowOut as Pro Image was acquired during fiscal year 1994. Additional acquisitions were made by Pro Image
and BlowOut during 1995 and 1996, therefore comparisons between years are not meaningful. See acquisitions Note 8
and discontinued operations Note 14 of the Notes to the Consolidated Financial Statements.
(2) The 1995 and prior balance sheets have not been restated for discontinued operations.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward Looking Statements
Information included in Management's Discussion and
Analysis of Financial Conditions and Results of
Operations regarding revenue growth, gross profit
margin and liquidity constitute forward-looking
statements that involve a number of risks and
uncertainties. The following factors are among the
factors that could cause actual results to differ
materially from the forward-looking statements: the
Company's ability to continue to market the PPT
system successfully, the financial stability of the
Participating Retailers and their performance of
their obligations under the PPT System, non-renewal
of line of credit, business conditions and growth in
the video industry and general economics, both
domestic and international; competitive factors,
including increased competition, new technology, and
the continued availability of Cassettes from Program
Suppliers. Section 1 (Business) of this Annual
Report on Form 10-K further describes certain of
these factors.
Results of Operations
As discussed in the Notes to the Consolidated
Financial Statements, the Company discontinued the
operations of Pro Image and BlowOut. Accordingly
the financial results of these entities are
reflected as discontinued operations in the March
31, 1996 financial statements, and the previous
years' statements of operations have been restated
to reflect these entities as discontinued.
For a more meaningful analysis, results are
presented for three groups of operations: Continuing
Operations which is comprised primarily of Domestic
PPT Operations, including Canada PPT Operations;
Discontinued Operations of Pro Image; and
Discontinued Operations of BlowOut. The following
table(s) breaks out these groups for the years ended
March 31, 1997, 1996 and 1995. All significant
inter-company transactions have been eliminated
except for those transactions between continuing and
discontinued operations which are expected to
continue in the future after disposition of the
entities. This analysis is to be read in
conjunction with the Company's Consolidated
Financial Statements.
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
For The Years Ended March 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES $ 116,275,503 $ 113,266,320 $ 84,547,899
OPERATING COSTS AND EXPENSES
Cost of sales 90,881,674 95,167,529 66,374,471
Selling and administrative 16,159,729 20,859,923 15,526,912
107,041,403 116,027,452 81,901,383
INCOME (LOSS) FROM OPERATIONS 9,234,100 (2,761,132) 2,646,516
Other income 999,068 680,671 3,522,039
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 10,233,168 (2,080,461) 6,168,555
Income tax benefit (provision) (3,950,003) 594,729 (768,045)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 6,283,165 (1,485,669) 5,400,510
DISCONTINUED OPERATIONS
Income (loss) from operations of
discontinued subsidiaries, net of income taxes - (18,700,000) (286,987)
Loss on disposal of discontinued subsidiaries - (12,100,000) -
NET INCOME (LOSS) $ 6,283,165 $ (32,285,669) $ 5,113,523
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
For The Years Ended March 31, 1997, 1996 And 1995
1997 1996 1995
<S> <C> <C> <C>
DISCONTINUED OPERATIONS - PRO IMAGE
REVENUES $ $ 39,131,760 $ 26,363,211
OPERATING COSTS AND EXPENSES
Cost of sales 24,325,523 16,840,331
Selling and administrative 19,383,052 9,252,704
Other expense - write-off of intangible assets 9,179,239
INCOME (LOSS) FROM OPERATIONS (13,756,054) 270,176
Other expense (242,299) (130,754)
INCOME (LOSS) BEFORE INCOME TAXES $ $ (13,998,353) $ 139,422
DISCONTINUED OPERATIONS - BLOWOUT ENTERTAINMENT
REVENUES $ $ 17,466,804 $ 1,255,121
OPERATING COSTS AND EXPENSES
Cost of sales 13,961,420 318,526
Selling and administrative 10,074,040 1,403,818
LOSS FROM OPERATIONS (6,568,656) (467,223)
Other expense (689,103)
LOSS BEFORE INCOME TAXES $ $ (7,257,759) $ (467,223)
DISCONTINUED OPERATIONS - COMBINED
PRO IMAGE & BLOWOUT ENTERTAINMENT
REVENUES $ $ 56,598,564 $ 27,618,332
OPERATING COSTS AND EXPENSES
Cost of sales 38,286,943 17,158,857
Selling and administrative 29,457,092 10,656,522
Other expense - write-off of Intangible assets 9,179,239
LOSS FROM OPERATIONS (20,324,710) (197,047)
Other expense (931,402) (130,754)
LOSS BEFORE INCOME TAXES (21,256,112) (327,801)
INCOME TAX BENEFIT 2,556,112 40,814
NET LOSS $ $ (18,700,000) $ (286,987)
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Continuing Operations - Domestic PPT Operations and
Other Continuing Subsidiaries
For the year ended March 31, 1997, total revenue
increased $3.0 million, or 3 percent, rising to
$116.3 million from $113.3 million in the prior
year. Total revenue includes the following fees:
application fees generated when retailers are
approved for participation in the PPT system; order
processing fees generated when prerecorded
videocassettes ("Cassettes") are distributed to
retailers; transaction fees generated when retailers
rent Cassettes to consumers; sell-through fees
generated when retailers sell Cassettes to
consumers; royalty payments from Rentrak Japan; and
sale of video cassettes.
The increase in total revenue and the changes
described in the following paragraphs were primarily
due to the growth in (i) the number of retailers
approved to lease Cassettes under the PPT system
from the Company (the "Participating Retailers");
and (ii) the number of titles released to the
system. In addition, the Company received a one-
time royalty payment from Rentrak Japan and
experienced a decrease in the total number of
Cassettes shipped under the PPT system.
In fiscal 1997, application-fee revenue decreased
to $0.4 million from $0.6 million in fiscal 1996, a
decline of $0.2 million, or 36 percent. The
decrease was due to a reduction in the amount of
application fees charged. During the year, order
processing-fee revenue fell to $22.7 million from
$25.7 million in fiscal 1996, a decrease of $3.0
million, or 12 percent. Transaction-fee revenue
totaled $70.5 million, an increase of $0.3 million,
or less than 1 percent, from $70.2 million the
previous year. Sell-through revenue was $11.1
million in fiscal 1997 as compared to $10.6 million
in fiscal 1996, an increase of $0.5 million, or 5
percent.
Royalty revenue from Rentrak Japan increased to
$5.5 million during fiscal 1997 from $1.2 million
the previous year. This increase was due to a one-
time royalty payment from Rentrak Japan of $4.4
million in August 1996.
Cost of sales in fiscal 1997 decreased to $90.9
million from $95.2 million the prior year, a
decrease of $4.3 million, or 5 percent. The
decrease is primarily due to the decrease in order
processing revenue noted above. In addition, fiscal
1996 includes a charge of $2.2 million to increase
reserves against advances made to program suppliers.
In fiscal 1997, the gross profit margin increased to
22 percent from 16 percent the previous year. The
gross profit margin in fiscal 1997, excluding the
one-time royalty payment from Rentrak Japan, was 19
percent.
Selling, general and administrative expenses were
$16.2 million in fiscal 1997 compared to $20.9
million in fiscal 1996. This decrease of $4.7
million, or 23 percent, was primarily due to the
following one time charges in fiscal 1996: An
increase of approximately 1.4 million in other
reserves against assets; and $1.5 million in
advertising co-op allowances in excess of amounts
received from program suppliers. Also, the reserves
against loans and investments in retailers were
approximately $2.3 million higher in fiscal 1996. As
a percentage of total revenue, selling, general and
administrative expenses was 14 percent in fiscal
1997 as compared to 18 percent the previous year.
Other income increased from $0.7 million in
fiscal 1996 to $1.0 million for fiscal 1997, an
increase of $0.3 million.
For the year ended March 31, 1997, Domestic PPT
Operations recorded a pre-tax profit of $10.2
million, or 9 percent of total revenue, compared to
a pre-tax loss of $2.1 million, or 2 percent of
total revenue, in fiscal 1996. This increase is
primarily due to the one-time royalty payment from
Rentrak Japan in fiscal 1997 and the one time
charges in fiscal 1996 noted above.
Included in the amounts above are the results
from Other Subsidiaries which are primarily
comprised of a software development company and
other video retail operations. The operations of
the software development company, which were
immaterial, were curtailed in fiscal 1996. Total
revenue from Other Subsidiaries decreased to $5.0
million in fiscal 1997 from $5.2 million in fiscal
1996, a decrease of $0.2 million, or 8 percent.
Cost of sales was $3.1 million, an increase of $0.2
million over the $2.9 million recorded in fiscal
1996. Selling, general and administrative expenses
decreased to $1.8 million in fiscal 1997 from $2.6
million in fiscal 1996, a decrease of $0.8 million,
or 31 percent. As a percentage of total revenue,
selling, general and administrative expenses
decreased to 36 percent at year-end from 49 percent
a year earlier.
For the year ended March 31, 1997, Other
Subsidiaries recorded a pre-tax profit of $0.2
million, or 3 percent of total revenue. This
compares with a pre-tax loss of $0.4 million, or 7
percent of total revenue, in fiscal 1996.
Discontinued Operations - Pro Image
During fiscal year 1997, the Company disposed of
substantially all of the net assets of Pro Image
through either sale or closure of the stores.
Pro Image is accounted for as discontinued
operations and, accordingly, its operations are
segregated in the consolidated financial statements.
Pro Image incurred losses from operations, net of
income tax benefit, of approximately $1,926,0000 and
$12,720,000 for the years ended February 28, 1997
and February 29, 1996, respectively. These amounts
were included in loss from operations and loss on
disposal of discontinued subsidiaries in the March
31, 1996 consolidated financial statements.
Discontinued Operations - BlowOut
On November 26, 1996, the Company made a
distribution to its shareholders of 1,457,343 shares
of common stock (the BlowOut Common Stock) of
BlowOut pursuant to a Reorganization and
Distribution Agreement (Distribution Agreement)
dated as of November 11, 1996, between the Company
and BlowOut. Pursuant to the Distribution
Agreement, each holder of common stock of the
Company received one share of BlowOut Common Stock
for every 8.34 shares of the Company's common stock
owned of record by such holder on November 18, 1996.
The distributed shares of BlowOut Common Stock
represented approximately 60% of the outstanding
shares of BlowOut Common Stock. As a result of the
distribution, the March 31, 1997 consolidated
financial statement reflect the elimination of the
net assets and liabilities related to BlowOut and
the reduction of the Company's ownership in BlowOut
to approximately 9.9% of the outstanding BlowOut
Shares.
BlowOut is accounted for as discontinued
operations and, accordingly, its operations are
segregated in the March 31, 1996 consolidated
financial statements. BlowOut incurred losses from
operations, net of income tax benefit, of
approximately $4,000,000 and $5,980,000 for the
period ended November 26, 1996 and for the year
ended March 31, 1996, respectively. These amounts
are included in loss from operations and loss on
disposal of discontinued subsidiaries in the March
31, 1996, consolidated financial statements.
Consolidated Balance Sheet
Net current liabilities of Pro Image at March 31,
1997 of approximately $200,000 represent accrued
liabilities remaining to be paid. Net noncurrent
assets of Pro Image which are included in net
noncurrent assets of discontinued operations in the
consolidated balance sheet at March 31, 1996, are
comprised primarily of property and equipment and
long-term debt. Net current liabilities of Pro
Image which are included in net current liabilities
of discontinued operations in the Consolidated
Financial Statements at March 31, 1996, are
comprised primarily of inventory, receivables,
accounts payable, accrued liabilities, estimated
operating losses to be incurred by Pro Image through
the disposal date and other costs associated with
the disposition.
Net current liabilities of BlowOut at March 31,
1997 of approximately $4,400,000 represent amounts
reserved for contingencies not yet settled as of
March 31, 1997. Net noncurrent assets of BlowOut
included in net noncurrent assets of discontinued
operations in the consolidated balance sheet at
March 31, 1996, are comprised primarily of rental
inventory, property and equipment, intangibles, and
long-term debt. Net current liabilities of BlowOut
which are included in net current liabilities of
discontinued operations in the consolidated balance
sheet at March 31, 1996, are comprised primarily of
cash, inventory, accounts payable, accrued
liabilities, estimated operating loses to be
incurred by BlowOut through the disposal date and
other costs associated with the disposition.
Fiscal 1996 Compared to Fiscal 1995
Continuing Operations - Domestic PPT Operations and
Other Continuing Subsidiaries
For the year ended March 31, 1996, total revenue
increased $28.8 million, or 34 percent, rising to
$113.3 million from $84.5 million in the prior year.
Total revenue includes the following fees:
application fees generated when retailers are
approved for participation in the PPT system; order
processing fees generated when prerecorded
videocassettes ("Cassettes") are distributed to
retailers; transaction fees generated when retailers
rent Cassettes to consumers; sell-through fees
generated when retailers sell Cassettes to
consumers; royalty payments from Rentrak Japan; and
sale of video cassettes.
The increase in total revenue and the increases
described in the following paragraphs were primarily
due to the growth in (i) the number of retailers
approved to lease Cassettes under the PPT system
from the Company (the "Participating Retailers");
(ii) the number of participating program suppliers
("Program Suppliers"), primarily Buena Vista; (iii)
the number of titles released to the PPT system; and
(iv) the total number of Cassettes leased under the
PPT system.
In fiscal 1996, application-fee revenue decreased
to $0.6 million from $1.1 million in fiscal 1995, a
decline of $0.5 million, or 45 percent. The
decrease was due to a reduction in the amount of
processing fees charged. During the year, Order
Processing-fee revenue rose to $25.7 million from
$18.1 million in fiscal 1995, an increase of $7.6
million, or 42 percent. Transaction-fee revenue
totaled $70.0 million, an increase of $20.1 million,
or 40 percent, from $49.9 million the previous year.
Sell-through revenue was $10.6 million in fiscal
1996 as compared to $8.9 million in fiscal 1995, an
increase of $1.7 million, or 19 percent.
Royalty revenue from Rentrak Japan decreased to
$1.2 million during fiscal 1996 from $1.8 million
the previous year. Included in fiscal 1995's
royalty revenue was a non-recurring payment of $1.0
million.
Cost of sales in fiscal 1996 rose to $95.2
million from $66.4 million the prior year, an
increase of $28.8 million, or 43 percent. The
increase is primarily due to the increase in
revenues noted above. In addition, fiscal 1996
includes a charge of $2.2 million to increase
reserves against advances made to program suppliers.
In fiscal 1996, the gross profit margin decreased to
16 percent from 21 percent the previous year. In
addition to the one-time charge noted above, the
decrease reflects an increase in major motion
picture studio product, which traditionally has a
lower gross margin.
Selling, general and administrative expenses were
$20.9 million in fiscal 1996 compared to $15.5
million in fiscal 1995. This increase of $5.4
million, or 34 percent, was primarily due to the
following one time charges: An increase of
approximately $3.0 million in the reserves against
loans and investments in retailers; other reserves
against assets of $1.4 million; and $1.5 million in
advertising co-op allowances in excess of amounts
retained from program suppliers. As a percentage of
total revenue, selling, general and administrative
expenses was 18 percent in both years.
Other income decreased from $3.5 million in
fiscal 1995 to $0.7 million for fiscal 1996, a
decrease of $2.8 million. In 1995, other income
included a gain of $2.8 million on the sale of
certain investment securities held for sale.
For the year ended March 31, 1996, Domestic PPT
Operations recorded a pre-tax loss of $2.1 million,
or 2 percent of total revenue, compared to a pre-tax
profit of $6.2 million, or 7 percent of total
revenue, in fiscal 1995. This decrease is due to
the one time charges noted above.
Included in the amounts above are the results
from Other Subsidiaries which are primarily
comprised of a software development company and
other video retail and wholesale operations. The
operations of the software development company,
which were immaterial, were curtailed in fiscal
1996. Total revenue from Other Subsidiaries
increased to $5.2 million in fiscal 1996 from $4.8
million in fiscal 1995, an increase of $0.4 million,
or 8 percent. Cost of sales was $2.5 million, an
increase of $0.6 million over the $1.9 million
recorded in fiscal 1995. Selling, general and
administrative expenses decreased to $2.6 million in
fiscal 1996 from $3.1 million in fiscal 1995, a
decrease of $0.5 million, or 14 percent. As a
percentage of total revenue, selling, general and
administrative expenses decreased to 50 percent at
year-end from 65 percent a year earlier.
For the year ended March 31, 1996, Other
Subsidiaries recorded a pre-tax loss of $0.4
million, or 7 percent of total revenue. This
compares with a pre-tax loss of $0.2 million, or 5
percent of total revenue, in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and other
liquid investments of $10.2 million, compared to
$3.0 million at March 31, 1996. At year-end, the
Company's current ratio (current assets/current
liabilities) improved to 1.05 from .70 a year
earlier. This increase was primarily due to the one-
time royalty payment from Rentrak Japan of $4.4
million.
The Company has an agreement for a line of credit
with a financial institution in an amount not to
exceed the lesser of $10 million or the sum of (a)
80 percent of the net amount of eligible accounts
receivable as defined in the agreement. The line of
credit expires on December 18, 1997. Interest is
payable monthly at the bank's prime rate plus .5
percent (9.0 percent at March 31, 1997). The lender
has been granted an option to purchase 30,000
unregistered shares of common stock of the Company
at $7 per share, which exceeded market value at the
date of grant. The line is secured by substantially
all of the Company's assets. The terms of the
agreement require, among other things, a minimum
amount of tangible net worth, minimum current ratio
and minimum total liabilities to tangible net worth.
The agreement also restricts the amount of net
losses, loans and indebtedness and limits the
payment of dividends on the Company's stock. The
Company is in compliance with these covenants or has
obtained waivers of noncompliance as of March 31,
1997. At March 31, 1997, the Company had $5.0
million outstanding borrowings under this agreement.
The Company repaid the $5.0 million in April, 1997.
As of May 31, 1997, available borrowing capacity
totaled $10 million.
In December 1989, the Company entered into a
definitive agreement with Culture Convenience Club
Co., Ltd. (CCC)-Rentrak's joint-venture partner in
Rentrak Japan-to develop Rentrak's PPT distribution
and information processing business in certain
markets throughout the world. On June 16, 1994, the
Company and CCC entered into an amendment to the
definitive agreement (the "agreement"). Pursuant to
this agreement, the Company will receive a royalty
of 1.67 percent for all sales up to $47.9 million
plus 0.5 percent of sales greater than $47.9 million
in each royalty year which is June 1 - May 31. In
addition, the Company will receive a onetime royalty
of $2.0 million payable $1.0 million in fiscal 1995
and $1.0 million no later than March 31, 1999. The
payment for fiscal 1995 has been received. Rentrak
Japan received additional territories in which to
market PPT. In addition, the Company sold 34 shares
of Rentrak Japan to CCC for approximately $68,000
reducing the Company's ownership in Rentrak Japan
from 33-1/3 percent to 25 percent . The term of the
agreement was extended from the year 2001 to the
year 2039.
In August 1996, the Company sold 60 shares of
Rentrak Japan stock to a Japanese corporation for
$110,000. This reduced the company's interest in
Rentrak Japan from 25 percent to 10 percent. In
addition, the Company received a one-time royalty
payment from Rentrak Japan of $4,390,000 in August,
1996.
The Company has established a retailer financing
program whereby the Company will provide, on a
selective basis, financing to video retailers who
the Company believes have the potential for
substantial growth in the industry. In connection
with these financings, the Company typically makes a
loan to and/or an equity investment in the retailer.
In some cases, a warrant to purchase stock may be
obtained. As part of such financing, the retailer
typically agrees to cause all of its current and
future retail locations to participate in the PPT
system for a designated period of time. Under these
agreements, retailers are typically required to
obtain all of their requirements of cassettes
offered under the PPT system or obtain a minimum
amount of cassettes based on a percentage of the
retailer's revenues. Notwithstanding the long term
nature of such agreements, both the Company and the
retailer may, in some cases, retain the right to
terminate such agreement upon 30-90 days prior
written notice. These financings are highly
speculative in nature and involve a high degree of
risk, and no assurance of a satisfactory return on
investment can be given. The amounts the Company
could ultimately receive could differ materially in
the near term from the amounts assumed in
establishing reserves.
The Board of Directors has authorized up to $18
million to be used in connection with the Company's
retailer financing program. As of May 1997, the
Company has invested or loaned approximately $13.1
million in various retailers. The investments
individually range from $0.2 million to $5.1
million. Included in the total $13.1 million
investment balance at March 31, 1997, are gross
notes receivable of $8,700,000 which are due as
follows: $800,000 - 1998; $3,000,000 - 1999;
$4,700,000 - 2000; $200,000 - 2001. Interest rates
on the various loans range from the prime rate plus
1 percent to the prime rate plus 2 percent. As the
financings are made, and periodically throughout the
terms of the agreements, the Company assesses the
likelihood of recoverability of the amounts invested
or loaned based on the financial position of each
retailer. This assessment includes reviewing
available financial statements and cash flow
projections of the retailer and discussions with
retailers' management.
As of March 31, 1997, the Company has invested or
loaned approximately $13.1 million under the program
and has reserves of approximately $10.3 million.
BlowOut is essentially a start-up company and is
experiencing rapid growth requiring additional
financing if it is to continue its expansion and to
support operations of recently opened stores. The
Company is the principal creditor to BlowOut. The
Company has agreed to guarantee up to $7 million of
indebtedness of BlowOut (Guarantee). The Guarantee
expires for future borrowings on the earlier of (i)
December 31, 1997 or (ii) such time as the total
indebtedness of BlowOut subject to the Rentrak
Guarantee is equal to $7 million. During the term
of the term of Rentrak Guarantee, and/or so long as
any guarantee is thereunder outstanding, BlowOut has
agreed to pay the Company a weekly fee at a rate
equal to .02 percent per week of then-currently
outstanding indebtedness subject to the Rentrak
Guarantee. BlowOut has executed a $3 million note
in favor of the Company which accrues interest at 9%
per annum and is due in April 1999. At March 31,
1997, the total outstanding balance of the debt
under such note, including accrued interest, was
$3.3 million.
