-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZf/kwfkRMUiWnDbeYMdFl+YQDilPKZGe4FXTFhMtH02lYTAtCjf/kkKIHPtnoho dcdFTsTgxpeUjA5r/r3m7A== /in/edgar/work/20000629/0000800458-00-000014/0000800458-00-000014.txt : 20000920 0000800458-00-000014.hdr.sgml : 20000920 ACCESSION NUMBER: 0000800458-00-000014 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTRAK CORP CENTRAL INDEX KEY: 0000800458 STANDARD INDUSTRIAL CLASSIFICATION: [7822 ] IRS NUMBER: 930780536 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15159 FILM NUMBER: 664480 BUSINESS ADDRESS: STREET 1: ONE AIRPORT CTR STREET 2: 7700 N E AMBASSADOR PL CITY: PORTLAND STATE: OR ZIP: 97220 BUSINESS PHONE: 5032847581 MAIL ADDRESS: STREET 1: 7227 NE 55TH AVENUE CITY: PORTLAND STATE: OR ZIP: 97218 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VIDEO INC DATE OF NAME CHANGE: 19881004 10-K405 1 0001.txt This filing consists of 139 pages. The Exhibit Index is on Page 52. 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, 2000 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 [ X ] As of June 20, 2000, 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 $34,042,760. (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 20, 2000. Includes shares held by certain depository organizations.) As of June 20, 2000, the Registrant had 12,289,883 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 2000 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 11 Holders PART II 5. Market for the Registrant's Common Stock and 12 Related Stockholder Matters 6. Selected Financial Data 13 7. Management's Discussion and Analysis of 14 Financial Conditions and Results of Operations 7A. Quantitative and Qualitative Disclosures About 21 Market Risk 8. Financial Statements and Supplementary Data 22 9. Changes in and Disagreements with Accountants 22 on Accounting and Financial Disclosure PART III 10. Directors and Executive Officers of the 49 Registrant 11. Executive Compensation 49 12. Security Ownership of Certain Beneficial 49 Owners and Management 13. Certain Relationships and Related Transactions 49 PART IV 14. Exhibits, Financial Statement Schedules and 50 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 (the "PPT System"). Under the Company's PPT system, home video specialty stores and other retailers that rent videocassettes to consumers ("Retailers"), including grocery stores and convenience stores, lease videocassettes and other media ("Cassettes") from Rentrak for a low up-front fee and share a portion of each retail rental transaction with the Company. The Company's PPT System generated 79 percent, 85 percent and 91 percent of total revenues in fiscal years 2000, 1999 and 1998, respectively. The Company engages in several additional lines of business through the following wholly- owned subsidiaries: 3PF.COM (formerly ComAlliance), provides order processing, inventory management, and fulfillment services to Internet retailers and wholesalers and to other businesses requiring just-in-time fulfillment. 3PF.COM's Web-site can be accessed at www.3PF.COM. formovies.com, Inc., provides Web-site services to Retailers and a video locator service for consumers through its innovative Web-site www.formovies.com. BlowOut Video, Inc., sells videocassettes and digital videodiscs through its Web- site www.blowoutvideo.com, and through seven retail outlets. PAY-PER-TRANSACTION The Company distributes Cassettes principally to home video specialty stores through its PPT System. The PPT System enables 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 is approved for participation in the PPT System, Cassettes are leased to the Retailer for a low initial fee (the "Order Processing 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. Due to the lower costs of "bringing Cassettes in the door", Retailers generally obtain a higher number of Cassettes under the PPT System than the traditional distribution method. 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, Canada and the United Kingdom. The Company also owns a nine 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 License 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 originally owned 25 percent of Rentrak UK. On March 31, 1999, the Company acquired an additional 67 percent interest, and now owns 84 percent of Rentrak UK. As of March 31, 2000, Rentrak UK is not generating income or positive cash flow. Accordingly, the Company wrote-off its investments of $222,000. Management of the Company is evaluating Rentrak UK's operations and is exploring options including selling or closing down the operations. Management intends to make a decision in the second quarter of fiscal 2001. The Company currently offers substantially all of the titles of a number of Program Suppliers, including Buena Vista Pictures Distribution, Inc., a subsidiary of The Walt Disney Company, Paramount Home Video, Inc., and Twentieth Century Fox Home Entertainment (formerly Fox Video), a subsidiary of Twentieth Century Fox Film Corporation. 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. Therefore, 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 25 percent; a second that generated 19 percent, and a third that generated 13 percent of Rentrak revenues for the year ended March 31, 2000. There were no other Program Suppliers who provided product that generated more than 10 percent of revenues for the year ended March 31, 2000. The Company currently receives a significant amount of product from three Program Suppliers. Although management does not believe that these relationships will be terminated in the near term, a loss of any of these suppliers could have an adverse affect on operating results. Certain Program Suppliers have requested, and the Company has provided, financial or performance commitments from the Company, including advances, warrants, or guarantees, as a condition of obtaining certain titles. 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. 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. Rentrak has contracted with 3PF.COM to distribute Rentrak's 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. There was concern that in 2000, these software and hardware systems would interpret the year "00" as "1900," which would cause them to perform faulty calculations or shut down altogether (the "Year 2000 Problem"). Accordingly, the Company assessed the scope of the Year 2000 problem both internally and among its suppliers and customers in March 1997, and implemented remedial measures soon thereafter. The total cost of the company's assessments, corrective measures, and testing was less than $250,000. The Company has not and does not anticipate experiencing any significant problems related to the Year 2000 issue that would be material to the Company. 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 can be cause for immediate termination from the PPT System. If audit violations are found, the Participating Retailer is subject to fines, audit fees, 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 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 In 1992, the Company established a Retailer Financing Program whereby, on a selective basis, it provided financing to Participating Retailers that the Company believed had potential for substantial growth in the industry. In connection with these financings, the Company typically made a loan and/or an equity investment in the Participating Retailer. In some cases, the Company obtained a warrant to purchase stock in the Participating Retailer. As part of such financing, the Participating Retailer typically agreed 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, Participating Retailers were 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 Participating Retailer may, in some cases, retain the right to terminate such agreement upon 30-90 days prior written notice. 