FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: December
31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period
from to
Commission file number: 0-15159
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 no.)
7700 NE Ambassador Place, Portland, Oregon 97220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(503)284-7581
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 ( )
As of January 26, 1998, the Registrant had 10,791,545 shares of
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1997
Consolidated Statements of Income for the three month
periods ended December 31, 1997 and December 31, 1996
Consolidated Statements of Income for the nine month
periods ended December 31, 1997 and December 31, 1996
Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1997 and December 31,
1996
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
UNAUDITED
December 31, March 31,
1997 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,631,598 $ 10,167,169
Accounts receivable, net of allowance for doubtful
accounts of $449,936 and $409,313 20,577,127 16,434,566
Advances to program suppliers 1,938,029 492,844
Inventory 2,755,506 1,902,618
Deferred tax asset 708,956 1,365,064
Other current assets 4,144,406 2,901,964
Total current assets 33,755,622 33,264,225
PROPERTY AND EQUIPMENT, net 1,863,451 2,006,556
OTHER INVESTMENTS, net 162,912 778,950
DEFERRED TAX ASSET 3,992,814 3,637,563
OTHER ASSETS 5,955,423 3,360,701
TOTAL ASSETS $ 45,730,222 $ 43,047,995
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
UNAUDITED
December 31, March 31,
1997 1997
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 9,500,000 $ 5,000,000
Accounts payable 18,669,708 17,160,492
Accrued liabilities 591,631 613,669
Accrued compensation 835,116 1,695,814
Deferred revenue 1,188,565 2,672,849
Net current liabilities of discontinued operations 4,585,373 4,633,114
Total current liabilities 35,370,393 31,775,938
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: 10,791,545 shares
at December 31, 1997 and 11,847,441 at
March 31, 1997 10,792 11,847
Capital in excess of par value 43,550,433 47,931,165
Net unrealized gain (loss) on investment securities (196,710) 184,932
Accumulated deficit (32,056,622) (35,452,729)
Less - Deferred charge - warrants (948,064) (1,403,158)
10,359,829 11,272,057
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,730,222 $ 43,047,995
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Three Months Ended December 31,
1997 1996
<S> <C> <C>
REVENUES:
PPT $ 25,748,233 $ 24,527,761
Other 2,512,168 1,499,107
28,260,401 26,026,868
OPERATING COSTS AND EXPENSES:
Cost of sales 22,924,964 20,914,570
Selling and administrative 4,073,497 4,459,985
26,998,461 25,374,555
INCOME FROM OPERATIONS 1,261,940 652,313
OTHER INCOME (EXPENSE):
Interest income 307,455 237,026
Interest expense (66,694) -
240,761 237,026
INCOME BEFORE INCOME TAX PROVISION 1,502,701 889,339
INCOME TAX PROVISION 621,614 337,972
NET INCOME $ 881,087 $ 551,367
EARNINGS PER SHARE:
Basic $ 0.08 $ 0.05
Diluted $ 0.08 $ 0.05
The accompanying notes are an integral
part of these statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Nine Months Ended December 31,
1997 1996
<S> <C> <C>
REVENUES:
PPT $81,918,208 $ 77,138,838
Other 5,805,255 8,055,831
87,723,463 85,194,669
OPERATING COSTS AND EXPENSES:
Cost of sales 71,765,897 65,815,874
Selling and administrative 10,649,419 11,765,845
82,415,316 77,581,719
INCOME FROM OPERATIONS 5,308,147 7,612,950
OTHER INCOME (EXPENSE):
Interest income 558,631 522,701
Interest expense (71,694) (181,950)
Other - 318,875
486,937 659,626
INCOME BEFORE INCOME TAX PROVISION 5,795,084 8,272,576
INCOME TAX PROVISION 2,398,977 3,168,980
NET INCOME $ 3,396,107 $ 5,103,596
EARNINGS PER SHARE:
Basic $ 0.30 $ 0.42
Diluted $ 0.30 $ 0.42
The accompanying notes are an integral
part of these statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended December 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,396,107 $ 5,103,596
Adjustments to reconcile income to
net cash provided (used) in operations
Gain on investment / asset sales (309,852)
Depreciation and Amortization 609,373 882,714
Amortization of warrants 455,094 340,805
Provision for doubtful accounts (314,103) (96,270)
Retailer financing program reserves (300,000) (288,708)
Studio advance reserves (17,852) (138,855)
Deferred income taxes 534,768 161,331
Change in specific accounts:
Accounts receivable (4,725,314) (125,658)
Advances to program suppliers (1,427,333) 188,244
Inventory (852,888) (75,839)
Other current assets (45,586) 4,278,153
Accounts payable 1,509,216 (7,056,400)
Accrued liabilities & compensation (882,736) 1,852,465
Deferred revenue (1,484,284) 431,954
Net current liabilities of discontinued operations (47,741) (272,249)
Net cash provided (used) by operations (3,593,279) 4,875,431