In July 1996, BlowOut obtained a credit facility
(the Credit Facility) in an aggregate principal
amount of $2 million for a five-year term. Amounts
outstanding under the Credit Facility bear interest
at a fixed rate per annum equal to 13.98 percent.
Pursuant to the terms of the Guarantee, the Company
agreed to guarantee any amounts outstanding under
the Credit Facility until the lender is satisfied,
in its sole discretion, that BlowOut's financial
condition is sufficient to justify the release of
the Company's guarantee. As of March 31, 1997,
BlowOut had borrowed approximately $1.4 million
under the Credit Facility.
In August 1996, BlowOut obtained a revolving line
of credit (Line of Credit) in a maximum principal
amount at one time outstanding of $5 million. Under
the Line of Credit, BlowOut may only draw up to 80%
of the Orderly Liquidation Value (as defined in the
Line of Credit) of eligible new and used Cassette
inventory. Advances under the Line of Credit bear
interest at a floating rate per annum equal to the
Bank of America Reference Rate plus 2.75% percent
(11.25 percent as of March 31, 1997). The term of
the Line of Credit is three years. The Company has
agreed, under certain circumstances in the event of
default under the Line of Credit, to repurchase
BlowOut's Cassette inventory at specified amounts.
As of March 31, 1997, BlowOut had borrowed
approximately $3 million under the Line of Credit.
The Company's exposure related to adverse
financial and operational developments at BlowOut is
limited to its receivables from BlowOut [See Note 4
of the Notes to the Consolidated Financial
Statements] and the obligations under the Guarantee
[See Note 9 of the Notes to the Consolidated
Financial Statements].
On November 26, 1996, the Board authorized the re-
purchase of up to two million shares of Common Stock
in open market and negotiated purchases. As of
March 31, 1997, the Company had acquired 325,800
shares for an aggregate amount of $1,204,775. These
purchases were funded through cash flows from
operations.
The Company's sources of liquidity include its
cash balance, cash generated from operations and its
available credit facility. These sources are
expected to be sufficient to fund the Company's
operations for the year ending March 31, 1998.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Item Page
Report of Independent Public 20
Accountants
Consolidated Balance Sheets as of
March 31, 1997 and 1996 21
Consolidated Statements of Operations for 22
Years Ended March 31, 1997, 1996 and
1995
Consolidated Statements of Stockholders' 23
Equity for Years Ended March 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for 24
Years Ended March 31, 1997, 1996 and
1995
Notes to Consolidated Financial Statements 26
Financial Statement Schedules
Schedule II 47
Schedules not included have been omitted because
they are not applicable or the required information
is shown in the financial statements or notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
[Arthur Andersen LLP Letterhead]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rentrak Corporation:
We have audited the accompanying consolidated balance sheets of
Rentrak Corporation and subsidiaries as of March 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
March 31, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Rentrak Corporation and subsidiaries as of
March 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The schedule
listed in the index to financial statements is presented for purposes
of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in our
audits of the consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to
be set forth therein in relation to the consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
May 16, 1997
<TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,167,169 $ 2,683,128
Investment securities available for sale - 344,500
Accounts receivable, net of allowance for
doubtful accounts of $409,313 and $627,895 16,434,566 15,116,203
Accounts receivable - affiliate - 3,227,006
Advances to program suppliers 492,844 1,462,875
Inventory 1,902,618 1,737,695
Deferred tax asset 1,365,064 1,353,226
Other current assets 2,901,964 3,343,389
------------ ------------
Total current assets 33,264,225 29,268,022
------------ ------------
PROPERTY AND EQUIPMENT, net 2,006,556 1,466,177
INTANGIBLES, net of accumulated amortization 171,509 347,137
of $3,969,938 and $3,694,370
NOTE RECEIVABLE, affiliate - 2,800,000
OTHER INVESTMENTS, net 778,950 3,477,105
DEFERRED TAX ASSET 3,637,563 2,918,838
OTHER ASSETS 3,189,192 1,225,331
NET NONCURRENT ASSETS OF DISCONTINUED - 14,749,248
OPERATIONS
------------ ------------
Total assets $ 43,047,995 $ 56,251,858
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 5,000,000 $ 2,700,000
Accounts payable 17,160,492 21,795,843
Accrued liabilities 613,669 2,163,325
Accrued compensation 1,695,814 1,240,543
Deferred revenue 2,672,849 2,004,865
Net current liabilities of discontinued 4,633,114 11,942,858
operations
------------ ------------
Total current liabilities 31,775,938 41,847,434
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; - -
authorized: 10,000,000 shares
Common stock, $.001 par value; authorized:
30,000,000 shares; issued and outstanding: 11,847 12,138
11,847,441 shares in 1997 and 12,138,216
shares in 1996
Capital in excess of par value 47,931,165 49,583,514
Net unrealized gain on investment securities 184,932 567,508
Accumulated deficit (35,452,729) (33,366,162)
Less- Deferred charge - warrants (1,403,158) (2,392,574)
------------ ------------
Total stockholders' equity 11,272,057 14,404,424
------------ ------------
Total liabilities and stockholders'
equity $ 43,047,995 $ 56,251,858
============ ============
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
PPT $105,787,973 $108,073,429 $79,793,584
Other 10,487,530 5,192,891 4,754,315
------------ ------------ -----------
116,275,503 113,266,320 84,547,899
------------ ------------ -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 90,881,674 95,167,529 66,374,471
Selling and administrative 16,159,729 20,859,923 15,526,912
------------ ------------ -----------
107,041,403 116,027,452 81,901,383
------------ ------------ -----------
Income (loss) from operations 9,234,100 (2,761,132) 2,646,516
------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 862,143 1,078,798 695,190
Interest expense (181,950) (208,307) -
Gain on sale of investments 318,875 62,091 2,826,849
Other - (251,911) -
------------ ------------ -----------
999,068 680,671 3,522,039
------------ ------------ -----------
Income (loss) from continuing
operations before income tax 10,233,168 (2,080,461) 6,168,555
(provision) benefit
INCOME TAX (PROVISION) BENEFIT (3,950,003) 594,792 (768,045)
------------ ------------ -----------
Income (loss) from 6,283,165 (1,485,669) 5,400,510
continuing operations
DISCONTINUED OPERATIONS:
Loss from operations of
discontinued subsidiaries
(less applicable income tax
benefit of $(2,500,000) and
$(40,814) for 1996 and 1995
respectively - (18,700,000) (286,987)
Loss on disposal of
subsidiaries including
provision of
4,800,000 for operating
losses during phaseout periods
(less applicable income tax
benefit of $0) - (12,100,000) -
------------ ------------ -----------
Net income (loss) $ 6,283,165 $(32,285,669 $ 5,113,523
============ ============ ===========
NET INCOME (LOSS) PER SHARE
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE:
Continuing operations $ .48 $ (.12) $ .43
Discontinued operations - (2.56) (.02)
------ ------ ------
Net income (loss) $ .48 $ (2.68) $ .41
====== ====== ======
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE -
assuming issuance of all
dilutive contingent shares:
Continuing operations $ .45 $ (.12) $ .42
Discontinued operations - (2.56) (.02)
------ ------ ------
Net income (loss) $ .45 $ (2.68) $ .40
====== ====== ======
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 6,283,165 $(32,285,669) $ 5,113,523
Adjustments to reconcile net
income (loss) to net cash
provided (used)
by operating activities-
Loss on disposal of
discontinued operations - 12,100,000 -
(Gain) loss on asset and
investment sales (309,852) 426,827 (2,826,849)
Depreciation 891,857 5,034,493 1,441,872
Amortization and write-off
ofintangibles 272,433 11,545,750 1,242,564
Amortization of warrants 492,503 674,289 467,114
Provision for doubtful
accounts 655,147 523,315 (582,386)
Retailer financing program
reserves (401,891) 2,789,701 2,974,912
Reserves on advances to
program suppliers (147,451) 1,345,406 572,300
Deferred income taxes 161,331 (4,966,997) (2,737,426)
Change in specific
accounts, net of
effects in 1996 and 1995
from purchase of businesses:
Accounts receivable (2,921,826) (2,138,592) (4,726,871)
Advances to program
suppliers 1,099,101 1,025,835 659,348
Inventory (164,923) (5,638,802) (1,490,480)
Other current assets 4,108,957 (1,641,277) (1,244,614)
Accounts payable (4,635,351) 7,156,983 4,746,922
Accrued liabilities and
compensation 1,495,462 2,403,732 1,420,639
Deferred revenue 667,984 1,073,929 1,408,076
Net current liabilities
of discontinued operations 362,545 - -
----------- ------------ -----------
Net cash provided
(used) by operatings
activities 7,910,191 (571,077) 6,438,644
----------- ------------ -----------
</TABLE>
(continued)
<TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property,
equipment and $(1,454,391) $(10,143,322) $(1,273,080)
inventory
Investments in retailer
financing (3,178,020) (2,183,000) (8,930,618)
program
Proceeds from retailer
financing 2,029,911 1,199,005 -
program
Cash paid for purchases of
businesses, - (377,848) -
net of cash acquired
Purchases of investments - (344,500) (4,400,253)
Maturities of investments - - 4,400,253
Proceeds from sale of 526,000 951,394 3,027,548
investments
Reduction (purchases) of
other assets 495,667 (242,176) (663,470)
and intangibles
Proceeds from sale of 10,410 1,100,000 -
assets
----------- ------------ -----------
Net cash used by
investing activities (1,570,423) (10,040,447) (7,839,620)
----------- ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments)
on line of 2,300,000 2,537,844 (3,259,724)
credit
Borrowing on notes payable - 3,501,971 -
Repurchase of common stock (1,204,775) (341,700) (189,550)
Issuance of common stock 49,048 114,011 1,743,937
----------- ------------ -----------
Net cash provided
(used) by financing 1,144,273 5,812,126 (1,705,337)
financing activities ----------- ------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 7,484,041 (4,799,398) (3,106,313)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,683,128 10,709,405 13,815,718
CASH AND CASH EQUIVALENTS
INCLUDED IN NET CURRENT
LIABILITIES OF - 3,226,879 -
DISCONTINUED OPERATIONS
----------- ------------ -----------
CASH AND CASH EQUIVALENTS $10,167,169 $ 2,683,128 $10,709,405
AT END OF YEAR =========== ============ ===========
The accompanying notes are an integral part of these consolidated
statements.
RENTRAK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
1. BUSINESS OF THE COMPANIES, SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND OTHER ITEMS:
Introduction
Rentrak Corporation (the Company) (an Oregon corporation) is
principally engaged in the processing of information regarding the
rental and sale of video cassettes and the distribution of prerecorded
video cassettes to the home video market throughout the United States
and Canada using its Pay-Per-Transaction (PPT) revenue sharing
program.
Under its PPT program, which is the Company's primary continuing
operation, the Company enters into contracts to lease video cassettes
from program suppliers (producers of motion pictures and licensees and
distributors of home video cassettes) to distribute video cassettes
which are then leased to retailers for a percentage of the rentals
charged by the retailers.
Divestitures
During the quarter ended March 31, 1996, the Company assessed its
overall business strategy and decided to divest two subsidiary units -
- - The Pro Image, Inc. (Pro Image) and BlowOut Entertainment, Inc.
(BlowOut). Thus, the operations of Pro Image and BlowOut are reflected
as discontinued operations in the accompanying March 31, 1996 and 1995
statements of operations. During fiscal year 1997, shares of BlowOut
common stock were distributed to the Company's shareholders in a "spin-
off" and Pro Image was liquidated. Refer to Note 14 for discussion of
divestitures, reserves established by the Company related to the
discontinued operations, and the nature of management's estimates used
in determining the reserves.
Rentrak Japan
In December 1989, the Company entered into a definitive agreement with
Culture Convenience Club Co., Ltd. (CCC), the Company's joint venture
partner in Rentrak Japan, to develop the Company's PPT distribution
and information processing business in certain markets throughout the
world.
On June 16, 1994, the Company and CCC amended the agreement. Pursuant
to this amendment, the Company will receive a royalty of 1.67% for all
sales of up to $47,905,000, plus one-half of 1% (0.5%) of sales
greater than $47,905,000 in each fiscal year. In addition, the
Company received a one-time royalty of $2 million payable $1 million
in fiscal 1995, which has been received; and $1 million no later than
March 31, 1999. The payment of $1 million due no later than March 31,
1999 has not been recognized as revenue by the Company due to
uncertainty of collection. Rentrak Japan will receive additional
territories to market PPT. In addition, the Company sold 34 shares of
Rentrak Japan to CCC for 6,800,000 Yen ($68,068), reducing the
Company's ownership in Rentrak Japan from 33-1/3% to 25%. The term of
the Agreement was extended from the year 2001 to the year 2039.
In August 1996, the Company sold 60 shares of Rentrak Japan stock to a
Japanese corporation for $110,000. This reduced the Company's
interest in Rentrak Japan from 25% to 10%. In addition, the Company
received a one-time royalty payment from Rentrak Japan of $4,390,000
in August 1996.
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company, its majority owned subsidiaries, and those subsidiaries in
which the Company has a controlling interest after elimination of all
intercompany accounts and transactions. Investments in affiliated
companies owned 20 to 50% are accounted for by the equity method.
Pro Image and Team Spirit's (a 100% owned subsidiary of Pro Image)
year-ends are the last day of February. As there are no intervening
events which materially affect the financial position or results of
operations, the consolidated financial statements include Pro Image's
balance sheet as of February 28, 1997 and February 29, 1996 and the
statements of operations and cash flows for the years ended February
28, 1996 and 1995. Team Spirit's balance sheet as of February 28,
1997 and February 29, 1996 and the statements of operations and cash
flows for the year ending February 29, 1996 and the six-month period
ending February 28, 1995 are included in the consolidated financial
statements. These periods are based on the acquisition dates of the
respective entities.
BlowOut's balance sheet as of March 31, 1996 and the statements of
operations and cash flows for the years ended March 31, 1996 and 1995
are included in the consolidated financial statements.
Subsequent to March 31, 1996, the Company approved plans to
discontinue the operations of Pro Image and BlowOut (Note 14). At
March 31, 1997 and 1996, the assets and liabilities of Pro Image have
been segregated in the consolidated financial statements. The net
assets of BlowOut have been segregated in the consolidated financial
statements at March 31, 1996 and are not reflected in the consolidated
financial statements at March 31, 1997 because the distribution of
BlowOut common stock described in Note 14 occurred in November 1996.
The statements of operations for the years ended March 31, 1997, 1996
and 1995 in the consolidated financial statements reflect these
entities as discontinued. The 1995 cash flow statement has not been
restated to reflect discontinued operations.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. These estimates include
reserves on retailer financing program investments (Note 4) and
estimated losses on disposal of discontinued operations (Note 14).
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investment Securities
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115),"
requires the Company to classify and account for its security
investments as trading securities, securities available for sale or
securities held to maturity depending on the Company's intent and
ability to hold or trade the securities at time of purchase.
Securities available for sale are stated on the balance sheet at their
fair market value with an adjustment to stockholders' equity to
reflect net unrealized gains and losses, net of tax. Securities held
to maturity are stated at amortized cost.
Detail of the proceeds from the sales of available for sale securities
and realized gains and losses on sales of equity securities are as
follows:
</TABLE>
<TABLE>
<CAPTION>
Proceeds Gross Gross
Gains Losses
<S> <C> <C> <C>
1997 $ 526,000 $ 318,875 $ -
1996 951,394 150,288 (88,197)
1995 3,027,548 2,856,716 (25,767)
</TABLE>
Unrealized losses of $147,421 were recorded in other income in the
March 31, 1996 Statement of Operations. There were no unrealized
gains or losses recognized in the March 31, 1997 and 1995 Statement of
Operations.
Financial Instruments
A financial instrument is cash or a contract that imposes or conveys,
a contractual obligation or right, to deliver, or receive, cash or
another financial instrument. The estimated fair value of all
material financial instruments, including retail financing program
notes receivable, approximated their carrying values at March 31, 1997
and 1996.
Inventory
Inventory consists of videocassettes held for sale and is carried at
the lower of cost (first-in, first-out method) or market value.
Property and Equipment
Depreciation of fixed assets is computed on the straight-line method
over estimated useful lives of three to five years. Leasehold
improvements are amortized over the lives of the underlying leases or
the service lives of the improvements, whichever is shorter.
Intangibles
The Company reviews its intangible assets for asset impairment at the
end of each quarter, or more frequently when events or changes in
circumstances indicate that the carrying amount of intangibles may not
be recoverable. To perform that review, the Company estimates the sum
of expected future undiscounted preinterest expense net cash flows
from the operating activities. If the estimated net cash flows are
less than the carrying amount of intangibles, the Company will
recognize an impairment loss in an amount necessary to write down
intangibles to a fair value as determined from expected discounted
future cash flows.
In connection with the acquisition of Pro Image in 1994, the Company
purchased certain intangible assets totaling $6,269,050. These assets
include customer and dealer lists, a covenant not to compete,
franchise agreements and goodwill. In connection with the
acquisitions of Team Spirit and then Image Makers, Inc. and Barenz-
Runia, Inc., the Company purchased goodwill totaling approximately
$4.1 million and $557,000, respectively. Prior to March 31, 1996,
these assets were being amortized on the straight-line method over a
12-year period based on the factors influencing the acquisition
decision. The Company believed the above useful lives were
appropriate based on the factors influencing acquisition decisions.
These factors included store location, profitability and general
industry outlook. The Company analyzes the realizability of all costs
in excess of the fair values of net assets acquired related to
acquisitions to determine if any write-down is necessary. Due to
events which occurred during fiscal year 1996 such as continuation of
operating losses and the decision to dispose of Pro Image (including
subsidiaries), the Company's analysis determined that intangible
assets of approximately $9,300,000 were not recoverable. Thus, the
assets were written off to their estimated fair value of $0. These
write-offs are reflected in losses from discontinued operations during
the fiscal year ended March 31, 1996.
Revenue Recognition
The PPT agreements provide for a one-time initial order processing fee
and continuing transaction fees based on a percentage of rental
revenues earned by the retailer upon renting the video cassettes to
their customers. The Company recognizes order processing fees as
revenue when the video cassettes are shipped to the retailers and
recognizes transaction fees when the video cassettes are rented to the
consumers.
When the Company's revenue is fixed and determinable at time of
shipment of video cassettes to the retailers, deferred revenue is
recorded and recognized as revenue in the statement of operations when
the video cassettes are rented to the consumers. The corresponding
liability to video program suppliers for their share of the fees is
recorded to cost of sales when the revenue is recognized with a
corresponding amount to accounts payable. The Company also charges
retailers an application fee upon admission to the PPT program. This
fee is recognized as PPT revenue when the application to participate
in the PPT program is approved.
Stockholders and directors, or their families, own interests in
several stores participating in the PPT program. The Company realized
revenues from these stores of $254,460, $255,568 and $426,102 during
1997, 1996 and 1995, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Under the liability method specified by SFAS 109,
deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement basis and tax
basis of assets and liabilities as measured by the enacted tax rates
for the years in which the taxes are expected to be paid.
Net Income (Loss) Per Share
At March 31, 1997 and 1995 primary earnings per share are based on the
weighted average number of shares outstanding and the assumed exercise
of common stock equivalent options and warrants regardless of whether
the market price of the common stock exceeded the exercise price of
the options and warrants. The number of treasury shares assumed to be
purchased with the proceeds from the exercise of the options and
warrants was limited to 20% of the outstanding shares at period-end.
Those purchases were assumed to have been made at the average market
price of the Company's common stock during the year. Proceeds from
exercise of the options and warrants in excess of those used to
purchase treasury shares were assumed to have been invested in
government securities with the resultant interest income, adjusted for
appropriate tax effects, added to net income for purposes of
calculating earnings per share. For the 1997 primary earnings per
share calculation, 14,538,787 common shares and common share
equivalents were assumed outstanding and $647,155 of assumed interest
income, net of tax, was added to the Company's net income for purposes
of computing earnings per share. For the 1995 primary earnings per
share calculation, 13,397,951 common shares and common share
equivalents were assumed outstanding and $394,249 of assumed interest
income, net of tax, was added to the Company's net income for purposes
of computing earnings per share.
Fully diluted earnings per share at March 31, 1997 and 1995 are based
on the weighted average number of shares outstanding and the assumed
exercise of common stock equivalent options and warrants regardless of
whether the market price of the common stock exceeded the exercise
price of the options and warrants. In addition, contingent warrants
were assumed to have been exercised. The number of treasury shares
assumed to be purchased with the proceeds from the exercise of the
options and warrants was limited to 20% of the outstanding shares at
period-end. Those purchases were assumed to have been made at the
greater of the average or ending market price of the Company's common
stock during the year. Proceeds from exercise of the options and
warrants in excess of those used to purchase treasury shares were
assumed to have been invested in government securities with the
resultant interest income, adjusted for appropriate tax effects, to be
added to net income for purposes of calculating earnings per share.
For the 1997 fully diluted earnings per share calculation, 16,242,400
common shares and common share equivalents were assumed outstanding
and $1,007,489 of assumed interest income, net of tax, was added to
the Company's net income for purposes of computing earnings per share.
For the 1995 fully diluted earnings per share calculation, 14,317,380
common shares and common share equivalents were assumed outstanding
and $582,494 of assumed interest income, net of tax, was added to the
Company's net income for purposes of computing earnings per share.
Loss per common share and common equivalent share for 1996 was
computed based on the weighted average number of shares of common
stock and common equivalent shares outstanding, which was 12,019,273.
Foreign Operations
Foreign currency assets and liabilities are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date.
Results of operations are translated at average exchange rates during
the period for revenue and expenses. Translation gains and losses
resulting from fluctuations in the exchange rates are accumulated as a
separate component of stockholders' equity. Translation gains or
losses were not material for any period presented.
Advertising Expense
Advertising expense, net of cooperative advertising reimbursements,
totaled $(627,371), $1,472,702 and $(95) for the years ended March 31,
1997, 1996 and 1995, respectively.