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 Rentrak Video Retailer Loan Program was adopted in 1992 at a time when the video industry was experiencing rapid growth. The underlying rationale for this program was the belief that the Company could expand its business and at the same time participate in the rapid growth experienced by the video retailers in which it invested. Now that the video industry is entering a phase of maturation, the Company does not expect to utilize this program in any material respect for any new participants. However, the Company may make follow on loans or investments in existing Video Retailer Loan Participants. As of March 31, 2000, the Company had approximately $6,900,000 in loans and investments outstanding under the program and reserves of approximately $5,700,000 of the total original loan or investment amount. As of March 31, 1999, the Company had approximately $14,000,000 in loans and investments outstanding under the Retailer Financing Program and had provided reserves of approximately $9,600,000. 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 faces intense competition from all of the traditional distributors, including Ingram Entertainment, Inc., Major Video Concepts, Inc., Baker and Taylor, Inc., and Video One Canada, Ltd. 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 the last two years 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 product on revenue sharing terms. Several traditional distributors have also executed revenue sharing agreements with motion picture studios ("Studios"). Several traditional distributors have also entered into licensing agreements with the Company to distribute Cassettes to Retailers using the PPT System. The Company also competes with Supercomm on two levels: (1) domestically - for processing data for certain Studios' direct relationships with Blockbuster and other Retailers; and (2) internationally in certain markets. Supercomm also processes data for traditional distributors such as Ingram who then competes with the Company for revenue sharing cassettes as well as traditional cassettes. 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. Also, 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, the world's largest chain of home video specialty stores. The Company believes all of the major Studios have executed direct revenue sharing agreements with Blockbuster and Hollywood Entertainment, the world's second largest chain of home video specialty stores. The Company also believes that certain Studios have executed direct revenue sharing agreements with several other large Retailers. The Company does not believe that the Studios have executed direct revenue sharing agreements with other smaller Retailers, but there can be no assurance that they will not do so in the future. 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 $14.95 to $29.95. 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 PPT 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; (3) pay-per-view cable television systems; and (4) delivery of programming via the Internet. 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. Pursuant to the agreement, the parties formed Rentrak Japan, a Japanese corporation, which is presently owned 9 percent by the Company and 90 percent by CCC's largest shareholder, Tsutaya Shoten Co., Ltd. Rentrak Japan was formed to implement the PPT System in Japan. 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 the PPT System 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. 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 (June 1 - May 31). Pursuant to the amendment, the Company received royalty payments of $1,000,000 in fiscal year 1995 and $1,000,000 in fiscal year 1999. The term of the agreement was extended from 2001 to 2039. The Company currently owns approximately 9% of Rentrak Japan. In December 1999, the Company received a prepayment of $2,500,000 in exchange for $4,000,000 of credit related to the annual royalty described above, which is being recognized in revenues as royalties are earned under the terms of the contract. As of March 31, 2000, approximately $1,640,000 has been recorded as deferred revenue on the accompanying consolidated balance sheet to be recognized in future periods. In February 1998, the Company entered into a Shareholders Agreement and a PPT License 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. Rentrak UK was originally structured as a joint venture between the Company, which owned 25 percent, Columbus Holdings Limited, which owned 66.7 percent and Rentrak Japan, which owned 8.3 percent. On March 31, 1999, the Company acquired Columbus Holdings Limited's 67 percent interest, and now owns 84 percent of Rentrak UK. 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", "Fastrak", "GameTrak", "RPM", "Videolink+", "Unless You're Rich Enough Already", "Sportrak", "Movies For The Hungry Mind", "VidAlert", "Active Home Video", "Movie Wizard", and "Gotta Have It Guarantee" 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, 2000, including all subsidiaries, the Company employs 277 full-time employees. The Company considers its relations with its employees to be good. Financial Information About Industry Segments See Note 12 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. 3PF.COM, Inc., Inc. maintains its distribution facilities in Wilmington, and Columbus Ohio where it leases 321,083 square feet. The Company's warehouse leases expire on June 30, 2002 and March 31, 2001, respectively. Management believes its office space is adequate and suitable for current operations. Management is in the process of obtaining additional warehouse space for 3PF.COM, Inc., in order to grow its business. Management does not anticipate a problem in obtaining additional suitable warehouse space to meet its needs. ITEM 3. LEGAL PROCEEDINGS 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, including 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. In August 1998, the Court granted the Company's motion to dismiss the Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule 12(b)(3) on the basis of improper venue. In August 1998, Video Update filed a new complaint against the Company in the United States District Court for the District of Oregon (the "Re-Filed Complaint"), Case No. 98-1013HA. The Re-Filed Complaint is substantially the same as the previous complaint. The Company believes the Re-Filed Complaint lacks merit and intends to vigorously defend against the allegations in the Complaint. The Company answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also has counterclaimed against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation and intentional interference with business advantage, and seeks damages and equitable relief. In October 1998, the Company filed a motion for summary judgment seeking to dismiss Video Update's claims against Rentrak. In January 1999, the Company filed a separate motion for partial summary judgment on its breach of contract counterclaim seeking to recover more than $4.4 million in fees and interest which the Company claims Video Update owes to it. In response to the Company's motions, Video Update asked the court for additional time to take discovery before having to file oppositions. The court has given the parties until June 30, 2000 to complete discovery. The court denied Rentrak's motions without reaching the merits and without prejudice to re-filing the motions after discovery has been conducted. Rentrak expects to re- file its motions after discovery has taken place. On October 21, 1999, the Company amended its counterclaims to add additional breach of contract claims, a claim for trade secret misappropriation and a claim for recovery of personal property. In August 1998, the Company filed a complaint (the "Movie Buffs Complaint") against Susan Janae Kingston d/b/a Movie Buffs ("Movie Buffs"), entitled Rentrak Corporation v. Susan Janae Kingston, an individual, d/b/a Movie Buffs, Case No. CV 98-1004 HA, in the United States District Court for the District of Oregon. The Movie Buffs complaint alleges breach of contract and conversion claims and seeks damages in the amount of at least $3.3 million and punitive damages of $500,000. In September 1998, Movie Buffs filed counterclaims against the Company and Third Party Claims against Hollywood Entertainment Corp. (the "Movie Buffs Counterclaims"). The Movie Buffs Counterclaims allege that the Company violated the antitrust laws, including the Sherman, Clayton