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (397,387) (1,200,085)
(Investments) reduction in retailer
financing program (750,000) 1,728,708
Proceeds from sale of investments / assets 536,410
(Purchase) reduction of other assets & intangibles (1,913,118) 42,139
Net cash provided (used) by investing activities (3,060,505) 1,107,172
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (Payments) under line of credit, net 4,500,000 (2,700,000)
Repurchase of common stock (4,179,868) (823,437)
Repurchase of Warrants (250,000) -
Issuance of common stock 48,081 -
Net cash provided (used) by financing activities 118,213 (3,523,437)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (6,535,571) 2,459,166
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THIS PERIOD 10,167,169 2,683,128
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,631,598 $ 5,142,294
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $ 51,250 $ 197,642
Income taxes, net of refunds 2,469,911 (314,228)
NON-CASH TRANSACTIONS
Increase (decrease) in net unrealized gain on
investment securities (381,642) 813,716
Reduction of Warrants - 496,913
Retailer Loan Program Investment through
conversion of accounts receivable 1,196,856 -
Decrease in net non-current assets of discontinued
operations through reduction in equity - 11,122,512
Decrease in net current liabilities of discontinued
operations through increase in equity - (3,063,649)
Decrease in Notes Receivable affiliate through
increase in other assets - 2,800,000
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
RENTRAK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements
of RENTRAK CORPORATION (the "Company"), have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for the three month
and nine month periods ended December 31, 1997 are not necessarily in
dicative of the results to be expected for the entire fiscal year
ending March 31, 1998. The Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and footnotes thereto included in the Company's
1997 Annual Report to Shareholders.
The Condensed Consolidated Financial Statements reflect, in the
opinion of management, all material adjustments (which include only
normal and recurring adjustments) necessary to present fairly the
Company's financial position and results of operations.
The Condensed 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 percent are
accounted for by the equity method.
Certain amounts in the prior period's Condensed Consolidated Financial
Statements have been reclassified to conform to the current period's
presentation.
NOTE B:
<TABLE>
Net Income Per Share
<CAPTION>
3-Months Ended 9-Months Ended 3-Months Ended 9-Months Ended
December 31, 1997 December 31, 1997 December 31, 1996 December 31, 1996
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average
number of shares
of common stock
outstanding 10,994,478 10,994,478 11,353,828 11,353,828 12,133,002 12,133,002 12,137,508 12,137,508
Dilutive effect
of exercise of
stock options - 236,903 - 144,849 - 70,545 - 88,366
Weighted average
number of shares
of common stock
and common stock
equivalents 10,994,478 11,231,381 11,353,828 11,498,677 12,133,002 12,203,547 12,137,508 12,225,874
Net Income $881,007 $881,007 $3,396,107 $3,396,107 $551,367 $551,367 $5,103,596 $5,103,596
Net Income per $0.08 $0.08 $0.30 $0.30 $0.05 $0.05 $0.42 $0.42
Share
</TABLE>
Basic earnings per common share were computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per common
share is computed on the basis of the weighted average shares of
common stock outstanding plus common equivalent shares arising
from dilutive stock options. In the quarter ended December 31,
1997, the Company adopted SFAS No. 128, "Earnings per Share,"
effective December 15, 1997. As a result, the Company's reported
earnings per share for the three and nine month periods ended
December 31, 1996 were restated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Per Share Amounts December 31, 1996 December 31, 1996
<S> <C> <C>
Primary EPS as $.05 $.36
reported
Effect of SFAS No. 128 - .06
Basic EPS as Restated $.05 $.42
Fully Diluted EPS as $.05 $.36
reported
Effect of SFAS No. 128 - .06
Diluted EPS as $.05 $.42
restated
</TABLE>
NOTE C: Major Suppliers
For the quarter ended December 31, 1997, the Company had one
program supplier whose product generated 44 percent and a
second that generated 24 percent of Rentrak revenues. For the
nine month period ended December 31, 1997, the Company had one
program supplier whose product generated 49 percent, a second
that generated 21 percent, and a third that generated an
additional 12 percent of Rentrak revenue. No other program
supplier provided product which generated more than 10 percent of
Rentrak revenue for the three or nine month periods ended
December 31, 1997.