Statement of Cash Flows
<TABLE>
The Company made the following cash payments for the years ended
March 31:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
INTEREST $ 197,642 $ 326,870 $ 35,979
INCOME TAXES, NET OF REFUNDS (156,284) 236,545 3,288,189
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Decrease in equity as a result of
decrease in net noncurrent assets of
discontinued operations through 11,122,512 - -
reduction in equity
Increase in equity as a result of
decrease in net current liabilities of
discontinued operations through
increase in equity (3,063,649) - -
Reclassification of notes receivable-
affiliate to other assets 2,800,000 - -
Reduction of warrants 496,913 - -
Issuance of warrants - 3,533,977
Addition to other assets through
issuance of common stock - - 128,199
Acquisition of businesses through
issuance of stock - 5,213,125 5,111,166
Changes in net unrealized gains (losses)
on investment securities through
adjustments to stockholders' equity (382,576) 738,255 (1,604,929)
</TABLE>
Recent Pronouncements
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," which
requires the Company to review for impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets
whenever events or changes in circumstances indicate that the carrying
amount of an asset might not be recoverable. In certain situations,
an impairment loss would be recognized. The Company has adopted the
provisions of SFAS 121 which did not have a material effect on the
Company's financial statements.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," which establishes a fair value-based method of
accounting for stock-based compensation plans and requires additional
disclosures for those companies that elect not to adopt the new method
of accounting. The Company has continued to account for employee
purchase rights and stock options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." See Note 7 for SFAS 123
disclosures.
In February 1997, the FASB issued Statement No. 128 (SFAS 128),
"Earnings Per Share," which establishes new standards for computing
and presenting earnings per share. SFAS 128 is effective for
financial statements issued for periods ending after December 15,
1997, including interim periods. Management has not yet determined
whether the implementation of SFAS 128 will have any impact on the
Company's earnings per share amounts.
Reclassifications
Certain amounts in the prior year's consolidated financial statements
have been reclassified to conform to the current year's presentation.
2. INVESTMENT SECURITIES:
The carrying value and estimated fair value of marketable securities
at March 31 were as follows:
Unrealized Unrealized
Cost Gross Gain Gross Loss Fair Value
As of March 31, 1997:
Available for sale-
Noncurrent:
corporate securities $480,672 $ 524,934 $ (226,656) $ 788,950
======= ======== ======== ========
As of March 31, 1996:
Available for sale-
Current:
Corporate securities $207,125 $ 137,375 $ - $ 344,500
======= ======== ======== ========
Noncurrent:
Corporate securities $680,672 $1,118,462 $ (340,499) $1,458,635
======= ======== ======== ========
Investment securities which have limited marketability are classified
as noncurrent as management does not believe that they will be sold
within one year.
3. PROPERTY AND EQUIPMENT:
<TABLE>
Property and equipment, at cost, consists of:
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Furniture and fixtures $ 4,782,463 $ 4,101,822
Machinery and equipment 403,177 399,897
Leasehold improvements 1,546,104 849,534
--------- ---------
6,731,744 5,351,253
Less accumulated
depreciation (4,725,188) (3,885,076)
--------- ---------
$ 2,006,556 $ 1,466,177
========= =========
</TABLE>
4. RETAILER FINANCING PROGRAM:
The Company has established a retailer financing program whereby on a
selective basis the Company will provide financing to video retailers
which the Company believes have the potential for substantial growth
in the industry. In connection with these financings, the Company
typically makes a loan and/or equity investment in the retailer. In
some cases, a warrant to purchase stock may be obtained. As part of
such financings, the retailer typically agrees to cause all of its
current and future retail locations to participate in the PPT System
for a designated period of time. These financings are speculative in
nature and involve a high degree of risk and no assurance of a
satisfactory return on investment can be given. The amounts the
Company could ultimately receive could differ materially in the near-
term from the amounts assumed in establishing the reserves.
The Board of Directors has authorized the Company to make retailer
loans and or investments such that the total amount of outstanding
loans and investments is $18,000,000 or less. As of May 1997, the
Company has invested or made oral or written commitments to loan to or
invest approximately $13,100,000 in various video retailers. The
amounts outstanding under this program individually range from
$200,000 to $5,1000,000. The investments are stated on the balance
sheet at their fair market value in accordance with SFAS 115. The
notes, which have payment terms that vary according to the individual
loan agreements, are due 1997 through 2001. Interest rates on the
various loans range from the prime rate plus 1% to the prime rate plus
2%. Due to the nature of these loans, interest income is not
recognized until received.
The loans are reviewed for impairment in accordance with FASB
Statement No. 114 (SFAS 114), "Accounting by Creditor's for Impairment
of a Loan." A valuation allowance has been established for the amount
by which the recorded investment in the loan exceeds the measure of
the impaired loan. As the financings are made, and periodically
throughout the terms of the agreements, the Company assesses the
recoverability of the amounts based on the financial position of each
retailer.
As of March 31, 1997, the Company has approximately $13,100,000 in
loans and investments outstanding under the program and reserves of
approximately $10,300,000. At March 31, 1996, the Company had
invested or loaned approximately $7,300,000 under the program and had
provided reserves of approximately $6,000,000.
<TABLE>
The activity in the total reserves for the retailer financing program
are as follows for the years ended March 31:
<CAPTION>
1997 1996
<S> <C> <C>
Beginning balance $ 6,032,551 $ 3,242,850
Additions to reserve 4,307,824 2,789,701
---------- -----------
Ending balance $10,340,375 $ 6,032,551
=========== ===========
</TABLE>
A substantial portion of the additions to reserve in fiscal 1997 were
established by reclassification of other reserves included in the
Company's balance sheet as of March 31, 1996.
5. LINE OF CREDIT:
The Company has an agreement for a line of credit with a financial
institution in an amount not to exceed the lesser of $10,000,000 or
the sum of (a) 80% of the net amount of eligible accounts receivable
as defined in the agreement. The line of credit expires on December
18, 1997.
Interest is payable monthly at the bank's prime rate plus .5% (9.0% at
March 31, 1997). The lender has been granted the option to purchase
30,000 unregistered shares of common stock of the Company at $7 per
share, which exceeded market value at the date of grant. The line is
secured by substantially all of the Company's assets. The terms of
the agreement require, among other things, a minimum amount of
tangible net worth, minimum current ratio and minimum total
liabilities to tangible net worth. The agreement also restricts the
amount of net losses, loans and indebtedness and limits the payment of
dividends on the Company's stock. The Company is in compliance with
these covenants or has obtained waivers of noncompliance as of
March 31, 1997. At March 31, 1997 and 1996, the Company had
$5,000,000 and $2,700,000 respectively, outstanding under this
agreement.
6. INCOME TAXES:
<TABLE>
The provision (benefit) for income taxes from continuing operations is
as follows for the years ended March 31:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current tax provision:
Federal $3,113,822 $1,663,070 $1,887,414
State 633,637 324,606 338,067
---------- ---------- ----------
3,747,459 1,987,676 2,225,481
Deferred tax provision
(benefit) 202,544 (2,582,468) (1,457,436)
---------- ---------- ----------
Income tax provision
(benefit) $3,950,003 $ (594,792) $ 768,045
========== =========== ==========
</TABLE>
The reported provision (benefit) for income taxes differs from the
amount computed by applying the statutory federal income tax rate of
34% to income before provision (benefit) for income taxes as follows
for the years ended March 31:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Provision (benefit) computed at
statutory rates $3,479,277 $(707,357) $2,097,309
State taxes, net of federal benefit 418,200 (214,240) 256,331
Utilization of foreign loss
carryforwards - - (1,143,876)
Change in valuation allowance - - (953,470)
Amortization of warrants 167,450 236,058 -
Utilization of foreign tax credit (540,000) (100,000) -
Other 425,076 190,747 511,751
-------- -------- ---------
$3,950,003 $(594,792) $ 768,045
========= ========= =========
</TABLE>
Prior to 1995, the Company was uncertain as to whether the foreign
loss carryforwards could be utilized and therefore no deferred tax
asset was established. In fiscal year 1995, it was determined that
the losses could be utilized and therefore the Company appropriately
reduced 1995 taxable income.
The total reduction in the valuation allowance during the years ended
March 31, 1997, 1996 and 1995, was $0, $0 and $953,470, respectively.
Deferred tax assets and liabilities from continuing operations are
comprised of the following components at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Current-
Vacation accrual $ - $ 104,948
Allowance for doubtful accounts 155,539 238,600
Retailer-related accruals 1,147,610 1,081,039
Legal settlement accrual - 76,000
Unrealized gain on investment
securities - (52,203)
Other 61,915 (95,158)
---------- -----------
Total current deferred tax assets 1,365,064 1,353,226
---------- ---------
Noncurrent-
Depreciation 389,670 128,077
Retailer financing program reserve 2,595,126 2,384,798
Program supplier reserves 665,252 598,800
Unrealized (gain) loss on investments (57,326) (221,527)
Other 44,841 28,690
---------- ---------
Total noncurrent deferred tax assets 3,637,563 2,918,838
---------- ---------
Total deferred tax assets $5,002,627 $4,272,064
========== ==========
</TABLE>
7. STOCKHOLDERS' EQUITY:
Stock Options and Warrants
Options are granted under the 1986 Stock Option and the Directors'
Stock Option Plans, which are administered by the Board of Directors,
at an exercise price equal to fair market value as of the date of
grant. Options under the 1986 Stock Option Plan are generally
exercisable over four to ten years and expire ten years after date of
grant. Options under the Directors' Stock Option Plan are generally
exercisable over one to five years and expire five years after date of
grant. As of March 31, 1997, the Company has 66,600 options available
to be granted under the Directors' Stock Option Plan. Thre are no
options available under the 1986 Stock Option Plan as the Plan expired
during fiscal year 1997.
The Company has elected to account for its stock-based compensation
plans in accordance with APB No. 25, under which no compensation
expense has been recognized. The Company has computed for pro forma
disclosure purposes the value of all options granted during fiscal
years 1997 and 1996, using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 and the following assumptions:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Risk-free interest rate 5.12 - 5.29% 5.02 - 5.86%
Expected dividend yield 0% 0%
Expected lives 4.6 - 10 years 5 - 10 years
Expected volatility 58.90% 58.86%
</TABLE>
Adjustments were made for options forfeited prior to vesting. Had
compensation expense for these plans been determined in accordance
with SFAS No. 123, the Company's net income (loss) and earnings (loss)
per share reflected on the March 31, 1997 and 1996 statement of
operations would have been the following unaudited pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income (loss)
As reported $6,283,165 $(32,285,669)
Pro forma 5,784,529 (32,645,669)
Earnings (loss) per
share
As reported $ .45 $ (2.68)
Pro forma .42 (2.72)
</TABLE>
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to March 31, 1995, the resulting pro
forma compensation expense may not be representative of that to be
expected in future years.
The table below summarizes the plans' activity:
<TABLE>
Options Outstanding
-------------------------
<CAPTION>
Number Weighted
of Average
Shares Exercise Price
<S> <C> <C>
Balance at March 31, 1994 1,158,806 $4.65
Granted:
Option price > fair market 210,478 6.85
value
Option price < fair market 1,479,628 5.64
value
Issued (87,683) 2.40
Canceled (38,061) 5.36
--------- -----
Balance at March 31, 1995 2,723,168 5.41
Granted:
Option price = fair market 55,000 6.06
value
Option price > fair market 358,580 5.28
value
Option price < fair market 462,677 4.92
value
Issued (47,270) 2.02
Canceled (459,547) 6.67
--------- -----
Balance at March 31, 1996 3,092,608 5.20
Granted:
Option price = fair market 25,000 5.00
value
Option price > fair market 78,204 5.10
value
Issued (35,025) 1.56
Adjustment for spin-off 222,408
Canceled (427,072) 6.04
--------- -----
Balance at March 31, 1997 2,956,123 $4.72
========= =====
The weighted average fair value of options granted during the years
ended March 31, 1997, 1996 and 1995 was $3.42, $3.32 and $3.36,
respectively.
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- -----------------------
<C> <C> <C> <C> <C> <C>
Weighted
Outstanding Average Weighted Exercisable Weighted
Range of as of Remaining Average as of Average
Exercise March 31, Contractual Exercise March 31, Exercise
Prices 1997 Life Price 1997 Price
$1.00-$2.59 121,669 2.5 $1.359 121,669 $1.36
2.60- 6.49 2,816,859 6.8 4.84 1,315,470 4.92
6.50- 9.00 17,595 3.6 7.71 17,595 7.71
--------- ---------
$1.00- 9.00 2,956,123 6.6 4.72 1,454,734 4.65
========= =========
</TABLE>
In November 1996, the Company adjusted the number of shares of common
stock issued and outstanding to employees under the 1986 stock option
plan. The adjustment, which increased the number of shares
outstanding by 222,408 shares, also included a reduction in the
exercise price. This adjustment was done to equalize the options'
values before and after the distribution of the common stock of
BlowOut in November 1996 (Note 14).
Effective March 31, 1997, the Company adopted the 1997 Non-Officer
Employee Stock Option Plan. The aggregate number of shares which may
be issued upon exercise of options under the plan shall not exceed
200,000. The plan is administered by the Stock Option Committee of
the Board who determines the terms and conditions of options issued
under the plan. On April 1, 1997, 81,700 options were issued to
employees at an exercise price of $2.875.
In September 1994, a program supplier exercised warrants to acquire
250,000 shares of the Company's common stock for $5.19 per share. The
warrants were granted in 1991.
In connection with the secondary offering in May 1991, the Company
issued to its investment banker a warrant to purchase 147,500 shares
of the Company's common stock. The exercise price per share of $8.90
equaled market value at the date of grant. The warrants expired
unexercised on May 22, 1997.
In August 1992, the Company entered into an agreement with a service
supplier to use and sublease certain software on the PPT system. As
part of the agreement, the Company paid a licensing fee of $188,000,
sold 251,889 shares of common stock for $7.00 per share ($1,763,223),
which approximated market value at date of transaction, and granted a
warrant to purchase 251,889 shares of common stock at an exercise
price of $9.50 per share, which exceeded market value at the date of
grant, through August 1997. In November, 1996, the Company adjusted
the number of shares of common stock under the warrant to 273,022 and
decreased the price to $8.765. This adjustment was done in connection
with the distribution of the common stock of BlowOut in November 1996
(Note 14). The adjustment was done pursuant to the
supplier's agreement which requires the Company to adjust the warrant
if a distribution of the Company's assets occurs. The licensing fee
was capitalized in other assets and was being amortized over five
years, the life of the licensing agreement. In fiscal year 1995, the
asset was written down to zero as the agreement was terminated.
In September 1992, the Company agreed to issue warrants to buy up to
1,000,000 shares of the Company's common stock at an exercise price of
$7.14 per share, which approximated market value at date of grant.
The warrants were issued in connection with entering into a long-term
licensing agreement with a program supplier. Certain contractual
arrangements must be performed by the program supplier, however,
before any warrants are issued. At March 31, 1997, all warrants had
been issued. In November 1996, the Company adjusted the number of
shares of common stock under the warrant to 1,083,900 and decreased
the price to $6.587. This adjustment was done in connection with the
distribution of the common stock of BlowOut in November 1996
(Note 14). The adjustment was done pursuant to the supplier's
agreement which requires the Company to adjust the warrant if a
distribution of the Company's assets occurs.
In July 1994, the Company agreed to issue warrants to buy up to
2,673,750 shares of the Company's common stock at an exercise price of
$7.13 per share, which approximated market value at date of grant.
The warrants were issued in connection with entering into a long-term
licensing agreement with a program supplier. During fiscal 1997,
1,250,000 shares were canceled and therefore the unamortized value of
$496,913 was adjusted through the Company's statement of stockholders'
equity. In November 1996, the Company adjusted the number of shares of
common stock under the warrant to 1,543,203 and decreased the price to
$6.578. This adjustment was done in connection with the distribution
of the common stock of BlowOut in November 1996 (Note 14). The
adjustment was done pursuant to the supplier's agreement which
requires the Company to adjust the warrant if a distribution of the
Company's assets occurs.
As a result of the July 1994 agreement discussed above, the Company
issued warrants to acquire 423,750 shares of the Company's common
stock to another program supplier under a "favored nations" clause in
the contract with that program supplier. These warrants were also
issued at an exercise price of $7.13 per share, which approximated
market value at date of grant. In November 1996, the Company adjusted
the number of shares of common stock under the warrant to 459,303 and
decreased the price to $6.578. This adjustment was done in connection
with the distribution of the common stock of BlowOut in November 1996
(Note 14). The adjustment was done pursuant to the supplier's
agreement which requires the Company to adjust the warrant if a
distribution of the Company's assets occurs.
All warrants which the Company agreed to issue in 1995 have been
valued by an outside valuation firm using standard warrant valuation
models. The value of the warrants of $3,533,977 has been recorded in
the equity section and will be amortized over the associated periods
to be benefited by each group of warrants. For 1997, 1996 and 1995,
expense associated with the warrants was $492,503, $674,289, and
$467,114, respectively.
In May 1995, the Board of Directors approved a shareholders' rights
plan designed to ensure that all of the Company's shareholders receive
fair and equal treatment in the event of any proposal to acquire
control of the Company. Under the rights plan, each shareholder will
receive a dividend of one right for each share of the Company's
outstanding common stock, entitling the holders to purchase one
additional share of the Company's common stock. The rights become
exercisable after any person or group acquires 15% or more of the
Company's outstanding common stock, or announces a tender offer which
would result in the offeror becoming the beneficial owners of 15% or
more of the Company's outstanding stock. Provided, however, that the
Board of Directors, at their discretion may waive this provision with
respect to any transaction or may terminate the rights plan in its
entirety.
8. ACQUISITIONS:
Entertainment One, Inc. Acquisition
On August 31, 1994, the Company acquired 169,230 newly issued shares
of common stock of Entertainment One, Inc. (E-1) valued at $338,460 in
lieu of a financing fee associated with $1,700,000 of financing
provided by the Company to E-1. On December 1, 1994, the Company
acquired 500,000 newly issued shares of common stock in E-1 at $2.00
per share. Following the acquisition, the Company owned approximately
9.6% of the outstanding shares of E-1. On May 26, 1995, the Company
purchased 3,200,000 shares of common stock of E-1 from an E-1
stockholder at $.004 per share. Following the acquisition, the
Company owned approximately 57% of the outstanding shares of E-1.
In connection with this acquisition, the five "stand-alone" video
stores owned by E-1 were sold in June 1995 for approximately
$1,100,000. These assets were valued at their net realizable value
when allocating the purchase price to the assets acquired and
liabilities assumed.
On October 20, 1995, the Company purchased from E-1 $985,591 principal
amount of convertible debentures, all of which were converted into
13,798,275 shares of common stock of E-1 on December 15, 1995. Also
on December 15, 1995, the Company converted a $2,000,000 line of
credit that it had provided to E-1 into 28,000,000 shares of common
stock of E-1. Following these transactions, the Company owned 93% of
the outstanding shares of E-1.
The results of operations of the acquired stores for the ten-month
period ended March 31, 1996, have been included in the results of
discontinued operations of the Company.
Supercenter Entertainment Corporation Acquisition
On August 31, 1995, the Company acquired certain assets and assumed
certain liabilities of Supercenter Entertainment Corporation (SEC),
which constituted the Wal-Mart and Kmart "store within a store" video
retail operations of SEC.
The total cost of the SEC acquisition of $5,200,000 was provided by
issuing 878,000 shares of common stock with an aggregate market value
of approximately $5,200,000.
The results of operations of the acquired stores for the seven-month
period ended March 31, 1996, are included in the results of
discontinued operations of the Company.
The purchase method of accounting was used to record both the E-1 and
SEC acquisitions. As a result of the SEC and E-1 acquisitions, costs
in excess of underlying net asset values of approximately $5,200,000
were recorded to intangible assets, consisting of goodwill and
favorable lease contracts.
If the E-1 acquisition and the SEC acquisition had occurred at the
beginning of the year ended March 31, 1996, revenues, net loss from
continuing operations and net loss per common share and common share
equivalent from continuing operations would not be impacted as the E-1
and SEC operations were discontinued in the year ended March 31, 1996,
and the results of the related business segment (video retail) are not
included in revenues, net loss from continuing operations, and net
loss per common share and common share equivalent from continuing
operations in any periods presented in the consolidated statements of
operations (Note 14).
The following table presents the unaudited pro forma results of
discontinued operations for the years ended March 31, 1996 and 1995 as
if the E-1 acquisition and the SEC acquisition had been consummated at
the beginning of the period. These pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been
consummated at the beginning of the period.
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------
1996 1995
(Unaudited)
<S> <C> <C>
Revenue from discontinued operations $ 61,047,768 $36,519,143
Net loss from discontinued operations (18,984,378) (5,169,918)
Net loss per share from discontinued
operations (1.53) (0.30)
</TABLE>
9. COMMITMENTS:
Leases
The Company leases certain facilities and equipment under operating
leases expiring at various dates through 2008. Rental payments over
the term of the leases exceeding one year are as follows:
<TABLE>
Year ending March 31,
<S> <C>
1998 $ 1,722,469
1999 1,747,217
2000 1,707,892
2001 1,708,048
2002 1,738,301
2003 and thereafter 7,672,968
---------
$16,296,895
</TABLE> ==========
The leases provide for payment of taxes, insurance and maintenance by
the Company. The Company also rents vehicles and equipment on a short-
term basis. Rent expense under operating leases was $1,477,651,
$1,319,271 and $1,030,640 for the years ended March 31, 1997, 1996 and
1995, respectively.
Guarantees and Advances
The Company has entered into several guarantee contracts with program
suppliers providing titles for distribution under the PPT system. In
general, these contracts guarantee the suppliers minimum payments. In
some cases these guarantees were paid in advance. Any advance
payments that the Company has made and will be realized within the
current year are included in advances to program suppliers. The long-
term portion is included in other assets. Both the current and long-
term portion are amortized to cost of sales as revenues are generated
from the related cassettes.