and Robinson-Patman Acts. The Counterclaim also seeks declaratory relief, an accounting and alleges fraud and conspiracy to defraud, breach of contract, breach of the implied covenant of good faith, and unfair trade practices. Movie Buffs seeks an unspecified amount of damages (at least $10 million), treble damages, general and consequential damages, punitive damages, attorneys' fees and court costs. In September 1998, Roadrunner Video ("Roadrunner Video") filed a third-party complaint in intervention against the Company and Hollywood Entertainment Corp. (the "Roadrunner Complaint"). The Roadrunner Complaint alleges the same claims as the Movie Buffs Counterclaims. The Company filed a motion to dismiss the Robinson-Patman Act claims pursuant to Federal Rules of Civil Procedure Rule 12(b)(6), which motion was granted. The court also granted Roadrunner and Movie Buff's request to dismiss their claims against Hollywood without prejudice. The Company believes the Movie Buffs Counterclaims and the Roadrunner Complaint lack merit and the Company intends to vigorously defend against all of the allegations therein. On March 5, 1999 the Court granted the Company's motion to dismiss the Robinson-Patman Act claims brought by Roadrunner and Movie Buffs. On April 12, 1999, Roadrunner and Movie Buffs filed amended claims against Rentrak that added a new claim for fraud. The Company continues to believe that the remaining Roadrunner and Movie Buffs claims are without merit and intends to continue to vigorously defend itself. On February 10, 2000, the Company filed a complaint (the "Action Video Complaint") against David D. Passerallo, and Action Video, Inc. entitled Rentrak Corporation v. David D. Passerallo, an individual and Action Video, a North Carolina corporation, Case No. CV 00-214-HA, in the United District Court for the District of Oregon. The Action Video Complaint alleges claims for conversion, and breach of contract, payment on advance agreement and personal guarantee. On April 10, 2000, Action Video filed counterclaims against the Company. Action Video's counterclaims allege that the Company violated antitrust laws, including the Sherman and Clayton Acts, based on the Company's alleged efforts to favor certain customers (such as Hollywood) over others and thereby restrain competition. The Action Video Counterclaims also include the following: (1) a demand for a declaratory ruling that the contract between the Company and Action Video is unenforceable as unconscionable and a contract of adhesion, (2) fraud and conspiracy to defraud, based on allegedly false representations intended to induce Action Video to act; (3) breach of contract based on the Company's allegedly wrongful termination of its contract with Action Video, allegedly wrongful computation of revenue entitlement, and certain other alleged actions; (4) breach of an implied covenant of good faith, based on the Company's allegedly wrongful termination of its contract with Action Video; (5) unfair trade practices based on the Company's alleged conduct during its dealings with Action Video, including termination of the Company's contract with Action Video; and (6) a demand for an accounting of the nature and amount of the parties' respective obligations under the contract. Action Video seeks unspecified monetary damages in excess of $7 million, treble damages, general and consequential damages, punitive damages in the minimum amount of $30 million, attorneys' fees and court costs. The Company has taken action to dismiss a number of Action Video's counterclaims. Action Video has agreed to dismiss certain of these counterclaims and has agreed to replead its remaining counterclaims. The Company believes that the Action Video Counterclaims are without merit and intends to vigorously defend against this litigation. In the event of an unanticipated adverse final determination in respect of certain matters discussed above, the Company's consolidated net income and financial position for the period in which such determination occurs could be materially affected. The Company is also subject to certain legal proceedings and claims that 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. 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 May 31, 2000 there were approximately 328 holders of record of the Company's common stock. On May 31, 2000, the closing sales price of the Company's common stock as quoted on the Nasdaq National Market was $3.63. 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, 1998 $10.06 $5.59 SEPTEMBER 30, 1998 $6.31 $3.28 DECEMBER 31, 1998 $3.94 $2.00 MARCH 31, 1999 $4.22 $2.50 JUNE 30, 1999 $5.25 $2.66 SEPTEMBER 30, 1999 $6.00 $3.50 DECEMBER 31, 1999 $7.41 $3.25 MARCH 31, 2000 $7.25 $5.13 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. ITEM 6. SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts) Year Ended March 31, 2000 1999 1998 Statement of Operations Data Net revenues: Application fees $ 311 $ 371 $ 383 Order processing fees 23,086 22,420 25,313 Transaction fees 62,440 72,835 78,671 Sell-through fees 7,811 11,347 9,383 Other 19,736 16,814 9,001 Total net revenues 113,384 123,787 122,751 Cost of sales 91,706 103,943 102,484 Gross profit 21,678 19,844 20,267 Selling and administrative expense 26,449 15,996 13,062 Net (gain) expense on litigation settlement (7,792) 1,099 0 Other income (expense) (1,519) 597 652 Income (loss) from continuing operations before discontinued operations and benefit (provision) for income taxes 1,502 3,347 7,857 Income tax benefit (provision) (451) (1,304) (3,199) Income (loss) from continuing operations before discontinued operations 1,051 2,043 4,658 Discontinued Operations: (1) Loss from operations of discontinued subsidiaries less applicable income tax benefit 0 0 0 Gain (loss) on disposal of discontinued subsidiaries 2,374 0 0 Net income (loss) $ 3,425 $ 2,043 $ 4,658 Diluted income (loss) per share Continuing operations $ 0.10 $ 0.18 $ 0.41 Discontinued operations 0.22 0.00 0.00 Net income (loss) $ 0.32 $ 0.18 $ 0.41 Common shares and common share equivalents outstanding 10,759 11,066 11,445 2000 1999 1998 Balance Sheet Data Working Capital $ 9,871 $ 4,586 $ 1,062 Total Assets 50,473 49,457 51,609 Long-term Deferred Revenue 1,677 0 0 Stockholders' Equity 18,081 14,292 13,254 (1) Discontinued Operations includes the operations of Pro Image and BlowOut Acquisitions were made by Pro Image and BlowOut during 1996, therefore comparisons between years are not meaningful. See discontinued operations Note 13 of the Notes to the Consolidated Financial Statements.
(In Thousands, Except Per Share Amounts) Year Ended March 31, 1997 1996 Statement of Operations Data Net revenues: Application fees $ 354 $ 551 Order processing fees 22,720 25,716 Transaction fees 70,467 70,187 Sell-through fees 11,101 10,601 Other 11,634 6,211 Total net revenues 116,276 113,266 Cost of sales 92,416 96,585 Gross profit 23,860 16,681 Selling and administrative expense 14,626 19,443 Net (gain) expense on litigation settlement 0 0 Other income (expense) 999 681 Income (loss) from continuing operations before discontinued operations and benefit (provision) for income taxes 10,233 (2,081) Income tax benefit (provision) (3,950) 595 Income (loss) from continuing operations before discontinued operations 6,283 (1,486) Discontinued Operations: (1) Loss from operations of discontinued subsidiaries less applicable income tax benefit 0 (18,700) Gain (loss) on disposal of discontinued subsidiaries 0 (12,100) Net income (loss) $ 6,283 $(32,286) Diluted income (loss) per share Continuing operations $ 0.52 $ (0.13) Discontinued operations 0.00 (2.62) Net income (loss) $ 0.52 $ (2.75) Common shares and common share equivalents outstanding 12,159 11,755 1997 1996 Balance Sheet Data Working Capital $ 1,488 $(12,579) Total Assets 43,048 56,252 Long-term Deferred Revenue 0 0 Stockholders' Equity 11,272 14,404 (1) Discontinued Operations includes the operations of Pro Image and BlowOut Acquisitions were made by Pro Image and BlowOut during 1996, therefore comparisons between years are not meaningful. See discontinued operations Note 13 of the Notes to the Consolidated Financial Statements.
