This filing
consists of 103 pages.
The Exhibit
Index is on Page 56.
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,
1998 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 1, 1998, 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 $43,577,022.
(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 1, 1997.
Includes shares held by certain depository organizations.)
As of June 1, 1997, the Registrant had 11,006,224 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1998 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 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of
Security Holders 10
PART II
5. Market for the Registrant's Common Stock and
Related 11
Stockholder Matters
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial 13
Conditions and Results of Operations
8. Financial Statements and Supplementary Data 22
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
10. Directors and Executive Officers
of the Registrant 53
11. Executive Compensation 53
12. Security Ownership of Certain Beneficial Owners 53
and Management
13. Certain Relationships and Related Transactions 53
PART IV
14. Exhibits, Financial Statement Schedules and 54
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
GENERAL
The Company's primary business is the distribution
of videocassettes to home video specialty stores and
other retailers 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 videocassettes 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 1997 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 videocassettes
and other media ("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, that
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 motion picture
studio, licensee, or other owner of the rights to
certain video programming ("Program Suppliers") sells
Cassettes to a distributor for an average price of
approximately $64. The distributor then sells Cassettes
to a Retailer for an average price of approximately $70.
The Retailer then rents Cassettes 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 the Retailers from rentals to
consumers (the "Transaction Fee"). The Company retains
a portion of each Order Processing Fee and Transaction
Fee and remits the remainder to the appropriate Program
Suppliers that hold the distribution rights to the
Cassettes. 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 throughout the
United States and Canada. The Company also owns a ten
percent interest in Rentrak Japan, K.K. ("Rentrak
Japan"), a Japanese corporation which markets a similar
service to video retailers in Japan.
In February 1998, the Company entered into a
shareholders agreement and a PPT agreement with Columbus
Holdings Limited and Rentrak UK Limited to develop the
Company's PPT distribution and information processing
business in the United Kingdom through Rentrak UK. The
Company owns 25 percent of Rentrak UK. Rentrak UK did
not commence distribution prior to the end of the 1998
fiscal year.
The Company currently offers substantially all of
the titles of a number of Program Suppliers, 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 are 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 Program Suppliers, including
all major Program Suppliers, may be terminated upon
relatively short notice. There can be no assurance that
any of the Program Suppliers will continue to distribute
Cassettes through the 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
difficulty acquiring suitable Cassettes for the
Company's markets on acceptable terms and conditions
from Program Suppliers that have agreed to provide the
same to the Company. The Company has one Program
Supplier that supplied product that generated 48
percent, a second that generated 17 percent, and a third
that generated 15 percent of Rentrak revenues for the
year ended March 31, 1998. There were no other Program
Suppliers who provided product that generated more than
10 percent of revenues for the year ended March 31,
1998.
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 participating 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 11 percent of the Company's revenues in
1998. [See "Legal Proceedings"]
Distribution of Cassettes
The Company's proprietary Rentrak Profit Maker
Software (the "RPM Software") allows Participating
Retailers to order Cassettes through their Point of Sale
("POS") system software and provides the Participating
Retailers with substantial information regarding all
offered titles. Ordering occurs via a networked
computer interface. To further assist the Participating
Retailers 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 install Rentrak approved computer
software and hardware to process all of their rental
and sale transactions. Participating 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.
Year 2000
Many computer software programs, as well as hardware
with embedded software, use a two-digit date field to track
and refer to any given year. After, and in some cases prior
to, January 1, 2000, these software and hardware systems may
interpret the year "00" as "1900," which will cause them to
perform faulty calculations or shut down altogether. To the
extent that this "Year 2000" problem is present in the
Company's internal software and hardware systems, or those
of its suppliers or customers, there could be material
disruptions in such important functions as the ordering and
delivery of Cassettes, the reporting and tracking of
Cassette rental and sale transactions, and billing and
payment systems. Such difficulties could result in a number
of adverse consequences, including but not limited to
delayed or lost revenue, diversion of resources, damages to
the Company's reputation, increased administrative and
processing costs, and liability to suppliers or customers.
Any one or a combination of such consequences could have a
material adverse effect on the Company's business, operating
results, and financial condition.
Accordingly, the Company began assessing the scope of
the Year 2000 problem both internally and among its
suppliers and customers as far back as March 1997, and began
implementing remedial measures soon thereafter. The Company
is conducting extensive tests of all software and hardware
systems used internally in the Company's business to
determine whether they are Year 2000 compliant. The Company
has and will continue to modify or replace those systems as
necessary, and the cost of such remedial measures is not
expected to be material. The Company's internal assessment,
testing, and remediation program is expected to be completed
by December 31, 1998. Although the Company believes that
these corrective measures will adequately address the Year
2000 problem, there can be no assurance that every Year 2000
problem will be discovered and addressed, or that every
remedial measure will be effective. To the extent that Year
2000 problems persist, the Company could experience the
adverse consequences described above, some or all of which
could be material.
The Company has initiated formal communications with
its POS system software vendors, and certain of the
Company's larger individual customers that have developed
their own POS system software, to determine the extent to
which their software and hardware systems are Year 2000
compliant. In addition, the Company has completed the
required programming of the Company's proprietary Rentrak
Profit Maker ("RPM") software and is taking steps to have
this upgrade installed on its customers' computer systems.
The Company has also initiated formal contact with the
vendors involved in the Cassette distribution process to
determine whether the Year 2000 problem may adversely affect
the Company's ability to timely deliver Cassettes to its
customers. The Company has and will continue to work with
all of its vendors, suppliers, and customers to resolve any
potential Year 2000 problems. As a follow-up measure, the
Company plans to evaluate and test the software of its POS
vendors and test communications with its customers by March
31, 1999, to determine which are in fact Year 2000
compliant. The Company does not expect the cost of its
assessments, corrective measures, and testing to be
material. However, the Company has no direct control over
these third parties and cannot provide any assurance that
such third party software and hardware systems will be
timely converted. The failure of certain individual
vendors, suppliers, and customers, or a combination of
vendors, suppliers, and customers, to make their systems
Year 2000 compliant could have a material adverse effect on
the Company's performance.
Retailer Auditing
From time to time, the Company audits Participating
Retailers in order to verify that they are reporting all
rentals and sales of Cassettes 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 that 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 any 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 that 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 Participating Retailer. In
some cases, a warrant to purchase stock may be obtained.
As part of such financing, the Participating 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 Participating
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 1998, the Company has
invested or loaned approximately $14,200,000 in various
video Retailers. [See Note 4 of the Notes to the
Consolidated Financial Statements.]
As of March 31, 1998, the Company had approximately
$14,200,000 in loans and investments outstanding under
the program and reserves of approximately $9,400,000 of
the total original loan or investment amount. As of
March 31, 1997, the Company had invested or loaned
approximately $13,100,000 under the program and had
provided reserves of approximately $10,300,000.
Competition
The Cassette distribution business is a highly
competitive industry that is rapidly changing. The
traditional, and still dominant, method of distributing
Cassettes to Retailers is through purchase transactions;
i.e., a Retailer purchases Cassettes from a distributor and
then offers the Cassettes for rental or sale to the general
public. As described in greater detail above (see "Pay-Per-
Transaction"), the Company's PPT System offers Retailers an
alternative method of obtaining Cassettes. Accordingly, the
Company has long faced intense competition from all of the
traditional distributors, including Ingram Entertainment,
Inc. ("Ingram"), Major Video Concepts, Inc. ("Major Video"),
Baker and Taylor, Inc. ("Baker and Taylor"), and Video One
Canada, Ltd. ("Video One"). These and other traditional
distributors have extensive distribution networks, long-
standing relationships with Program Suppliers and Retailers,
and, in some cases, significantly greater financial
resources than the Company.
In recent months, there have been indications of a
shift in the industry towards a revenue sharing model, as
certain traditional distributors have taken steps to offer
Cassettes to Retailers on a revenue sharing basis. For
example, several traditional distributors have executed
licensing agreements with Supercomm, Inc. ("Supercomm"), a
wholly-owned subsidiary of The Walt Disney Company, to
market and distribute Supercomm's revenue sharing software.
Several traditional distributors have also executed revenue
sharing agreements with motion picture studios ("Studios").
Two such Studios, citing the Company's exclusive agreements
with certain Retailers, have announced their intention to
offer their product on a revenue sharing basis only through
traditional distributors. Several traditional distributors
have also entered into licensing agreements with the Company
to distribute Cassettes to Retailers through the PPT System.
The Company also competes with Supercomm, which
distributes Cassettes through a revenue sharing system
similar in concept to the Company's PPT System.
Historically, the competition between Supercomm and the
Company has centered on the distribution of Cassettes to
supermarkets and similar retail businesses. However,
Supercomm's new business relationship with several
traditional distributors suggests that Supercomm intends to
expand its business beyond the supermarket industry.
The Company also faces direct competition from the
Studios. Beginning in 1997, several major Studios offered
retailers discounted pricing if such retailers substantially
increased the quantity of cassettes purchased. Some major
Studios have offered Cassettes to retailers on a lease
basis. In addition, all major Studios sell Cassettes
directly to major retailers including Blockbuster
Entertainment, Inc. ("Blockbuster"), the world's largest
chain of home video specialty stores. It appears that five
major Studios have executed direct revenue sharing
agreements with Blockbuster and that several Studios have
executed direct revenue sharing agreements with Hollywood
Entertainment, Inc. ("Hollywood"), the world's second
largest chain of home video specialty stores. It is not yet
clear whether the Studios will execute direct revenue
sharing agreements with other Retailers.
The Studios also compete with the Company by releasing
certain Cassette titles on a "sell-through" basis; i.e.,
they bypass the traditional rental period by selling the
Cassettes directly to consumers at a price of approximately
$20 to $30. To date, such "sell-through" distribution has
generally been limited to certain newly released hit titles
with wide general family appeal. However, because the
Company's business is partially dependent upon the existence
of a rental period, a shift toward such "sell-through"
distribution, particularly with respect to popular titles,
could have a material adverse effect on the Company's
business.
The Company also competes with businesses that use
alternative distribution methods to provide video
entertainment directly to consumers, such as the following:
(1) direct broadcast satellite transmission systems; (2)
traditional cable television systems; and (3) pay-per-view
cable television systems. Each of these distribution
methods employs digital compression techniques to increase
the number of channels available to consumers and,
therefore, the number of movies that may be transmitted.
Technological improvements in this distribution method,
particularly "video-on-demand," may make this option more
attractive to consumers and thereby materially diminish the
demand for Cassette rentals. Such a consequence 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.
In February 1998, the Company entered into a
Shareholders Agreement and a PPT License Agreement with
Columbus Holdings Limited, and Rentrak UK Limited
(Rentrak UK) to develop the Company's PPT distribution
and information processing business in the United
Kingdom through Rentrak UK. Rentrak UK is a joint
venture between the Company, which owns 25 percent,
Columbus Holdings Limited, which owns two-thirds of the
venture and Rentrak Japan, which owns 8.3 percent. The
PPT Agreement remains in force in perpetuity, unless
terminated due to material breach of contract,
liquidation of Rentrak UK or non-delivery by the Company
to Rentrak UK, of all retailer and studio software,
including all updates. Pursuant to the PPT Agreement,
during the term of the PPT Agreement, the Company will
receive a royalty of 1.67 percent of Rentrak UK's gross
revenues from any and all sources.
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, 1998, including all subsidiaries,
the Company employs 199 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 Agreement, 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
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.
In April 1998, the Company filed a complaint (the
"Hollywood Complaint") against Hollywood Entertainment,
Inc. ("Hollywood"), entitled Rentrak Corporation v.
Hollywood Entertainment et al., case no. 98-04-02811, in
the Circuit Court of the State of Oregon for the County
of Multnomah, Portland, Oregon. In the Hollywood
Complaint, the Company alleges that Hollywood breached
and is continuing to breach its contractual obligation
to acquire all of its leased videocassettes exclusively
from the Company. The Company also alleges that
Hollywood committed certain audit violations including
breaching its contractual obligation to fully and
accurately report all sales of the Company's
videocassettes and to pay the appropriate fees to the
Company in connection with such sales. The Company is
seeking monetary damages in the amount of $180,264,576
and injunctive relief for Hollywood's alleged violations
of the exclusivity obligation. On June 16, 1998,
Hollywood responded to the Hollywood Complaint denying
Rentrak's allegations and asserting a claim for
attorney's fees. The Company has suspended the ordering
privilege of Hollywood on account of its breach of the
PPT Agreement and Hollywood has served Rentrak notice
attempting to terminate its PPT Agreement with Rentrak.
In June 1998, Video Update, Inc. ("Video Update")
filed a complaint (the "Video Update Complaint") against
the Company entitled Video Update, Inc. v. Rentrak
Corp., Civil Action No. 98-286, in the United States
District Court for the District of Delaware. The Video
Update Complaint alleges various violations of the
antitrust laws. Specifically, Video Update alleges that
the Company has attempted to monopolize the market for
videocassettes leased to retail video stores in
violation of Section 2 of the Sherman Act. Video Update
further alleges that the Company's negotiation and
execution of an exclusive, long-term revenue sharing
agreement with Video Update violates Section 1 of the
Sherman Act and Section 3 of the Clayton Act. Video
Update is seeking unspecified monetary relief, including
treble damages and attorneys' fees, and equitable
relief, including an injunction prohibiting the Company
from enforcing its agreement with Video Update or any
exclusivity provision against videocassette suppliers
and video retailers. The Company believes the Complaint
filed by Video Update lacks merit and intends to
vigorously defend against the allegations in the
Complaint. The Company has filed a motion to dismiss or
transfer pursuant to the Federal Rule of Civil Procedure
12(B)(3) or alternatively to transfer pursuant to 28
U.S.C. Section 14.04.