The Company, using empirical data, estimates the projected revenue
stream to be generated under these guarantee arrangements and accrues
for projected losses or reduces the carrying amount of advances to
program suppliers for any guarantee that it estimates will not be
fully recovered through future revenues. As of March 31, 1997, the
Company has recorded approximately $1,769,000 for potential losses
under such guarantee arrangements.
The Company has guaranteed BlowOut's liabilities to certain vendors
for video tape purchases and for equipment purchases at BlowOut
stores. At March 31, 1997, the amount owed by BlowOut for these
purchases was approximately $553,000.
The Company is the principal creditor of BlowOut. The Company has
agreed to guarantee up to $7 million of indebtedness of BlowOut
(Guarantee). The Guarantee expires with respect to any future
borrowings on the earlier of (i) December 31, 1997 or (ii) such time
as the total indebtedness of BlowOut subject to the Rentrak Guarantee
is equal to $7 million. During the term of the Rentrak Guarantee,
and/or so long as any guarantee is thereunder outstanding, BlowOut has
agreed to pay the Company a weekly fee at a rate equal to .02% per
week of then-currently outstanding indebtedness subject to the Rentrak
Guarantee. BlowOut has executed a $3.0 million note in favor of the
Company which accrues interest at 9% per annum and is due in April
1999. At March 31, 1997, the total outstanding balance of the debt
under such note, including accrued interest, was $3.3 million.
In July 1996, BlowOut obtained a credit facility (the Credit Facility)
in an aggregate principal amount of $2 million for a five-year term.
Amounts outstanding under the Credit Facility bear interest at a fixed
rate per annum equal to 13.98%. Pursuant to the terms of the Rentrak
Guarantee, the Company agreed to guarantee any amounts outstanding
under the Credit Facility until the lender is satisfied, in its sole
discretion, that BlowOut's financial condition is sufficient to
justify the release of the Company's guarantee. As of March 31, 1997,
BlowOut had borrowed approximately $1,376,000 under the Credit
Facility.
In August 1996, BlowOut obtained a revolving line of credit (Line of
Credit) in a maximum principal amount at one time outstanding of
$5 million. Under the Line of Credit, BlowOut may only draw up to 80%
of the Orderly Liquidation Value (as defined in the Line of Credit) of
eligible new and used cassette inventory. Advances under the Line of
Credit bear interest at a floating rate per annum equal to the Bank of
America Reference Rate plus 2.75% (11.25% as of March 31, 1997). The
term of the Line of Credit is three years. The Company has agreed,
under certain circumstances in the event of default under the Line of
Credit, to repurchase BlowOut's cassette inventory at specified
amounts. As of March 31, 1997, BlowOut had borrowed approximately
$3,012,000 under the Line of Credit.
10. CONTINGENCIES:
The Company is subject to certain legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, the amount of any ultimate liability with respect to these
actions will not materially affect the financial position or results
of operation of the Company.
11. RENTRAK JAPAN:
As is discussed in Note 1, the Company reduced its one-fourth
interest in Rentrak Japan to 10% in August 1996. Summarized financial
data for the joint venture for the years in which the Company
accounted for the investment on the equity method, after translation
to U.S. currency, is as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Current assets $34,123,179 $39,809,085
Noncurrent assets 7,792,028 5,543,661
Current liabilities 37,440,434 44,460,125
Noncurrent liabilities 4,307,679 4,252,586
Shareholders' equity
(deficit) 167,094 (3,359,965)
Net sales 115,912,094 88,382,895
Cost of sales 77,291,283 59,935,511
Net income (loss) 2,920,047 (760,946)
</TABLE>
As of March 31, 1993, the Company's investment has been written down
to zero. The Company has provided no guarantee or other financial
commitments for the investee which would require the recognition of
additional losses in 1995 and 1994 from the investee under the equity
method. During 1997 and 1996, no income was recognized by the Company
as the Company's share of net income does not exceed the net losses
not recognized during the period the equity method was suspended.
12. EMPLOYEE BENEFIT PLANS:
At January 1, 1991, the Company established an employee benefit plan
(the 401(k) Plan) pursuant to Section 401(k) of the Internal Revenue
Code for certain qualified employees. Contributions made to the
401(k) Plan are based on percentages of employees' salaries. The
amount of the Company's contribution is at the discretion of Board of
Directors. Contributions under the 401(k) Plan for the years ended
March 31, 1997, 1996 and 1995 were $57,743, $40,436 and $35,347,
respectively.
The Company has an Employee Stock Purchase Plan (the Plan). The Board
of Directors has reserved 200,000 shares of the Company's common stock
for issuance under the Plan, of which 156,626 shares remain authorized
and available for sale to employees.
All employees meeting certain eligibility criteria may be granted the
opportunity to purchase common stock, under certain limitations, at
85% of market value. Payment is made through payroll deductions.
Under the Plan, employees purchased 8,685 shares for aggregate
proceeds of $36,520, 5,059 shares for aggregate proceeds of $28,781
and 11,062 shares for aggregate proceeds of $78,449 in 1997, 1996 and
1995, respectively.
13. BUSINESS SEGMENTS, SIGNIFICANT SUPPLIERS AND MAJOR CUSTOMER:
<TABLE>
Business Segments - Continuing Operations
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales (1):
PPT $106,038,728 $108,279,012 $79,793,584
Other 10,536,922 5,396,884 4,754,315
$116,575,650 $113,675,896 $84,547,899
============ ============ ===========
Income (loss) from operations:
PPT $ 9,063,932 $ (2,574,745) $ 2,886,841
Other 170,168 (186,387) (240,325)
------------ ------------- -----------
$ 9,234,100 (2,761,132) 2,646,516
============ ============= ==========
Identifiable assets (1), (2):
PPT $ 42,163,519 $ 77,784,888 $60,757,741
Sports apparel - - 22,610,120
Retail video - - 1,101,399
Other 3,067,669 2,380,608 1,973,659
------------ ------------ -----------
$ 45,221,188 $ 80,165,496 $86,442,919
============ ============ ===========
Depreciation:
PPT $ 725,898 $ 806,416 $ 698,979
Other 165,959 208,421 160,925
------------ ------------ -----------
$ 891,857 $ 1,014,837 $ 859,904
============ ============ ===========
Amortization:
PPT $ 183,261 $ 1,520,445 $ 847,620
Other - - 156,924
------------ ------------ -----------
$ 183,261 $ 1,520,445 $ 1,004,544
============ ============ ===========
Capital Expenditures:
PPT $ 1,212,122 $ 640,821 $ 430,021
Other 242,269 11,679 -
------------ ------------ -----------
$ 1,454,391 $ 652,500 $ 430,021
============ ============ ===========
</TABLE>
<TABLE>
Business Segments - Discontinued Operations
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales:
Sports apparel $ - $39,131,760 $26,363,211
Retail video - 17,466,804 1,255,121
---------- ----------- -----------
$ - $56,598,564 $27,618,332
========== =========== ============
Income (loss) from discontinued
operations:
Sports apparel $ - $(4,576,815) $ 270,176
Retail video - (6,568,656) (467,223)
---------- ------------- ----------
$ - $(11,145,471) $ (197,047)
========== ============= ============
Depreciation:
Sports apparel $ - $ 968,180 $ 438,871
Retail Video - 3,051,476 143,097
---------- ----------- ----------
$ - $ 4,019,656 $ 581,968
========== =========== ==========
Amortization:
Sports apparel $ - $ 10,195,094 $ 684,889
Retail video - 504,500 20,245
---------- ----------- ----------
$ - 10,699,594 705,134
========== =========== ==========
Capital Expenditures, net of
acquisitions:
Sports apparel $ - $ 1,774,507 $ 832,621
Retail video - 7,716,315 10,438
---------- ----------- ----------
$ - $ 9,490,822 $ 843,059
========== =========== ==========
(1)Total amounts differ from those reported on the consolidated
financial statements as intercompany transactions and investments
in subsidiaries are not eliminated for segment reporting purposes.
(2)1995 identifiable assets have not been restated for discontinued
operations.
</TABLE>
The Company has one program supplier that supplied product that
generated 43%, a second that generated 23%, and a third that generated
15% of the Company's revenues for the year ended March 31, 1997. The
Company has one program supplier that supplied product that generated
39%, a second that generated 21%, and a third that generated 15% of
the Company's revenues for the year ended March 31, 1996. The Company
has one program supplier that supplied product that generated 26%, a
second that generated 17%, and a third that generated 15% of the
Company's revenues for the year ended March 31, 1995. There were no
other program suppliers who provided product accounting for more than
10% of sales for the years ended March 31, 1997, 1996 and 1995.
The Company currently receives a significant amount of product from
one program supplier. Although management does not believe that this
relationship will be terminated in the near term, a loss of this
supplier could have an adverse affect on operating results.
One customer accounted for 13%, 10% and 14% of the Company's revenues
in 1997, 1996 and 1995, respectively.
14. DISCONTINUED OPERATIONS:
During fiscal year 1997, the Company disposed of substantially all the
net assets of Pro Image through either sale or closure of the stores.
Pro Image is accounted for as discontinued operations and,
accordingly, its operations are segregated in the accompanying
statement of operations. Pro Image incurred losses from operations,
net of income tax benefit, of approximately $1,926,000 and $12,720,000
(including a write-off of intangible assets of $9,300,000 (Note 1))
for the years ended February 28, 1997 and February 29, 1996,
respectively. These amounts were included in loss on disposal and
loss from operations of discontinued subsidiaries in the March 31,
1996 accompanying statement of operations. The Company also accrued
at March 31, 1996 other costs of approximately $6,700,000 associated
with the disposition such as professional fees and a write-down of the
assets to their estimated realizable value. A deferred tax asset
related to these costs of approximately $3,380,000 was also recorded
with a valuation allowance reserve against the entire asset. These
other costs and write-down costs are included in loss on disposal of
subsidiaries in the accompanying statement of operations for the
fiscal year ended March 31, 1996.
Net current liabilities of Pro Image at March 31, 1997 of
approximately $200,000 represent accrued liabilities remaining to be
paid. Net noncurrent assets of Pro Image which are included in net
noncurrent assets of discontinued operations in the accompanying
balance sheet at March 31, 1996, are comprised primarily of property
and equipment and long-term debt. Net current liabilities of Pro
Image which are included in net current liabilities of discontinued
operations in the accompanying balance sheet at March 31, 1996, are
comprised primarily of inventory, receivables, accounts payable,
accrued liabilities, estimated operating losses to be incurred by Pro
Image through the disposal date and other costs associated with the
disposition.
On November 26, 1996, the Company made a distribution to its
shareholders of 1,457,343 shares of common stock (the BlowOut Common
Stock) of BlowOut pursuant to a Reorganization and Distribution
Agreement (Distribution Agreement) dated as of November 11, 1996,
between the Company and BlowOut. Pursuant to the Distribution
Agreement, each holder of common stock of the Company received one
share of BlowOut Common Stock for every 8.34 shares of the Company's
common stock owned of record by such holder on November 18, 1996. The
distributed shares of BlowOut Common Stock represented approximately
60% of the outstanding shares of BlowOut Common Stock. As a result of
the distribution, the March 31, 1997 consolidated financial statement
reflect the elimination of the net assets and liabilities related to
BlowOut and the reduction of the Company's ownership in BlowOut to
approximately 9.9% of the outstanding BlowOut Shares. The operations
of BlowOut are reflected as discontinued operations in the March 31,
1996 consolidated financial statements.
BlowOut is accounted for as discontinued operations and, accordingly,
its operations are segregated in the March 31, 1996 accompanying
statement of operations. BlowOut incurred losses from operations, net
of income tax benefit, of approximately $4,000,000 and $5,980,000 for
the period ended November 26, 1996 and for the year ended March 31,
1996, respectively. These amounts are included in loss from
operations and loss on disposal of discontinued subsidiaries in the
March 31, 1996, accompanying statement of operations. The Company
also accrued at March 31, 1996, professional fees of approximately
$600,000 associated with the disposition. A deferred tax asset
related to these costs of approximately $1,158,000 was also recorded
with a valuation allowance reserve against the entire asset. These
fees and valuation allowances are included in loss on disposal of
subsidiaries in the accompanying statement of operations.
Net current liabilities of discontinued operations at March 31, 1997
include approximately $4,400,000 relating to BlowOut for amounts
reserved for contingencies not yet settled as of March 31, 1997. Net
noncurrent assets of BlowOut included in net noncurrent assets of
discontinued operations in the accompanying balance sheet at March 31,
1996, are comprised primarily of rental inventory, property and
equipment, intangibles, and long-term debt. Net current liabilities
of BlowOut which are included in net current liabilities of
discontinued operations in the accompanying balance sheet at March 31,
1996, are comprised primarily of cash, inventory, accounts payable,
accrued liabilities, estimated operating losses to be incurred by
BlowOut through the disposal date and other costs associated with the
disposition.
During the year ended March 31, 1997, the Company provided for
additional losses related to the spinoff of BlowOut, net of tax
benefit of $741,000 in the amount of approximately $7,500,000. A
deferred tax asset related to these costs of approximately $3,165,000
was also recorded with a valuation allowance reserve against the
entire asset. The additional losses relate to contingencies which are
not settled as of March 31, 1997. These additional losses were offset
by an adjustment to the estimated loss on disposal of Pro Image. Due
to higher than anticipated sales proceeds from the sale of the Pro
Image stores and franchise and recognition of previously reserved
deferred tax assets of approximately $4,000,000, the Company recorded
a gain of approximately $7,500,000. Therefore, there was no net
impact on the March 31, 1997 statement of operations of these
adjustments to gain or loss on disposal of discontinued operations.
Revenues, operating costs and expenses, other income and expenses, and
income taxes for fiscal year 1995 have been reclassified for amounts
associated with the discontinued operations.
Revenues from such operations for the periods ended March 31, were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Pro Image $24,071,011 $39,131,760 $26,363,211
BlowOut 20,451,070 17,466,804 1,255,121
</TABLE>
Net current liabilities of discontinued operations include
management's best estimates of the anticipated losses from
discontinued operations through the final resolution of all
contingencies related to the disposition of the two subsidiaries. The
estimates are based on an analysis of the costs which may be incurred
to dispose of the entities. The amounts the Company will ultimately
incur could differ materially in the near term from the amounts
assumed in arriving at the loss on disposal of the discontinued
operations.
<TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<CAPTION>
Net Unrealized
Common Stock Capital in Gain (Loss)
Number of Excess of on Investment Accumulated
Shares Amount Par Value Securities Deficit Warrants Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 10,224,057 $10,224 $34,272,263 $1,434,182 $ (6,194,016) $ - $ 29,522,653
Repurchase of common stock (38,300) (38) (189,512) - - - (189,550)
Issuance of common stock 364,445 364 1,549,25 - - - 1,549,621
Issuance of common stock for
acquisitions 639,561 640 5,110,526 - - - 5,111,166
Issuance of common stock under
employee stock options plans 87,483 87 322,428 - - - 322,515
Net income - - - - 5,113,523 - 5,113,523
Change in net unrealized gain
(loss) on investment securities - - - (1,604,929) - - (1,604,929)
Issuance of warrants - - 3,533,977 - - (3,533,977) -
Amortization of warrants - - - - - 467,114 467,114
------- ----- -------- --------- -------- -------- --------
BALANCE AT MARCH 31, 1995 11,277,246 11,277 44,598,939 (170,747) (1,080,493) (3,066,863) 40,292,113
Repurchase of common stock (69,300) (69) (341,631) - - - (341,700)
Issuance of common stock 883,000 883 5,230,577 - - - 5,231,460
Issuance of common stock under
employee stock option plans 47,270 47 95,629 - - - 95,676
Net loss - - - - (32,285,669) - (32,285,669)
Change in net unrealized gain
(loss) on investment securites - - - 738,255 - - 738,255
Amortization of warrants - - - - - 674,289 674,289
------- ----- -------- --------- -------- -------- --------
BALANCE AT MARCH 31, 1996 12,138,216 12,138 49,583,514 567,508 (33,366,162) (2,392,574) 14,404,424
Repurchase of common stock (325,800) (326) (1,204,449) - - - (1,204,775)
Issuance of common stock under
employee stock option plans 35,025 35 49,013 - - - 49,048
Net income - - - - 6,283,165 - 6,283,165
Distribution of common stock
in BlowOut - - - - (8,369,732) - (8,369,732)
Change in net unrealized gain
(loss) on investment securities - - - (382,576) - - (382,576)
Amortization of warrants - - (496,913) - - 989,416 492,503
------- ----- -------- --------- -------- -------- --------
BALANCE AT MARCH 31, 1997 11,847,441 $11,847 $47,931,165 $ 184,932 $(35,452,729) $(1,403,158) $ 11,272,057
========== ======= =========== ========== ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<TABLE>
Rentrak Corporation
Valuation and Qualifying Accounts
Schedule II
<CAPTION>
Balance At Charged To Charged Balance At
Beginning Cost And To Other End Of
Year Ended: Of Periods Expenses Accounts Recoveries Periods
<S> <C> <C> <C> <C> <C>
Allowance For Doubtful
Accounts
March 31, 1995 1,224,966 (2,984,899) - 2,402,513 642,580
March 31, 1996 642,580 (2,327,028) (332,692) (1) 2,645,035 627,895
March 31, 1997 627,895 (3,564,065) (95,000) 3,440,483 409,313
Advances To Program
Suppliers Reserves
March 31, 1995 0 572,300 - - 572,300
March 31, 1996 572,300 1,345,406 - - 1,917,706
March 31, 1997 1,917,706 (149,192) - - 1,768,514
Inventory Reserve
March 31, 1995 0 336,046 - - 336,046
March 31, 1996 336,046 - (336,046) (1) - 0
March 31, 1997 0 - - - 0
Other Current Assets -
Retailer Financing
Program Reserve
March 31, 1995 0 267,938 - - 267,938
March 31, 1996 267,938 846,582 - - 1,114,520
March 31, 1997 1,114,520 - (1,114,520) (2) - 0
Other Assets -
Retailer Financing
Program Reserve
March 31, 1995 0 2,974,912 - - 2,974,912
March 31, 1996 2,974,912 1,943,119 - - 4,918,031
March 31, 1997 4,918,031 (771,973) 5,164,396 (1)(2) 1,029,921 10,340,375
(1) Transferred from (to) Discontinued Operations.
(2) Reclassified from Other Current Assets to Other Assets.
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the
information called for by this item 10 is incorporated by
reference from the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended.
See "Election of Directors" and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the
information called for by this item 11 is incorporated by
reference from the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended.
See "Executive Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the
information called for by this item 12 is incorporated by
reference from the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended.
See "Security Ownership of Certain Beneficial Owners and
Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the
information called for by this item 13 is incorporated by
reference from the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended.
See "Compensation Committee Interlocks And Insider
Participation" and Certain Relationships And Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following documents are filed as part of the
Report:
Consolidated Financial Statements: The
consolidated financial statements of the Company
are included in Item 8 of this Report:
Report of Independent Public
Accountants
Consolidated Balance Sheets as of March 31, 1997
and 1996
Consolidated Statements of Operations for Years
Ended March 31, 1997, 1996 and
1995
Consolidated Statements of Stockholders' Equity
for Years Ended March 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for Years
Ended March 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Consolidated Financial Statement Schedules:
The following consolidated financial statement
schedule has been included in Item 8 of this
Report:
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they
are not applicable or the required information is
shown in the financial statements or notes thereto.
(a)(3) Exhibits: The exhibits required to be filed
pursuant to Item 601 of Regulation S-K are set forth
in the Exhibit Index.
(b) Form 8-K Reports. During the fourth quarter of fiscal
1997, the Company filed no reports on Form 8-K.
(c) Exhibits (See Exhibit Index)
1. A shareholder may obtain a copy of any exhibit
included in this Report upon payment of a fee to cover the
reasonable expenses of furnishing such exhibits by written
request to F. Kim Cox, Executive Vice President/Chief
Financial Officer, or Carolyn Pihl, Chief Accounting
Officer, Rentrak Corporation, PO Box 18888, Portland,
Oregon 97218
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENTRAK CORPORATION
By /S/ Ron Berger
Ron Berger, President
Date June 13, 1997
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in
the capacities and the dates indicated.