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, and the continued availability of Cassettes from Program Suppliers. This Annual Report on Form 10-K further describes certain of these factors. Results of Operations
RENTRAK CORPORATION STATEMENTS OF OPERATIONS For The Years Ended March 31, 2000, 1999, and 1998 2000 1999 1998 REVENUES $113,384,220 $123,787,390 $122,751,046 OPERATING COSTS AND EXPENSES Cost of sales 91,706,290 103,942,898 102,483,865 Selling and administrative 26,448,569 15,995,941 13,062,064 Net (gain) expense on litigation settlement (7,791,880) 1,099,154 - 110,362,979 121,037,993 115,545,929 INCOME FROM OPERATIONS 3,021,241 2,749,397 7,205,117 Other income (expense) (1,519,378) 597,108 652,381 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION AND GAIN FROM DISPOSAL FROM DISCONTINUED OPERATIONS 1,501,863 3,346,505 7,857,498 Income tax provision (450,559) (1,303,999) (3,199,032) INCOME FROM CONTINUING OPERATIONS 1,051,304 2,042,506 4,658,466 Gain from disposal from discontinued operations plus income tax benefit of $483,502 2,373,502 - - NET INCOME $ 3,424,806 $ 2,042,506 $ 4,658,466
Fiscal 2000 Compared to Fiscal 1999 Continuing Operations - Domestic PPT Operations and Other Continuing Subsidiaries For the year ended March 31, 2000, total revenue decreased $10.4 million to $113.4 million from $123.8 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 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; revenue related to the Company's fulfillment, order processing, and inventory management services to e- commerce and other companies; and sales of videocassettes. The decrease in total revenue was primarily due to lower revenues from the Company's core PPT business. The decrease in PPT revenue resulted primarily from the following: (i) a reduction in the total number of Cassettes leased under the PPT System, (ii) an increase in incentives offered by the Company to entice retailers to order more product; (iii) an increase in various "copy depth" programs offered by studios intended to increase the number of Cassettes in distribution (so-called "copy depth" programs) that lowered the cost of rental videocassettes to video retailers; (iv) an increase in studio direct revenue-sharing arrangements with the larger video store chains; and (v) the loss of some customers due to continuing industry consolidation. In fiscal 2000, application-fee revenue was $0.3 million compared to $0.4 million in the prior year. During the year, order processing-fee revenue increased to $23.1 million from $22.4 million in fiscal 1999, an increase of $0.7 million, or 3 percent. Transaction-fee revenue totaled $62.4 million, a decrease of $10.4 million, or 14 percent, from $72.8 million the previous year. Sell-through revenue was $7.8 million in fiscal 2000 as compared to $11.3 million in fiscal 1999, a decrease of $3.5 million, 31 percent. Royalty revenue from Rentrak Japan decreased to $1.8 million during fiscal 2000 from $2.2 million the previous year. This decrease was due to a one time royalty payment from Rentrak Japan of $1.0 million in January 1999, which was partially offset by an increase in the current year royalty due to increased revenues generated by Rentrak Japan. Cost of sales in fiscal 2000 decreased to $91.7 million from $103.9 million the prior year, a decrease of $12.2 million. The change is primarily due to the factors that led to changes in revenue noted above. In fiscal 2000, the Company's gross profit margin increased to 19 percent from 15 percent the previous year, excluding the $1.0 million royalty payment from Rentrak Japan. Selling, general and administrative expenses were $26.4 million in fiscal 2000 compared to $16.0 million in fiscal 1999. This increase of $10.4 million, or 65 percent, was primarily due to (i) increased reserves related to an outstanding receivable account and write offs of other assets for a total of approximately $9.0 million in the fourth quarter of fiscal 2000; (ii) increased compensation and occupancy costs associated with the expanding fulfillment and order processing business; and (iii) increased advertising expenditures. In January 2000, the Company recorded a gain of approximately $7.8 million as a result of settling litigation with Hollywood Entertainment. See footnote 10 of the notes to the consolidated financial statements. Other income decreased from $0.6 million in fiscal 1999 to an expense of $(1.5) million for fiscal 2000, a decrease of $2.1 million. This decrease is primarily due to the loss on sale of investments recognized in fiscal 2000 of approximately $1.2 million compared to a gain on sale of investments in fiscal 1999 of approximately $0.5 million. For the year ended March 31, 2000, the Company recorded pre-tax income of $1.5 million, or 1 percent of total revenue, compared to $3.3 million, or 3 percent of total revenue in the prior fiscal year. This decrease is due primarily to the increase in selling, general and administrative expenses as noted above offset by the net gain on litigation settlement. The Cassette distribution business is a highly competitive industry that is rapidly changing. The effect of these changes could have a material impact on the Company's operations. Item 1 (Business) Competition section of this Annual Report on Form 10-K further describes certain of these factors. Included in the amounts above are the results from Other Subsidiaries which are primarily comprised of operations of 3PF.COM, Inc., and Blowout Video, Inc. Total revenues from 3PF.COM, Inc. increased to 11.6 million at March 31, 2000 compared to $10.5 million at March 31, 1999 an increase of $1.1 million. This increase was primarily due to increased volume from existing customers. Cost of sales was $10.1 million, an increase of $1.7 million over the $8.4 million recorded in fiscal 1999. This increase is due to the increase in freight and warehouse labor due primarily to the increase in revenue as noted above. Selling, general and administrative expenses increased to $2.6 million in fiscal 2000 from $1.2 million in fiscal 1999, an increase of $1.4 million. As a percentage of total revenue, selling, general and administrative expenses increased to 22 percent for fiscal 2000 from 11 percent for the prior year. This increase was due to increased compensation, advertising and travel and entertainment expenses. These costs have increased primarily due to expanded sales and marketing efforts. The Company anticipates that these costs will continue to grow substantially in the near future. As a result of the foregoing factors, for the year ended March 31, 2000, 3PF.COM, Inc. recorded pre-tax loss of $1.0 million, or 9 percent of total revenue. This compares with pre-tax income of $0.6 million, or 6 percent of total revenue, in fiscal 1999. Total revenues from Blowout Video, Inc. increased to $9.5 million in fiscal 2000 from $8.4 million in fiscal 1999, an increase of $1.1 million, or 13 percent. Cost of sales was $6.0 million, an increase of $0.8 million over the $5.2 million recorded in fiscal 1999. Selling, general and administrative expenses increased to $3.0 million in fiscal 2000 from $2.4 million in fiscal 1999, an increase of $0.6 million. As a percentage of total revenue, selling, general and administrative expenses increased to 32 percent for fiscal 2000 from 29 percent for the prior year. These increases were primarily the result of opening 3 new stores during fiscal 2000. For the year ended March 31, 2000, BlowOut Video, Inc. recorded pre-tax income of $0.2 million, or 2 percent of total revenue. This compares with pre-tax income of $0.7 million, or 8 percent of total revenue, in fiscal 1999. 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. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The operations of BlowOut were reflected as discontinued operations in the March 31, 1996 consolidated financial statements. During the year ended March 31, 2000, the Company recorded a gain on the disposal of discontinued operations of $1.9 million related to BlowOut, as the liability related to BlowOut contingencies was less than estimated. The Company also reduced the valuation allowance that was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of approximately $.5 million in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated income statement. Consolidated Balance Sheet At March 31, 2000, total assets were $50.5 million, an increase of $1.1 million from the $49.5 million a year earlier. Net current liabilities relating to BlowOut at March 31, 2000 and 1999 of approximately $0.4 million and $3.7 million, respectively, represent amounts reserved for contingencies not yet settled as of year end. Fiscal 1999 Compared to Fiscal 1998 Continuing Operations - Domestic PPT Operations and Other Continuing Subsidiaries For the year ended March 31, 1999, total revenue increased $1.0 million to $123.8 million from $122.8 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 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; revenue related to the Company's fulfillment, order processing, and inventory management services to e- commerce and other companies, and sale of videocassettes. The increase in total revenue was primarily due to the growth in the Company's fulfillment and order processing services business. This growth in revenues was partially offset by the decrease in revenues in the core videocassette distribution business ("PPT revenue"). The decrease in PPT revenue resulted primarily from the following: (i) a reduction in the total number of Cassettes leased under the PPT System, due in part to program suppliers offering more titles on a sell through basis than historical levels; (ii) an increase in incentives offered by the Company to entice retailers to order more product; (iii) an increase in various "copy depth" programs offered by studios intended to increase the number of Cassettes in distribution (so-called "copy depth" programs) that lowered the cost of rental videocassettes to video retailers; (iv) an increase in studio direct revenue-sharing arrangements with the larger video store chains; and (v) the loss of some customers due to continuing industry consolidation. In fiscal 1999, application-fee revenue remained unchanged from the prior year at $0.4 million. During the year, order processing-fee revenue decreased to $22.4 million from $25.3 million in fiscal 1998, a decrease of $2.9 million, or 11 percent. Transaction-fee revenue totaled $72.8 million, a decrease of $5.9 million, or 7 percent, from $78.7 million the previous year. Sell-through revenue was $11.3 million in fiscal 1999 as compared to $9.4 million in fiscal 1998, an increase of $1.9 million, or 20 percent. Royalty revenue from Rentrak Japan increased to $2.2 million during fiscal 1999 from $1.1 million the previous year. This increase was due to a royalty payment from Rentrak Japan of $1.0 million in January 1999. Cost of sales in fiscal 1999 increased to $103.9 million from $102.5 million the prior year, an increase of $1.4 million. The change is primarily due to factors that led to the changes in revenue noted above. In fiscal 1999, the Company's gross profit margin decreased to 15 percent from 17 percent the previous year, excluding the $1.0 million royalty payment from Rentrak Japan. Selling, general and administrative expenses were $16.0 million in fiscal 1999 compared to $13.1 million in fiscal 1998. This increase of $2.9 million, or 22 percent, was primarily due to (i) increased compensation costs associated with the growing fulfillment and order processing business; and (iii) increased advertising expenditures. Also, fiscal 1998 included collection of amounts that were previously reserved at March 31, 1997. Other income decreased from $0.7 million in fiscal 1998 to $0.6 million for fiscal 1999, a decrease of $0.1 million. For the year ended March 31, 1999, the Company recorded pre-tax income of $3.3 million, or 3 percent of total revenue, compared to $7.9 million, or 6 percent of total revenue in the prior fiscal year. This decrease is due primarily to the increase in selling, general and administrative expenses as noted above. Included in the amounts above are the results from Other Subsidiaries which are primarily comprised of operations of 3PF.COM, Inc., and Blowout Video, Inc. Total revenues from 3PF.COM, Inc. increased to $10.5 million at March 31, 1999 compared to $6.1 million at March 31, 1998 an increase of $4.4 million. This increase was primarily due to increased volume from existing customers. Cost of sales was $8.4 million, an increase of $3.7 million over the $4.7 million recorded in fiscal 1998. This increase is due to the increase in freight and warehouse labor due primarily to the increase in revenue as noted above. Selling, general and administrative expenses increased to $1.2 million in fiscal 1999 from $0.8 million in fiscal 1998, an increase of $0.4 million. This increase was primarily due to an increase in property taxes paid in fiscal 1999. As a percentage of total revenue, selling, general and administrative expenses decreased to 11 percent for fiscal 1999 from 13 percent for the prior year. As a result of the foregoing factors, for the year ended March 31, 1999, 3PF.COM, Inc. recorded pre-tax income of $0.6 million, or 6 percent of total revenue. This compares with pre-tax income of $0.4 million, or 7 percent of total revenue, in fiscal 1998. Total revenues from Blowout Video, Inc. increased to $8.4 million in fiscal 1999 from $6.4 million in fiscal 1998, an increase of $2.0 million, or 31 percent. Cost of sales was $5.2 million, an increase of $1.3 million over the $3.9 million recorded in fiscal 1998. Selling, general and administrative expenses increased to $2.4 million in fiscal 1999 from $1.8 million in fiscal 1998, an increase of $0.6 million. As a percentage of total revenue, selling, general and administrative expenses increased to 29 percent for fiscal 1999 from 28 percent for the prior year. For the year ended March 31, 1999, BlowOut Video, Inc. recorded pre-tax income of $0.7 million, or 8 percent of total revenue. This compares with pre-tax income of $0.7 million, or 11 percent of total revenue, in fiscal 1998. Consolidated Balance Sheet At March 31, 1999, total assets were $49.5 million, a decrease of $2.1 million from the $51.6 million a year earlier. A substantial portion of the decrease resulted from the Company's use of cash to repurchase the Company's Common Stock, as noted below, and to reduce accounts payable. Net current liabilities relating to BlowOut at March 31, 1999 and 1998 of approximately $3.7 million and $4.6 million, respectively represent amounts reserved for contingencies not yet settled as of year end. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Company had cash and other liquid investments of $4.0 million, compared to $2.1 million at March 31, 1999. At year-end, the Company's current ratio (current assets/current liabilities) was 1.32 compared to 1.13 a year earlier. This improvement is primarily due to the Company retiring approximately $10.5 million in debt with the proceeds from the settlement of the litigation with Hollywood Entertainment. The Company had an agreement for a line of credit with a financial institution in an amount not to exceed the lesser of $7,500,000 or the sum of 80% of the net amount of eligible accounts receivable as defined in the agreement. Interest was payable monthly at the bank's prime rate plus 1 percent (9% at March 31, 2000). The line was secured by substantially all of the Company's assets. The terms of the agreement required, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum total liabilities to tangible net worth. The agreement also restricted the amount of net losses, loans and indebtedness and limited the payment of dividends on the Company's stock. The Company was in compliance with these covenants as of March 31, 2000. At March 31, 2000, the Company had no amounts outstanding under this agreement. In May 2000 this line of credit was replaced with a $12,000,000 line of credit with a different lender. Interest under this line is payable monthly at the bank's prime rate plus 1/4 percent. The new 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 and working capital. The agreement also restricts the amount of loans and indebtedness and limits the payment of dividends on the Company's stock. The agreement expires in May 2005. In 1992, the Company established a retailer financing program whereby the Company provided, on a selective basis, financing to video retailers that the Company believed have the potential for substantial growth in the industry. In connection with these financings, the Company typically made a loan to and/or an equity investment in the retailer. In some cases, a warrant to purchase stock of the retailer was obtained. As part of such financing, the retailer typically agreed 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 speculative in nature and involve a high degree of risk, and no assurance of a satisfactory return on investment can be given. The investments individually range from $50,000 to $4.7 million. As of March 31, 2000, the Company has invested or loaned approximately $6.9 million under the program and has reserves of approximately $5.7 million. Included in the $6.9 million investment balance at March 31, 2000, are gross notes receivable of $2.7 million which are due as follows: $1.4 million - 2000; $0.1 million - 2001; $0.3 million - 2002; $0.4 million - 2003; and $0.5 million - 2008. Interest rates on the various loans range from 5 percent to prime plus 1.5 percent (10.5 percent at March 31, 2000) 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. The amounts the Company could ultimately receive could differ materially in the near term from the amounts assumed in establishing reserves. On March 22, 1999, BlowOut Entertainment, Inc. (BlowOut) filed for Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. At that same time BlowOut filed a motion to sell substantially all of its assets. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The sale, to a third party video retailer, was approved on May 10, 1999 and closed on May 17, 1999. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut (Guarantee). Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As the proceeds from the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, agreed to a payment plan to fulfill BlowOut's obligation under its credit facility. The amount outstanding at March 31, 2000 is approximately $590,000. The payments, as made, will be recorded as a reduction of "net current liabilities of discontinued operations" on the accompanying balance sheet. The Company's sources of liquidity include its cash balance, cash generated from operations and its available credit resources. These sources are expected to be sufficient to fund the Company's operations for the year ending March 31, 2001. RECENT ACCOUNTING PRONOUNCEMENTS In June 1999, the FASB issued Statement of Financial Accounting Standard No. 137 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 137). SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging Activities." SFAS 137 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 137 also requires that changes in the derivative instrument's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS 137 is effective for the Company's fiscal year beginning April 1, 2001. The Company expects that adoption of SFAS 137 will not have a material impact on the Company's financial condition or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101) on revenue recognition. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 is effective for the Company beginning July 1, 2000. The Company does not expect the adoption of SAB 101 to have an impact on its results of operations or financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company considered the provision of Financial Reporting Release No. 48 "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." The Company had no holdings of derivative financial or commodity instruments at March 31, 2000. A review of the Company's other financial instruments and risk exposures at that date revealed that the Company had exposure to interest rate risk. The Company utilized sensitivity analyses to assess the potential effect of this risk and concluded that near-term changes in interest rates should not materially adversely affect the Company's financial position , results of operations or cash flows. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Item Page Report of Independent Public 23 Accountants Consolidated Balance Sheets as 24 of March 31, 2000 and 1999 Consolidated Statements of Income 25 for Years Ended March 31, 2000, 1999and 1998 Consolidated Statements of 26 Stockholders' Equity for Years Ended March 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows 27 for Years Ended March 31, 2000, 1999 and 1998 Notes to Consolidated Financial 29 Statements Financial Statement Schedules 48 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, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2000. 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 auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of Rentrak Corporation and subsidiaries as of March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States. 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, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Portland, Oregon May 19, 2000
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND 1999 ASSETS 2000 1999 CURRENT ASSETS: Cash and cash equivalents $ 4,028,271 $ 2,145,963 Accounts receivable, net of allowance 21,820,168 23,906,398 for doubtful accounts of $836,945 and $355,241 Advances to program suppliers 2,982,766 2,840,262 Inventory 3,889,603 2,804,983 Income tax receivable 169,300 3,006,502 Deferred tax asset 1,878,113 1,579,637 Notes receivable 4,523,143 2,512,177 Other current assets 1,295,556 955,296 ------------ ------------ Total current assets 40,586,920 39,751,218 ------------ ------------ PROPERTY AND EQUIPMENT, net 2,642,700 1,723,448 OTHER INVESTMENTS, net 302,481 2,014,701 DEFERRED TAX ASSET 3,346,212 2,497,762 OTHER ASSETS 3,595,041 3,469,660 ------------ ------------ Total assets $ 50,473,354 $ 49,456,789 ============ ============
(Continued)
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF MARCH 31, 2000 AND 1999 LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 CURRENT LIABILITIES: Line of credit $ - $ 7,925,000 Accounts payable 24,162,040 16,628,294 Accrued liabilities 2,645,567 2,822,574 Accrued compensation 1,476,703 941,836 Deferred revenue 1,500,262 100,415 Note payable 500,000 3,000,000 Net current liabilities of 430,923 3,746,766 discontinued operations ------------ ------------ Total current liabilities 30,715,495 35,164,885 ------------ ------------ LONG-TERM DEFERRED REVENUE 1,677,272 - COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value; - - authorized: 10,000,000 shares Common stock, $.001 par value; 10,515 10,440 authorized: 30,000,000 shares; issued and outstanding: 10,514,561 shares in 2000 and 10,439,948 shares in 1999 Capital in excess of par value 44,445,199 43,644,479 Cumulative other comprehensive income (264,684) 137,747 Accumulated deficit (25,326,951) (28,751,757) Less- Deferred charge - warrants (783,492) (749,005) ------------ ------------ Total stockholders' equity 18,080,587 14,291,904 ------------ ------------ Total liabilities and $ 50,473,354 $ 49,456,789 stockholders' equity ============ ============ The accompanying notes are an integral part of these consolidated balance sheets.