The Company is also 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 is
not expected to 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, where its prices
are quoted under the symbol "RENT". As of June 1, 1998
there were approximately 375 holders of record of the
Company's common stock. On June 1, 1998, the closing
sales price of the Company's common stock as quoted on
the Nasdaq National Market was $5.438.
The following table sets forth the reported high
and low sales prices of the Company's 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.
QUARTER ENDED HIGH LOW
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
JUNE 30, 1997 $3.938 $3.875
SEPTEMBER 30, 1997 $4.406 $4.375
DECEMBER 31, 1997 $4.500 $4.000
MARCH 31, 1998 $10.063 $9.500
DIVIDENDS:
Holders of the Company's 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's bank credit agreement limits
the payment of dividends in the Company's stock. The
Company does not intend to pay cash dividends in the
foreseeable future.
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts)
Year Ended March 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net revenues:
Application fees $383 $354 $551 $1,114 $1,662
Order processing fees 25,313 22,720 25,716 18,052 13,712
Transaction fees 78,671 70,467 70,187 49,904 40,967
Sell-through 9,383 11,101 10,601 8,923 5,665
Other 9,001 11,634 6,211 6,555 1,955
International operations 0 0 0 0 116
Total net revenues 122,751 116,276 113,266 84,548 64,077
Cost of sales 100,974 90,882 95,168 66,375 49,697
Gross profit 21,777 25,394 18,098 18,173 14,380
Selling and administrative expense 14,572 16,160 20,860 15,527 14,008
Suspension of European operations 0 0 0 0 901
Other income 652 999 681 3,522 538
Income (loss) from continuing operations before
benefit (provision) for income taxes and
minority partner interests 7,857 10,233 (2,081) 6,168 9
Income tax benefit (provision) (3,199) (3,950) 595 (768) 764
Income (loss) from continuing operations before
minority partner interests and discontinued
operations 4,658 6,283 (1,486) 5,400 773
Losses attributable to minority partner
interests 0 0 0 0 131
Income (loss) from continuing operations before
discontinued operations 4,658 6,283 (1,486) 5,400 904
Discontinued Operations: (1)
Loss from operations of discontinued subsidiaries
less applicable income tax provision 0 0 (18,700) (287) (91)
Loss on disposal of subsidiaries 0 0 (12,100) 0 0
Net income (loss) $4,658 $6,283 ($32,286) $5,113 $813
Diluted income (loss) per share
Continuing operations $0.41 $0.52 ($0.13) $0.47 $0.08
Discontinued operations 0.00 0.00 (2.62) (0.03) 0.00
Net income (loss) $0.41 $0.52 ($2.75) $0.44 $0.08
Common shares and common share equivalents
outstanding 11,445 12,076 11,755 11,548 10,133
1998 1997 1996 1995 1994
Balance Sheet Data (2)
Working Capital $1,062 $1,488 ($12,579) $12,897 $16,155
Total Assets 51,609 43,048 56,252 64,818 44,620
Long-term Debt 0 0 0 0 0
Stockholders' Equity 13,254 11,272 14,404 40,292 29,523
(1) Discontinued Operations includes the operations of Pro Image and
BlowOut. Acquisitions were made by ProImage 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
Certain Information included in the Annual Report on
Form 10-K (including 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.
Forward looking statements may 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: 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, expansion of revenue sharing programs other
than the PPT System by Program Suppliers, new
technology, the ability of the Company and its suppliers
and customers to address potential Year 2000 problems,
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 in the fiscal year ended March 31,
1998. Accordingly 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, 1998, 1997
and 1996. 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>
<CAPTION>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
For The Years Ended March 31, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
REVENUES $122,751,046 $116,275,503 $113,266,320
OPERATING COSTS AND EXPENSES
Cost of sales 100,974,140 90,881,674 95,167,529
Selling and administrative 14,571,789 16,159,729 20,859,923
115,545,929 107,041,403 116,027,452
INCOME (LOSS) FROM OPERATIONS 7,205,117 9,234,100 (2,761,132)
Other income 652,381 999,068 680,671
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 7,857,498 10,233,168 (2,080,461)
Income tax (provision) benefit (3,199,032) (3,950,003) 594,792
INCOME (LOSS) FROM CONTINUING
OPERATIONS 4,658,466 6,283,165 (1,485,669)
DISCONTINUED OPERATIONS
Income (loss) from operations of
discontinued subsidiaries, net of income- - (18,700,000)
Loss on disposal of discontinued subsidiar- - (12,100,000)
NET INCOME (LOSS) $4,658,466 $6,283,165 ($32,285,669)
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
For The Years Ended March 31, 1998, 1997 And 1996
1998 1997 1996
<S> <C> <C> <C>
DISCONTINUED OPERATIONS - PRO IMAGE
REVENUES $0 $0 $39,131,760
OPERATING COSTS AND EXPENSES
Cost of sales $0 $0 $24,325,523
Selling and administrative $0 $0 $19,383,052
Other expense - write-off of intangible ass $0 $0 $9,179,239
LOSS FROM OPERATIONS $0 $0 ($13,756,054)
Other expense $0 $0 ($242,299)
LOSS BEFORE INCOME TAXES $0 $0 ($13,998,353)
DISCONTINUED OPERATIONS - BLOWOUT ENTERTAINMENT
REVENUES $0 $0 $17,466,804
OPERATING COSTS AND EXPENSES
Cost of sales $0 $0 $13,961,420
Selling and administrative $0 $0 $10,074,040
LOSS FROM OPERATIONS $0 $0 ($96,568,656)
Other expense $0 $0 ($689,103)
LOSS BEFORE INCOME TAXES $0 $0 ($7,257,759)
DISCONTINUED OPERATIONS - COMBINED
PRO IMAGE & BLOWOUT ENTERTAINMENT
REVENUES $0 $0 $56,598,564
OPERATING COSTS AND EXPENSES
Cost of sales $0 $0 $38,286,943
Selling and administrative $0 $0 $29,457,092
Other expense - write-off of Intangible ass $0 $0 $9,179,239
LOSS FROM OPERATIONS $0 $0 ($20,324,710)
Other expense $0 $0 ($931,402)
LOSS BEFORE INCOME TAXES $0 $0 ($21,256,112)
INCOME TAX BENEFIT $0 $0 $2,556,112
NET LOSS $0 $0 ($18,700,000)
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Continuing Operations - Domestic PPT Operations and Other
Continuing Subsidiaries
For the year ended March 31, 1998, total revenue
increased $6.5 million, or 6 percent, rising to $122.8
million from $116.3 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 videocassettes.
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"); (ii) the number of titles
released to the PPT System and (iii) the total number of
Cassettes shipped under the PPT System.
In fiscal 1998, application-fee revenue remained
unchanged from the prior year at $0.4 million. During the
year, order processing-fee revenue increased to $25.3
million from $22.7 million in fiscal 1997, an increase of
$2.6 million, or 11 percent. Transaction-fee revenue
totaled $78.7 million, an increase of $8.2 million, or 12
percent, from $70.5 million the previous year. Sell-
through revenue was $9.4 million in fiscal 1998 as compared
to $11.1 million in fiscal 1997, a decrease of $1.7
million, or 15 percent.
Royalty revenue from Rentrak Japan decreased to $1.1
million during fiscal 1998 from $5.5 million the previous
year. This decrease was due to a one-time royalty payment
from Rentrak Japan of $4.4 million in August 1996.
Cost of sales in fiscal 1998 increased to $101 million
from $90.9 million the prior year, an increase of $10.1
million, or 11 percent. The increase is primarily due to
the increase in revenue noted above. In fiscal 1998, the
gross profit margin decreased to 18 percent from 19 percent
the previous year, excluding the one-time royalty payment
from Rentrak Japan. The gross profit margin in fiscal
1997, including the one-time royalty payment from Rentrak
Japan, was 22 percent.
Selling, general and administrative expenses were $14.6
million in fiscal 1998 compared to $16.2 million in fiscal
1997. This decrease of $1.6 million, or 10 percent, was
primarily due to collection of amounts in 1998 which were
previously reserved at March 31, 1997. As a percentage of
total revenue, selling, general and administrative expenses
was 12 percent in fiscal 1998 as compared to 14 percent the
previous year.
Other income decreased from $1.0 million in fiscal 1997
to $0.7 million for fiscal 1998, a decrease of $0.3
million.
For the year ended March 31, 1998, the Company recorded
pre-tax income of $7.9 million, or 6 percent of total
revenue, compared to $5.7 million, or 5 percent of total
revenue excluding the one-time royalty from Rentrak Japan
in fiscal 1997. This increase is due to the increase in
margin dollars due to increased revenue and the decrease in
selling, general and administrative expenses as noted
above. Pre tax income, including the one-time royalty
payment from Rentrak Japan, was $10.2 million or 9 percent
of total revenue in 1997.
Included in the amounts above are the results from Other
Subsidiaries which are primarily comprised of certain
retail operations. Total revenue from Other Subsidiaries
increased to $6.5 million in fiscal 1998 from $5.0 million
in fiscal 1997, an increase of $1.5 million, or 30 percent.
Cost of sales was $3.3 million, an increase of $0.2 million
over the $3.1 million recorded in fiscal 1997. Selling,
general and administrative expenses increased to $1.9
million in fiscal 1998 from $1.8 million in fiscal 1997, an
increase of $0.1 million. As a percentage of total
revenue, selling, general and administrative expenses
decreased to 29 percent at year-end from 36 percent a year
earlier.
For the year ended March 31, 1998, Other Subsidiaries
recorded pre-tax income of $0.7 million, or 10 percent of
total revenue. This compares with pre-tax income of $0.2
million, or 3 percent of total revenue, in fiscal 1997.
Consolidated Balance Sheet
At March 31, 1998, total assets were $51.6 million, an
increase of $8.6 million from the $43.0 million of a year
earlier. A substantial portion of the increase was due to
the $7.9 million increase in accounts receivable. This
increase is primarily due to the increase in the number of
retailers participating on the PPT System.
Net current liabilities of BlowOut at March 31, 1998 and
1997 of approximately $4.6 million and $4.4 million,
respectively represent amounts reserved for contingencies
not yet settled as of March 31, 1998.
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. 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 33 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 $1.1 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 4 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 4 percent of
total revenue. This compares with a pre-tax loss of $0.4
million, or 8 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 $1.9 million and $12.7 million 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 million and $6 million 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 $.2 million represent accrued liabilities
remaining to be paid. Net current liabilities of BlowOut
at March 31, 1997 of approximately $4.4 million represent
amounts reserved for contingencies not yet settled as of
March 31, 1998.
Net current liabilities of Pro Image at March 31, 1997
of approximately $.2 million 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 $4.4 million 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.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and other liquid
investments of $6.4 million, compared to $10.2 million at
March 31, 1997. At year-end, the Company's current ratio
(current assets/current liabilities) was 1.03 compared to
1.05 a year earlier.
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 March 31, 1998). 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 as of March 31, 1998. At March 31, 1998, the
Company had $6.0 million outstanding borrowings under this
agreement. The Company repaid the $6.0 million in April,
1998. As of May 31, 1998, available borrowing capacity
totaled $12.5 million.
The Company has established a retailer financing program
whereby the Company will provide, on a selective basis,
financing to video retailers that 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 1998, the Company has
invested or loaned approximately $14.2 million in various
retailers. The investments individually range from $0.2
million to $4.9 million. Included in the total $14.2
million investment balance at March 31, 1998, are gross
notes receivable of $10.6 million which are due as follows:
$1.1 million - 1999; $3.2 million - 2000; $1.8 million -
2001; $4.0 million - 2005; and $0.5 million - 2007.
Interest rates on the various loans range from 5 -12
percent per annum. 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, 1998, the Company has invested or loaned
approximately $14.2 million under the program and has
reserves of approximately $9.4 million.
BlowOut is an early stage company requiring additional
financing if it is to continue its expansion and support
its operations. The Company is the principal 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 the 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
14.525 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, 1998, BlowOut had borrowed
approximately $1.6 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 March 31, 1998). 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.
In February 1998, the Company entered into an agreement with
BlowOut and CCC (the "Tri-Party Agreement") under which
BlowOut has agreed not to draw down in excess of $4.0
million under the Line of Credit. As of March 31, 1998,
BlowOut had borrowed approximately $3.2 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.
In fiscal year 1997, BlowOut executed a $3.0 million
note in favor of the Company which accrues interest at 9
percent per annum. As part of the Tri-Party Agreement, the
Company agreed to defer principal and interest payments on
this note by BlowOut until December 31, 2004 during which
deferment period no interest accrues. The Company also
agreed to the forgiveness of all or a portion of the $3.0
million note as BlowOut is able to lower the Company's
contingent obligations under its guarantees. At March 31,
1998, the total outstanding balance of the debt under such
note, including accrued interest, was $2.8 million.