For the quarter ended December 31, 1996, the Company had one
program supplier whose product generated 47 percent, a second
that generated 26 percent, and a third that generated an
additional 10 percent of Rentrak revenues. For the nine month
period ended December 31, 1996, the Company had one program
supplier whose product generated 39 percent, a second that
generated 26 percent and a third that generated an additional 14
percent of Rentrak revenues. No other program supplier provided
product which generated more than 10 percent of Rentrak revenue
for the three or nine month periods ended December 31, 1996.
ITEM 2. 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
liquidity and capital resources constitute forward-looking
statements that involve a number of risks and uncertainties.
Forward looking statements can be identified by the uses of
forward-looking words such as "may", "will", "expects",
"intends", "anticipates", "estimates", or "continues" or the
negative thereof or variations thereon or comparable terminology.
The following factors are among the factors that could cause
actual results to differ materially from the forward-looking
statements: 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. Such factors are discussed in more detail in
the Company's 1997 Annual Report to Shareholders.
Results of Operations
Total revenue includes the following: application fees generated
when retailers are approved for participation in the Pay Per
Transaction ("PPT") system; order processing fees generated when
prerecorded videocassettes ("Cassettes") are ordered by and
distributed to retailers; transaction fees generated when
retailers rent Cassettes to consumers; sell-through fees
generated when retailers sell Cassettes to consumers; buy out
fees when retailers purchase Cassettes at the end of the lease
term; royalty payments from Rentrak Japan; and sales of
Cassettes.
For the quarter ended December 31, 1997, total revenue increased
$2.3 million, or 8.8 percent, to $28.3 million from $26 million
in the quarter ended December 31, 1996. For the nine month
period ended December 31, 1997, total revenue increased $2.5
million, or 2.9 percent, to $87.7 million from $85.2 million in
the nine month period ended December 31, 1996. During the
quarter ended September 30, 1996, the Company received, and
recognized in other revenue, $4.4 million in one-time royalty
payments from Rentrak Japan. Excluding this one-time royalty
payment in 1996, revenues for the nine month period ended
December 31, 1997 increased $6.9 million from the same period in
the prior year. The increase in total revenue for the three and
nine month periods ended December 31, 1997 and the increases in
cost of sales described in the following paragraph 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 quality of titles released
to the PPT System; and (iii) the total number of Cassettes leased
under the PPT System.
Cost of sales for the quarter ended December 31, 1997 increased
to $22.9 million from $20.9 million in the prior year, an
increase of $2.0 million, or 9.6 percent. Cost of sales for the
nine month period ended December 31, 1997 rose to $71.8 million
from $65.8 million the prior year, an increase of $6.0 million or
9.1 percent.