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 2000 1999 1998 REVENUES: PPT $ 93,393,869 $106,406,342 $113,181,910 Other 19,990,351 17,381,048 9,569,136 ------------ ------------ ------------ 113,384,220 123,787,390 122,751,046 ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Cost of sales 91,706,290 103,942,898 102,483,865 Selling and 26,448,569 15,995,941 13,062,064 administrative Net (gain) expense (7,791,880) 1,099,154 - from litigation settlement (Note 10) ------------ ------------ ------------ 110,362,979 121,037,993 115,545,929 ------------ ------------ ------------ Income from 3,021,241 2,749,397 7,205,117 operations ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income 743,464 429,830 1,135,823 Interest expense (669,373) (381,825) (158,708) Gain (loss) on (1,207,483) 549,103 (324,734) investments Other (385,986) - - ------------ ------------ ------------ (1,519,378) 597,108 652,381 ------------ ------------ ------------ (Continued)
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 2000 1999 1998 Income from continuing $ 1,501,863 $ 3,346,505 $ 7,857,498 operations before income tax provision and gain from disposal from discontinued operations INCOME TAX PROVISION (450,559) (1,303,999) (3,199,032) ------------ ------------ ------------ Net income from continuing 1,051,304 2,042,506 4,658,466 operations GAIN FROM DISPOSAL FROM 2,373,502 - - DISCONTINUED OPERATIONS, INCLUDING INCOME TAX BENEFIT OF $483,502 ------------ ------------ ------------ Net income $ 3,424,806 $ 2,042,506 $ 4,658,466 ============ ============ ============ EARNINGS PER COMMON SHARE: Basic: Continuing Operations $.10 $.19 $.42 Discontinued operations .23 - - ---- ---- ----- Total $.33 $.19 $.42 ==== ==== ==== Diluted: Continuing operations $.10 $.18 $.41 Discontinued operations .22 - - ---- ---- ---- Total $.32 $.18 $.41 ==== ==== ==== The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 Common Stock Cumulative ------------------- Capital in Other Number of Excess of Comprehensive Shares Amount Par Value Income BALANCE AT MARCH 31, 1997 11,847,441 $11,847 $47,931,165 $ 184,932 Repurchase of common stock (1,082,900) (1,082) (4,124,329) - Issuance of common stock under employee 221,914 222 888,007 - stock option plans Net income - - - - Change in unrealized gain (loss) on - - - (130,287) investment securities, net of tax Total comprehensive income Income tax benefit from stock option exercise - - 320,455 - Retirements of warrants - - (250,000) - Issuance of warrants - - 600,000 - Amortization of warrants - - - - ---------- ------- ----------- --------- BALANCE AT MARCH 31, 1998 10,986,455 10,987 45,365,298 54,645 Repurchase of common stock (592,484) (593) (1,964,622) - Issuance of common stock under employee stock 45,977 46 118,375 - option plans Net income - - - - Change in unrealized gain (loss) on - - - 83,102 investment securities, net of tax Total comprehensive income Income tax benefit from stock option exercise - - 41,428 -
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 Common Stock Capital in Cumulative ------------------- Other Number of Excess of Comprehensive Shares Amount Par Value Income Issuance of warrants - $ - $ 84,000 $ - Amortization of warrans - - - - ---------- ------- ----------- --------- BALANCE AT MARCH 31, 1999 10,439,948 10,440 43,644,479 137,747 Issuance of common stock under employee stock 74,613 75 228,882 - option plans Net income - - - - Change in unrealized gain (loss) on - - - (402,431) investment securities, net of tax Total comprehensive income Income tax benefit from stock option exercise - - 27,699 - Issuance of warrants - - 544,139 - Amortization of warrants - - - - ---------- ------- ----------- --------- BALANCE AT MARCH 31, 2000 10,514,561 $10,515 $44,445,199 $(264,684) ========== ======= =========== =========
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 Deferred Accumulated Charge Total Comprehensive Deficit Warrants Income BALANCE AT MARCH 31, 1997 $(35,452,729) $(1,403,158) $11,272,057 Repurchase of common stock - - (4,125,411) Issuance of common stock under - - 888,229 employee stock option plans Net income 4,658,466 - 4,658,466 $4,658,466 Change in unrealized gain (loss) on - - (130,287) (130,287) investment securities, net of tax ---------- Total comprehensive income $4,528,179 Income tax benefit from stock option - - 320,455 ========== exercise Retirements of warrants - - (250,000) Issuance of warrants - (600,000) - Amortization of warrants - 620,616 620,616 ------------ ----------- ----------- BALANCE AT MARCH 31, 1998 (30,794,263) (1,382,542) 13,254,125 Repurchase of common stock - - (1,965,215) Issuance of common stock under - - 118,421 employee stock option plans Net income 2,042,506 - 2,042,506 $2,042,506 Change in unrealized gain (loss) on - - 83,102 83,102 investment securities, net of tax ---------- Total comprehensive income $2,125,608 Income tax benefit from stock - - 41,428 ========== option exercise
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 Deferred Accumulated Charge Total Comprehensive Deficit Warrants Income Issuance of warrants $ - $ (84,000) $ - Amortization of warrants - 717,537 717,537 ------------ ----------- ----------- BALANCE AT MARCH 31, 1999 (28,751,757) (749,005) 14,291,904 Issuance of common stock under - - 228,957 employee stock option plans Net income 3,424,806 - 3,424,806 $3,424,806 Change in unrealized gain (loss) on - - (402,431) (402,431) investment securities, net of tax ---------- Total comprehensive income $3,022,375 Income tax benefit from stock option - - 27,699 ========== exercise Issuance of warrants - (544,139) - Amortization of warrants - 509,652 509,652 ------------ ----------- ----------- BALANCE AT MARCH 31, 2000 $(25,326,951) $ (783,492) $18,080,587 ============ =========== =========== The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,424,806 $ 2,042,506 $ 4,658,466 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Gain on disposal of discontinued operation (2,373,502) - - (Gain) loss on 1,207,483 (549,103) 324,734 investments Gain on (7,791,880) - - litigation settlement Depreciation and 1,780,966 1,286,515 696,883 amortization Write-off of 421,675 - - intangibles Amortization of 509,652 717,537 620,616 warrants Provision (credit)for 6,341,032 (125,000) (300,000) doubtful accounts Retailer (373,394) 141,698 (518,450) financing program reserves Reserves on 110,918 17,596 150,977 advances to program suppliers Deferred income (900,272) 1,176,909 1,277,239 taxes Net proceeds from 1,847,505 - - litigation settlement Change in specific accounts: Accounts (3,231,008) 778,471 (9,139,446) receivable Advances to (253,422) (2,425,883) (658,014) program suppliers Inventory (1,084,620) (377,807) (524,558) Income tax 2,864,901 (1,014,739) (802,511) receivable Notes 1,227,099 (537,802) (557,407) receivable and other current assets Accounts 7,233,746 (4,561,190) 6,173,164 payable Accrued 357,860 158,730 (203,803) liabilities and compen- sation Deferred 3,077,119 (729,448) (1,842,986) revenue Net current (942,341) (1,176,530) (47,741) liabilities of dis- continued operations ----------- ----------- ----------- Net cash 13,454,323 (5,177,540) (692,837) provided by (used in) operating activities ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property (1,790,501) (503,030) (508,398) and equipment Investments in (384,500) (1,329,778) (550,000) retailer financing program Proceeds from 228,539 - 518,450 retailer financing program Purchases of (398,122) (570,512) (1,076,299) investments Proceeds from sale of 975,305 1,525,538 289,016 investments Reduction (additions) (6,693) (1,238,601) 701,761 of other assets and intangibles ------------ ----------- ----------- Net cash used (1,375,972) (2,116,383) (625,470) in investing activities ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (7,925,000) 1,925,000 1,000,000 (payments) on line of credit Net borrowing (2,500,000) 3,000,000 - (payments) on notes payable Retirement of - - (250,000) warrants Repurchase of common - (1,965,215) (4,125,411) stock Issuance of common 228,957 118,421 888,229 stock ------------ ----------- ----------- Net