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,
1998, the Company had acquired 1,082,900 shares for an
aggregate amount of $4.1 million. 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, 1999.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Item Page
Report of Independent Public 23
Accountants
Consolidated Balance Sheets as of
March 31, 1998 and 1997 24
Consolidated Statements of Operations for Years 25
Ended March 31, 1998, 1997 and
1996
Consolidated Statements of Stockholders' Equity 26
for Years Ended March 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for Years 27
Ended March 31, 1998, 1997 and
1996
Notes to Consolidated Financial Statements 29
Financial Statement Schedules 52
Schedule II
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
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, 1998 and 1997,
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
March 31, 1998. 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, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended March 31, 1998 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 20, 1998 (except with respect to
the matter discussed in Note 10, as
to which the date is June 4, 1998)
<TABLE>
<CAPTION>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997
ASSETS
1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,361,680 $ 10,167,169
Accounts receivable, net of allowance for doubtful
accounts of $586,641 and $409,313 24,395,143 16,434,566
Advances to program suppliers 431,975 492,844
Inventory 2,427,176 1,902,618
Deferred tax asset 1,217,950 1,365,064
Other current assets 4,582,337 2,901,964
Total current assets ------------ ------------
39,416,261 33,264,225
------------ ------------
PROPERTY AND EQUIPMENT, net 1,910,317 2,006,556
OTHER INVESTMENTS, net 887,884 778,950
DEFERRED TAX ASSET 4,087,292 3,637,563
OTHER ASSETS 5,306,943 3,360,701
------------ ------------
Total assets $ 51,608,697 $ 43,047,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 6,000,000 $ 5,000,000
Accounts payable 23,333,656 17,160,492
Accrued liabilities 2,532,832 613,669
Accrued compensation 1,072,848 1,695,814
Deferred revenue 829,863 2,672,849
Net current liabilities of discontinued operations 4,585,373 4,633,114
------------ ------------
Total current liabilities 38,354,572 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: 10,987 11,847
10,986,455 shares in 1998 and 11,847,441 shares in
1997
Capital in excess of par value 45,365,298 47,931,165
Net unrealized gain on investment securities 54,645 184,932
Accumulated deficit (30,794,263) (35,452,729)
Less- Deferred charge - warrants (1,382,542) (1,403,158)
------------ ------------
Total stockholders' equity 13,254,125 11,272,057
------------ ------------
Total liabilities and stockholders' equity $ 51,608,697 $ 43,047,995
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
<S> <C> <C> <C>
REVENUES:
PPT $113,181,910 $105,787,973 $108,073,429
Other 9,569,136 10,487,530 5,192,891
------------ ------------ ------------
122,751,046 116,275,503 113,266,320
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of sales 100,974,140 90,881,674 95,167,529
Selling and administrative 14,571,789 16,159,729 20,859,923
------------ ------------ ------------
115,545,929 107,041,403 116,027,452
------------ ------------ ------------
Income (loss) from operations 7,205,117 9,234,100 (2,761,132)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 1,135,823 862,143 1,078,798
Interest expense (158,708) (181,950) (208,307)
Gain (loss) on sale of investments (94,062) 318,875 62,091
Other (230,672) - (251,911)
------------ ------------ ------------
652,381 999,068 680,671
------------ ------------ ------------
Income (loss) from continuing
operations before 7,857,498 10,233,168 (2,080,461)
income tax (provision) benefit
INCOME TAX (PROVISION) BENEFIT (3,199,032) (3,950,003) 594,792
------------ ------------ ------------
Income (loss) from continuing 4,658,466 6,283,165 (1,485,669)
operations
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
subsidiaries (less - - (18,700,000)
applicable income tax benefit of
$(2,500,000) for 1996
Loss on disposal of subsidiaries
including provision of
4,800,000 for operating losses - - (12,100,000)
during phaseout periods
(less applicable income tax benefit
of $0)
------------ ------------ ------------
Net income (loss) $ 4,658,466 $ 6,283,165 $(32,285,669)
============ ============ ============
NET INCOME (LOSS) PER SHARE
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ .42 $ .52 $ (.13)
Discontinued operations - - (2.62)
------ ------ ------
Net income (loss) $ .42 $ .52 $(2.75)
====== ====== ======
DILUTED EARNINGS (LOSS) PER COMMON SHARE
AND COMMON
EQUIVALENT SHARE:
Continuing operations $ .41 $ .52 $ (.13)
Discontinued operations - - (2.62)
------ ------ ------
Net income (loss) $ .41 $ .52 $(2.75)
====== ====== ======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
Common Stock Net
------------------- Capital in Unrealized Deferred
Gain(Loss)
Number of Excess of on Accumulated Charge
Shares Amount Par Value Investment Deficit Warrants Total
Securities
<S> <C> <C> <C> <C> <C> <C> <C>
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 47,270 47 95,629 - - - 95,676
option
plans
Net loss - - - - (32,285,669) - (32,285,669)
Change in
net
unrealized
gain
(loss) on
investment
securities - - - 738,255 - - 738,255
Amortizati
on of - - - - - 674,289 674,289
warrants
---------- ------- ----------- --------- ------------ ----------- ------------
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
Distributi
on of
common
stock in
BlowOut - - - - (8,369,732) - (8,369,732)
Change in
net
unrealized
gain
(loss) on
investment
securities - - - (382,576) - - (382,576)
Amortiza-
tion 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
Repurchase
of common
stock (1,082,900) (1,082) (4,124,329) - - - (4,125,411)
Issuance
of common
stock
under
employee
stock
option
plans 221,914 222 888,007 - - - 888,229
Net income - - - - 4,658,466 - 4,658,466
Change in
net
unrealized
gain
(loss) on
investment
securities - - - (130,287) - - (130,287)
Income tax
benefit
from stock
option - - 320,455 - - - 320,455
exercise
Retirement
s of - - (250,000) - - - (250,000)
warrants
Issuance
of - - 600,000 - - (600,000) -
warrants
Amortizati
on of - - - - - 620,616 620,616
warrants
---------- ------- ----------- --------- ------------ ----------- ------------
BALANCE AT
MARCH 31,
1998 10,986,455 $10,987 $45,365,298 $ 54,645 $(30,794,263) $(1,382,542) $ 13,254,125
========== ======= =========== ========= ============ =========== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,658,466 $ 6,283,165 $(32,285,669)
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 94,062 (309,852) 426,827
Depreciation 696,883 891,857 5,034,493
Amortization and write-off of
intangibles - 272,433 11,545,750
Amortization of warrants 620,616 492,503 674,289
Provision for doubtful accounts (300,000) 656,147 523,315
Retailer financing program (518,450) (401,891) 2,789,701
reserves
Reserves on advances to program
suppliers 150,977 (147,451) 1,345,406
Deferred income taxes 1,277,239 161,331 (4,966,997)
Change in specific accounts,
net of effects in 1996 from
purchase of businesses:
Accounts receivable (9,139,446) (2,921,826) (2,138,592)
Advances to program (658,014) 1,099,101 1,025,835
suppliers
Inventory (524,558) (164,923) (5,638,802)
Other current assets (1,359,918) 4,108,957 (1,641,277)
Accounts payable 6,173,164 (4,635,351) 7,156,983
Accrued liabilities and
compensation (203,803) 1,495,462 2,403,732
Deferred revenue (1,842,986) 667,984 1,073,929
Net current liabilities
of discontinued operations (47,741) 362,545 -
----------- ----------- ------------
Net cash provided (used)
by operating activities (923,509) 7,910,191 (571,077)
----------- ----------- ------------
(continued)
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property, equipment
and inventory $ (508,398) $(1,454,391) $(10,143,322)
Investments in retailer
financing program (550,000) (3,178,020) (2,183,000)
Proceeds from retailer financing
program 518,450 2,029,911 1,199,005
Cash paid for purchases of
businesses,net of cash acquired - - (377,848)
Purchases of investments (1,076,299) - (344,500)
Proceeds from sale of
investments 519,688 526,000 951,394
Reduction (purchases) of other
assets and intangibles 701,761 495,667 (242,176)
Proceeds from sale of assets - 10,410 1,100,000
----------- ----------- ------------
Net cash used by
investing activities (394,798) (1,570,423) (10,040,447)
----------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings on line of credit 1,000,000 2,300,000 2,537,844
Borrowing on notes payable - - 3,501,971
Retirement of warrants (250,000) - -
Repurchase of common stock (4,125,411) (1,204,775) (341,700)
Issuance of common stock 888,229 49,048 114,011
----------- ----------- ------------
Net cash provided (used)
by financing activities (2,487,182) 1,144,273 5,812,126
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,805,489) 7,484,041 (4,799,398)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 10,167,169 2,683,128 10,709,405
CASH AND CASH EQUIVALENTS INCLUDED
IN NET CURRENT LIABILITIES OF
DISCONTINUED OPERATIONS - - 3,226,879
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END $ 6,361,680 $10,167,169 $ 2,683,128
OF YEAR
=========== =========== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
RENTRAK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, 1997 AND 1996
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 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. and subsidiaries (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 statement 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 receives 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 will be recognized as revenue when received. 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.
Rentrak UK Limited
In February 1998, the Company entered into a Shareholders Agreement
and a PPT License Agreement with Columbus Holdings Limited, and
Rentrak UK Limited (Rentrak UK)to develop the Company's PPT
distribution and information processing business in the United Kingdom
through Rentrak UK. Rentrak UK is a joint venture between the
Company, which owns 25%, Columbus Holdings Limited, which owns two-
thirds of the venture and Rentrak Japan, which owns 8.3%. The PPT
Agreement remains in force in perpetuity, unless terminated due to
material breach of contract, liquidation of Rentrak UK or non
delivery, by the Company to Rentrak UK, of all retailer and studio
software, including all updates. Pursuant to the PPT Agreement, during
the term of the PPT Agreement, the Company will receive a royalty of
1.67% of Rentrak UK's gross revenues from any and all sources.
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.
Subsequent to March 31, 1996, the Company approved plans to
discontinue the operations of Pro Image and BlowOut (Note 14). At
March 31, 1997, the assets and liabilities of Pro Image have been
segregated in the consolidated financial statements. The statements of
operations for the years ended March 31, 1998, 1997 and 1996 reflect
these entities as discontinued.
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,
among others, 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:
Proceeds Gross Gross
Gains Losses
1998 $519,688 $ 24,375 $(118,437)
1997 526,000 318,875 -
1996 951,394 150,288 (88,197)
When, in management's opinion, available for sales securities have
experienced an other than temporary decline, the amount of the decline
in value is charged to other income.
Unrealized losses of $230,672 and $147,421 were recorded in other
income in the March 31, 1998 and 1996 statement of operations,
respectively. There were no unrealized gains or losses recognized in
the March 31, 1997 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, 1998
and 1997.
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
included customer and dealer lists, a covenant not to compete,
franchise agreements and goodwill. In connection with Pro Image's
acquisition 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 generally 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 may charge
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 approximately $323,000, $254,000 and
$256,000 during 1998, 1997 and 1996, 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.
Earnings (Loss) Per Share
Basic earnings per common share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. 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," which requires retroactive application for all
periods presented. As a result, the Company's reported earnings per
share for the years ended March 31, 1997 and 1996 were restated.
Per Share
Amounts
1997 1996
Primary EPS as reported
Continuing operations $0.48 $(0.12)
Discontinued operations - (2.56)
----- ------
Net income (loss) 0.48 (2.68)
Effect of SFAS No. 128 0.04 (0.07)
----- ------
Basic EPS as restated
Continuing operations 0.52 (0.13)
Discontinued operations - (2.62)
----- ------
Net income (loss) 0.52 (2.75)
===== ======
Fully Diluted EPS as reported
Continuing operations 0.45 (0.12)
Discontinued operations - (2.56)
----- ------
Net income (loss) 0.45 (2.68)
Effect of SFAS No. 128 0.07 (0.07)
----- ------
Diluted EPS as restated
Continuing operations 0.52 (0.13)
Discontinued operations - (2.62)
----- ------
Net income (loss) $0.52 $(2.75)
===== ======
The weighted average number of shares of common stock and common stock
equivalents and net income used in the earnings per share calculation at March
31 were as follows:
<TABLE>
<CAPTION>
Fiscal Year 1998 Fiscal Year 1997 Fiscal Year 1996
----------------------- ------------------------ ----------------------------
-
Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Weighted average
number
of shares of 11,222,443 11,222,443 12,076,031 12,076,031 11,755,534 11,755,534
common
stock
outstanding
Dilutive effect
of exercise of
stock options - 222,378 - 83,406 - -
---------- ---------- --------- --------- --------- ----------
Weighted average
number of shares
of common stock
outstanding and
common stock 11,222,443 11,444,821 12,076,031 12,159,437 11,755,534 11,755,534
equivalents
========== ========== ========== ========== ========== ==========
Income (loss):
Continuing $4,658,466 $4,658,466 $6,283,165 $6,283,165 $ (1,485,669) $ (1,485,669)
operations
Discontinued
operations - - - - (30,800,000) (30,800,000)
---------- ---------- ---------- ---------- ------------ ------------
Net income (loss) $4,658,466 $4,658,466 $6,283,165 $6,283,165 $(32,285,669) $(32,285,669)
========== ========== ========== ========== ============ ============
Earnings (loss)
per share:
Continuing
operations $0.42 $0.41 $0.52 $0.52 $(0.13) $(0.13)
Discontinued
operations - - - - (2.62) (2.62)
----- ----- ----- ----- ------ ------
$0.42 $0.41 $0.52 $0.52 $(2.75) $(2.75)
===== ===== ===== ===== ====== ======
</TABLE>
Warrants to purchase approximately 2,700,000 shares of common stock at
prices ranging from $6.58 - $7.14 per share were outstanding during
the year but were not included in the computation of diluted EPS
because the warrants' exercise price was greater than the average
market price of the common shares. The warrants, which expire during
fiscal years 2000 through 2005 remain outstanding at March 31, 1998.
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 $(1,030,981), $(627,371) and $1,472,702 for the years ended
March 31, 1998, 1997 and 1996, respectively.