The gross profit margin decreased to 18.9 percent in the quarter
ended December 31, 1997 from 19.6 percent the previous year. The
gross profit margin was 18.2 and 18.5 percent in both the nine
month periods ended December 31, 1997 and December 31, 1996,
respectively, excluding the one-time royalty payment of $4.4
million. Inclusion of the one-time royalty payment resulted in a
gross profit margin of 22.7 percent in the nine month period
ended December 31, 1996
Selling and administrative expenses were $4.1 million for the
quarter ended December 31, 1997 compared to $4.5 million in the
quarter ended December 31, 1996, a decrease of $.4 million, or
8.9 percent. Selling and administrative expenses were $10.6
million in the nine month period ended December 31, 1997 compared
to $11.8 million in the nine month period ended December 31,
1996, a decrease of $1.2 million or 10.2 percent. As a
percentage of total revenue, selling and administrative expenses
decreased from 17.1 percent for the quarter ended December 31,
1996 to 14.4 percent for the quarter ended December 31, 1997.
The decrease in the three months ended December 31, 1997 is
primarily due to accruals of costs at December 31, 1996 related
to the move in December 1996 to a new corporate headquarters
building. As a percentage of total revenue, selling and
administrative expenses decreased from 13.8 percent for the nine
month period ended December 31, 1996 to 12.1 percent for the nine
month period ended December 31, 1997. This decrease is
primarily due to the recovery of amounts which were loaned under
the retailer loan program and which had been previously reserved
and the reduction of compensation costs.
For the quarter ended December 31, 1997, the Company recorded a
pre-tax profit of $1.5 million, or 5.3 percent of total revenue,
compared to a pre-tax profit of $.9 million, or 3.4 percent of
total revenue in the quarter ended December 31, 1996. For the
nine month period ended December 31, 1997, the Company recorded a
pre-tax profit of $5.8 million or 6.6 percent of total revenue,
compared to a pre-tax profit of $3.8 million or 4.7 percent of
total revenue for the nine month period ended December 31, 1996,
excluding the one-time royalty payment from Rentrak Japan. This
increase, excluding the one-time royalty payment, is primarily
due to a decrease in selling and administrative expenses and an
increase in total revenue which resulted in increased gross
margin dollars. Inclusion of the one-time royalty payment
resulted in a pre-tax profit of $8.3 million or 9.7 percent of
total revenue for the nine month period ended December 31, 1996.
Included in the amounts above are the results from Other
Subsidiaries which are comprised of video retail and other
operations. For the quarters ended December 31, 1997 and
December 31, 1996, Other Subsidiaries recorded pre-tax income of
$0.2 million. For the nine month period ended December 31,
1997, Other Subsidiaries recorded pre-tax income of $0.6 million
compared to $0.3 million for the nine month period ended December
31, 1996.
Consolidated Balance Sheet
At December 31, 1997, total assets were $45.7 million, an
increase of $2.7 million from the $43.0 million at March 31,
1997. At December 31, 1997, cash decreased $6.6 million to $3.6
million from $10.2 million at March 31, 1997. The decrease is
primarily due to the increase in inventory, other assets such as
advances to program suppliers and other current and long term
assets and the repurchase of the Company's stock as described
below.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and other liquid
investments of $3.6 million, compared to $10.2 million at March
31, 1997. At December 31, 1997, the Company's current ratio
(current assets/current liabilities) decreased to .95 from 1.05
at March 31, 1997.
The Company has an agreement for a line of credit with a
financial institution in an amount not to exceed the lesser
of $12.5 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, 1999.
Interest is payable monthly at the bank's prime rate (8.5
percent at December 31, 1997). 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 December 31, 1997.
At March 31, 1997, the Company had $5.0 million in
outstanding borrowings which were paid under this agreement
in April 1997. As of December 31, 1997, the Company had
$9.5 million outstanding borrowings under this agreement; of
which approximately $5.3 million has been repaid as of
January 31, 1998.
The Company has established a retailer financing program whereby
the Company will provide, on a selective basis, 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 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 some or 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 December 31, 1997, the Company had invested or loaned
approximately $13.3 million in various retailers, including
BlowOut Entertainment, Inc. (BlowOut) as described below . The
investments individually range from $0.2 million to $6.2 million.
Interest rates per annum 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 December 31, 1997, a total of approximately
$8.5 million had been reserved by the Company in connection with
the retailer loan program.