Principal Executive Officer:
By /S/ Ron Berger June 13, 1997
Ron Berger, President/CEO
Principal Financial Officer:
By /S/ F. Kim Cox June 13, 1997
F. Kim Cox, Executive Vice President/
Chief Financial Officer
Principal Accounting Officer:
By /S/ Carolyn Pihl June 13, 1997
Carolyn A. Pihl, Chief Accounting Officer
Majority of Board of Directors:
By /S/ Ron Berger June 13, 1997
Ron Berger, Chairman
By /S/ Peter Dal Bianco June 13, 1997
Peter Dal Bianco, Director
By /S/ Herbert M. Fischer June 13, 1997
Herbert M. Fischer, Director
By /S/ James P. Jimirro June 13, 1997
James P. Jimirro, Director
By /S/ Bill LeVine June 13, 1997
Bill LeVine, Director
By /S/ Muneaki Masuda June 13, 1997
Muneaki Masuda, Director
By /S/ Stephen Roberts June 13, 1997
Stephen Roberts, Director
EXHIBIT INDEX
The following exhibits are filed herewith or, if
followed by a number in parentheses, are incorporated
herein by reference from the corresponding exhibit filed in
the report or registration statement identified in the
footnotes following this index:
Exhibit Number Exhibit Page
3.1 Amended and Restated Articles of
Incorporation and amendments thereto
(1)
3.2 1995 Restated Bylaws, as amended to
date (7)
4.1 Articles of Incorporation, as amended
to date (incorporated by reference to
Exhibit 3.1)
4.2 Articles II and V of the 1995 Restated
Bylaws (incorporated by reference to
Exhibit 3.2)
10.1 1986 Second Amended and Restated Stock
Option Plan and Forms of Stock Options
Agreements (9)
10.4 Stock Option Agreement with Ron Berger,
dated April 18, 1990 (2)
10.5 Stock Option Agreement with Ron Berger,
dated December 20, 1994 (3)
10.7 Amended and Restated Employment
Agreement with Ron Berger dated
November 27, 1995 (17)
10.8 Employment Agreement with F. Kim Cox
dated April 20, 1995 (11)
10.9 Employment Agreement with Ed Barnick
dated January 1, 1996
10.10 Rentrak Corporation Amended and
Restated Directors Stock Option Plan
(4)
10.11 Rentrak's 401-K Plan (5)
10.13 Amended and Restated 1992 Employee
Stock Purchase Plan of Rentrak
Corporation (10)
10.17 Joint Development Agreement with CCC
dated August 6, 1993 (6)
10.18 Business Loan Agreement with Silicon
Valley Bank dated October 12, 1993 (8)
10.19 Business Loan Modification Agreement with
Silicon Valley Bank dated June 8, 1994 (8)
10.21 Second Amendment to Business Cooperation Agreement
between Rentrak Corporation, Culture Convenience Club Co.,
Ltd., and Rentrak Japan dated June 16, 1994 (8)
10.23 Business Loan Modification Agreement with Silicon Valley
Bank dated May 17, 1996 (12)
10.25 Employment Agreement with Carolyn Pihl dated May 6, 1996
10.26 Guarantee Agreement dated as of June 26, 1996 between
Rentrak Corporation and BlowOut Entertainment, Inc. (14)
10.27 Reorganization and Distribution Agreement between Rentrak
Corporation and BlowOut Entertainment, Inc., dated as of
November 11, 1996 (13)
10.28 Asset Purchase Agreement by and among Pro Image Inc., PI
Acquisition, L.C. and Rentrak Corporation dated December 6,
1996 (15)
10.29 Business Loan Modification Agreemetn with Silicon Valley Bank
dated December 27, 1996
10.30 The 1997 Non-Officer Employee Stock Option Plan of Rentrak
Corporation (16)
11 Statement of Computation of Per Share Earnings
22 List of Subsidiaries of Registrant
23 Consent of Arthur Andersen
1. Filed in S-3 Registration Statement, File # 338511 as filed on
November 21, 1994.
2. Filed as Exhibit 10.9 to 1991 Form 10-K filed on May 6, 1991.
3. Filed as Exhibit 10.5 to 1995 Form 10-K filed on June 29, 1995.
4. Filed as Exhibit B to 1994 Proxy Statement dated July 11, 1994.
5. Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993.
6. Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993.
7. Filed as Exhibit to Form 8-K filed on June 5, 1995.
8. Filed as Exhibit to 1994 Form 10-K filed on June 29, 1994.
9. Filed as Exhibit A to 1994 Proxy Statement dated July 11, 1994.
10. Filed as Exhibit 10.13 to Form 10-K filed on June 29, 1995.
11. Filed as Exhibit 10.8 to Form 10-K filed on July 1, 1996.
12. Filed as Exhibit 10.23 to Form 10-K filed on July 1, 1996.
13. Filed as Exhibit 1 to Form 8-K filed on Decmeber 9, 1996.
14. Filed as Exhibit 2 to Form 8-K filed on December 9, 1996.
15. Filed as Exhibit 1 to Form 8-K filed on December 31, 1996.
16. Filed as Exhibit 4.1 to Form S-8 filed on June 5, 1997.
17. Filed as Exhibit 10 to Form 10-Q filed on November 14, 1995.
Page 1 - EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter
referred to as the "Agreement") is made and entered into as of
this 1st day of January, 1996 by and between RENTRAK CORPORATION,
an Oregon corporation (hereinafter referred to as "Employer"),
and ED BARNICK (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer currently employs Employee in the capacity
of Vice President-Distribution and Employee is one of the key
executives of the Employer and desires to be so employed;
WHEREAS, Employer and Employee have entered into an
Employment Agreement effective January 1, 1994 (the "Employment
Agreement") and Employer and Employee desire to modify the terms
of the Employment Agreement upon the terms and subject to the
conditions of this Agreement;
WHEREAS, the terms of this Agreement shall supersede in its
entirety the terms of the Employment Agreement;
WHEREAS, Employer considers it essential to the best
interests of its shareholders to foster the continuous employment
of Employee;
WHEREAS, the Board of Directors of Employer (the "Board")
recognizes that, as is the case with many publicly-held
corporations, the possibility of a Change of Control (as defined
below) may exist and that such possibility, and the uncertainty
and questions which it may raise among management, may result in
the departure or distraction of management personnel to the
detriment of Employer and its shareholders;
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued
attention and dedication of members of Employer's management,
including Employee, to their assigned duties without distraction
in the face of potentially disturbing circumstances arising from
the possibility of Change of Control; and
WHEREAS, the Board has determined that it is in the best
interests of Employer and its shareholders to clarify certain
provisions of the Employment Agreement in order to more
effectively carry out the purposes of Employment Agreement and
avoid potential disputes in connection with the enforcement of
the Employment Agreement following a Change of Control.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and agreements herein contained, the recitals set forth
hereinabove which by this reference are incorporated herein, and
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
S1. EMPLOYMENT
01 Position and Title. Employer shall employ and engage
the services of Employee, in the position of Vice President-
Distribution for the Term of this Agreement as defined in Section
2, pursuant to the terms and conditions set forth in this
Agreement.
02 Duties and Place of Employment.
(a) Employee shall be responsible for, and perform
duties associated with his position as Vice President-
Distribution and other duties as may be directed by the Employer,
from time to time. Employee shall: (i) devote his full business
time during normal business hours to the business and affairs of
Employer; (ii) use his best efforts to promote the interests of
Employer; and (iii) perform faithfully and efficiently his
responsibilities. Employee shall perform his duties at the
Employer's distribution center, which is currently located in
Wilmington, Ohio, or such other locations as may be directed by
Employer from time to time. Subject to the terms of this
Agreement, Employee shall comply promptly and faithfully with all
of Employer's policies, instructions, directions, requests, rules
and regulations.
(b) After a Change of Control (as defined below),
during the Term of this Agreement, Employee shall continue to
serve Employer in the same capacity and have the same authority,
responsibilities and status as he had as of the date immediately
prior to the Change of Control. After a Change of Control,
during the Term of this Agreement, Employee's services shall be
performed at the location where Employee was employed as of the
date immediately prior to the Change of Control, or at such other
location as may be mutually agreed between Employer and Employee.
(c) For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred upon the first
fulfillment of the conditions set forth in any one of the
following four paragraphs:
(1) any "person" (as such term is defined in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), other than a trustee or
other fiduciary holding securities under an employee benefit
plan of Employer, is or becomes a beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of Employer,
representing twenty-five percent (25%) or more of the
combined voting power of Employer's then outstanding
securities; or
(2) a majority of the directors elected at any annual
or special meeting of stockholders are not individuals
nominated by Employer's then incumbent Board; or
(3) the shareholders of Employer approve a merger or
consolidation of Employer with any other corporation, other
than a merger or consolidation which would result in the
voting securities of Employer outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least seventy-five percent (75%) of
the combined voting power of the voting securities of
Employer or such surviving entity outstanding immediately
after such merger or consolidation, or the shareholders of
Employer approve a plan of complete liquidation of Employer
or an agreement for the sale or disposition by Employer of
all or substantially all of its assets.
S2. TERM and TERMINATION
01 Stated Term. Employment commenced on January 1, 1996
and shall end on December 31, 1999 (the "End Date") or until
Employee's employment under this Agreement is terminated pursuant
to this Section 2 ("Term").
02 At Will Termination. Notwithstanding anything herein
to the contrary, Employee's employment may be terminated by
Employer at any time without cause upon thirty (30) days written
notice to Employee.
03 For Cause Termination. Employee's employment may be
terminated by Employer for "cause" without notice. Termination
for "cause" is defined for purposes of this subsection as
termination for: (i) material failure of Employee to
substantially perform the reasonable and attainable instructions
of Employer as to his duties hereunder; or (ii) an act or acts of
misconduct by Employee which is determined by the Employer to be
materially injurious to Employer monetarily or otherwise; or
(iii) material violation by Employee of any provision of this
Agreement. For purposes of this subsection, termination for
"cause" shall not include any act or failure to act on Employee's
part if done or omitted to be done by him in demonstrable good
faith and with the reasonable belief that his act or omission was
in the best interest of the Employer or pursuant to an express
policy of Employer at the time of such act or omission.
04 Disability or Death. Employee's employment shall be
terminable immediately upon Employee's death or disability.
"Disability" is defined for purposes of this subsection as
absence from Employee's full time duties with Employer as a
result of Employee's incapacity due to physical or mental illness
for ninety (90) days calculated on a cumulative basis during any
two (2) year period during the Term of this Agreement. Nothing
in this Section 2.04 is intended to violate any Federal or Oregon
State law regarding parental or family leave policies or any
other applicable law.
05 Termination by Employee for Good Reason. Employee's
employment may be terminated by Employee at any time for "Good
Reason" as that term is defined below. Employee's continued
employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good
Reason hereunder. "Good Reason" shall mean (i) a material breach
by Employer of the terms of this Agreement; provided that
Employee shall have not right to terminate this Agreement
pursuant to this clause (i) unless Employer has had at least 15
days to cure such failure, or (ii) the occurrence (without
Employee's express written consent), within two (2) years after
any Change of Control of any one of the following acts by
Employer, or failures by Employer to act:
(a) the assignment to Employee of any duties
inconsistent with Employee's status as an executive officer of
Employer or a substantial adverse alteration in the nature or
status of Employee's title, position, duties, functions, working
conditions or responsibilities from those in effect immediately
prior to the Change of Control other than any such alteration
primarily attributable to the fact that Employer may no longer be
a public company;
(b) a reduction by Employer in Employee's annual Base
Salary as in effect on the date hereof or as the same may be
increased from time to time;
(c) the relocation of Employer's principal executive
offices to a location more than thirty-five miles from the
location of such offices immediately prior to the Change of
Control or Employer's requiring Employee to be based anywhere
other than Employer's principal executive offices except for
required travel on Employer's business to an extent substantially
consistent with Employee's business travel obligations
immediately prior to the Change of Control;
(d) the failure by Employer, without Employee's
consent, to pay to Employee any portion of Employee's current
compensation;
(e) the failure by Employer to continue in effect any
compensation plan in which Employee participates immediately
prior to the Change of Control which is material to Employee's
total compensation unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by Employer to continue
Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the terms and
conditions of such benefits, including, without limitation, the
level of Employee's participation relative to other participants,
as such relative level existed at the time of the Change of
Control;
(f) the failure by Employer to continue to provide
Employee with benefits substantially similar to those enjoyed by
Employee under any of Employer's pension, life insurance,
medical, health and accident, or disability plans in which
Employee was participating immediately prior to the Change of
Control, the taking of any action by Employer which would
directly or indirectly materially reduce any of such benefits or
deprive Employee of any material fringe benefit enjoyed by
Employee immediately prior to the Change of Control, or the
failure by Employer to provide Employee with the number of paid
vacation days to which Employee is entitled on the basis of years
of service with Employer in accordance with Employer's normal
vacation policy in effect immediately prior to the Change of
Control; or
(g) the failure of Employer to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 7.04.
06 Other Termination by Employee. Employee's employment
may be terminated by Employee at any time without Good Reason
upon thirty (30) days written notice to Employer.
S3. COMPENSATION
01 Base Salary. Commencing on January 1, 1996, Employee
shall be paid an annual base salary in the amount of ninety
thousand eight hundred eighty dollars ($90,880.00) (as initially
established and as increased as set forth below, the "Base
Salary"). During the Term hereof, the Base Salary payable to
Employee shall be automatically increased by four percent (4%) on
January 1, 1997, and by three percent (3%) on each subsequent
January 1st, without action by Employer or Employee. The sum of
the salary plus the automatic percentage of increase for that
year shall become the annual salary in effect for calculating the
following year's automatic increase. The Base Salary shall be
paid to Employee in equal semi-monthly installments in arrears on
the seventh (7th) and twenty-second (22nd) day of each month,
commencing as of the first semi-monthly pay period following the
effective date of this Agreement. Should the seventh (7th) or
the twenty-second (22nd) day of any month not be a business day,
Employee's semi-monthly installment of the Base Salary otherwise
due on such date shall be paid to Employee on the business day
closest to the date such semimonthly installment is due (i.e., if
the seventh (7th) day of the month falls on a Saturday, the semi-
monthly installment shall be paid on the preceding business day
or if the seventh (7th) day of the month falls on a Sunday, the
semi-monthly installment shall be paid on the next following
business day). Employee's Base Salary may be increased in the
discretion of Employer during the Term of this Agreement.
02 Bonus Compensation. Nothing herein shall preclude the
Employer from authorizing the payment of additional compensation
to Employee over and above the Base Salary at any time payable to
him under his Agreement, whether as a bonus or otherwise. The
payment of such additional compensation shall not operate as an
amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future
period, or be deemed to affect Employee's Base Salary in any
manner. Employee will participate in whatever bonus plan is
adopted by Employer including any cash bonus pools established
from time to time by Employer for Corporate Executives.
03 Stock options. For the fiscal year ended March 31,
1996 and every March 31st thereafter during the term of this
Agreement, Employer shall grant Employee an option to purchase no
fewer than ten thousand (10,000) shares of Employer's stock. In
addition, Employer granted Employee an option to purchase ten
thousand (10,000) shares of Employer's stock at the average of
the high and low prices of the Stock on January 1, 1994. The
stock options were granted pursuant to that certain Incentive
Stock Option Agreement, a copy of which is attached to this
Agreement as Exhibit A. Additional options shall be granted to
Employee pursuant to the terms of the Incentive Stock Option
Agreement.
04 Benefits.
A Vacation and Holiday Pay. As of the effective
date of this Agreement, Employee will be entitled to:
(i) accrue vacation time at the rate of three (3) weeks
of paid vacation during each year of employment; and
(ii) will be eligible to receive pay for Employer-paid
holidays.
B Insurance. Employee shall be entitled to
medical, life, worker's compensation, social security
and state unemployment insurance benefits as provided
under Employer's then current terms, policies and
procedures. Employee shall not be entitled to
disability insurance benefits. For five years
following a Change of Control, Employer shall use its
best efforts to continue to provide directors' and
officers' liability insurance covering Employee (with
respect to events occurring prior to termination of
Employment) on terms no less favorable (in terms of
coverage and amounts) than those of such insurance in
effect immediately prior to the Change of Control.
Following a Change of Control, Employer will indemnify
and hold harmless Employee (and advance expenses) to
the full extent provided in the Articles of
Incorporation and Bylaws of Employer as in effect
immediately prior to the Change of Control.
C Tuition Reimbursement. Employee shall be
entitled to reimbursement for all tuition, enrollment
fees, and books pursuant to Employer's education
assistance program. Employee shall comply with all
Employer's terms, policies and procedures regarding its
education assistance program.
D Business Expenses. During the Term of this
Agreement, Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by
Employee in the performance of his duties pursuant to
this Agreement in accordance with the policies and
procedures of Employer now or hereinafter in effect.
E Sign-Up Bonus. Employee shall be entitled to a
"sign-up bonus" of Sixty Four Thousand Dollars
($64,000), payable in four (4) equal installments of
Sixteen Thousand Dollars ($16,000). Employee
acknowledges that he was paid Sixteen Thousand Dollars
($16,000) on January 1, 1996. Employee shall be paid
Sixteen Thousand Dollars ($16,000) on January 1, 1997,
1998, and 1999, provided Employee is then still
employed by Employer.
3.04F Personal Travel. For each twelve month
period covered by this Agreement, Employer shall
reimburse Employee for the cost of up to seven non-
business related round trip coach class tickets between
Wilmington, Ohio and Portland, Oregon. Employee will
"book" such travel through Employer's designated travel
agent. Employee shall provide full substantiation for
travel costs to be reimbursed. Employer shall pay all
valid reimbursements travel claims within ten (10) days
of receiving substantiation.
3.04G Country Club Benefits. The Employer has
paid for a membership at a local area country club of
Employee's selection and has paid to date and will
continue to pay during the term of this Agreement for
the dues of said membership.
3.04H Moving Expenses. In the event of the
termination of Employee's employment by Employee
pursuant to Section 2.05 or by Employer, other than
pursuant to Section 2.03 or 2.04, Employer shall
reimburse up to twenty-five thousand dollars ($25,000)
of Employee's expenses incurred to move back to
Portland, Oregon. Employee shall submit full
substantiation for all expenses to be reimbursed.
Employer shall pay all valid claims within ten (10)
days of receipt of substantiation. The amount of the
reimbursement shall be reduced by any reimbursement
paid by Employee's new employer if his employment with
Employer terminates.
3.04I Automobile Lease. Employer shall pay for
one automobile lease for Employee throughout the term
of this Agreement, said lease not to exceed $500 per
month. Employer will also reimburse employee for the
insurance, license, and maintenance expenses required
for the leased vehicle. Employee shall provide full
substantiation for vehicle costs to be reimbursed.
Employer shall pay all valid reimbuursements for
vehicle claims within ten (10) days of receiving
substantiation.
3.04J Miscellaneous Benefits. In addition to any
other compensation or benefits to be received by
Employee pursuant to the terms of this Agreement,
Employee shall be entitled to participate in any
employee benefits which Employer may from time to time
provide its employees generally.
S4. PAYMENTS UPON TERMINATION OF EMPLOYMENT
01 Termination for Cause. In the event of the termination
of Employee's employment by Employer for cause pursuant to
Section 2.03 within ten days of termination Employer shall pay to
Employee only the Base Salary accrued pursuant to Section 3.01
through and including the date of termination. No other
compensation shall be due or payable under this Agreement in the
event of a termination for Cause.
02 Termination for Death or Disability. In the event of
the termination of Employee's employment pursuant to Section 2.04
due to his death or disability, within ten days of termination
Employer shall pay to Employee or Employee's estate or legal
representative, as the case may be, in a lump sum, the Base
Salary accrued pursuant to Section 3.01 through and including the
date of termination. During the period of Employee's disability,
but prior to Employee's termination of Employment, Employee shall
be entitled to receive all compensation as set forth in this
Agreement. No other compensation shall be due or payable under
this Agreement in the event of a termination due to the
Employee's death or disability.
03 Termination by Employer Without Cause After Change of
Control or by Employee for Good Reason. In the event of the
termination of Employee's employment by Employer pursuant to
Section 2.02 within two years after a Change of Control or by
Employee pursuant to Section 2.05, within ten days of termination
Employer shall pay to Employee, in a lump sum, the lesser of (i)
all Base Salary which Employer is obligated to pay to Employee
pursuant to Section 3.01 through the End Date or (ii) six months'
Base Salary which Employer is obligated to pay to Employee
pursuant to Section 3.01 during the current fiscal year.
04 Other Termination by Employer. In the event of
termination of Employee's employment by Employer pursuant to
Section 2.02 prior to a Change of Control or more than two years
after a Change of Control, Employer shall pay Employee the Base
Salary accrued pursuant to Section 3.01 as of the date of
termination plus severance payments in an amount equal to six
months' Base Salary at the rate at which Employer is obligated to
pay to Employee pursuant to Section 3.01 during the current
fiscal year, payable in installments as if still employed;
provided, however, that during the period that Employer is making
severance payments pursuant to this Section 4.04, Employer shall
have the right to request Employee to provide reasonable evidence
that he is using his best efforts to obtain other employment, and
in the event that Employee fails to provide such reasonable
evidence, then Employer shall not be obligated to pay any
severance payments; and provided further that if Employee is
successful in obtaining such employment, the amount of severance
payments that would have been payable after the time that
Employee obtains such employment shall be reduced by the amount
of any remuneration received from such employment. For the
purposes of this Agreement, "remuneration" shall be defined to
include cash payments, the face value of any promissory notes
issued to Employee regardless of the terms of payment or whether
payments are ever received, stock or stock options valued as of
the day granted, or any other compensation given in any form
whatsoever.
05 Other Termination by Employee. In the event of the
termination of Employee's employment by Employee pursuant to
Section 2.06, within ten days of termination Employer shall pay
to Employee only the amount of Base Salary accrued pursuant to
Section 3.01 through and including the date of termination. No
other compensation shall be due or payable under this Agreement
in the event of a such a termination.
06 Insurance Benefits. Employee is entitled to elect to
continue the insurance described in Section 3.04B during a period
of two (2) years following an event of termination described in
Section 2.05 and a period of six (6) months following an event of
termination described in Section 2.02. If Employee elects to
continue such coverage, Employer shall reimburse Employee for the
premiums paid by Employee for such insurance as such premiums are
paid until such time as the continued insurance terminates or
Employee obtains replacement full-time employment and is covered
by such new employer's group medical health and life insurance
plan with benefits substantially similar to those provided by
Employer's insurance plan and without any pre-existing
conditions, exclusions, limitations or restrictions, whichever
occurs first. Such reimbursement shall be reduced for an amount
equivalent to the amounts charged Employee for health coverage
immediately prior to the occurrence of the Change of Control.
07 Other Compensation. Except as set forth in this
Section 4, no other compensation shall be due or payable to
Employee upon termination of his employment.
08 Stock Options. In the event of a termination of
Employee's employment, all stock options held by Employee shall
be treated in the manner described in the stock option agreements
entered into between Employer and Employee. Such agreements
shall provide that all of Employee's previously issued stock
options in the Company shall fully vest in the event of the
termination of Employee's employment by Employer pursuant to
Section 2.02 within two years after a Change of Control or by
Employee pursuant to Section 2.05.
09 Right to Decline Payments. Employee, in his sole and
absolute discretion, shall have the right to decline all or a
portion of any payments under this Agreement.
S5. PERSONAL NATURE
This Agreement is personal, and is being entered into based
upon the singular skill, qualifications and experience of
Employee. Employee shall not assign this Agreement or any rights
hereunder without the express written consent of Employer which
may be withheld with or without reason. Employee hereby grants
to Employer the right to use Employee's name, likeness and/or
biography in connection with the services performed by Employee
hereunder and in connection with the advertising or exploitation
of any project with respect to which Employee performs services
hereunder.