Statement of Cash Flows
The Company had the following transactions for the years ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH PAID FOR:
Interest $ 153,398 $ 197,642 $ 326,870
Income taxes, net of refunds 2,790,158 (156,284) 236,545
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 -
Reclassification of accounts receivable
to other assets and other investments 1,478,869 - -
Reduction of warrants - 496,913 -
Issuance of warrants (600,000) - -
Tax benefit from stock option exercises (320,455) - -
Acquisition of businesses through
issuance of stock - - 5,213,125
Changes in net unrealized gains (losses)
on investment securities through
adjustments to stockholders' equity (130,287) (382,576) 738,255
</TABLE>
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:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized
Value Gross Gain Gross Loss Fair Value
<S> <C> <C> <C> <C>
As of March 31, 1998:
Available for sale-
Noncurrent:
Corporate $412,687 $113,934 $ (25,797) $500,824
securities
======== ======== ========= ========
As of March 31, 1997:
Available for sale-
Noncurrent:
Corporate $480,672 $524,934 $(226,656) $778,950
securities
======== ======== ========= ========
</TABLE>
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:
Property and equipment, at cost, consists of:
March 31,
------------------------
1998 1997
Furniture and fixtures $ 5,525,374 $ 4,782,463
Machinery and equipment 145,334 403,177
Leasehold improvements 1,569,436 1,546,104
----------- -----------
7,240,144 6,731,744
Less- Accumulated (5,329,827) (4,725,188)
depreciation
----------- -----------
$ 1,910,317 $ 2,006,556
=========== ===========
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 March 31, 1998,
the Company has invested or made oral or written commitments to loan
to or invest approximately $14,200,000 in various video retailers.
The amounts outstanding under this program individually range from
$2,000,000 to $4,900,000. 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 from 1999 through 2007. Interest rates on
the various loans range from 5% - 12%. 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, 1998, the Company has approximately $14,200,000 in
loans and investments outstanding under the program and reserves of
approximately $9,400,000. At March 31, 1997, the Company had invested
or loaned approximately $13,100,000 under the program and had provided
reserves of approximately $10,300,000.
The activity in the total reserves for the retailer financing program
are as follows for the years ended March 31:
1998 1997
Beginning balance $10,340,375 $ 6,032,551
Additions to reserve 1,982,591 4,307,824
Write-offs (2,450,521) -
Recoveries (518,450) -
----------- ----------
Ending balance $ 9,353,995 $10,340,375
=========== ===========
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 $12,500,000 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, 1999.
Interest is payable monthly at the bank's prime rate (8.5% at
March 31, 1998). 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 as of March 31, 1998. At March 31, 1998
and 1997, the Company had $6,000,000 and $5,000,000 respectively,
outstanding under this agreement.
6. INCOME TAXES:
The provision (benefit) for income taxes from continuing operations is
as follows for the years ended March 31:
1998 1997 1996
Current tax provision:
Federal $1,689,658 $3,113,822 $ 1,663,070
Foreign 1,500,000 - -
State 232,133 633,637 324,606
---------- ---------- -----------
3,421,791 3,747,459 1,987,676
Deferred tax provision (222,759) 202,544 (2,582,468)
(benefit)
---------- ---------- -----------
Income tax provision $3,199,032 $3,950,003 $ (594,792)
(benefit)
========== ========== ===========
The reported provision (benefit) for income taxes differs
from the amount computed by applying the statutory federal
income tax rate of 34% to income (loss) before provision
(benefit) for income taxes as follows for the years ended March 31:
1998 1997 1996
Provision (benefit) computed at $2,688,549 $3,479,277 $(707,357)
statutory rates
State taxes, net of federal benefit 117,464 418,200 (214,240)
Amortization of warrants 235,834 167,450 236,058
Utilization of foreign tax credit (110,000) (540,000) (100,000)
Other 267,185 425,076 190,747
---------- ---------- ---------
$3,199,032 $3,950,003 $(594,792)
========== ========== =========
Deferred tax assets from continuing operations are comprised
of the following components at March 31, 1998 and 1997:
1998 1997
Deferred tax assets:
Current-
Allowance for doubtful accounts $ 222,924 $ 155,539
Retailer-related accruals 419,026 1,147,610
Foreign tax credit 500,000 -
Other 76,000 61,915
---------- ----------
Total current deferred tax assets 1,217,950 1,365,064
---------- ----------
Noncurrent-
Depreciation 431,385 389,670
Retailer financing program 1,689,421 2,595,126
reserve
Program supplier reserves 714,056 665,252
Unrealized (gain) loss on 110,184 (57,326)
investments
Foreign tax credit 1,000,000 -
Other 142,246 44,841
---------- ----------
Total noncurrent deferred tax 4,087,292 3,637,563
assets
---------- ----------
Total deferred tax assets $5,305,242 $5,002,627
========== ==========
7. STOCKHOLDERS' EQUITY:
Stock Options and Warrants
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
500,000. In August 1997, the Company adopted the 1997 Equity
Participation Plan. The aggregate number of shares which may be
issued upon exercise of options under the plan shall not exceed
550,000. The plans are administered by the Stock Option Committee of
the Board who determines the terms and conditions of options issued
under the plans. Options granted to date under the plans are
exercisable over four to five years and expire ten years after date of
grant. As of March 31, 1998, the Company has 215,028 and 269,286
options available to be granted under the 1997 Non-Officer Employee
Stock Option Plan and 1997 Equity Participation Plan, respectively.
Options are granted under the Directors' Stock Option Plan, which is
administered by the Board of Directors, at an exercise price equal to
fair market value as of the 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,
1998, the Company has 36,600 options available to be granted under the
Directors' Stock Option Plan.
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 1998, 1997 and 1996, using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 and the following assumptions:
1998 1997 1996
Risk-free interest 5.56 - 7.17% 5.12 - 5.29% 5.02 - 5.86%
rate
Expected dividend 0% 0% 0%
yield
Expected lives 5 - 10 years 4.6 - 10 5 - 10 years
years
Expected volatility 48.53% 58.90% 58.86%
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, 1998, 1997 and 1996 statements of
operations would have been the following unaudited pro forma amounts:
1998 1997 1996
Net income (loss)
As reported $4,658,466 $6,283,165 $(32,285,669)
Pro forma 3,873,988 5,784,529 (32,645,669)
Diluted earnings (loss) per
share
As reported $.41 $.52 $(2.68)
Pro forma .34 .48 (2.72)
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:
Options Outstanding
-------------------------
Number Weighted Average
of Exercise Price
Shares
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
Granted:
Option price = fair market 549,174 4.11
value
Option price > fair market 45,714 4.98
value
Option price < fair market 10,000 2.94
value
Issued (221,914) 4.14
Canceled (513,772) 4.89
--------- -----
Balance at March 31, 1998 2,825,325 $4.60
========= =====
The weighted average fair value of options granted during the
years ended March 31, 1998, 1997 and 1996 was $4.15, $3.42
and $3.32, respectively.
The following table summarizes information about stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Outstanding Average Weighted Exercisable Weighted
Range of as of Remaining Average as of Average
Exercise March 31, Contractual Exercise March 31, Exercise
Prices 1998 Life Price 1998 Price
<C> <C> <C> <C> <C> <C>
$1.00 - $2.59 80,323 1.5 $1.396 80,323 $1.396
2.60 - 6.49 2,722,827 6.4 4.667 1,467,984 4.780
6.50 - 9.78 22,175 5.8 8.379 12,175 7.229
--------- ---------
1.00 - 9.78 2,825,325 6.3 4.603 1,560,482 4.625
========= =========
</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).
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. The
warrants expired unexercised during fiscal year 1998.
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. 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. During fiscal year 1998,
the warrants were canceled. The consideration of $250,000 which was
paid by the Company for the cancellation of these warrants and the
warrant for 459,303 shares of the Company's common stock as noted
below was charged to stockholders' equity.
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. During fiscal year 1998,
the warrants were cancelled.
In March 1998, 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
$6.59 per share, which exceeded market value at date of grant. The
warrants were issued in connection with entering into a long-term
agreement with a customer.
All warrants which the Company agreed to issue in 1995 and 1998 have
been valued by an outside valuation firm using standard warrant
valuation models. The value of the warrants of $4,133,977 has been
recorded in the equity section and will be amortized over the
associated periods to be benefited by each group of warrants. For
1998, 1997 and 1996, expense associated with the warrants was
$620,616, $492,503 and $674,289, 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 year ended March 31, 1996 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.
March 31, 1996
Revenue from discontinued operations $ 61,047,768
Net loss from discontinued operations (18,984,378)
Net loss per share from discontinued (1.53)
operations
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:
Year Ending March
31,
1999 $ 1,893,844
2000 1,855,385
2001 1,806,948
2002 1,859,269
2003 1,914,460
2004 and 5,833,629
thereafter
-----------
$15,163,535
===========
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 $2,111,482,
$1,477,651 and $1,319,271 for the years ended March 31, 1998, 1997 and
1996, 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, 1998, the
Company has recorded approximately $1,200,000 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, 1998, the amount owed by BlowOut for these
purchases was approximately $.2 million.
The Company is the principal creditor of BlowOut. The Company has
agreed to guarantee up to $7 million of indebtedness of BlowOut
(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 14.525 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, 1998, BlowOut had borrowed
approximately $1.6 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 Referenced Rate plus 2.75
percent (11.25 percent as of March 31, 1998). 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. In February, 1998, the Company
entered into an agreement with BlowOut and CCC (the "Tri-Party
Agreement") under which BlowOut has agreed not to draw down in
excess of $4.0 million under this Line of Credit. As of March 31,
1998, BlowOut had borrowed approximately $3.2 million under the
Line of Credit.
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.
In fiscal year 1997, BlowOut executed a $3.0 million note in favor of
the Company which accrues interest at 9% per annum. As part of the Tri-
Party agreement the Company agreed to defer principal and interest
payments on this note by BlowOut until December 31, 2004 during which
deferment period no interest accrues. The Company also agreed to the
forgiveness of all or a portion of the $3.0 million note as BlowOut is
able to lower the Company's contingent obligations under its
guarantees. At March 31, 1998, the total outstanding balance of the
debt under such note, including accrued interest, was $2.8 million.
As discussed in Note 14, the Company believes it has provided adequate
reserves related to its BlowOut exposures.
10. CONTINGENCIES:
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.
In April 1998, the Company filed a complaint (the Complaint) against
Hollywood Entertainment, Inc. (Hollywood), entitled Rentrak
corporation v. Hollywood Entertainment et al., case No. 98-04-02811,
in the Circuit Court of the State of Oregon for the County of
Multnomah, Portland, Oregon. In the Complaint, the Company alleges
that Hollywood breached and is continuing to breach its contractual
obligation to acquire all of its leased videocassettes exclusively
from the Company. The Company also alleges that Hollywood breached
its contractual obligation to fully and accurately report all sales of
the Company's videocassettes and to pay the appropriate fees to the
Company in connection with such sales. The Company is seeking
monetary and injunctive relief for Hollywood's alleged violations of
the exclusivity obligation, and monetary relief for Hollywood's
alleged reporting and payment violations. As of the date hereof,
Hollywood has not filed an answer to the Complaint. Therefore,
although the Company expects Hollywood to assert one or more
counterclaims, the Company cannot presently described the nature of
any such counterclaims, assess their merit or determine whether they
may have a material adverse effect on the Company.
In June 1998, Video Update, Inc. (Video Update) filed a complaint (the
Complaint) against the Company entitled Video Update, Inc. v. Rentrak
Corp., Civil Action No. 98-286, in the United States District Court
for the District of Delaware. The Complaint alleges that the
Company's efforts to expand its presence in the videocassette
distribution business violate several federal antitrust statutes.
Specifically, Video Update alleges that the Company's negotiation and
execution of exclusive, long-term revenue-sharing agreements with
various video retailers constitutes predatory or anticompetitive
conduct that violates Section 2 of the Sherman Act. Video Update
further alleges that the same conduct, together with the Company's
negotiation and execution of an exclusive, long-term revenue-sharing
agreement with Video Update, violates Section 1 of the Sherman Act and
Section 3 of the Clayton Act. Video Update is seeking unspecified
monetary relief, including treble damages and attorneys' fees, and
equitable relief, including an injunction prohibiting the Company from
enforcing its agreement with Video Update or any exclusivity provision
against videocassette suppliers and video retailers. The Company
intends to vigorously defend against the allegations in the Complaint,
which the Company currently believes are without merit.
The Company is also 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 year in which the Company accounted for the
investment on the equity method, after translation to U.S. currency,
is as follows:
March 31,
1996
Net sales $115,912,094
Cost of sales 77,291,283
Net income 2,920,047
Prior to August 1996, the Company accounted for its investment in
Rentrak Japan on the equity method. However, no income was recognized
by the Company during 1996 and 1997 as the Company's share of Rentrak
Japan's income did not exceed the Company's share of cumulative
losses.
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, 1998, 1997 and 1996 were $68,120, $57,743 and $40,436,
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 151,275 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 5,351 shares for aggregate
proceeds of $20,993, 8,685 shares for aggregate proceeds of $36,520,
and 5,059 shares for aggregate proceeds of $28,781 in 1998, 1997 and
1996, respectively.
13. BUSINESS SEGMENTS, SIGNIFICANT SUPPLIERS AND MAJOR CUSTOMER:
<TABLE>
<CAPTION>
Business Segments - Continuing Operations
1998 1997 1996
<S> <C> <C> <C>
Net sales (1):
PPT $113,748,857 $106,038,728 $108,279,012
Other 10,611,861 10,536,922 5,396,884
------------ ------------ ------------
$124,360,718 $116,575,650 $113,675,896
============ ============ ============
Income (loss) from operations:
PPT $ 4,850,227 $ 3,573,932 $ (2,574,745)
Other 2,354,890 5,660,168 (186,387)
------------ ------------ ------------
$ 7,205,117 $ 9,234,100 $ (2,761,132)
============ ============ ============
Identifiable assets (1):
PPT $ 49,879,817 $ 42,163,519 $ 77,784,888
Other 3,540,549 3,067,669 2,380,608
------------ ------------ ------------
$ 53,420,366 $ 45,231,188 $ 80,165,496
============ ============ ============
Depreciation and amortization:
PPT $ 504,586 $ 909,159 $ 2,326,861
Other 162,504 165,959 208,421
------------ ------------ ------------
$ 667,090 $ 1,075,118 $ 2,535,282
============ ============ ============
Capital Expenditures:
PPT $ 284,401 $ 1,212,122 $ 640,821
Other 223,997 242,269 11,679
------------ ------------ ------------
$ 508,398 $ 1,454,391 $ 652,500
============ ============ ============
Business Segments - Discontinued Operations
1998 1997 1996
Net sales:
Sports apparel $ - $ - $ 39,131,760
Retail video - - 17,466,804
------------ ------------ ------------
$ - $ - $ 56,598,564
============ ============ ============
Income (loss) from discontinued
operations:
Sports apparel $ - $ - $ (4,576,815)
Retail video - - (6,568,656)
------------ ------------ ------------
$ - $ - $(11,145,471)
============ ============ ============
Depreciation:
Sports apparel $ - $ - $ 968,180
Retail Video - - 3,051,476
------------ ------------ ------------
$ - $ - $ 4,019,656
============ ============ ============
Amortization:
Sports apparel $ - $ - $ 10,195,094
Retail video - - 504,500
------------ ------------ ------------
$ - $ - $ 10,699,594
============ ============ ============
Capital Expenditures, net of
acquisitions:
Sports apparel $ - $ - $ 1,774,507
Retail video - - 7,716,315
------------ ------------ ------------
$ - $ - $ 9,490,822
============ ============ ============
(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.