As noted in the Company's 1997 Annual Report to Shareholders, in
November 1996, the Company distributed to its Shareholders shares
of common stock of BlowOut. The operations of BlowOut were
reflected as discontinued operations in the March 31, 1996
consolidated financial statements. 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 BlowOut. The estimates are based on an analysis of the costs
which may be incurred to dispose of the entity. 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.
BlowOut is an early stage company requiring additional financing
if it is to continue its expansion and support its operations.
The Company is the principle creditor to BlowOut. Pursuant to a
Financing Agreement, the Company agreed to provide guarantees for
up to $7 million of indebtedness of BlowOut (the Guarantee).
The obligations under this Guarantee are comprised of the
following:
(a)BlowOut has 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 December 31, 1997,
BlowOut had borrowed approximately $1.7 million under the
Credit Facility.
(b)BlowOut also has 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 percent of the Orderly Liquidation Valued (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
December 31, 1997). The term of the Line of Credit is three
years. The Company has agreed, pursuant to an Unconditional
Repurchase Agreement, to purchase under certain circumstances
in the event of default under the Line of Credit, BlowOut's
cassette inventory at specified amounts up to a principal
amount of $5 million. As of December 31, 1997, BlowOut had
borrowed approximately $2.8 million under the Line of Credit.
There can be no assurance that the Company will not have to pay
out under these guarantees or provide other accommodations.
During the term of the Guarantee, 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 Guarantee.
BlowOut has executed a $3 million note in favor of the Company
which accrues interest at 9 percent per annum and is due in April
1999. At December 31, 1997, the total outstanding balance of the
debt under such note, including accrued interest, was $3.5
million.
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. During the quarter ended December
31, 1997, the Company acquired 269,300 shares for an
aggregate amount of approximately $1,210,000. During the
nine months ended December 31, 1997, the company acquired
1,082,900 shares for an aggregate amount of approximately
$4,179,000. 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 next twelve months.
PART II
Item 1. Legal Proceedings.
On November 21, 1997, Merle Harmon, individually and
as assignee for Merle Harmon Enterprises and Fan Fair
Corporation, sued the Company and two of its officers in
relation to the Company's failed attempt to negotiate the
purchase of Merle Harmon Enterprises and Fan Fair
Corporation. The case is pending in the U.S. District
Court for the Eastern District of Wisconsin. Plaintiff
alleges breach of contract, fraud, misrepresentation, and
violations of RICO (the Racketeer Influenced and Corrupt
Organizations Act of 1970), and also asserts claims based
on a promissory estoppel theory. The Company believes
that all of the Plaintiff's claims are without merit and
has recently filed a motion to dismiss all claims. The
Company intends to continue to vigorously defend itself
and its officers against the suit.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1 Rentrak Corporation Incentive Stock Option
Agreement.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 9th day of February, 1998
RENTRAK CORPORATION:
/s/ Carolyn A. Pihl
Carolyn A. Pihl
Chief Accounting Officer
Signing on behalf of the registrant
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated__________________, is made by and
between Rentrak Corporation, an Oregon corporation (hereinafter
referred to as "Company"), and , an
employee of the Company or a Subsidiary of the Company
(hereinafter referred to as "Employee"):
WHEREAS, the Company wishes to afford the Employee the
opportunity to purchase shares of its $0.01 par value Common
Stock; and
WHEREAS, the Company wishes to carry out the 1997
Equity Participation Plan of Rentrak Corporation (hereinafter
referred to as "Plan") (the terms of which are hereby
incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the
Plan, has delegated to certain officers of the Company the
authority to implement grants of Options under the Plan; and
WHEREAS, such officers have determined that it would be
to the advantage and best interest of the Company and its
shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to enter into or remain
in the service of the Company or its Subsidiaries and as an
incentive for increased efforts during such service;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained and other good and valuable
consideration, receipt of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of the Employee's agreement to remain
in the employ of the Company or its Subsidiaries and for other
good and valuable consideration, on the date hereof the Company
irrevocably grants to the Employee the option to purchase any
part or all of an aggregate of ____________shares of its $0.001
par value Common Stock upon the terms and conditions set forth in
this Agreement.