SECTION 6. RESTRICTIVE COVENANTS
6.01 Non-Competition. During the term of Employee's
employment under this Agreement and for eighteen (18) months
thereafter, Employee shall not own or have any interest directly
in, or act as an officer, director, agent, employee or consultant
of, or assist in any way or in any capacity, any person, firm,
association, partnership, corporation, or entity which is
competitive with the business then engaged in by Employer, in any
area where Employer engages in business (a "Competitive Entity").
The restrictions of this Section prohibiting ownership in a
competitive business shall not apply to Employee's ownership of
less than ten percent (10%) of the publicly traded securities of
any Competitive Entity.
6.02 Delivery of Records. Upon termination of Employee's
employment with Employer, Employee shall deliver to Employer all
books, records, lists, brochures and other property belonging to
Employer or developed in connection with the business of
Employer.
6.03 Confidentiality. Except in connection with the
performance of his duties hereunder, Employee shall not at any
time during or after his employment with employer, reveal,
divulge or make known to any person, firm or corporation any
confidential knowledge or information or any confidential facts
concerning any suppliers, purchasers, methods, processes,
developments, schedules, lists or loans of or relating to the
business of Employer and Employee will retain all confidential
knowledge and information which he has acquired or which he will
acquire during his employment therewith relating to such
suppliers, purchasers, methods, processes, developments,
schedules, lists or plans and the business of Employer for the
sole benefit of Employer, its successors and assigns; provided,
however, that this restriction shall not apply to any knowledge,
information or fact held by or known to Employee that is
available from sources other than Employee or which was acquired
by Employee other than in his capacity as Employee; provided,
further, that this restriction shall not apply to any knowledge,
information or fact that, in the unqualified opinion of
Employee's counsel, Employee is required to reveal or disclose as
a result of court order, subpoena or similar legal duress or if
disclosure is otherwise required by law. Employee shall give
Employer prompt written notice upon Employee's receipt of any
such order or subpoena and a reasonable opportunity (in the
circumstances) prior to disclosure to seek a protective order.
Employee shall not be required to seek any protective order or
commence any proceeding to do so.
6.04 Survival. The provisions of this Section 6 shall
survive the termination of the basic term of this Agreement and
shall inure to the benefit of Employer, its successors and
assigns.
SECTION 7. NOTICES
Any and all notices or other communications required or
permitted by this Agreement or by law shall be deemed duly served
and given when personally delivered to the party to whom such
notice or communication is directed or, in lieu of such personal
service, when deposited in the United States mail, certified,
return receipt requested, first class postage prepaid, addressed
as follows:
EMPLOYER: Rentrak Corporation
7227 N.E. 55th Avenue
P.O. Box 18888
Portland, Oregon 97218
Attn: Ron Berger
EMPLOYEE: Ed Barnick
P.O. Box 993
Wilmington, Ohio 45177
Each party may change its address for purposes of this
Section by giving written notice of such change in the manner
provided for in this Section.
SECTION 8. MISCELLANEOUS PROVISIONS.
8.01 Attorneys' Fees; Disputes Concerning Termination. (a)
Subject to Section 8.01(b), in the event that it should be become
necessary for any party to bring an action, including
arbitration, either at law or in equity, to enforce or interpret
the terms of this Agreement, each party shall pay its own
attorneys' fees including those incurred in resolving the dispute
prior to initiation of any litigation and at trial and on any
appeal.
(b) If within fifteen (15) days after any notice of
termination for Good Reason is given by Employee pursuant to
Section 2.05, Employer notifies Employee that a dispute exists
concerning the termination, the date of termination of this
Agreement shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or
by a final determination; provided further that the date of
termination shall be extended by a notice of dispute from
Employer only if such notice is given in good faith and Employer
pursues the resolution of such dispute with reasonable diligence.
Following a Change of Control, Employer shall provide all
witnesses and evidence reasonably required by Employee to present
Employee's case. If a purported termination by Employer within
two years after a Change of Control or by Employee for Good
Reason occurs and such termination is disputed, Employer shall
pay to Employee all reasonable expenses and legal fees incurred
by Employee as a result of a termination in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether
or not Employee is successful in obtaining or enforcing such
right or benefit).
(c) If a purported termination by Employer within two
years after a Change of Control or by Employee for Good Reason
occurs and such termination is disputed, Employer shall do either
of the following.
(1) So long as Employee continues to provide
services, Employer shall continue to pay Employee the
full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited
to, salary and estimated bonus) and continue Employee
as a participant in all compensation, benefit and
insurance plans in which Employee was a participant
when the notice giving rise to the dispute was given,
until the dispute is finally resolved; provided that
Employee's right to continue to provide such services
is solely within the discretion of Employer, and
nothing herein shall prohibit Employer from terminating
such services.
(2) If Employee is no longer providing
services, Employer shall pay Employee fifty percent
(50%) of the amount specified in Sections 4.03 and
Employer will provide Employee with the other benefits
provided in Section 4.06, if, but only if, Employee
agrees in writing that if the dispute is resolved
against Employee, Employee will promptly refund to
Employer all payments specified in Section 4.03 that
Employee receives under this paragraph (c) plus
interest at the rate provided in Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"),
compounded quarterly. If the dispute is resolved in
Employee's favor, promptly after resolution of the
dispute Employer will pay Employee the sum which was
withheld during the period of the dispute plus interest
at the rate provided in Section 1274(d) of the Code,
compounded quarterly.
Amounts paid under this paragraph (c) shall offset against and
reduce other amounts due under this Agreement. If the dispute is
resolved by a determination that Employee did not have Good
Reason, this Agreement, in accordance with its terms, will
continue to apply to the circumstances of Employee's employment
by Employer and any termination thereof.
8.02 Applicable Law and Venue. This Agreement is executed
and intended to be performed in the State of Oregon and the laws
of such State shall govern its interpretation and effect. If
suit is instituted by any party hereto or by any other party for
any cause or matter arising from or in connection with the
respective rights or obligations of the parties hereunder, the
sole jurisdiction and venue for such action shall be the Circuit
Court of the State of Oregon in and for the County of Multnomah.
8.03 Integration. Employee has executed an Incentive Stock
Option Agreement (a copy of which is attached hereto as Exhibit
A) and may have executed certain Nonstatutory Stock Option
Agreements (which, if executed, are attached hereto as Exhibit
B). Except as set forth in the preceding sentence, this
Agreement constitutes the entire agreement of the parties with
respect to the subject matter of this Agreement and supersedes
all prior agreements, negotiations, or understandings, whether
oral or written, between the parties with respect thereto.
8.04 Heirs and Assigns. Subject to any restriction on
assignment contained herein, this Agreement shall be binding upon
and shall inure to the benefit of the respective party's heirs,
successors and assigns. Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all the business and/or
assets of Employer, by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that Employer would be required to perform it if no such
succession had taken place. This Agreement shall not be
terminated by Employer's voluntary or involuntary dissolution or
by any merger or consolidation in which Employer is not the
surviving or resulting corporation, or on any transfer of all or
substantially all of the assets of Employer. In the event of any
such merger, consolidation, or transfer of assets, the provisions
of this Agreement shall be binding on and inure the benefit of
the surviving business entity or the business entity to which
such assets shall be transferred.
8.05 Severability. Any provision in this Agreement which
is, by competent judicial authority, declared illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such illegality, invalidity or
unenforceability without invalidating the remaining provisions
hereof or affecting the legality, validity or enforceability or
such provision in any other jurisdiction. The parties hereto
agree to negotiate in good faith to replace any illegal, invalid
or unenforceable provision that, to the extent possible, will
preserve the economic bargain of this Agreement, or otherwise to
amend this Agreement.
8.06 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and the
counterparts shall together constitute one and the same
agreement, notwithstanding that all of the parties are not
signatory to the original or the same counterpart.
8.07 Captions. The headings and captions herein are
inserted solely for the purpose of convenience of reference and
are not intended to govern, limit, or aid in the construction of
any term or provision hereof.
8.08 Execution. Each of the parties hereto shall execute,
acknowledge and deliver any instrument necessary to carry out the
provisions of this Agreement.
8.09 Construction. This Agreement has been prepared by
legal counsel for Employer. Employee has been advised and by his
execution hereof acknowledges, that he has the right to and
should have this Agreement reviewed by his own separate legal
counsel. This Agreement has been negotiated at arms' length with
the benefit of or opportunity to seek legal counsel and,
accordingly, shall not be construed against any of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
EMPLOYER:
RENTRAK CORPORATION,
an Oregon corporation
By: s/s Ron Berger
Ron Berger, President
I acknowledge that I have read and agree to the foregoing
Agreement, including, without limitation, the provision allowing
termination of my employment "at will" by Employer in Section
2.01.
s/s Ed Barnick
Ed Barnick
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into as of this 6th day of May,
1996 by and between RENTRAK CORPORATION, an Oregon corporation
(hereinafter referred to as "Employer"), and CAROLYN PIHL
(hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employer is a publicly held corporation which, in
turn, controlling interest in several subsidiary companies
including, but not limited to Rentrak Home Entertainment, The Pro
Image, Inc., Dover Aggregates, Inc., BlowOut Video, Inc., and
Mortco, Inc.; and
WHEREAS, Employer desires to employ Employee in the position
of Chief
Accounting Officer, and Employee desires to be so employed; and
NOVV, THEREFORE, in consideration of the mutual promises,
covenants and agreements herein contained, the recitals set forth
hereinabove which by this reference are incorporated herein, and
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
SECTION 1. EMPLOYMENT
1.01 Position and Title. Employer shall employ and engage
the services ofEmployee, in the position of Chief Accounting Officer
for the
Term of this Agreement as defined in Section 2, pursuant to the
terms and conditions set forth in this Agreement.
1.02 Duties and Place of Employment.
(a) Employee shall be responsible for, and perform
duties associated
with, her position as Chief Accounting Officer and other duties
as may be directed by the Employer, from time to time. Employee
shall: (i) devote her full business time during normal business
hours to the business and affairs of Employer; (ii) use her best
efforts to promote the interests of Employer; and (iii) perform
faithfully and efficiently her responsibilities. Employee shall
perform her duties at the Employer's principal executive offices,
which are currently located at 7227 N.E. 55th Avenue, Portland,
Oregon 97218, or such other locations as may be directed by
Employer from time to time. Subject to the terms of this
Agreement, Employee shall comply promptly and faithfully with all
of Employer's policies, instructions, directions, requests, rules
and regulations.
(b) After a Change of Control (as defined below),
during the Term of this Agreement, Employee shall continue to
serve Employer in the same capacity and have the same authority,
responsibilities and status as she had as of the date immediately
prior
Page 1 - EMPLOYMENT AGREEMENT
to the Change of Control. After a Change of Control, during the
Term of this Agreement, Employee's services shall be performed at
the location where Employee was employed as of the date
immediately prior to the Change of Control, or at such other
location as may be mutually agreed between Employer and Employee.
(c) For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred upon the first
fulfillment of the conditions set forth in any one of the
following four paragraphs:
(1) any "person" (as such term is defined in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than a trustee or
other fiduciary holding securities under an employee benefit plan
of Employer, is or becomes a beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Employer, representing twenty-five
percent (25%) or more of the combined voting power of Employer's
then outstanding securities; or
(2) a majority of the directors elected at any
annual or special meeting of stockholders are not individuals
nominated by Employer's then incumbent Board; or
(3) the shareholders of Employer approve a merger
or consolidation of Employer with any other corporation, other
than a merger or consolidation which would result in the voting
securities of Employer outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least seventy-five percent (75%) of the combined voting power
of the voting securities of Employer or such surviving entity
outstanding immediately after such merger or consolidation, or
the shareholders of Employer approve a plan of complete
liquidation of Employer or an agreement for the sale or
disposition by Employer of all or substantially all of its
assets.
SECTION 2. TERM and TERMINATION
2.01 Stated Term. Employment shall commence on the effective
date of this Agreement and shall continue for a period of five
(5) years ending on May 5, 2001 (the "End Date") or until
Employee's employment under this Agreement is terminated pursuant
to this Section 2 ("Term").
2.02 At Will Termination. Notwithstanding anything herein to
the contrary, Employee's employment may be terminated by Employer
at any time without cause upon thirty (30) days written notice to
Employee.
2.03 For Cause Termination. Employee's employment may be
terminated by Employer for "cause" without notice. Termination
for "cause" is defined for purposes of this subsection as
termination for: (i) material failure of Employee to
substantially perform
Page 2 - EMPLOYMENT AGREEMENT
the reasonable and attainable instructions of Employer as to her
duties hereunder; or (ii) an act or acts of misconduct by
Employee which is determined by the Employer to be materially
injurious to Employer monetarily or otherwise; or (iii) material
violation by Employee of any provision of this Agreement. For
purposes of this subsection, termination for "cause" shall not
include any act or failure to act on Employee's part if
done or omitted to be done by her in demonstrable good faith and
with the reasonable belief that her act or omission was in the
best interest of the Employer or pursuant to an express policy of
Employer at the time of such act or omission.
2.04 Disability or Death. Employee's employment shall be
terminable immediately upon Employee's death or disability.
"Disability" is defined for purposes of this subsection as
absence from Employee's full time duties with Employer as a
result of Employee's incapacity due to physical or mental
illness, or due to other circumstances that qualify as family
care or disability leave under federal and Oregon law for more
than twelve (12) weeks calculated on a cumulative basis during
any one (1) year period during the Term of this Agreement.
Nothing in this Section 2.04 is intended to violate any federal
or Oregon State law regarding parental or family leave policies
or any other applicable law.
2.05 Termination by Employee for Good Reason. Employee's
employment may be terminated by Employee at any time for "Good
Reason" as that term is defined below. Employee's continued
employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good
Reason hereunder. "Good Reason" shall mean (i) a material breach
by Employer of the terms of this Agreement; provided that
Employee shall have no right to terminate this Agreement pursuant
to this clause (i) unless Employer has had at least 15 days after
receipt of written notice to cure such failure, or (ii) the
occurrence (without Employee's express written consent), within
two (2) years after any Change of Control of any one of the
following acts by Employer, or failures by Employer to act:
(a) The assignment to Employee of any duties
inconsistent with Employee's status as an executive officer of
Employer or a substantial adverse alteration in the nature or
status of Employee's title, position, duties, functions, working
conditions or responsibilities from those in effect immediately
prior to the Change of Control other than any such alteration
primarily attributable to the fact that Employer may no longer be
a public company;
(b) A reduction by Employer in Employee's annual Base
Salary as in effect on the date hereof or as the same may be
increased from time to time;
(c) The relocation of Employer's principal executive
offices to a location more than thirty-five miles from the
location of such offices immediately prior to the
Change of Control or Employer's requiring Employee to be based
anywhere other than Employer's principal executive offices except
for required travel on Employer's business
Page 3 - EMPLOYMENT AGREEMENT
to an extent substantially consistent with Employee's business
travel obligations immediately prior to the Change of Control;
(d) The failure by Employer, without Employee's consent, to
pay to Employee any portion of Employee's current compensation;
(e) The failure by Employer to continue in effect any
compensation plan in which Employee participates immediately
prior to the Change of Control which is material to Employee's
total compensation unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by Employer to continue
Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the terms and
conditions of such benefits, including, without limitation, the
level of Employee's participation relative to other participants,
as such relative level existed at the time of the Change of
Control;
(f) The failure by Employer to continue to provide
Employee with benefits substantially similar to those enjoyed by
Employee under any of Employer's pension, life insurance,
medical, health and accident, or disability plans in which
Employee was participating immediately prior to the Change of
Control, the taking of any action by Employer which would
directly or indirectly materially reduce any of such
benefits or deprive Employee of any material fringe benefit
enjoyed by Employee immediately prior to the Change of Control,
or the failure by Employer to provide Employee with the number of
paid vacation days to which Employee is entitled on the
basis of years of service with Employer in accordance with
Employer's normal vacation policy in effect immediately prior to
the Change of Control; or
(g) The failure of Employer to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 7.04.
2.06 Other Termination by Employee. Employee's employment
may be terminated by Employee at any time without Good Reason
upon thirty (30) days written notice to Employer.
SECTION 3. COMPENSATION
3.01 Base Salary. Commencing on May 6, 1996, Employee shall
be paid an annual base salary in the amount of one hundred three
thousand dollars ($103,000.00)
(as initially established and as increased as set forth below,
the "Base Salary"). The Base Salary shall be paid to Employee in
equal semi-monthly installments in arrears on the seventh (7th)
and twenty-second (22nd) day of each month, commencing as of the
first semi-monthly pay period following the effective date of
this Agreement. Should the seventh (7th) or the twenty-second
(22nd) day of any month not be a business day, Employee's semi-
monthly installment of the Base Salary otherwise due on such date
shall
Page 4 - EMPLOYMENT AGREEMENT
be paid to Employee on the business day closest to the date such
semimonthly installment is due (i.e., if the seventh (7th) day of
the month falls on a Saturday, the semi- monthly installment
shall be paid on the preceding business day or if the seventh
(7th) day of the month falls on a Sunday, the semi-monthly
installment shall be paid on the next following business day).
Employee's Base Salary may be increased at the discretion of
Employer during the Term of this Agreement.
3.02 Bonus Compensation. Nothing herein shall preclude the
Employer from authorizing the payment of additional compensation
to Employee over and above the Base Salary at any time payable to
her under this Agreement, whether as a bonus or otherwise. The
payment of such additional compensation shall not operate as an
amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future
period, or be deemed to affect Employee's Base Salary in any
manner. Employee will participate in whatever bonus
plan is adopted by Employer including any cash bonus pools
established from time to time by Employer for Corporate
Executives.
3.03 Stock options. Upon the commencement of the Term of
this Agreement, Employer shall grant Employee ten thousand
(10,000) share options for Employer's stock.
SECTION 4. BENEFITS.
4.01 Vacation and Holiday Pay. As of the effective date of
this Agreement, Employee will be entitled to: (i) accrued
vacation time at the rate of four (4) weeks of paid vacation
during each year of employment; and (ii) will be eligible to
receive pay for Employer-paid holidays.
4.02 Insurance. Employee shall be entitled to medical, life,
worker's compensation, social security and state unemployment
insurance benefits as provided under Employer's then current
terms, policies and procedures. Employee shall not be
entitled to disability insurance benefits. For five years
following a Change of Control, Employer shall use its best
efforts to continue to provide directors' and officers' liability
insurance covering Employee (with respect to events occurring
prior to termination of Employment) on terms no less favorable
(in terms of coverage and amounts) than those of such insurance
in effect immediately prior to the Change of Control. Following a
Change of Control, Employer will indemnify and hold harmless
Employee (and advance expenses) to the full extent provided in
the Articles of Incorporation and Bylaws of Employer as in effect
immediately prior to the Change of Control.
4.03 Tuition Reimbursement. Employee shall be entitled to
reimbursement for tuition, enrollment fees, books, and related
continuing education travel expenses pursuant to Employer's
education 'assistance program. Employee shall comply with all
Employer's terms, policies and procedures regarding its education
assistance program. [In addition, Employer shall reimburse all
cost incurred by Employee to maintain Employee's "active status"
CPA license.]
Page 5 - EMPLOYMENT AGREEMENT
4.04 Business Expenses. During the Term of this Agreement,
Employee shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by Employee in the performance
of her duties pursuant to this Agreement in accordance with the
policies and procedures of Employer now or hereinafter in effect.
4.05 Miscellaneous Benefits. In addition to any other
compensation or benefits to be received by Employee pursuant to
the terms of this Agreement, Employee shall be entitled to
participate in any employee benefits which Employer may from time
to time provide its employees generally.
SECTION 5. PAYMENTS UPON TERMINATION OF EMPLOYMENT
5.01 Termination for Cause. In the event of the termination
of Employee's employment by Employer for cause pursuant to
Section 2.03, within ten days of termination, Employer shall pay
to Employee only the Base Salary accrued pursuant to Section 3.01
through and including the date of termination. No other
compensation shall be due or payable under this Agreement in the
event of a termination for Cause.
5.02 Termination for Death or Disability. In the event of
the termination of Employee's employment pursuant to Section 2.04
due to her death or disability, within ten days of termination,
Employer shall pay to Employee or Employee's estate or legal
representative, as the case may be, in a lump sum, the Base
Salary accrued pursuant to Section 3.01 through and including the
date of termination. During the period of Employee's disability,
but prior to Employee's termination of Employment, Employee shall
be entitled to receive all compensation as set forth in this
Agreement. No other compensation shall be due or payable under
this Agreement in the event of a termination due to the
Employee's death or disability.
5.63 Termination by Employer Without Cause After Change of
Control or by Employee for Good Reason. In the event of the
termination of Employee's employment by Employer pursuant to
Section 2.02 within two years after a Change of Control or by
Employee pursuant to Section 2.05, within ten days of termination
Employer shall pay to Employee, in a lump sum, the lesser of (i)
all Base Salary which Employer is obligated to pay to Employee
pursuant to Section 3.01 through the End Date or (ii) six months'
Base Salary which Employer is obligated to pay to Employee
pursuant to Section 3.01 during the current fiscal year.
5.04 Other Termination by Employer. In the event of
termination of Employee's
employment by Employer pursuant to Section 2.02 prior to a Change
of Control or more than two years after a Change of Control,
Employer shall pay Employee the Base Salary accrued pursuant to
Section 3.01 as of the date of termination plus severance
payments in an amount equal to three months' Base Salary at the
rate at which Employer is obligated to pay to Employee pursuant
to Section 3.01 during the current fiscal year, payable in
installments as if still employed; provided. however, that during
the period that Employer is making severance payments pursuant to
this Section 5.04, Employer shall
Page 6 - EMPLOYMENT AGREEMENT
have the right to request Employee to provide reasonable evidence
that she is using her best efforts to obtain other employment,
and in the event that Employee fails to provide such reasonable
evidence, then Employer shall not be obligated to pay any
severance payments; and provided further that if Employee is
successful in obtaining such employment, the amount of severance
payments that would have been payable after the time that
Employee obtains such employment shall be reduced by the amount
of any remuneration received from such employment. For the
purposes of this Agreement, "remuneration" shall be defined to
include cash payments, the face value of any promissory notes
issued to Employee regardless of the terms of payment or whether
payments are ever received, stock or stock options valued as of
the day granted, or any other compensation given in any form
whatsoever.