</TABLE>
The Company has one program supplier that supplied product that
generated 48%, a second that generated 17%, and a third that generated
15% of the Company's revenues for the year ended March 31, 1998. 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. There were no
other program suppliers who provided product accounting for more than
10% of sales for the years ended March 31, 1998, 1997 and 1996.
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 11%, 13% and 10% of the Company's revenues
in 1998, 1997 and 1996, 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 $1.9 million and $12.7
million (including a write-off of intangible assets of $9.3 million
(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 $6.7 million 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 $3.4 million 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, 1998 and 1997 of
approximately $0 and $.2 million represent accrued liabilities
remaining to be paid.
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 statements
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 $4.0 million and $6.0 million
for the period ended November 26, 1996 and for the year ended
March 31, 1996, respectively. These amounts are included in loss from
discontinued 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 $.6 million associated with the disposition. A
deferred tax asset related to these costs of approximately $1.2
million 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.
During the year ended March 31, 1997, the Company provided for
additional losses related to the spinoff of BlowOut, net of tax
benefit of $.7 million, in the amount of approximately $7.5 million.
A deferred tax asset related to these costs of approximately $3.2
million was also recorded with a valuation allowance reserve against
the entire asset. The additional losses relate to contingencies which
are not settled. 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 $4.0 million, the Company recorded a gain of
approximately $7.5 million. 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.
Net current liabilities of discontinued operations at March 31, 1998
include approximately $4.6 million relating to BlowOut for amounts
reserved for contingencies not yet settled as of March 31, 1998. A
deferred tax asset related to these costs of approximately $1.7
million was also recorded with a valuation allowance reserve against
the entire asset.
Revenues from such operations for the periods ended March 31, were as
follows:
1997 1996
Pro Image $24,071,011 $39,131,760
BlowOut 20,451,070 17,466,804
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 discontinued operations. 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 from the amounts assumed in arriving at the loss on
disposal of the discontinued operations.
<TABLE>
<CAPTION>
Rentrak Corporation
Valuation and Qualifying Accounts
Schedule II
Balance at Charged to Charged Balance
Beginning Cost and to Other Recoveries at End of
Year ended: of Period Expenses Accounts (Deductions) Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
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
March 31, 1998 409,313 (4,655,356) - 4,832,684 586,641
Advances to program
suppliers reserve
March 31, 1996 572,300 1,345,406 - - 1,917,706
March 31, 1997 1,917,706 (149,192) - - 1,768,514
March 31, 1998 1,768,514 110,581 (696,338)3 - 1,182,757
Inventory reserve
March 31, 1996 336,046 - (336,046)1 - 0
March 31, 1997 0 - - - 0
March 31, 1998 0 - - - 0
Other Current Assets -
Retailer Financing
Program reserve
March 31, 1996 267,938 846,582 - - 1,114,520
March 31, 1997 1,114,520 - (1,114,520)2 - 0
March 31, 1998 0 - - - 0
Other Assets -
Retailer Financing
Program reserve
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
March 31, 1998 10,340,375 - (467,930)3 (518,450) 9,353,995
1 - Transfered from (to) discontinued operations.
2 - Reclassified from Other Current Assets to Other Assets.
3 - Eliminated against 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 1998 Annual Meeting of
Shareholders to be 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 1998 Annual Meeting of
Shareholders to be 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 1998 Annual Meeting of
Shareholders to be 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 1998 Annual Meeting of
Shareholders to be 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,
1998
and 1997
Consolidated Statements of Operations for
Years
Ended March 31, 1998, 1997 and
1996
Consolidated Statements of Stockholders'
Equity
for Years Ended March 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for
Years Ended March 31, 1998, 1997, and 1996
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 1998, 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 25, 1998
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 25, 1998
Ron Berger, President/CEO
Principal Financial Officer:
By /S/ F. Kim Cox June 25, 1998
F. Kim Cox, Executive Vice President/
Chief Financial Officer
Principal Accounting Officer:
By /S/ Carolyn Pihl June 25, 1998
Carolyn A. Pihl,
Chief Accounting Officer
Majority of Board of Directors:
By /S/ Pradeep Batra June 25, 1998
Pradeep Batra, Director
By /S/ Skipper Baumgarten June 25, 1998
Skipper Baumgarten, Director
By /S/ Ron Berger June 25, 1998
Ron Berger, Chairman
By /S/ Peter Dal Bianco June 25, 1998
Peter Dal Bianco, Director
By /S/ Herbert M. Fischer June 25, 1998
Herbert M. Fischer, Director
By /S/ James P. Jimirro June 25, 1998
James P. Jimirro, Director
By /S/ Bill LeVine June 25, 1998
Bill LeVine, Director
By /S/ Muneaki Masuda June 25, 1998
Muneaki Masuda, Director
By /S/ Stephen Roberts June 25, 1998
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 (6)
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 (8)
10.4* Stock Option Agreement with Ron Berger,
dated April 18, 1990 (2)
10.5* Stock Option Agreement with Ron Berger, 59
dated April 18, 1995
10.6* Employment Agreement with Amir Yazdani 67
dated December 20, 1995.
10.7* Amended and Restated Employment
Agreement with Ron Berger dated
November 27, 1995 (16)
10.8* Employment Agreement with F. Kim Cox
dated April 20, 1995 (10)
10.9* Employment Agreement with Ed Barnick
dated January 1, 1996 (24)
10.10* Rentrak Corporation Amended and
Restated Directors Stock Option Plan
(3)
10.11* Rentrak's 401-K Plan (4)
10.13* Amended and Restated 1992 Employee
Stock Purchase Plan of Rentrak
Corporation (9)
10.17 Joint Development Agreement with CCC
dated August 6, 1993 (5)
10.18 Business Loan Agreement with Silicon
Valley Bank dated October 12, 1993 (7)
10.19 Business Loan Modification Agreement
with Silicon Valley Bank dated June 6,
1994 (7)
10.21 Second Amendment to Business
Cooperation Agreement between Rentrak
Corporation, Culture Convenience Club
Co., Ltd., and Rentrak Japan dated June
16, 1994 (7)
10.23 Business Loan Modification Agreement
with Silicon Valley Bank dated May 17,
1996 (11)
10.25* Employment Agreement with Carolyn Pihl
dated May 6, 1996 (25)
10.26 Guarantee Agreement dated as of June
26, 1996 between Rentrak Corporation
and BlowOut Entertainment, Inc. (13)
10.27 Reorganization and Distribution
Agreement between Rentrak Corporation
and BlowOut Entertainment, Inc., dated
as of November 11, 1996 (12)
10.28 Asset Purchase Agreement by and among
Pro Image Inc., PI Acquisition, L.C.
and Rentrak Corporation dated December
6, 1996 (14)
10.29 Business Loan Modification Agreement
with Silicon Valley Bank dated December
27, 1996 (26)
10.30 Business Loan Modification Agreement 79
with Silicon Valley Bank dated December
29, 1997
10.31* The 1997 Non-Officer Employee Stock
Option Plan of Rentrak Corporation (15)
10.32* Employment Agreement of Marty Graham
dated May 17, 1997 (17)
10.33* Employment Agreement of Michael
Lightbourne dated July 10, 1997 (18)
10.34* Employment Agreement of Christopher
Roberts dated October 27, 1997 (19)
10.35* Employment Agreement of Ron Berger 85
dated April 21, 1998
10.36* The 1997 Equity Participation Plan of
Rentrak Corporation (20)
10.37* The Amendment to the 1997 Non-Officer
Employee Stock Option Plan of Rentrak
Corporation (21)
10.38* Rentrak Corporation Non-Qualified Stock
Option Agreement (22)
10.39* Rentrak Corporation Incentive Stock
Option Agreement (23)
10.40 Amendment to the 1997 Equity 99
Participation Plan of Rentrak
Corporation.
10.41 Amendment Number 1 to the 1995 Restated 101
Bylaws of Rentrak Corporation.
21 List of Subsidiaries of Registrant 102
23 Consent of Arthur Andersen 103
27 Financial Data Schedule N/A
* Management Contract
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 B to 1994 Proxy Statement dated July 11,
1994.
4 Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993.
5 Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993.
6 Filed as Exhibit to Form 8-K filed on June 5, 1995.
7 Filed as Exhibit to 1994 Form 10-K filed on June 29, 1994.
8 Filed as Exhibit A to 1994 Proxy Statement dated July 11,
1994.
9 Filed as Exhibit 10.13 to Form 10-K filed on June 29, 1995.
10 Filed as Exhibit 10.8 to Form 10-K filed on July 1, 1996.
11 Filed as Exhibit 10.23 to Form 10-K filed on July 1, 1996.
12 Filed as Exhibit 1 to Form 8-K filed on December 9, 1996.
13 Filed as Exhibit 2 to Form 8-K filed on December 9, 1996.
14 Filed as Exhibit 1 to Form 8-K filed on December 31, 1996.
15 Filed as Exhibit 4.1 to Form S-8 filed on June 5, 1997.
16 Filed as Exhibit 10 to Form 10-Q filed on November 14, 1995.
17 Filed as Exhibit 10.1 to Form 10-Q filed on November 3, 1997.
18 Filed as Exhibit 10.2 to Form 10-Q filed on November 3, 1997.
19 Filed as Exhibit 10.3 to Form 10-Q filed on November 3, 1997.
10 Incorporated by reference to the Company's Proxy Statement
dated June 25, 1997 for the Company's 1997 Annual Meeting of
Shareholders.
21 Filed as Exhibit 4.1 to Form S-8 filed on October 29, 1997.
22 Filed as Exhibit 10.6 to Form 10-Q filed on November 3, 1997.
23 Filed as Exhibit 10.1 to Form 10-Q filed on February 9, 1998.
24 Filed as Exhibit 10.9 to Form 10-K filed on June 19, 1997.
25 Filed as Exhibit 10.25 to Form 10-K filed on June 19, 1997.
26 Filed as Exhibit 10.29 to Form 10-K filed on June 19, 1997.
RENTRAK CORPORATION
1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN
INCENTIVE STOCK OPTION
AND
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option is granted, and this
Incentive Stock Option Agreement (the "Agreement") is executed to
be effective as of April 18, 1995, by Rentrak Corporation, an
Oregon corporation (the "Company"), and Ron Berger (the
"Optionee).
RECITALS
A. The Company's Board of Directors has duly adopted, and
the Company's shareholders have approved, that certain 1986
Second Amended and Restated Stock Option Plan (the "Plan"), a
copy of which is available for review in the Company's
administrative offices.
B. The Plan authorizes the Company's Board of Directors or
an Administrative Committee thereof (the "Stock Option
Committee") to grant Incentive Stock Options to officers and
employees of the Company and any of the Company's Affiliates (as
such term is defined in the Plan).
C. On or about April 8, 1994, the Stock Option Committee,
upon due consideration and as further inducement to the Optionee
to enter into an Employment Agreement with the Company, dated
June 1, 1994 (the "Employment Agreement"), designated the
Optionee to receive an Incentive Stock Option under the Plan
covering a total of 70,949 shares of the Common Stock of the
Company and a Nonstatutory Stock Option covering a total of
929,051 shares of said Common Stock (hereinafter the "April 8th
Options"), the exercisability of which were made subject to the
Company's achievement of certain performance objectives
established by the Stock Option Committee. The April 8th Options
were granted subject to obtaining shareholder approval, which
approval was obtained on December 12, 1994.
D. Subsequent to the issuance of the April 8th Options the
Stock Option Committee and the Optionee first learned that keying
the exercisability of the April 8th Options to the satisfaction
of future performance objectives subjected the Company to the
risk that it would have to book substantial charges against its
future income if the value of the Company's stock increased
significantly during the term of said options.
E. In order to avoid the adverse financial statement
impact to the Company from the use of performance objectives, the
Optionee has agreed to cancel the April 8th Options in
consideration of the grant by the Stock Option Committee of this
replacement Incentive Stock Option and a Nonstatutory Option of
even date herewith covering a total of 1,000,000 shares, both
bearing an exercise price equal to the fair market value of the
Company's Common Stock as of the effective date of the grant of
this Option, (the December 20th Options).
F. Subsequent to the issuance of the December 20th
Options, the Stock Option Committee and Optionee agreed to cancel
the December 20th Options in consideration of the grant by the
Stock Option Committee of this replacement Incentive Stock Option
and Non-Statutory Option of even date herewith covering a total
of 1,000,000 shares both bearing an exercise price equal the fair
market value of the Company's Common Stock as of the effective
date of this Option.