Section 1.2 - Purchase Price
The purchase price of the shares of stock covered by
the Option shall be $_________ per share without commission or
other charge.
Section 1.3 - Consideration to Company
In consideration of the granting of this Option by the
Company, the Employee agrees to render faithful and efficient
services to the Company or a Subsidiary, with such duties and
responsibilities as the Company shall from time to time
prescribe. Nothing in this Agreement or in the Plan shall confer
upon the Employee any right to continue in the employ of the
Company or any Subsidiary, or as a director of the Company, or
shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly
reserved, to discharge the Employee at any time for any reason
whatsoever, with or without cause.
Section 1.4 - Adjustments in Option
The Committee shall make adjustments with respect to
the Option in accordance with the provisions of Section 9.3 of
the Plan; provided, however, that each such adjustment shall be
made in such manner as not to constitute a "modification" within
the meaning of Section 424(h)(3) of the Code, unless the Optionee
consents to an adjustment which would constitute such a
"modification".
ARTICLE II
PERIOD OF EXERCISABILITY
Section 2.1 - Commencement of Exercisability
(a) Subject to Sections 2.5, the Option shall become
exercisable in [five (5) cumulative installments as follows:
(i) The first installment shall consist of
___________ percent of the shares covered by the Option and
shall become exercisable on the first anniversary of the
date the Option is granted.
(ii) The second installment shall consist of
___________percent of the shares covered by the Option and
shall become exercisable on the second anniversary of the
date the Option is granted.
(iii) The third installment shall consist of
__________ percent of the shares covered by the Option and
shall become exercisable on the third anniversary of the
date the Option is granted.
(iv) The fourth installment shall consist of
____________ percent of the shares covered by the Option and
shall become exercisable on the fourth anniversary of the
date the Option is granted.
(v) The fifth installment shall consist of
__________ percent of the shares covered by the Option and
shall become exercisable on the fifth anniversary of the
date the Option is granted.]
(b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 2.2 - Duration of Exercisability
The installments provided for in Section 2.1 are
cumulative. Each such installment which becomes exercisable
pursuant to Section 2.1 shall remain exercisable until it becomes
unexercisable under Section 2.3.
Section 2.3 - Expiration of Option
The Option may not be exercised to any extent by anyone
after the first to occur of the following events:
(a) The expiration of ten (10) years from the date the
Option was granted; or
(b) If the Employee owned (within the meaning of
Section 424(d) of the Code), at the time the Option was granted,
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the
Code), the expiration of five (5) years from the date the Option
was granted; or
(c) The expiration of one (1) month from the date of
the Employee's Termination of Employment unless such Termination
of Employment results from his death, his retirement, his
disability (within the meaning of Section 22(e)(3) of the Code)
or his being discharged not for good cause; or
(d) The expiration of one (1) months from the date of
the Employee's Termination of Employment by reason of his
retirement or his being discharged not for good cause, unless the
Employee dies within said one-month period; or
(e) The expiration of one (1) year from the date of
the Employee's Termination of Employment by reason of his
disability (within the meaning of Section 22(e)(3) of the Code);
or
(f) The expiration of one (1) year from the date of
the Employee's death; or
(g) The effective date of either the merger or
consolidation of the Company with or into another corporation, or
the acquisition by another corporation or person of all or
substantially all of the Company's assets or eighty percent (80%)
or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company, unless the Committee
waives this provision in connection with such transaction. As
soon as practicable prior to the effective date of such merger,
consolidation, acquisition, liquidation or dissolution, the
Committee shall give the Employee notice of such event if the
Option has then neither been fully exercised nor become
unexercisable under this Section 2.3.