5.05 Other Termination by Employee. In the event of the
termination of Employee's employment by Employee pursuant to
Section 2.06, within ten days of termination, Employer shall pay
to Employee only the amount of Base Salary accrued
pursuant to Section 3.01 through and including the date of
termination. No other compensation shall be due or payable under
this Agreement in the event of such a termination.
5.06 Insurance Benefits. Employee is entitled to elect to
continue the medical and life insurance described in Section 4.02
during a period of two (2) years following an event of
termination described in Section 2.05 and a period of six (6)
months following an event of termination described in Section
2.02. If Employee elects to continue such coverage, Employer
shall reimburse Employee for the premiums paid by Employee, which
Employer ordinarily paid, for such insurance as such premiums are
paid until such time as the continued insurance terminates or
Employee obtains replacement full-time employment and is covered
by such new employer's group medical health and life insurance
plan with benefits substantially similar to those provided by
Employer's insurance plan and without any pre-existing
conditions, exclusions, limitations or restrictions, whichever
occurs first. Such reimbursement shall be reduced for an amount
equivalent to the amounts charged Employee for health coverage
immediately prior to the occurrence of the Change of Control.
(a) The medical continuation coverage provided
pursuant to this Section 5.06 shall satisfy the Employer's
obligations under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA") during the period that such continuation
coverage is provided and the Employer and the Employee shall
comply with the
requirements of COBRA. In the event that Employer's insurance
provider(s) will not permit continuation coverage beyond that
required by COBRA, then Employer may arrange for similar coverage
under different policies.
5.07 Other Compensation. Except as set forth in this Section
5.07, no other compensation shall be due or payable to Employee
upon termination of her employment.
Page 7 - EMPLOYMENT AGREEMENT
5.08 Stock Options. In the event of a termination of
Employee's employment, all stock options held by Employee shall
be treated in the manner described in the stock option agreements
entered into between Employer and Employee. Such agreements
shall provide that all of Employee's previously issued stock
options in the Company shall fully vest in the event of the
termination of Employee's employment by Employer pursuant to
Section 2.02 within two years after a Change of Control or by
Employee pursuant to Section 2.05.
5.09 Right to Decline Payments. Employee, at her sole and
absolute discretion, shall have the right to decline all or a
portion of any payments under this Agreement.
SECTION 6. PERSONAL NATURE
This Agreement is personal, and is being entered into based
upon the singular skill, qualifications and experience of
Employee. Employee shall not assign this Agreement or any rights
hereunder without the express written consent of Employer
which may be withheld with or without reason. Employee hereby
grants to Employer the right to use Employee's name, likeness
and/or biography in connection with the services performed by
Employee hereunder and in connection with the advertising or
exploitation of any project with respect to which Employee
performs services hereunder.
SECTION 7. RESTRICTIVE COVENANTS
7.01 Non-Competition. During the term of Employee's
employment under this Agreement and for eighteen (18) months
thereafter, Employee shall not own or have any interest directly
in, or act as an officer, director, agent, employee or consultant
of, or assist in any way or in any capacity, any person, firm,
association, partnership, corporation, or entity which is
competitive with the business then engaged in by Employer, in any
area where Employer engages in business (a "Competitive Entity").
The restrictions of this Section prohibiting ownership in a
competitive business shall not apply to Employee's ownership of
less than ten percent (10%) of the publicly traded securities of
any Competitive Entity.
7.02 Delivery of Records. Upon termination of Employee's
employment with Employer, Employee shall deliver to Employer all
books, records, lists, brochures and other property belonging to
Employer or developed in connection with the business of
Employer.
7.03 Confidentiality. Except in connection with the
performance of her duties hereunder, Employee shall not at any
time during or after her employment with employer, reveal,
divulge or make known to any person, firm or corporation any
confidential knowledge or information or any confidential facts
concerning any suppliers, purchasers, methods, processes,
developments, schedules, lists or loans of or relating to the
business of Employer and Employee will retain all confidential
knowledge and information which she has acquired or which she
will acquire during her employment therewith relating to
Page 8 - EMPLOYMENT AGREEMENT
such suppliers, purchasers, methods, processes, developments,
schedules, lists or plans and the business of Employer for the
sole benefit of Employer, its successors and assigns; provided,
however, that this restriction shall not apply to any knowledge,
information or fact held by or known to Employee that is
available from sources other than Employee or which was acquired
by Employee other than in her capacity as Employee; provided,
further, that this restriction shall not apply to any knowledge,
information or fact that, in the unqualified opinion of
Employee's counsel, Employee is required to reveal or disclose as
a result of court order, subpoena or similar legal duress or if
disclosure is otherwise required by law. Employee shall give
Employer prompt written notice upon Employee's receipt of any
such order or subpoena and a reasonable opportunity (in the
circumstances) prior to disclosure to seek a protective order.
Employee shall not be required to seek any protective order or
commence any proceeding to do so.
7.04 Survival. The provisions of this Section 7.04 shall
survive the termination of the basic term of this Agreement and
shall inure to the benefit of Employer, its successors and
assigns.
SECTION 8. NOTICES
Any and all notices or other communications required or
permitted by this Agreement or by law shall be deemed duly served
and given when personally delivered to the party to whom such
notice or communication is directed or, in lieu of such personal
service, when deposited in the United States mail, certified,
return receipt requested, first class postage prepaid, addressed
as follows:
EMPLOYER: Rentrak Corporation
P.O. Box 18888
Portland, Oregon 97218
Attn: Ron Berger
EMPLOYEE: Carolyn Pihl
Each party may change its address for purposes of this
Section by giving written
notice of such change in the manner provided for in this Section.
SECTION 9. MISCELLANEOUS PROVISIONS
9.01 Attorneys' Fees; Disputes Concerning Termination.
(a) Subject to Section 9.01(b), in the event that it
should be become necessary for any party to bring an action,
including arbitration, either at law or in equity, to enforce or
interpret the terms of this Agreement, each party shall pay its
own attorneys'
Page 9 - EMPLOYMENT AGREEMENT
fees, including those incurred in resolving the dispute prior to
initiation of any litigation and at trial and on any appeal.
(b) Following a Change of Control, if within fifteen
(15) days after any notice of termination for Good Reason is
given by Employee pursuant to Section 2.05, Employer notifies
Employee that a dispute exists concerning the termination, the
date of termination of this Agreement shall be the date on which
the dispute is finally determined, either by mutual written
agreement of the parties or by a final determination; provided
further that the date of termination shall be extended by a
notice of dispute from Employer only if such notice is given in
good faith and Employer pursues the resolution of such dispute
with reasonable diligence. Following a Change of Control,
Employer shall provide all witnesses and evidence reasonably
required by Employee to present Employee's case. If a purported
termination by Employer within two years after a Change of
Control or by Employee for Good Reason occurs and such
termination is disputed, Employer shall pay to Employee all
reasonable expenses and legal fees incurred by Employee as a
result of a termination in seeking to obtain or enforce any right
or benefit provided by this Agreement (whether or not Employee is
successful in obtaining or enforcing such right or benefit) .
(c) If a purported termination by Employer within two
years after a Change of Control or by Employee for Good Reason
occurs and such termination is disputed, Employer shall do either
of the following:
(1) so long as Employee continues to provide
services, Employer shall continue to pay Employee the full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary and estimated
bonus) and continue Employee as a participant in all
compensation, benefit and insurance plans in which Employee was a
participant when the notice giving rise to the dispute was given,
until the dispute is finally resolved; provided that Employee's
right to continue to provide such services is solely within the
discretion of Employer, and nothing herein shall prohibit
Employer from terminating such services.
(2) if Employee is no longer providing services,
Employer shall pay Employee fifty percent (50%) of the amount
specified in Section 5.03 and Employer will provide Employee with
the other benefits provided in Section 5.06, if, and only if,
Employee agrees in writing that if the dispute is resolved
against Employee, Employee will promptly refund to Employer all
payments specified in Section 5.03 that Employee receives under
this paragraph (c) plus interest at the rate provided in Section
1274(d) of the Internal Revenue Code of 1986, as amended (the
"Code"), compounded quarterly. If the dispute is resolved in
Employee's favor, promptly after resolution of the dispute,
Employer will pay Employee the sum which was withheld during the
period of the dispute, plus interest at the rate provided in
Section 1274(d) of the Code, compounded quarterly.
Page 10 - EMPLOYMENT AGREEMENT
Amounts paid under this paragraph (c) shall offset against and
reduce other amounts due under this Agreement. If the dispute is
resolved by a determination that Employee did not have Good
Reason, this Agreement, in accordance with its terms, will
continue to apply to the circumstances of Employee's employment
by Employer and any termination thereof.
9.02 Applicable Law and Venue. This Agreement is executed
and intended to be performed in the State of Oregon and the laws
of such State shall govern its interpretation and effect. If suit
is instituted by any party hereto or by any other party for
any cause or matter arising from or in connection with the
respective rights or obligations of the parties hereunder, the
jurisdiction and venue for such action shall be either the
Circuit Court of the State of Oregon in and for the County of
Multnomah, or the Federal District Court for the State of Oregon,
in Portland Oregon.
9.03 Integration. Employee has executed an Incentive Stock
Option Agreement (a copy of which is attached hereto as Exhibit
A) and may have executed certain Nonstatutory Stock Option
Agreements (which, if executed, are attached hereto as
Exhibit B). Except as set forth in the preceding sentence, this
Agreement constitutes the entire agreement of the parties with
respect to the subject matter of this Agreement and supersedes
all prior agreements, negotiations, or understandings, whether
oral or written, between the parties with respect thereto.
9.04 Heirs and Assigns. Subject to any restriction on
assignment contained herein, this Agreement shall be binding upon
and shall inure to the benefit of the respective party's heirs,
successors and assigns. Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all the business and/or
assets of Employer, by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that Employer would be required to perform it if no such
succession had taken place. This Agreement shall not be
terminated by Employer's voluntary or involuntary dissolution or
by any merger or consolidation in which Employer is not the
surviving or resulting corporation, or on any transfer of all or
substantially all of the assets of Employer. In the event of any
such merger, consolidation, or transfer of assets, the provisions
of this Agreement shall be binding on and inure to the benefit of
the surviving business entity or the business entity to which
such assets shall be transferred.
9.05 Severabilitv. Any provision in this Agreement which is,
by competent judicial authority, declared illegal, invalid or
unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such
illegality, invalidity or unenforceability without invalidating
the remaining provisions hereof or affecting the legality,
validity or enforceability or such provision in any other
jurisdiction. The parties hereto agree to negotiate in good faith
to replace any illegal, invalid or unenforceable provision that,
to the extent possible, will preserve the economic bargain of
this Agreement, or otherwise to amend this Agreement.
Page 11 - EMPLOYMENT AGREEMENT
9.06 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and the
counterparts shall together constitute one and the same
agreement, notwithstanding that all of the parties are not
signatory to the original or the same counterpart.
9.07 Captions. The headings and captions herein are inserted
solely for the purpose of convenience of reference and are not
intended to govern, limit, or aid in the construction of any term
or provision hereof.
9.08 Execution. Each of the parties hereto shall execute,
acknowledge and deliver any instrument necessary to carry out the
provisions of this Agreement.
9.09 Construction. This Agreement has been prepared by legal
counsel for Employer. Employee has been advised and by her
execution hereof acknowledges, that he has the right to and
should have this Agreement reviewed by her own separate legal
counsel. This Agreement has been negotiated at arms' length with
the benefit of or opportunity to seek legal counsel and,
accordingly, shall not be construed against any of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
EMPLOYER:
RENTRAK CORPORATION,
an Oregon corporation
By: s/s Ron Berger
Ron Berger, President
I acknowledge that I have read and agree to the foregoing
Agreement, including, without limitation, the provision allowing
termination of my employment "at will" by Employer in Section
2.02.
s/s Carolyn Pihl
Carolyn Pihl
Page 12 - EMPLOYMENT AGREEMENT
LOAN MODIFICATION AGREEMENT
AMONG: Rentrak Corporation ("Borrower"), whose address is One
Airport Center, 7700 N.E. Ambassador Place, Portland,
Oregon 97220;
AND: Silicon Valley Bank ("Silicon") whose address is
3003 Tasman Drive, Santa Clara, California 95054;
DATE: December 27, 1996.
This Loan Modification Agreement is entered into on the
above date by Borrower and Silicon.
1. Background. Borrower entered into a loan and security
agreement with Silicon dated as of October 12, 1993, which was
subsequently modified (as amended, the "Loan Agreement").
Capitalized terms used in this Loan Modification Agreement shall,
unless otherwise defined in this Agreement, have the meaning
given to such terms in the Loan Agreement.
Silicon and Borrower are entering into this Agreement to
state the terms and conditions of certain modifications to the
Loan Agreement and the Schedule, as modified prior to the date of
this Agreement. Silicon and Borrower are also entering into an
Interest Rate Supplement to Agreement, the terms of which shall
control in the event of any inconsistency with the Loan Agreement
or the Schedule.
2. Modifications to Loan Agreement and Schedule.
(a) The Schedule attached to this Loan Modification
Agreement is a revised and restated Schedule, which modifies
certain terms contained in the Schedule attached to the Loan
Agreement. The Schedule attached to this Loan Modification
supersedes in its entirety the Schedule attached to the Loan
Agreement.
(b) Section 3.7 of the Loan Agreement is deleted and
replaced with the following:
"3.7 Financial Condition and Statements. All
financial statements now or in the future delivered to
Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles and now
and in the future will completely and accurately
reflect the financial condition of the Borrower, at the
times and for the periods therein stated. Since the
last date covered by any such statement there has been
no material adverse change in the financial condition
or business of the Borrower. The Borrower is now and
will continue to be solvent. The Borrower will provide
Silicon: (i) within 45 days after the end of each
quarter (except the fourth fiscal quarter), a quarterly
financial statement (consisting of company-prepared 10Q
reports), including consolidated financial statement
details as determined by Silicon to support
calculations of the financial covenants contained in
the Schedule as prepared by the Borrower and certified
as correct to the best knowledge and belief by the
Borrower's chief financial officer or other officer or
person acceptable to Silicon; (ii) within 20 days after
the end of each month, an accounts receivable report
and an accounts payable report in such form as Silicon
shall reasonably specify; (iii) within 20 days after
the end of each month, a Borrowing Base Certificate in
the form attached to this Agreement as Exhibit A, as
Silicon may reasonably modify such Certificate from
time to time, signed by the Chief Financial Officer of
the Borrower; (iv) within 45 days after the end of the
first three calendar quarters of each year and within
90 days after the end of the last calendar quarter of
each year, a Compliance Certificate in such form as
Silicon shall reasonably specify, signed by the Chief
Financial Officer of the Borrower, certifying that
throughout such quarter the Borrower was in full
compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing
compliance with the financial covenants set forth on
the Schedule hereto and such other information as
Silicon shall reasonably request; and (v) within 95
days following the end of the Borrower's fiscal year,
complete annual CPA audited financial statements, such
audit being conducted by independent certified public
accountants reasonably acceptable to Silicon."
(c) Section 4.5 of the Loan Agreement is deleted in
its entirety and replaced with the following:
"4.5 Access to Collateral, Books and Records. At
all reasonable times, Silicon, or its agents, shall
have the right to inspect the Collateral, and the right
to audit and copy the Borrower's accounting books,
records, ledgers, journals, or registers and the
Borrower's books and records relating to the
Collateral. Silicon shall take reasonable steps to
keep confidential all information obtained in any such
inspection or audit, but Silicon shall have the right
to disclose any such information to its auditors,
regulatory agencies and attorneys, and pursuant to any
subpoena or other legal process. The foregoing audits
shall be at Silicon's expense, except that the Borrower
shall reimburse Silicon for up to $1,250.00 per audit
for Silicon's reasonable out-of-pocket costs for semi-
annual accounts receivable audits, and Silicon may
debit the Borrower's deposit accounts with Silicon for
the cost of such accounts receivable audits (up to the
limit stated above), in which event Silicon shall send
notification thereof to the Borrower. Notwithstanding
the foregoing, during the continuation of an Event of
Default all audits shall be at the Borrower's expense.
3. No Other Modifications. Except as expressly modified
by this Loan Modification Agreement, the terms of the Loan
Agreement and Schedule, as amended prior to the date of this
Agreement, shall remain unchanged and in full force and effect.
Silicon's agreement to modify the Loan Agreement pursuant to this
Loan Modification Agreement shall not obligate Silicon to make
any future modifications to the Loan Agreement or any other loan
document. Nothing in this Loan Modification Agreement shall
constitute a satisfaction of any indebtedness of any Borrower to
Silicon. It is the intention of Silicon and Borrower to retain
as liable parties all makers and endorsers of the Loan Agreement
or any other loan document. No maker, endorser, or guarantor
shall be released by virtue of this Loan Modification Agreement.
The terms of this paragraph shall apply not only to this Loan
Modification Agreement, but also to all subsequent loan
modification agreements.
4. Representations and Warranties.
(a) The Borrower represents and warrants to Silicon that
the execution, delivery and performance of this Agreement are
within the Borrower's corporate powers, and have been duly
authorized and are not in contravention of law or the terms of
the Borrower's charter, bylaws or other incorporation papers, or
of any undertaking to which the Borrower is a party or by which
it is bound.
(b) The Borrower understands and agrees that in entering
into this Agreement, Silicon is relying upon the Borrower's
representations, warranties and agreements as set forth in the
Loan
Agreement and other loan documents. Borrower hereby reaffirms
all representations and warranties in the Loan Agreement, all of
which are true as of the date of this Agreement.
Borrower:
RENTRAK CORPORATION
By: s/s F. Kim Cox
Title: Vice President/Secretary
Silicon:
SILICON VALLEY BANK
By: s/s Tim Hardin
Title: Senior Vice President
AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: Rentrak Corporation
Address: One Airport Center
7700 N.E. Ambassador Place
Portland, OR 97220
Date: December 27, 1996
Secured Operating Line of Credit
Credit Limit:
(Section 1.1)
An amount not to exceed the lesser of:
(i) $10,000,000.00 at any one time outstanding; or
(ii) 80% of the Net Amount of Borrower's eligible
accounts receivable. "Net Amount" means the gross
amount of the account, minus all applicable sales,
use, excise and other similar taxes and minus all
discounts, credits and allowances of any nature
granted or claimed.
The following accounts will not be
deemed eligible for borrowing: accounts
outstanding for more than 60 days from the invoice
date (except as provided below), accounts subject
to any contingencies (such as payments due only
upon acceptance), accounts owing from governmental
agencies, accounts owing from an account debtor
outside the United States or Canada (except for
those described on the attached Exhibit B or
otherwise pre-approved in writing by Silicon in
its discretion, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured
satisfactory to Silicon), accounts owing from one
account debtor to the extent they exceed 25% of
the total eligible accounts outstanding, accounts
owing from an affiliate of the Borrower, and
accounts owing from an account debtor to whom the
Borrower is or may be liable for goods purchased
from such account debtor or otherwise. In
addition, if more than 25% of the accounts owing
from an account debtor are outstanding more than
60 days from the invoice date or are otherwise not
eligible accounts, then all accounts owing from
that account debtor will be deemed ineligible for
borrowing. All other accounts shall be deemed
eligible accounts unless Silicon, in its
reasonable discretion, deems the account to be
ineligible for valid credit reasons. Accounts
owing from the following customers of Borrower
shall not be deemed ineligible merely because such
accounts may be more than 60 days from the date of
invoice, but shall be ineligible based on age
according to the following eligibility periods:
Customer Eligibility Period
Roadrunner Video 0 to 90 days
Adventures in Video 0 to 90 days
Video Connection 0 to 90 days
Tonight's Feature 0 to 90 days
Palmer Video 0 to 120 days
Hollywood Entertainment 0 to 120 days
Interest Rate:
(Section 1.2)
The interest rate applicable to the
Secured Operating Line of Credit shall be (a) a
rate equal to the "Prime Rate" in effect from
time to time, plus 0.5% per annum, calculated on
the basis of a 360-day year for the actual number
of days elapsed; or (b) a rate equal to the LIBOR
Rate, all as set forth in the Interest Rate
Supplement to Agreement.
Commitment
Fee: (Section 1.3)
$30,000.00, which is fully earned and
payable at closing and which is non-refundable.
Maturity Date:
(Section 1.3)
December 18, 1997, at which time all
unpaid principal and accrued but unpaid interest
shall be due and payable.
Prior Names of National Video, Inc.
Borrower:
(Section 3.2)
Trade Names of See attached Exhibit C
Borrower:
(Section 3.2)
Trademarks of See attached Exhibit C
Borrower:
Other Locations Rentrak Corporation
and Addresses: 3512 State Route 735
(Section 3.3) Wilmington, Ohio 45177
Material Adverse
Litigation: None.
(Section 3.10)
Financial
Covenants:
(Section 4.1)
Borrower shall at all times comply with
all of the following covenants:
Quick Ratio: Borrower shall at all times maintain a ratio
of cash plus accounts receivable to current
liabilities less deferred revenue of not less than
0.45:1.0, measured quarterly, increasing to not
less than 0.65:1.00 for the quarter ending
March 31, 1997, and for each quarter thereafter.
Tangible Net
Worth:
Borrower shall at all times maintain a
Tangible Net Worth (defined below) of not less
than $11,000,000 plus 50% of Borrower's quarterly
net income, beginning with the quarter ending
December 31, 1996. Borrower's Tangible Net Worth
shall be measured on a quarterly basis.
Debt to Tangible
Net Worth Ratio:
Borrower shall at all times maintain a
ratio of total liabilities (excluding deferred
revenues and subordinated debt) to Tangible Net
Worth (defined below) of not more than 2.75:1.00.
To be excluded from liabilities, subordinated debt
must be subordinated to the Obligations pursuant
to a written agreement in form and substance
acceptable to Silicon.
Profitability: Borrower shall not incur a loss in excess of
$500,000 for any fiscal quarter, and shall not
incur any loss in two consecutive quarters. For
purposes of this paragraph, "loss" means net
income, after taxes, of less than $0.00,
determined based on Borrower's financial
statements.