NOW, THEREFORE THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:
I. Number of Shares Subject to Option and Option Price.
The Company hereby grants to the Optionee an Incentive Stock
Option (the "Option") to purchase from the Company 70,949 shares
of the Common Stock of the Company at an option price of $5.25
per share. The Option is exercisable upon the terms and
conditions contained herein. For the reasons stated in the
Recitals hereto, Optionee agrees that the December 20th options
are hereby cancelled and that the Option granted hereby shall
replace the December 20th Option.
2. Additional Terms of the Option. Subject to the
provisions of Paragraph 3 below, the Option shall have the
following terms:
2.1 The effective date of the grant of the Option
is April 18, 1995.
2.2 The Option shall vest on the dates set forth below
("Vesting Dates") as to the number of shares set forth below.
Percentage Annual Cumulative
Date Vested Shares Vested Shares Vested
March 31, 1995 20% 14,190 14,190
March 31, 1996 20% 14,190 28,380
March 31, 1997 20% 14,190 42,570
March 31, 1998 20% 14,190 56,760
March 31, 1999 20% 14,189 70,949
2.3 Notwithstanding anything to the contrary in
paragraph 2.2 above, in the event the employment of the Optionee
is terminated by the Company pursuant to Section 5.4 of the
Employment Agreement, this Option shall immediately vest as to
any Option shares that have not previously vested in accordance
with paragraph 2.2 above ("Unvested Shares").
2.4 The Option shall expire on the earlier of April 7,
2004, or the applicable date specified below (the "Expiration
Date").
a) Six (6) months following the effective date of the
termination of the Optionee's employment by the Company on
account of the Optionee's disability (within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code");
b) One (1) year following the termination of the
Optionee's employment by the Company on account of the
Optionee's death;
c) Thirty (30) days following the effective date of
the termination of the Optionee's employment by the Company
for any reason other than disability (as defined in
paragraph (a) above) or death;
d) The date of any sale, transfer or hypothecation, or
any attempted sale, transfer or hypothecation in violation
of Section 8 of the Plan which provides that an Option
shall not be transferable or exercisable by any person
other than the Optionee, except as provided in paragraphs
(d)(1), (d)(2), and (d)(3), below:
1) In the event of the death of the
Optionee, any Options held by the Optionee shall pass to
the person or persons entitled thereto pursuant to the Will
of the Optionee or the applicable laws of descent and
distribution (a "Qualified Successor"). Any right under
the Option which the Optionee could have exercised
immediately prior to the date of his death shall, subject
to the terms of this paragraph 2.4 and paragraphs 2.6 and
2.7 below, be exercisable by his Qualified Successor for a
period of one (1) year following his death.
2) In the event of the death of the Optionee
following termination of his employment on account of
disability, but prior to the expiration of the six (6)
month period specified in paragraph 2.4 (a) above, this
Option shall pass to and be exercisable by the Qualified
Successor of the Optionee in the manner specified above for
a period of one (1) year following the original termination
of his employment.
3) In the event a guardian or conservator (a
"Guardian") is appointed for the Optionee as the result of
the termination of the Optionee's employment by the Company
on account of Optionee's disability (as defined above) any
Option held by the Optionee, which could have been
exercised immediately prior to such termination of the
employment, shall, subject to this paragraph 2.4 and
paragraphs 2.6 and 2.7 below, be exercisable by the
Guardian of the Optionee for a period of six (6) months
following such termination of employment.
4) Options held by a Qualified Successor or
a Guardian shall continue to vest to the extent provided in
paragraph 2.7 herein.
5) In the event that two or more persons
constitute the Qualified Successor or the Guardian of the
Optionee, all rights of the Qualified Successor or Guardian
shall be exercisable, if at all, by the unanimous agreement
of these persons.
2.5 To the extent vested, the Option may be exercised
in whole or in part at any time and from time to time prior to
the Expiration Date.
2.6 The Option must be exercised, if at all, as to a
whole number of shares. In addition, the Option may be exercised
for not less than ten (10) shares at any time, unless the total
number of shares purchasable under the Option at that time is
less than ten (10), in which case the Option may be exercised for
that lesser number of shares.
2.7 If, because of death or disability, the Optionee
is no longer employed as an officer or employee of the Company,
this Option shall continue to vest in accordance with the
schedule set forth in paragraph 2.2 above during the period prior
to termination of the Option as provided herein. If the Optionee
no longer is employed as an officer or employee of the Company
for any reason other than death, disability or a termination
pursuant to Section 5.4 of the Employment Agreement, the vesting
of the Option shall cease and the Option granted hereunder shall
be limited to those shares which were immediately exercisable by
the Optionee as of the effective date of such termination.
3. Adjustments to and/or Cancellations of the Option.
3.1 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 Stock Option Committee
shall make such adjustments to the Plan and to the Options then
outstanding under the Plan as the Stock Option 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 Section, 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 Stock Option
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
Terminating Event subject to paragraph 3.2 below.
3.2 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 or m ore 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
Section 3.1 above (any of such events is herein referred to as a
"Terminating Event"), the Stock Option Committee shall determine
whether a provision will be made in connection with the
Terminating Event for an appropriate assumption of this Option or
for substitution of appropriate new options covering stock of a
successor corporation employing the Optionee or stock of an
affiliate of such successor employer corporation. If the Stock
Option Committee determines that such an appropriate assumption
or substitution will be made, the Stock Option Committee shall
give notice of the determination to the Optionee 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, which determination
shall be binding upon the Optionee. If the Stock Option
Committee determines that no assumption or substitution will be
made, the Stock Option Committee shall give notice of this
determination to the Optionee, whereupon the Optionee 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, without regarding to any vesting
provision to which the Option may have otherwise been subject
pursuant to paragraph 2.2 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.
4. Exercise of the Option. The Option shall be exercised,
if at all, by (a) delivering to the Company a written notice in
the form of the document attached as Exhibit A specifying the
number of shares of Common Stock for which exercise is made, (b)
tendering full payment of the option price, as required by
Section 7 of the Plan, for the shares for which exercise is made,
and (c) tendering to the Company full payment of any amounts the
Company determines must be withheld for tax purposes from the
Optionee as a result of the exercise of the Option and the
issuance of the shares.
5. Transferability of the Option. Except as provided in
paragraph 2.4 above and Section 8 of the Plan, the Option shall
not be transferable or exercisable by any person other than the
Optionee.
6. Warranties, Representations and Acknowledgements of the
Optionee. By executing this Agreement, the Optionee accepts the
Option and agrees to be bound by all of the terms of this
Agreement and the Plan. In addition, the Optionee acknowledges
that exercise of the Option and the sale of the shares of Common
Stock acquired upon exercise thereof may have tax implications
for which the Optionee should seek individual advice by his or
her own tax counselor or advisor.
7. Indemnification by the Optionee. The Optionee agrees
that, in the event of a claim against the Company resulting from
a breach by the Optionee of the representations, warranties or
provisions contained in this Agreement, the Optionee will
indemnify and hold the Company harmless from any loss or damage,
including attorney's fees or other legal expenses, incurred in
the defense or payment of any such claim against the Company.
8. No Right to Continued Relationship. Nothing herein
shall confer upon the Optionee the right to continue as an
officer or employee of the Company, nor affect any right which
the Company may have to terminate its relationship (whether or
not for cause) with the Optionee.
9. Rights as Shareholder. The Optionee shall have no
rights as a shareholder of the Company, including, without
limitation, any rights to dividends or other rights for which the
record date is prior to the date the certificate representing the
shares acquired upon exercise of the Option is issued, on account
of the Option or on account of shares of Common Stock of the
Company which will be acquired upon exercise of the Option (but
with respect to which no certificates have been delivered to the
Optionee).
10. Further Assurances. The Optionee agrees from time to
time to execute such additional documents as the Company may
reasonably require in order to effect the purposes of the Plan
and this Agreement.
11. Binding Effect. This Agreement shall be binding upon
the Optionee and the optionee's heirs, successors and assigns,
including, without limitation, the Qualified Successor or
Guardian of the Optionee (as those terms are defined in paragraph
2.4(d) above).
12. Waivers/Modifications. No waivers, alterations or
modifications of this Agreement shall be valid unless in writing
and duly executed by the party against whom enforcement of such
waiver, alteration or modification is sought. The failure of any
party to enforce any of its rights against the other party for
breach of any of the terms of this Agreement shall not be
construed a waiver of such rights as to any continued or
subsequent breach.
13. Modification and Termination. The rights of the
Optionee hereunder are subject to modification and termination in
certain events as provided in the Plan.
14. Restriction on Sale of Shares. Optionee represents and
agrees that upon his exercise of the Option, in whole or in part,
unless there is in effect at the time under the Securities Act of
1933, as amended, a registration statement relating to the shares
acquired, such shares will be acquired for his own account, for
investment purposes only and not with a view toward the
distribution or public offering thereof nor with any present
intention of reselling or distributing the shares at any
particular future time, and that upon exercise thereof he will
furnish to the Company a written statement to such effect,
satisfactory to the Company in form and substance. Optionee
agrees that any certificates issued upon exercise of this Option
may bear a legend indicating that their transferability is
restricted in accordance with applicable state or federal
securities law. Any person or persons entitled to the Option
under circumstances in which Optionee would be required to
furnish such a written statement shall furnish to the Company a
written statement to the same effect, satisfactory to the Company
in form and substance.
15. Plan Governs. This Agreement and the Option evidenced
hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and
provisions of that Plan, as it may be amended from time to time
and construed by the Committee.
16. Notices. All notices to the Company shall be addressed
to the members of the Stock Option Committee with a copy to the
Secretary of the Company at the principal office of the Company
at 7227 N.E. 55th Avenue, Portland, Oregon 97218, and all notices
to Optionee shall be addressed to Optionee at the address of
Optionee on file with the Company or its Affiliates, or to such
other address as either may designate to the other in writing. A
notice shall be deemed to be duly given upon the earlier of
receipt by the addressee or three days following deposit of such
notice in a properly addressed sealed envelope, postage prepaid,
with the United States Postal Service. In lieu of giving notice
by mail as provided above, written notice under this Agreement
may be given by personal delivery to Optionee or to the Chairman
of the Board of Directors of the Company (as the case may be).
17. Sale or Other Disposition. Optionee hereby agrees that
if Optionee disposes (whether by sale, exchange, gift or
otherwise) of any of the shares acquired by exercise of this
Option within two years of the grant date or within one year
after the transfer of such shares to Optionee upon exercise of
this Option, then Optionee shall notify the Company of such
disposition in writing within thirty (30) days from the date of
such disposition. Said written notice shall state the date of
such disposition, and the type and amount of the consideration
received for such share or shares by Optionee in connection
therewith. In the event of any such disposition, the Company
shall have the right to require Optionee to immediately pay the
Company the amount of taxes (if any) which the Company is
required to withhold under federal and/or state law in order to
obtain the benefit of any deduction that would otherwise be
available as a result of the granting or exercise of the subject
Option or the disposition of the subject shares.
18. Governing Law. This Agreement shall be governed by the
laws of the State of Oregon.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
RENTRAK CORPORATION
By
Bill LeVine
Member, Stock Option Committee
By
James Jimirro
Member, Stock Option Committee
OPTIONEE:
By
Ron Berger
EXHIBIT A
NOTICE OF EXERCISE OF INCENTIVE OPTION
To: RENTRAK CORPORATION
7227 N.E. 55th Avenue
Post Office Box 18888
Portland, Oregon 97218
The undersigned exercises the option to purchase
_____________ shares of common stock of Rentrak Corporation (the
"Company") granted to the undersigned pursuant to the terms of
the Company's 1986 Second Amended and Restated Stock Option Plan
(the "Plan") and the Incentive Stock Option and Incentive Stock
Option Agreement effective as of April 18, 1995.
Accompanying this notice is: [select one] (1) ____ cash,
certified check or cashier's check in the amount of $_________,
or (2) a certificate representing ____ shares of Common Stock of
the Company valued at $____________ per share (the fair market
price of those shares on the day preceding the date hereof)
representing the option price of $____________ per share plus the
amount the Company has determined must be withheld for tax
purposes; or (3) ____________ I hereby request to exercise this
option through a cashless transaction and have provided the name
and address of my broker below. I understand that if I elect to
pursue a cashless transaction, Rentrak Corporation will request
and authorize the stock transfer company to issue the
certificate(s) in the name of my broker to facilitate completion
of the transaction.
Date:
BROKER OPTIONEE
Address: Address:
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 ____ day of ______________, 1995 by and between
RENTRAK CORPORATION, an Oregon corporation (hereinafter referred
to as "Employer"), and AMIR YAZDANI (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, MIS 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 June 9, 1995, as amended by the
First Addendum to Employment Agreement, dated June 9, 1995,
(collectively, 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:
EMPLOYMENT
Position and Title. Employer shall employ and engage
the services of Employee, in the position of Vice President, MIS
for the Term of this Agreement as defined in Section 2, pursuant
to the terms and conditions set forth in this Agreement.
Duties and Place of Employment.
(a) Employee shall be responsible for, and perform
duties associated with his position as Vice President, MIS 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 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 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.
TERM and TERMINATION
Stated Term. Employment commenced on June 9, 1995 and
shall end on June 8, 1998 (the "End Date") or until Employee's
employment under this Agreement is terminated pursuant to this
Section 2 ("Term").
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.
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.
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 Oregon State law
regarding parental or family leave policies or any other
applicable law.
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 o assume and agree to perform this
Agreement, as contemplated in Section 7.04.
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.
COMPENSATION
Base Salary. Commencing July 1, 1995, through June 30,
1996, Employee shall be paid an annual base salary in the amount
of one hundred twenty-five thousand dollars ($125,000.00);
commencing July 1, 1996, through June 30, 1997, Employee shall be
paid an annual base salary in the amount of one hundred forty-
five thousand dollars ($145,000.00); commencing July 1, 1997,
Employee shall be paid an annual base salary in the amount of one
hundred seventy thousand dollars ($170,000) (such annual salary
as adjusted over the term of this Agreement, 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 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.