Section 2.4 - Adjustments to and/or Cancellation of the Option
If there is a material alteration in the capital structure of the
Company on account of a reorganization, merger, recapitalization,
exchange of shares, stock split, reverse stock split, stock
dividend, or otherwise, the Committee shall make such adjustments
to the Plan and to the Options then outstanding under the Plan as
the Committee determines to be appropriate and equitable under
the circumstances. Such adjustments may include, without
limitation, (a) a change in the number or kind of shares of
stock of the Company covered by the Options and/or (b) a change
in the Option Price payable per share; provided, however, that
the aggregate Option Price applicable to the unexercised portion
of existing Options shall not be altered, it being intended that
any adjustments made with respect to these Options shall apply
only to the price per share and the number of shares subject
thereto. For purposes of this paragraph, neither (i) the
issuance of additional shares of stock of the Company in exchange
for adequate consideration (including services), nor (ii) the
conversion of outstanding preferred shares of the Company into
Common Stock, shall be deemed a material alteration of the
capital structure of the Company. In the event the Committee
shall determine that the nature of a material alteration in the
capital structure of the Company is such that it is not practical
or feasible to make appropriate adjustments to the Plan or to
this Option, such event shall be deemed a Termination Event
subject to the following paragraph.
In the event of (a) the dissolution or liquidation of
the Company, (b) a reorganization , merger, or consolidation of
the Company with one or more corporations as a result of which
the Company will not be a surviving corporation, (c) the sale of
all or substantially all of the assets of the Company, (d) a
sale or other transfer of more than eighty percent (80%) of the
then outstanding shares of Common Stock of the Company, or (e)
a material change in the capital structure of the Company that is
subject to this Section in accordance with the last sentence of
the previous paragraph (any of such events is herein referred to
as a "Terminating Event"), the Committee shall determine whether
a provision will be made in connection with the Terminating Event
for an appropriate assumption of this Option for stock or for
substitution of appropriate new options covering stock of a
successor corporation employing the Employee under this Plan and
Agreement or stock of an affiliate of such successor employer
corporation . If the Committee determines that such an
appropriate assumption or substitution will be made, the
Committee shall give notice of the determination to the Employee
and the provisions of such assumption or substitution, and any
adjustments made (i) to the number and kind of shares subject
to the Option outstanding under the Plan (or to options issued in
substitution therefor), (ii) to the Option price and/or (iii)
to the terms and conditions of this Option, shall be binding upon
the Employee. If the Committee determines that no assumption or
substitution will be made, the Committee shall give notice of
this determination to the Employee, whereupon the Employee shall
have the right for a period of thirty (30) days following the
notice to exercise in full or in part any unexercised or
unexpired Option then held by him or her, without regarding to
any contingent vesting provision to which the Option may
otherwise been subject pursuant to Paragraph 2.1a above. Upon
the expiration of this thirty (30) day period, this option shall
expire to the extent not earlier exercised, and the Plan shall
terminate.
Section 2.5 - Special Tax Consequences
The Employee acknowledges that, to the extent that the
aggregate Fair Market Value of stock with respect to which
"incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code),
including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other
incentive stock option plans of the Company, any Subsidiary and
any parent corporation thereof (within the meaning of Section 422
of the Code)) exceeds $100,000, such options shall be treated as
Non-Qualified Options to the extent required by Section 422 of
the Code. The Employee further acknowledges that the rule set
forth in the preceding sentence shall be applied by taking
options into account in the order in which they were granted.
For purposes of these rules, the Fair Market Value of stock shall
be determined as of the time the option with respect to such
stock is granted.
ARTICLE III
EXERCISE OF OPTION
Section 3.1 - Partial Exercise
Any exercisable portion of the Option or the entire
Option, if then wholly exercisable, may be exercised in whole or
in part at any time prior to the time when the Option or portion
thereof becomes unexercisable under Section 2.3; provided,
however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section
2.1, if a smaller number of shares) and shall be for whole shares
only.
Section 3.2 - Manner of Exercise
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of
all of the following prior to the time when the Option or such
portion becomes unexercisable under Section 2.3:
(a) A written notice complying with the applicable
rules established by the Committee stating that the Option, or a
portion thereof, is exercised. The notice shall be signed by the
Employee or other person then entitled to exercise the Option or
such portion; and
(b) Full payment to the Company for the shares with
respect to which such Option or portion is exercised in
accordance with Section 5.2d of the Plan.