Definitions: "Current Liabilities" shall have the meaning
ascribed to that term in accordance with generally
accepted accounting principles (excluding deferred
revenues).
"Tangible Net Worth" means stockholders'
equity plus debt subordinated to Silicon's debt,
less goodwill, patents, capitalized software
costs, deferred organizational costs, trade names,
trademarks, and all other assets which would be
classified as intangible assets under generally
accepted accounting principles.
Other Covenants:
(Section 4.1)
Borrower shall at all times comply with
all of the following additional covenants:
1. Banking Relationship.
Borrower shall at all times maintain its
primary banking relationship with Silicon.
Borrower shall not establish any deposit
accounts of any type with any bank or other
financial institution other than Silicon
without Silicon's prior written consent.
Conditions to
Closing:
Without in any way limiting the
discretionary nature of advances under this
Agreement, before requesting any such advance, the
Borrower shall satisfy each of the following
conditions:
1. Loan
Documents:
Silicon shall have received this Loan
and Security Agreement, including this Schedule, a
Security Agreement in Copyrighted Works, an
Interest Rate Supplement to Agreement, and such
other loan documents as Silicon shall require,
each duly executed and delivered by the Borrower.
2. Documents
Relating to
Authority,
Etc.:
Silicon shall have received each of the
following in form and substance satisfactory to
it:
(a) Certified Copies of the Articles of
Incorporation and Bylaws of the Borrower;
(b) A Certificate of Good Standing
issued by the Oregon Secretary of State with
respect to the Borrower;
(c) A certified copy of a Resolution
adopted by the Board of Directors of the Borrower
authorizing the execution, delivery and
performance of this Schedule, the Stock Pledge
Agreement and any other documents or certificates
to be executed by the Borrower in connection with
this transaction;
(d) Incumbency Certificates describing
the office and identifying the specimen signatures
of the individuals signing all such loan documents
on behalf of the Borrower; and
3. Perfection
and Priority
of Security:
Silicon shall have received evidence
satisfactory to it that its security interest in
the Collateral has been duly perfected and that
such security interest is prior to all other
liens, charges, security interests, encumbrances
and adverse claims in or to the Collateral other
than Permitted Liens, which evidence shall
include, without limitation, a certificate from
the Oregon State Secretary of State showing the
due filing and first priority of the UCC Financing
Statements to be signed by the Borrower covering
the Collateral, and evidence of the due filing of
the Security Agreement in Copyrighted Works with
the United States Copyright Office.
4. Insurance: Silicon shall have received
evidence satisfactory to it that all insurance
required by this Agreement is in full force and
effect, with loss payee designations and
additional insured designations as required by
this Agreement.
5. Other
Information:
Silicon shall have received such other
statements, opinions, certificates, documents and
information with respect to matters contemplated
by this Agreement as it may reasonably request.
Silicon and the Borrower agree that the terms of this
Schedule supplement the Loan and Security Agreement between
Silicon and the Borrower and agree to be bound by the terms of
this Schedule.
Borrower:
RENTRAK CORPORATION
By: s/s F. Kim Cox
Title: Vice President/Secretary
Silicon:
SILICON VALLEY BANK
By: s/s Tim Hardin
Title: Senior Vice President
INTEREST RATE SUPPLEMENT TO AGREEMENT
This Interest Rate Supplement to Agreement (the
"Supplement") is a supplement to the Loan and Security Agreement
and Schedule (the "Agreement") dated as of October 12, 1993,
between SILICON VALLEY BANK ("Bank") and RENTRAK CORPORATION
("Borrower"), and forms a part of and is incorporated into the
Agreement. Except as otherwise defined in this Supplement,
capitalized terms shall have the meanings assigned in the
Agreement.
1. Definitions.
"Advance" or "Advances" means an advance under the Secured
Operating Line of Credit set forth in the Schedule.
"Business Day" means a day of the year (a) that is not a
Saturday, Sunday or other day on which banks in the State of
California or the City of London are authorized or required to
close and (b) on which dealings are carried on in the interbank
market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Advance, a
period of approximately one, two or three months as the Borrower
may elect, provided that the last day of an Interest Period for a
LIBOR Rate Advance shall be determined in accordance with the
practices of the LIBOR interbank market as from time to time in
effect, provided, further, in cases such period shall expire not
later than the applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Advances, a
rate equal to the Prime Rate plus 0.5% per annum; and (b) LIBOR
Rate Advances, a rate of 3.0% per annum in excess of the LIBOR
Rate (based on the LIBOR Rate applicable for the Interest Period
selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR
Rate Advance, the rate of interest per annum determined by Bank
to be the per annum rate of interest at which deposits in United
States Dollars are offered to Bank in the London interbank market
in which Bank customarily participates at 11:00 a.m. (local time
in such interbank market) two (2) Business Days before the first
day of such Interest Period for a period approximately equal to
such Interest Period and in an amount approximately equal to the
amount of such Advance.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR
Rate Advance, a rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such
Interest Period divided by (ii) 1 minus the Reserve Requirement
for such Interest Period.
"LIBOR Rate Advances" means any Advances made or a portion
thereof on which interest is payable based on the LIBOR Rate in
accordance with the terms hereof.
"Prime Rate" means the rate announced from time to time by
Bank as its "prime rate"; it is a base rate upon which other
rates charged by Silicon are based, and it is not necessarily the
best rate available at Bank. The interest rate applicable to the
monetary Obligations shall change on each date there is a change
in the Prime Rate.
"Prime Rate Advances" means any Advances or Equipment
Advances made or a portion thereof on which interest is payable
based on the Prime Rate in accordance with the terms hereof.
"Regulatory Change" means, with respect to Bank, any change
on or after the date of this Agreement in United States federal,
state or foreign laws or regulations, including Regulation D, or
the adoption or making on or after such date of any
interpretations, directives or requests applying to a class of
lenders including Bank of or under any United States federal or
state, or any foreign, laws or regulations (whether or not having
the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration
thereof.
"Reserve Requirement" means, for any Interest Period, the
average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D against
"Eurocurrency liabilities" (as such term is used in Regulation D)
by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by Bank by
reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the
LIBOR Rate is to be determined as provided in the definition of
"LIBOR Base Rate" or (ii) any category of extensions of credit or
other assets which include Advances.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of
Borrower.
2. Requests for Advances; Confirmation of Initial
Advances. Each LIBOR Rate Advance shall be made upon the
irrevocable written request of Borrower received by Bank not
later than 11:00 a.m. (Santa Clara, California time) on the
Business Day three (3) Business Days prior to the date such
Advance is to be made. Each such notice shall specify the date
such Advance is to be made, which day shall be a Business Day;
the amount of such Advance, the Interest Period for such Advance,
and comply with such other requirements as Bank determines are
reasonable or desirable in connection therewith.
Each written request for a LIBOR Rate Advance shall be in
the form of a LIBOR Rate Advance Form as set forth on Exhibit A,
which shall be duly executed by a Responsible Officer.
3. Conversion/Continuation of Advances.
(a) Borrower may from time to time submit in writing a
request that Prime Rate Advances be converted to LIBOR Rate
Advances, or that any existing LIBOR Rate Advances continue for
an additional Interest Period. Such request shall specify the
amount of the Prime Rate Advances which will constitute LIBOR
Rate Advances (subject to the limits set forth below) and the
Interest Period to be applicable to such LIBOR Rate Advances.
Each written request for a conversion to a LIBOR Rate Advance or
a continuation of a LIBOR Rate Advance shall be substantially in
the form of a LIBOR Rate Conversion/Continuation Certificate as
set forth on Exhibit B, which shall be duly executed by a
Responsible Officer. Subject to the terms and conditions
contained herein, three (3) Business Days after Bank's receipt of
such a request from Borrower, such Prime Rate Advances shall be
converted to LIBOR Rate Advances or such LIBOR Rate Advances
shall continue, as the case may be, provided, that any conversion
of Prime Rate Advances to LIBOR Rate Advances shall only be made
as of the last day of the applicable Interest Period, and,
provided further, that:
(i) no Event of Default or event which with
notice or passage of time or both would constitute an Event of
Default exists;
(ii) no party hereto shall have sent any notice
of termination of this Supplement or of the Agreement;
(iii) Borrower shall have complied with such
customary procedures as Bank has established from time to time
for Borrower's requests for LIBOR Rate Advances;
(iv) the amount of a LIBOR Rate Advance shall be
$500,000 or such greater amount which is an integral multiple of
$50,000; and
(v) Bank shall have determined that the Interest
Period or LIBOR Rate is available to Bank which can be readily
determined as of the date of the request for such LIBOR Rate
Advance.
Any request by Borrower to convert Prime Rate Advances to
LIBOR Rate Advances or continue any existing LIBOR Rate Advances
shall be irrevocable. Notwithstanding anything to the contrary
contained herein, Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other
applicable LIBOR Rate market to fund any LIBOR Rate Advances, but
the provisions hereof shall be deemed to apply as if Bank had
purchased such deposits to fund the LIBOR Rate Advances.
(b) Any LIBOR Rate Advances shall automatically
convert to Prime Rate Advances upon the last day of the
applicable Interest Period, unless Bank has received and approved
a complete and proper request to continue such LIBOR Rate Advance
at least three (3) Business Days prior to such last day in
accordance with the terms hereof. Any LIBOR Rate Advances shall,
at Bank's option, convert to Prime Rate Advances in the event
that (i) an Event of Default, or event which with the notice or
passage of time or both would constitute an Event of Default,
shall exist, (ii) this Supplement or the Agreement shall
terminate, or (iii) the aggregate principal amount of the Prime
Rate Advances which have previously been converted to LIBOR Rate
Advances, or the aggregate principal amount of existing LIBOR
Rate Advances continued, as the case may be, at the beginning of
an Interest Period shall at any time during such Interest Period
exceed the Credit Limit for the Secured Operating Line of Credit.
Borrower agrees to apply to Bank, upon demand by Bank (or Bank
may, at its option, charge Borrower's deposit account) any
amounts required to compensate Bank for any loss (including loss
of anticipated profits), cost or expense incurred by such person,
as a result of the conversion of LIBOR Rate Advances to Prime
Rate Advances pursuant to any of the foregoing.
(c) On all Advances interest shall be payable by
Borrower to Bank monthly in arrears not later than the twenty-
second (22nd) day of each calendar month at the applicable
Interest Rate.
4. Additional Requirements/Provisions Regarding LIBOR Rate
Advances; Etc.
(a) If for any reason (including voluntary or
mandatory prepayment or acceleration), Bank receives all or part
of the principal amount of a LIBOR Rate Advance prior to the last
day of the Interest Period for such Advance, Borrower shall
immediately notify Borrower's account officer at Bank and, on
demand by Bank, pay Bank the amount (if any) by which (i) the
additional interest which would have been payable on the amount
so received had it not been received until the last day of such
Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount so received on deposit
in the certificate of deposit markets or the offshore currency
interbank markets or United States Treasury investment products,
as the case may be, for a period starting on the date on which it
was so received and ending on the last day of such Interest
Period at the interest rate determined by Bank in its reasonable
discretion. Bank's determination as to such amount shall be
conclusive absent manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank,
from time to time such amounts as Bank may determine to be
necessary to compensate it for any costs incurred by Bank that
Bank determines are attributable to its making or maintaining of
any amount receivable by Bank hereunder in respect of any
Advances relating thereto (such increases in costs and reductions
in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to Bank under this Supplement in respect of any Advances
(other than changes which affect taxes measured by or imposed on
the overall net income of Bank by the jurisdiction in which such
Bank has its principal office); or
(ii) imposes or modifies any reserve, special
deposit or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other
liabilities of Bank (including any Advances or any deposits
referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting
this Supplement (or any of such extensions of credit or
liabilities).
Bank will notify Borrower of any event occurring after the date
of the Agreement which will entitle Bank to compensation pursuant
to this section as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation.
Bank will furnish Borrower with a statement setting forth the
basis and amount of each request by Bank for compensation under
this Section 4. Determinations and allocations by Bank for
purposes of this Section 4 of the effect of any Regulatory Change
on its costs of maintaining its obligations to make Advances or
of making or maintaining Advances or on amounts receivable by it
in respect of Advances, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be
conclusive absent manifest error.
(c) Borrower shall pay to Bank, upon the request of
Bank, such amount or amounts as shall be sufficient (in the sole
good faith opinion of such Bank) to compensate it for any loss,
costs or expense incurred by it as a result of any failure by
Borrower to borrow a LIBOR Rate Advance on the date for such
borrowing specified in the relevant notice of borrowing
hereunder.
(d) If Bank shall determine that the adoption or
implementation of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any
governmental authority, control bank or comparable agency charged
with the interpretation or administration thereof, or compliance
by Bank (or its applicable lending office) in any respect with
any directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the
rate of return on capital of Bank or any person or entity
controlling Bank (a "Parent") as a consequence of its obligations
hereunder to a level below that which Bank (or its Parent) could
have achieved but for such adoption, change or compliance (taking
into consideration its policies with respect to capital adequacy)
by an amount deemed by Bank to be material, then from time to
time, within 15 days after demand by Bank, Borrower shall pay to
Bank such additional amount or amounts as will compensate Bank
for such reduction. A statement of Bank claiming compensation
under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent
manifest error.
(e) If at any time Bank, in its sole and absolute
discretion, determines that: (i) the amount of the LIBOR Rate
Advances for periods equal to the corresponding Interest Periods
are not available to Bank in the offshore currency interbank
markets, or (ii) the LIBOR Rate does not accurately reflect the
cost to Bank of lending the LIBOR Rate Advance, then Bank shall
promptly give notice thereof to Borrower, and upon the giving of
such notice Bank's obligation to make the LIBOR Rate Advances
shall terminate, unless Bank and Borrower agree in writing to a
different interest rate applicable to LIBOR Rate Advances. If it
shall become unlawful for Bank to continue to fund or maintain
any Advances, or to perform its obligations hereunder, upon
demand by Bank, Borrower shall prepay the Advances in full with
accrued interest thereon and all other amounts payable by
Borrower hereunder (including, without limitation, any amount
payable in connection with such prepayment pursuant to Section
4(a)).
5. Advance Procedure. Whenever Borrower desires an
Advance, Borrower will notify Bank by facsimile transmission or
telephone no later than 3:00 p.m. California time, on the
Business day that the Advance is to be made. each such
notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form delivered by Bank to Borrower from
time to time or a LIBOR Rate Advance Form in substantially the
for of Exhibit A hereto. Bank is authorized to make Advances
under the Agreement or under this Supplement, based upon
instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary
to meet Obligations which have become due and remain unpaid.
Bank shall be entitled to rely on any telephonic notice given by
a person who Bank reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Bank harmless for
any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances to Borrower'
deposit account.
IN WITNESS WHEREOF, the undersigned have executed this
Interest Rate Supplement to Agreement as of the first date above
written.
RENTRAK CORPORATION
By: s/s F. Kim Cox
Title: Vice President/Secretary
SILICON VALLEY BANK
By: s/s Tim Hardin
Title: Senior Vice President
EXHIBIT A
LIBOR RATE ADVANCE FORM
The undersigned hereby certifies as follows:
I, _________________________, am the duly elected and acting
____________________ of Rentrak Corporation ("Borrower").
This certificate is delivered pursuant to Section 2 of that
certain Interest Rate Supplement to Agreement together with the
Loan Agreement by and between Borrower and Silicon Valley Bank
("Bank") (the "Agreement"). The terms used in this Borrowing
Certificate which are defined int he Agreement have the same
meaning herein as ascribed to them therein.
(1) Borrower hereby requests on ____________________,
19_____ a LIBOR Rate Advance (the "Advance") as follows:
(a) The date on which the Advance is to be made is
____________________, 19____.
(b) The amount of the Advance is to be
_________________________ ($______________), for an Interest
Period of one/two/three month(s).
All representations and warranties of Borrower stated in the
Agreement are true, correct and complete in all material respects
as of the date of this request for a loan; provided, however,
that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material
respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Advance Form is executed
by the undersigned as of this _____ day of ____________________,
19_____.
RENTRAK CORPORATION
By:
Title:
For Internal Bank Use Only
LIBOR Pricing D LIBOR Rate LIBOR Rate Var Maturity Date
ate iance
_____%
EXHIBIT B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ____________________, am the duly elected and acting
____________________ of Rentrak Corporation ("Borrower").
This certificate is delivered pursuant to Section 2 of that
certain Interest Rate Supplement to Agreement together with the
Loan Agreement by and between Borrower and Silicon Valley Bank
("Bank") (the "Agreement"). The terms used in this LIBOR Rate
Conversion/Continuation Certificate which are defined in the
Agreement have the same meaning herein as ascribed to them
therein.
Borrower hereby requests on ____________________, 19_____ a
LIBOR Rate Advance (the "Advance") as follows:
(a) _____ (i) A rate conversion of an
existing Prime Rate Advance from a Prime Rate
Advance to a LIBOR Rate Advance; or
_____ (ii) A continuation of an
existing LIBOR Rate Advance as a LIBOR Rate
Advance.
[Check (i) or (ii) above]
(b) The date on which the Advance is to be made is
____________________, 19_____.
(c) The amount of the Advance is to be ____________________
($_______________), for an Interest Period of __________
month(s).
All representations and warranties of Borrower stated in the
Agreement are true, correct and complete in all material respects
as of the date of this request for a loan; provided, however,
that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material
respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation
Certificate is executed by the undersigned as of this _____ day
____________________, 19_____.
RENTRAK CORPORATION
By:
Title:
For Internal Bank Use Only
LIBOR Pricing D LIBOR Rate LIBOR Rate Var Maturity Date
ate iance
_____%
<TABLE>
<CAPTION>
Rentrak Corporation
Computation of Net Income (Loss) Per Share
For the Years Ended March 31, 1997 and 1995
1997 1995
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Weighted average number of shares of
common stock outstanding 12,076,031 12,076,031 10,721,558 10,721,558
Dilutive effect of exercise of stock options 4,866,609 6,570,223 2,356,734 2,356,734
Dilutive effect of exercise of stock warrants - - 2,500,197 3,419,626
Less: purchase of treasury shares, up to
20% of shares outstanding at period end (2,403,853) (2,403,853) (2,180,538) (2,180,538)
Weighted average number of shares of common
stock and common stock equivalents 14,538,787 16,242,401 13,397,951 14,317,380
Net Income (Loss) from Continuing Operations $6,283,165 $6,283,165 $5,400,510 $5,400,510
Plus: interest income from investments
assumed purchased with proceeds from
exercise of stock options and warrants in
excess of proceeds used to purchase
treasury stock 647,155 1,007,489 394,249 582,494
Net Income for purposes of computing
earnings per share from continuing
operations $6,930,320 $7,290,654 $5,794,759 $5,983,004
Net Income (Loss) per Share from Continuing
Operations $0.48 $0.45 $0.43 $0.42
Net Income (Loss) from Discontinued Operations - - (286,987) (286,987)
Plus: interest income from investments
assumed purchased with proceeds from
exercise of stock options and warrants in
excess of proceeds used to purchase
treasury stock - - - -
Net Income for purposes of computing
earnings per share from discontinued
operations - - ($286,987) ($286,987)
Net Income (Loss) per Share from
Discontinued Operations - - ($0.02) ($0.02)
The computation of net income (loss) per share for the year ended March 31, 1996 is not provided since it can be
clearly determined from the material contained in Note 1 of the Notes to the Consolidated Financial Statements.
</TABLE>
Subsidiaries of Registrant
Dover Aggregates, Inc., a Delaware corporation doing business as BlowOut Video.
Pro Image Inc., a Utah Corporation doing business as Pro Image and Team Spirit
Streamlined Solutions, Inc., an Oregon corporation doing business as
Streamlined Solutions, Inc. and Streamlined Informations Systems.
BlowOut Video, Inc., an Oregon corporation, doing business as BlowOut Video.
Mortco, Inc., an Oregon corporation.
Attitude 2 Travel, Inc., an Oregon corporation.
RTK Kelly Limited a foreign corporation.
PDF, Inc., an Oregon corporation.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports included in this Form
10-K, into the Company's previously filed Registration
Statements: (1) Registration Statement File number 33-40472 on
Form S-8 of the 1986 Stock Option Plan, the 1985 Stock Incentive
Plan, the 1985 Key Employee Incentive Stock Option Plan and the
Individual Written Compensation Plan dated May 10, 1991, (2)
Registration Statement File number 33-44864 on Form S-8 of the
1986 Restated and Amended Stock Option Plan and Directors' Stock
Option Plan dated January 8, 1992, (3) Registration Statement on
Form S-8 of the 1992 Employee Stock Purchase Plan dated June 16,
1992, (4) Registration Statement File Number 33-86548 on Form S-3
dated November 21, 1994, (5) Registration Statement File Number
33-65463 on Form S-3 dated December 28, 1995 as amended on
February 9, 1996 and (6) Form S-8 of the 1997 Non-Officer
Employee Stock Option Plan dated June 5, 1997.
ARTHUR ANDERSEN
Portland, Oregon,
June 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,167,169
<SECURITIES> 0
<RECEIVABLES> 16,843,879
<ALLOWANCES> 409,313
<INVENTORY> 1,902,618
<CURRENT-ASSETS> 33,264,225
<PP&E> 6,731,744
<DEPRECIATION> 4,725,188
<TOTAL-ASSETS> 43,047,995
<CURRENT-LIABILITIES> 31,775,938
<BONDS> 0
0
0
<COMMON> 11,747
<OTHER-SE> 11,260,210
<TOTAL-LIABILITY-AND-EQUITY> 43,047,995
<SALES> 116,275,503
<TOTAL-REVENUES> 116,275,503
<CGS> 90,881,674
<TOTAL-COSTS> 107,041,403
<OTHER-EXPENSES> (999,068)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,950
<INCOME-PRETAX> 10,233,168
<INCOME-TAX> 3,950,003
<INCOME-CONTINUING> 6,283,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,283,165
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.45
</TABLE>