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. Employee
acknowledges the receipt of a bonus in the amount of twenty-five
thousand dollars ($25,000.00) upon execution of the Employment
Agreement. Employee also acknowledges that the bonus paid
pursuant to this Section constituted income to Employee subject
to Employee's portion of Employer withholding taxes which was
deducted from the proceeds of the bonus.
Stock options. No stock options shall be granted upon
the commencement of the Term of this Agreement, however, nothing
herein shall preclude the Employer from granting Employee stock
options at any time under this Agreement, whether as a bonus or
otherwise. Employee shall be entitled to an annual review during
the Term of this Agreement regarding the potential grant of stock
options pursuant to this subsection.
3.04 Benfits.
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 four (4) weeks of paid vacation during each
year of employment; and (ii) will be eligible to receive pay for
Employer-paid holidays.
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[, except that the ninety
day waiting period for such insurance benefits shall be waived].
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.
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.
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.
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.
PAYMENTS UPON TERMINATION OF EMPLOYMENT
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.
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.
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.
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.
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.
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.
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.
Stock Options. In the event of a termination of
Employee's employment, all stock options granted by Employer
pursuant to 3.03, if any, 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.
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.
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.
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:Amir Yazdani
8290 S.W. 160th Ave.
Aloha, Oregon 97007
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.
MISCELLANEOUS PROVISIONS.
Attorneys' Fees; Disputes Concerning Termination.
(a) Subject to Section 7.01(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.
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.
Integration. Employee has executed an Employee
Confidentiality and Noncompetition Agreement (a copy of which is
attached hereto as Exhibit A) which remains in effect and is
incorporated into the terms and conditions of employment under
this Agreement. In addition, any stock options granted to
Employee by Employer pursuant to Section 3.03 hereof shall also
be incorporated into the terms and conditions of employment under
this Agreement upon the execution of the stock option agreement
evidencing such options. 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.
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.
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.
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.
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.
Execution. Each of the parties hereto shall execute,
acknowledge and deliver any instrument necessary to carry out the
provisions of this Agreement.
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:
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.
Amir Yazdani
Exhibit 10.30
LOAN MODIFICATION AGREEMENT
AMONG: Rentrak Corporation ("Borrower"), whose address is One
Airport Center, 7227 N.E. 55th Avenue, Portland, Oregon
97218;
AND: Silicon Valley Bank ("Silicon") whose address is
3003 Tasman Drive, Santa Clara, California 95054;
DATE: December _____, 1997.
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 90
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."
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:
Title:
Silicon:
SILICON VALLEY BANK
By:
Title:
AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: Rentrak Corporation
Address: 7227 N.E. 55th Avenue
Portland, OR 97218
Date: December _____, 1997
Secured Operating Line of Credit
Credit Limit: An amount not to exceed the lesser of: (i)
$12,500,000.00 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
Moovies (Tonight's Feature 0 to 90 days
Super Movie Exchange 0 to 90 days
Bradley Video 0 to 90 days
1 Hr Photo & Video 0 to 105 days
Sulpizio One 0 to 120 days
Hollywood Entertainment 0 to 120 days
Interest Rate: 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,
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: $15,625, which is fully earned and
payable at closing and which is non-refundable.
Borrower shall pay a second commitment fee in the
amount of $15,625 for the second year of this
facility on or before that date which is one year
from the date of execution of this Amended and
Restated Schedule to Loan and Security Agreement.
Unused
Commitment Fee:Borrower shall pay an Unused Commitment Fee on the
unused portion of the Secured Operating Line of
Credit equivalent to one-eighth of one percent
(0.125%) of the unused amount. This amount shall
be measured quarterly, and the fee shall be due
and payable each quarter in arrears.
Maturity Date: December 18, 1999, at which time all unpaid
principal and accrued but unpaid interest shall be
due and payable.
Prior Names of
Borrower: National Video, Inc.
Trade Names of
Borrower: See attached Exhibit C
Trademarks of
Borrower: See attached Exhibit C
Other Locations
and Addresses: Rentrak Corporation
3512 State Route 735
Wilmington, Ohio 45177
Material Adverse
Litigation: None.
Financial
Covenants: 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
0.60:1.00, increasing to not less than 0.75:1.00
following the dissolution of the remaining reserve
for discontinued operations.
Tangible Net
Worth: Borrower shall at all times maintain a
Tangible Net Worth (defined below) of not less
than $10,500,000 for the quarter ending
December 31, 1997, and not less than $10,500,000
plus 50% of Borrower's cumulative quarterly net
income, beginning with the quarter ending
March 31, 1998, and continuing for each quarter
thereafter. 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,
decreasing to not more than 2.00:1.00 following
the dissolution of the remaining reserve for
discontinued operations. 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
$350,000 for any fiscal quarter, and shall not
incur any loss in two consecutive quarters.
Borrower shall not incur a loss, in the aggregate,
for any fiscal year. 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:
Borrower shall at all times comply with all of the
following additional covenants:
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 the
Loan Modification Agreement, this Amended and
Restated Schedule to Loan and Security Agreement,
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 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:
Title:
Silicon:
SILICON VALLEY BANK
By:
Title:
Exhibit 10.35
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into as of this ______ day of
______________, 1998 by and between RENTRAK CORPORATION, an
Oregon corporation ("Employer"), and RON BERGER ("Employee").
WHEREAS, Employer currently employs Employee in the
capacity of Chairman of the Board of Directors ("Chairman"),
President and Chief Executive Officer and Employee is one of the
key executives of the Employer;
WHEREAS, Employer and Employee have entered into an
Amended and Restated Employment Agreement dated as of September
11, 1995 (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 promises and
mutual covenants herein contained, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. EMPLOYMENT.
1.1. Position and Title.
Employer hereby employs and engages the services of Employee
for the position of Chairman of the Board of Directors, Chief
Executive Officer and President of Employer, during the Term (as
the term is defined in Section 2 of this Agreement) of this
Agreement, on the terms and conditions hereinafter set forth.
Employee further agrees to accept election and to serve during
the Term of this Agreement in such positions and as an officer
and/or director of any subsidiary or affiliate of Employer,
without any additional compensation therefor, except as set forth
in this Agreement, when and if elected to any such position by
the shareholders of Employer or by the Board of Directors of
Employer, as the case may be. This employment shall be exclusive
to Employee except that with majority approval of the Board of
Directors of Employer and the written consent of Employee,
Employer may (i) elect a new Chairman provided that Employee
shall remain as the President and Chief Executive Officer of
Employer or (ii) elect a new President provided that Employee
shall remain as Chairman and Chief Executive Officer.
1.2. Duties and Place of Employment.
(a) Employee shall perform all duties customarily
performed by executives of publicly-held companies engaged in a
business similar to Employer's business and who are employed in
the same capacity as Employee pursuant to this Agreement.
Employee shall devote his full business time during normal
business hours to the business and affairs of Employer, use his
best efforts to promote the interests of Employer and, use his
best efforts to perform faithfully and efficiently
responsibilities assigned to Employee hereunder. To the extent
Employee has performed personal, civic or charitable activities
or served on corporate boards or committees not significantly
interfering with the performance of his responsibilities to
Employer prior to the date of this Agreement, the continued
conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the date of this
Agreement shall not be deemed to interfere with the performance
of Employee's responsibilities to the Company. It is expressly
agreed that Employee's continuing service on any boards or
committees with which he shall be connected, as a member or
otherwise, as of the date of this Agreement, or any such service
approved by Employer during the Term of this Agreement, shall,
not be deemed to interfere with the performance of Employee's
services to Employer pursuant to this paragraph (a). Employee
shall report directly and only to the Board of Directors or an
executive committee of the Board of Directors. Employee shall
perform his duties, at employer's principal executive offices
which are currently located at One Airport Center, 7700 N.E.
Ambassador Place, Portland, Oregon 97220, or such other location
as shall be mutually agreed upon by Employee and Employer.
Subject to the terms of this Agreement, Employee shall comply
promptly and faithfully with Employer's reasonable instructions,
directions, requests, rules and regulations. Employer shall not
be deemed to have waived the right to require Employee to perform
any duties hereunder by assigning Employee to any other duties or
services.
(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,
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 as 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 an 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.
2. TERM.
The term ("Term") of this Agreement shall commence on
April 1, 1998 and shall terminate on March 31, 2003, unless
sooner terminated pursuant to Section 5, provided that in the
event of a Change of Control, this Agreement shall terminate on
the later of March 31, 2003 or two years after such Change of
Control, unless sooner terminated pursuant to Section 5.
Notwithstanding the foregoing, if the parties hereto shall, after
such termination date, continue to perform this Agreement as
provided hereunder, the Term of this Agreement shall
automatically be extended until terminated by either party giving
one hundred twenty (120) days prior written notice to the other
at any time thereafter.
3. COMPENSATION.
As full compensation for all services to be performed
by Employee pursuant to this Agreement, Employer agrees to pay
Employee the compensation set forth in this Section 3, in
addition to such other benefits and compensation as are provided
elsewhere in this Agreement.
3.1. Base Salary.
(a) Employee shall be paid an annual base salary of
$400,000 through March 31, 1999 under this Agreement. The annual
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 month in which
this Agreement is executed. Should the seventh (7th) or the
twenty-second (22nd) day of any month not be a business day,
Employee's semimonthly installment of base salary otherwise due
on such date shall be paid to Employee on the immediately
preceding business day. Employee's initial base salary shall be
increased pursuant to Section 3.1(b) hereof and, any increase in
Employee's annual base salary shall in no way limit or reduce any
other obligation of Employer hereunder. Once established at an
increased specified rate, Employee's annual base salary hereunder
shall not thereafter be reduced.
(b) During the Term hereof, the base salary payable to
Employee pursuant to Section 3.1(a) hereof shall be increased on
each anniversary of the date of the commencement of the Term of
this Agreement by the greater of four percent (4%) or the change
in the Consumer Price Index for the preceding calendar year.
Section 3.l(a) of this Agreement shall thereupon be deemed to be
amended without further action by Employer or Employee.
(c) Nothing herein contained shall preclude the Board
of Directors of Employer from authorizing the payment of
additional compensation to Employee over and above the base
salary at any time payable to him 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 the base salary in any manner.
3.2. Annual Bonus.
In addition to the base salary, Employee shall be
awarded, for each of Employer's fiscal years during the Term of
this Agreement commencing with fiscal year ending March 31, 1998,
an annual bonus (the "Annual Bonus") as determined by this
Section 3.2. The Annual Bonus for each fiscal year shall equal
five percent (5%) of the amount by which "Employer's Pre-Tax
Profits" (as that term is defined in Annex A attached hereto)
exceeds the Employer's Pre-Tax Profits in the prior fiscal year
(the "Bonus Base"). All income below the Bonus Base shall not
qualify for or be used in determining the Annual Bonus. The
Annual Bonus shall be paid in cash to Employee on the earlier of
(a) the date Employer files its annual report on Form 10-K with
the Securities and Exchange Commission, or (b) the date that is
one hundred twenty (120) days after the end of Employer's fiscal
year.
3.3. Stock Option.
In connection with and as a further inducement to
Employee to enter into this Agreement, the Employer's Stock
Option Committee has awarded to Employee certain stock options,
copies of which are attached hereto as Exhibit A.
3.4. Additional Benefits.
3.4.1. 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, except that
Employer agrees that Employee and his spouse may travel first
class to business functions as Employee deems appropriate.
Except as specifically authorized by the Board, Employee's spouse
may travel first class for only one international trip each year.
During the Term of this Agreement, Employer shall furnish
Employee with an automobile to be used by Employee in the
performance of his duties hereunder and shall pay such expenses
and other amounts with respect thereto as are customarily paid
for senior executives in corporations substantially similar to
Employer. Such automobile shall be of a price and class similar
to that currently used by Employee.
3.4.2. Insurance.
During the Term of this Agreement, Employer shall
purchase, at no expense to Employee, a term life insurance policy
on the life of Employee in the amount of $10 million, payable to
Employer. Employer shall also reimburse Employee or the trust
established by Employee for premiums paid by Employee or the
trust for a term life insurance policy on the life of Employee in
the amount of $5 million, payable to Employee's designated
beneficiary or beneficiaries. Employer shall also continue in
force the disability insurance now in effect for Employee.
Employer shall further provide Employee during the Term of this
Agreement with group accident, medical, dental and hospital
insurance coverage in accordance with the policies and procedures
of Employer in effect from time to time and to the extent
permissible by law, Employer shall extend medical and health
insurance coverage to Employee's wife and child dependents.
Further, Employer shall use its best efforts to provide Employee
with Directors and Officers Liability Insurance appropriate to
the nature of his responsibilities hereunder, provided that
Employer is able to obtain such insurance coverage for all of its
directors and officers at reasonable expense, as determined by
the Board of Directors in its sole discretion. 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.
3.4.3. Vacation and Holidays.
Employee shall be entitled to four (4) weeks paid
vacation during each full year of employment. In addition to the
above vacation, Employee shall be entitled to the number of paid
holidays provided for under the current policies and procedures
of Employer in effect from time to time.
3.4.4. Benefits Generally Offered.
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 all employee
benefits which Employer may from time to time provide its key
officers.
4. RESTRICTIVE COVENANTS.
4.1. Non-Competition.
(a) 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 other entity which is a wholesale
distributor of home video cassettes or related media or is
otherwise engaged in a business that is substantially similar to
and/or competes with the business then engaged in by Employer (a
"Competitive Entity"), in any geographical area where Employer
engages in such business. 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.