(i) With the consent of the Committee, (A) shares of
the Company's Common Stock owned by the Employee, duly
endorsed for transfer to the Company, with a Fair Market
Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof,
or (B) shares of the Company's Common Stock issuable to the
Employee upon exercise of the Option, with a Fair Market
Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof;
or
(ii) With the consent of the Committee, a notice that
the Employee has placed a market sell order with a broker
with respect to shares of the Company's Common Stock then
issuable upon exercise of the Option, and that the broker
has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the
Option exercise price.
(c) A bona fide written representation and agreement,
in a form satisfactory to the Committee, signed by the Employee
or other person then entitled to exercise such Option or portion
as the Committee in its discretion, shall determine is necessary
or appropriate to effect compliance with the Securities Act and
any other federal or state securities laws or regulations.
Without limiting the generality of the foregoing, the Committee
may require an opinion of counsel acceptable to it to the effect
that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue
stop-transfer orders covering such shares. Share certificates
evidencing stock issued on exercise of this Option shall bear an
appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection
(c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the
Securities Act, and such registration is then effective in
respect of such shares; and
(d) Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or local
tax law, it is required to withhold upon exercise of the Option;
with the consent of the Committee, (i) shares of the Company's
Common Stock owned by the Employee, duly endorsed for transfer,
with a Fair Market Value equal to the sums required to be
withheld, or (ii) shares of the Company's Common Stock issuable
to the Employee upon exercise of the Option with a Fair Market
Value equal to the sums required to be withheld, may be used to
make all or part of such payment; and
(e) In the event the Option or portion shall be
exercised pursuant to Section 9.1 by any person or persons other
than the Employee, appropriate proof of the right of such person
or persons to exercise the Option.
Section 3.3 - Rights as Shareholder
The holder of the Option shall not be, nor have any of
the rights or privileges of, a shareholder of the Company in
respect of any shares purchasable upon the exercise of any part
of the Option unless and until certificates representing such
shares shall have been issued by the Company to such holder.
ARTICLE IV
OTHER PROVISIONS
Section 4.1 - Option Not Transferable
Neither the Option nor any interest or right therein or
part thereof shall be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and
distribution, unless and until such Option has been exercised, or
the shares underlying such Option have been issued, and all
restrictions applicable to such shares have lapsed. Neither the
Option nor any interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Employee or
his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the
extent that such disposition is permitted by the preceding
sentence.
Section 4.2 - Shares to Be Reserved
The Company shall at all times during the term of the
Option reserve and keep available such number of shares of stock
as will be sufficient to satisfy the requirements of this
Agreement.
Section 4.3 - Notices
Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in
care of its Secretary, and any notice to be given to the Employee
shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section
4.3, either party may hereafter designate a different address for
notices to be given to him. Any notice which is required to be
given to the Employee shall, if the Employee is then deceased, be
given to the Employee's personal representative if such
representative has previously informed the Company of his status
and address by written notice under this Section 4.3. Any notice
shall be deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly
maintained by the United States Postal Service.
Section 4.4 - Titles
Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of
this Agreement.
Section 4.5 - Notification of Disposition
The Employee shall give prompt notice to the Company of
any disposition or other transfer of any shares of stock acquired
under this Agreement if such disposition or transfer is made (a)
within two (2) years from the date of granting the Option with
respect to such shares or (b) within one (1) year after the
transfer of such shares to him. Such notice shall specify the
date of such disposition or other transfer and the amount
realized, in cash, other property, assumption of indebtedness or
other consideration, by the Employee in such disposition or other
transfer.
Section 4.6 - Construction
This Agreement shall be administered, interpreted and
enforced under the internal laws of the State of Oregon without
regard to conflicts of laws thereof.
Section 4.7- Conformity to Securities Laws
The Employee acknowledges that the Plan is intended to
conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations
and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan
and this Agreement shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed
and delivered by the parties hereto.
RENTRAK CORPORATION
By
President
By
Secretary
Employee
__________________________________
Address
Employee's Taxpayer
Identification Number: _________________________
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