(b) While the Employer and Employee acknowledge that
the restrictions contained in this Section 4.1 are reasonable, in
the unlikely event that any court should determine that any of
the restrictive covenants contained in Section 4.1(a), or any
part thereof, is unenforceable because of the duration of such
provision or the area covered thereby, such court shall have the
power to reduce the duration or area of such provision and, in
its reduced form, such provision shall then be enforceable and
shall be enforced.
4.2. Delivery of Records.
Upon termination of Employee's employment with
Employer, Employee shall deliver to Employer all books, records,
lists, brochures and all other property belonging to Employer or
developed by Employee in connection with the business of
Employer.
4.3. 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 which is treated as confidential and secret by
Employer and which relates to Employer's business (the
"Confidential Information"), including, but not limited to, 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 Information which he has acquired or which he will
acquire during his employment; provided, however, that this
restriction shall not apply to any knowledge, information or fact
held by or known to Employee that is generally known to the trade
through no fault of 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 of Employee's intention to disclose such
information along with a copy of any such order or subpoena, and
Employee shall give Employer a reasonable opportunity (under the
circumstances) prior to disclosure to seek a protective order.
Employee shall not be required to seek any protective order or
commence any process to do so.
4.4. Survival.
The provisions of this Section 4 shall survive the
termination of this Agreement and shall inure to the benefit of
Employer, its successors and assigns.
5. TERMINATION.
5.1. Termination for Cause. Employee's employment may
be terminated by Employer immediately for "Cause" as that term is
defined in Section 6.2.1.
5.2. Termination for Death or Disability. Employee's
employment may be terminated by Employer immediately upon
Employee's "Disability" as that term is defined in Section 6.2.2
or death.
5.3. [Intentionally Omitted]
5.4. Termination for Good Reason by Employee.
(a) Employee's employment may be terminated by
Employee (i) within 120 days after a Change of Control or (ii) at
any time for "Good Reason" as that term is defined in Section
6.2.3. 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.
(b) Employee's employment under the terms of this
Agreement may be terminated by Employer in the exercise of its
sole discretion at any time upon written notice to Employee.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
6.1. Payments.
(a) In the event of the termination of Employee's
employment by Employer pursuant to Section 5.1 for Cause, within
ten days of termination Employer shall pay to Employee the full
amount of base salary accrued through the date of termination
pursuant to Section 3.1 and the amount of bonus, if any, accrued
through the date of termination pursuant to Section 3.2. No
other compensation shall be due or payable under this Agreement
in the event of a termination for Cause.
(b) In the event of the termination of Employee's
employment by Employer pursuant to Section 5.2 due to the death
or Disability of Employee, within ten days of termination
Employer shall pay to Employee or Employee's estate or legal
representative, in a lump sum, the amount of base salary and
bonus accrued through the date of termination pursuant to
Sections 3.1 and 3.2 plus an additional amount equal to one
year's base salary pursuant to Section 3.1. 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.
(c) In the event of the termination of Employee's
employment by Employee pursuant to Section 5.4 or following a
Change of Control or Potential Change of Control, or the
termination of Employee's employment by Employer pursuant to
Section 5.4(b), within ten days of termination Employer shall pay
to Employee, in a lump sum, the greater of (i) all base salary
and bonus which Employer is obligated to pay to Employee pursuant
to Sections 3.1 and 3.2 for the remainder of the Term of this
Agreement (with bonus being calculated as the greater of the
bonus amount paid with respect to the immediately preceding
fiscal year or the average of the bonus amounts paid for the
three immediately preceding fiscal years), or (ii) three times
the sum of (A) the base salary which Employer is obligated to pay
to Employee pursuant to Section 3.1 during the current fiscal
year plus (B) the greater of the bonus amount which Employer paid
with respect to the immediately preceding fiscal year or the
average of the bonus amounts which Employer paid for the three
immediately preceding fiscal years.
(d) Employer and Employee will negotiate a new five-
year agreement in good faith prior to January 1, 2002.
Alternatively, Employer may notify Employee prior to such date
that Employer does not intend to extend Employee's employment.
In the event of non-renewal or termination of this Agreement for
any reason other than for Cause as defined in Section 6.2.1,
Employee shall receive one year's salary continuance at the Base
rate following expiration of this Agreement in addition to any
compensation payable under 6.1(c).
(e) In the event of a termination of Employee's
employment, all stock options held by Employee as described in
Section 3.3 of this Agreement shall vest immediately.
(f) Employee is entitled to elect to continue the
insurance described in Section 3.4.2 of this Agreement during a
period of two (2) years following an event of termination
described in subsections (c) and (d) of this Section 6.1. 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.
(g) Employee, in his sole and absolute discretion,
shall have the right to decline all or a portion of any payments
under this Agreement.
6.2. Definitions.
6.2.1. Cause.
"Cause" shall mean (i) an act or acts of personal
dishonesty taken by Employee and intended to result in
substantial personal enrichment of Employee at the expense of
Employer, or (ii) the conviction of Employee of a felony.
6.2.2. Disability.
"Disability" shall mean Employee's inability due to
incapacity due to physical or mental illness to perform
Employee's duties for a consecutive period of at least 90 days or
for at least 180 days in a twelve-month period.
6.2.3. Good Reason.
"Good Reason" shall mean (i) the failure of Employer to
comply with the terms of this Agreement, or (ii) the occurrence
(without Employee's express written consent), within two (2)
years after any Change of Control, or after any Potential Change
of Control (treating all references in subsections (a) through
(g) below to a "Change of Control" as references to a "Potential
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, including, among other things, removal or
failure to nominate Employee as a member of the Board if Employee
is serving as such a member immediately prior to the occurrence
of a Change of Control;
(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 13 hereof.
6.2.4. Potential Change of Control. A
"Potential Change of Control" shall mean a potential change of
control of Employer, which shall be deemed to have occurred if
the conditions set forth in any one of the following three events
shall occur: (i) Employer enters into an agreement, the
consummation of which would result in the occurrence of a Change
of Control; (ii) any person (including Employer) publicly
announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change of Control; or
(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change of Control has
occurred.
6.3. Disputes Concerning Termination.
(a) If within fifteen (15) days after any notice of
termination for Good Reason is given by Employee pursuant to
Section 5.4(a), 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.
Employee shall have the right to notify Employer that a dispute
exists within fifteen (15) days after any notice of termination
is given by Employer, and shall have the right to dispute any
denial of the payments and benefits described in this Agreement
and to dispute the amount of such payments and benefits.
Following a Change of Control, a Employer shall provide all
witnesses and evidence reasonably required by Employee to present
Employee's case. 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).
(b) If a purported termination by Employee for Good
Reason occurs and such termination is disputed, Employer shall do
either of the following.
(1) If 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; or
(2) If Employee is no longer providing services,
Employer shall pay Employee fifty percent (50%) of the
amount specified in Sections 6.1(a), (b), (c) and (d), and
Employer will provide Employee with the other benefits
provided in Section 6, if, but only if, Employee agrees in
writing that if the dispute is resolved against Employee,
Employee will promptly refund to Employer all payments
Employee receives under this paragraph (b) 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 (b) are in addition to all
other amounts due under this Agreement and shall not be offset
against or reduce any 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.
(c) If there is a termination by Employer followed by
a dispute as to whether Employee is entitled to the payments and
other benefits provided under this Agreement, then, during the
period of that dispute Employer will pay Employee fifty percent
(50%) of the amount specified in Sections 6. l(a), (b), (c) and
(d), and Employer will provide Employee with the other benefits
provided in Section 6, if, but only if, Employee agrees in
writing that if the dispute is resolved against Employee,
Employee will promptly refund to Employer all payments 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.
7. 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.
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.
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
One Airport Center
7700 N.E. Ambassador Place
Portland, Oregon 97220
EMPLOYEE: RON BERGER
P.O. Box 2190
Gresham, Oregon 97030
Each party may change its address for purposes of this
Section by giving written notice of such change in the manner
provided for in his Section.
9. GOOD FAITH.
All approvals required to be given by any party shall
be given or denied in good faith and may not be unreasonably
denied. Each party shall use due diligence in its attempt to
accomplish any act to be accomplished by that party.
10. ATTORNEYS' FEES.
In the event that it should 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 legal fees in connection with such
action.
11. APPLICABLE LAW/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 by any other party hereto 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 Superior Court of the State of
Oregon in and for the County of Multnomah.
12. INTEGRATED AGREEMENT.
This Agreement constitutes the entire agreement of the
parties with respect to the subject matter of this Agreement and
supersedes all prior agreement between the parties with respect
thereto.
13. 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.
14. 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 of such provision in any
other jurisdiction. The parties hereto agree to negotiate in
good faith to replace any illegal, invalid or unenforceable
provision of this Agreement with a legal, valid and enforceable
provision that, to the extent possible, will preserve the
economic bargain of this Agreement, or otherwise to amend this
Agreement, including the provision relating to choice of law, to
achieve such result.
15. INDEMNIFICATION.
Employer shall indemnify Employee to the fullest extent
permitted by law for and against any and all cost, loss, expense
and liability including, without limitation, attorneys' fees,
incurred by Employee as a result of the performance of his duties
for Employer. Such obligation to indemnify shall include,
without limitation, indemnification against any and all claims
arising out of the Non-Disparagement Agreement entered into on
July 10, 1997 between Employer, Employee, Kim Cox and Michael R.
Lightbourne.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
EMPLOYER: EMPLOYEE:
RENTRAK CORPORATION,
an Oregon Corporation
BY:
F. KIM COX RON BERGER
Executive Vice President
STEVE ROBERTS
Chairman, Compensation
Committee,
Board of Directors
Exhibit 10.40
AMENDMENT TO
THE 1997 EQUITY PARTICIPATION PLAN
OF
RENTRAK CORPORATION
THIS AMENDMENT (the "Amendment") to the 1997 Equity
Participation Plan of Rentrak Corporation (the "Plan") is hereby
adopted by Rentrak Corporation, an Oregon corporation (the
"Company").
1. Incorporation; Definitions. The terms and provisions
of this Amendment are incorporated by this reference in the Plan
as though fully set forth therein. Terms not otherwise described
herein shall have the meanings ascribed to them in the Plan.
2. Conflicts. In the event of any conflict between the
terms and provisions of this Amendment and those of the Plan, the
terms and provisions of this Amendment shall control.
3. Amendment.
a. Option Vesting. Section 4.4(a) of the Plan is
hereby amended to read in its entirety as follows:
4.4 Option Vesting.
(a) The period during which the right
to exercise an Option in whole or in part
vests in the Optionee shall be set by the
Committee (or the Board, in the case of
Options granted to Independent Directors) and
the Committee (or the Board, in the case of
Options granted to Independent Directors) may
determine that an Option may not be exercised
in whole or in part for a specified period
after it is granted; provided, however, that,
unless the Committee (or the Board, in the
case of Options granted to Independent
Directors) otherwise provides in the terms of
the Option or otherwise, no Option shall be
exercisable by any Optionee who is then
subject to Section 16 of the Exchange Act
within the period ending six months and one
day after the date the Option is granted. At
any time after grant of an Option, the
Committee (or the Board, in the case of
Options granted to Independent Directors)
may, in its sole and absolute discretion and
subject to whatever terms and conditions it
selects, accelerate the period during which
an Option vests.
4. No Other Change. Except as specifically modified in
this Amendment, all other provisions and terms of the Plan shall
remain unchanged and in full force and effect.
I hereby certify that the foregoing Amendment was duly
adopted by the Board of Directors of Rentrak Corporation on
____________, 1998.
Executed on this __ day of __________, 1998.
F. Kim Cox
Secretary
EXHIBIT A
AMENDMENT NUMBER 1
TO THE
1995 RESTATED BYLAWS
OF
RENTRAK CORPORATION
WHEREAS, Section 3.2 of the 1995 Restated Bylaws of
Rentrak Corporation (the "Bylaws") provides that the
Company's Board of Directors (the "Board") shall be
comprised of between three and seven directors, with the
exact number of directors to be established by resolution of
the Board;
WHEREAS, Article 11 of the Bylaws authorizes the Board
to amend the Bylaws, and the Board believes that it is
desirable and in the Company's best interests to amend
Section 3.2 of the Bylaws to increase the maximum number of
directors from seven to nine; and
WHEREAS, on February 23, 1998, at a duly convened
meeting of the Board, the Board adopted a resolution
amending Section 3.2 as provided below.
NOW THEREFORE, the first sentence of Section 3.2 of
Article 3 of the Bylaws is hereby amended in its entirety
and shall read as follows:
The number of directors of the
corporation shall be not less than three
or more than nine, with the number of
directors to be established by
resolution of the Board of Directors.
The second paragraph of Section 3.2 of the Bylaws is
unchanged and shall remain in full force and effect.
Dated as of this 6th day of June, 1998.
S/s F. Kim Cox
F. Kim Cox, Executive Vice
President,
Chief Financial Officer and
Secretary
30086.00100/PDX_DOCS:206285.2
Exhibit 10.21
Subsidiaries of Registrant
Attitude 2 Travel, Inc. an Oregon corporation.
BlowOut Video Holding Company, an Oregon corporation.
Mortco Inc., an Oregon corporation.
Orient Link Enterprises, a foreign corporation
PDF, Inc., an Oregon corporation.
Rentrak Canada, a foreign corporation.
Rentrak Europe BV, a foreign corporation.
RTK Kelly Limited a foreign corporation.
Streamlined Solutions, Inc., an Oregon corporation.
Transition Sports, Inc., a Utah 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 No. 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 No. 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 No. 33-86548 on
Form S-3 dated November 21, 1994, (5) Registration Statement File
No. 33-65463 on Form S-3 dated December 28, 1995, as amended on
February 9, 1996 and (6) Registration Statement File No. 333-28565 on
Form S-8 of the 1997 Non-Officer Employee Stock Option Plan dated
June 5, 1997, as amended on October 29, 1997.
ARTHUR ANDERSEN LLP
Portland, Oregon,
June 23, 1998
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