cash (10,196,043) 3,078,206 (2,487,182) provided by(used in) financing activities ------------ ----------- ----------- NET INCREASE (DECREASE) 1,882,308 (4,215,717) (3,805,489) IN CASH AND CASH EQUIVALENTS CASH AND CASH 2,145,963 6,361,680 10,167,169 EQUIVALENTS AT BEGINNING OF YEAR ------------ ----------- ----------- CASH AND CASH $ 4,028,271 $ 2,145,963 $ 6,361,680 EQUIVALENTS AT END OF YEAR ============ =========== =========== The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000, 1999 AND 1998 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, the Company enters into contracts to lease video cassettes from program suppliers (producers of motion pictures and licensees and distributors of home video cassettes) which are then leased to retailers for a percentage of the rentals charged by the retailers. The Company's wholly owned subsidiary, 3PF.COM,Inc. (3PF), provides e-fulfillment order processing and inventory management services to e-tailers, wholesalers and businesses requiring just- in-time fulfillment. The Company's wholly owned subsidiary BlowOut Video, Inc. sells video cassettes and DVDs through its 7 retail video stores that operate under the name of BlowOut Video. Rentrak Japan In December 1989, the Company entered into a definitive agreement with Culture Convenience Club Co., Ltd. (CCC) 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 one percent (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, of which $1 million was paid in fiscal 1995 and $1 million was paid in fiscal 1999. The term of the Agreement was extended from the year 2001 to the year 2039. The Company currently owns approximately 9% of Rentrak Japan. In December 1999, the Company received a prepayment of $2,500,000 in exchange for $4,000,000 of credit related to the annual royalty described above. This credit is being recognized in revenues as royalties are earned under the terms of the contract. As of March 31, 2000, $1,638,363 has been recorded as deferred revenue on the accompanying consolidated balance sheet to be recognized in future periods. 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. 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. Rentrak UK was originally structured as a joint venture between the Company, which owned 25%, Columbus Holdings Limited, which owned 67% of the venture and Rentrak Japan, which owns 8%. On March 31, 1999, the Company acquired Columbus Holdings Limited's 67% interest, and now owns 84% of Rentrak UK. The acquisition, which was not material to the operations of the Company, was accounted for as a purchase. As of March 31, 2000, Rentrak UK is not generating income or positive cash flow. Accordingly, the Company wrote-off its investment of $222,000. Management of the Company is evaluating Rentrak UK's operations and is exploring options including selling or closing down the operations. Management intends to make a decision in the second quarter of 2001. 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. Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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). Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less at acquisition 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 reflected in other comprehensive income as change in 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 for the years ended March 31 are as follows:
Proceeds Gross Gains Gross Losses 2000 $ 975,305 $554,971 $(121,105) 1999 1,525,538 843,749 (294,646) 1998 519,688 24,375 (118,437)
When, in management's opinion, available for sale securities have experienced an other than temporary decline, the amount of the decline in market value below cost is recorded in the income statement as a loss on investments. In fiscal years 2000 and 1998, management determined that certain investments had incurred unrealized losses resulting from other than temporary declines in market value below the cost of the investments. Unrealized losses from other than temporary decline in market value of $1,245,157 and $230,672 were recorded in gain (loss) on investments in the March 31, 2000 and 1998 consolidated statement of income, respectively. There were no unrealized losses recognized in the March 31, 1999 consolidated statement of income. 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, 2000 and 1999. 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 property and equipment 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. The Company estimates the sum of expected future undiscounted preinterest expense net cash flows from 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. 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 income 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. Revenues derived from fulfillment services are recognized when products are shipped. During fiscal 2000, the company received a $2,500,000 prepayment from a customer in exchange for $4,000,000 in credit related to a long-term agreement. This prepayment related to periods subsequent to March 31, 2000 and has therefore been recorded as deferred revenue on the accompanying consolidated balance sheet. Deferred revenue will be recognized in future periods as revenues are earned under the terms of the contract. 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 $47,000, $99,000 and $323,000 during fiscal 2000, 1999 and 1998, 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 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.
The weighted average number of shares of common stock and common stock equivalents and net income used to compute basic and diluted earnings per share for the years ended March 31 were calculated as follows: 2000 1999 1998 --------------------- --------------------- --------------------- Basic Diluted Basic Diluted Basic Diluted Weighted average number 10,477,334 10,477,334 10,775,126 10,775,126 11,222,443 11,222,443 of shares of common stock outstanding Dilutive effect of exercise of stock - 281,787 - 291,017 - 222,378 options ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number 10,477,334 10,759,121 10,775,126 11,066,143 11,222,443 11,444,821 of shares of common stock outstanding and common stock equivalents ========== ========== ========== ========== ========== ========== Net income: Continuing operations $1,051,304 $1,051,304 $2,042,506 $2,042,506 $4,658,466 $4,658,466 Discontinued 2,373,502 2,373,502 - - - - operations ---------- ---------- ---------- ---------- ---------- ---------- Net income $3,424,806 $3,424,806 $2,042,506 $2,042,506 $4,658,466 $4,658,466 ========== ========== ========== ========== ========== ========== Earnings per share: Continuing operations $0.10 $0.10 $0.19 $0.18 $0.42 $0.41 Discontinued 0.23 0.22 - - - - operations ----- ----- ----- ----- ----- ----- Earnings per share $0.33 $0.32 $0.19 $0.18 $0.42 $0.41 ===== ===== ===== ===== ===== =====
Options and warrants to purchase approximately 4,400,000, 4,400,000 and 4,300,000 shares of common stock were outstanding during the years ended March 31, 2000, 1999 and 1998, respectively, but were not included in the computation of diluted EPS because the exercise price of the options and warrants were greater than the average market price of the common shares. Advertising Expense Advertising expense, net of advertising reimbursements, totaled approximately $952,000, $641,000 and $71,000 for the years ended March 31, 2000, 1999 and 1998, respectively. Statements of Cash Flows The Company had the following transactions for the years ended March 31:
2000 1999 1998 CASH PAID (RECEIVED) FOR: Interest $ 656,723 $ 328,802 $ 153,398 Income taxes, net of refunds (1,645,085) (493,645) 2,790,158 NONCASH FINANCING AND INVESTING ACTIVITIES: Reclassification of accounts 1,023,794 269,775 1,478,869 receivable to other assets and other investments Issuance of warrants (544,139) (84,000) (600,000) Tax benefit from stock option (27,699) (41,428) (320,455) exercises Receipt of note receivable in 4,000,000 - - litigation settlement (Note 10) Receipt of common stock in 1,944,375 - - litigation settlement (Note 10) Change in unrealized gain (402,431) 83,102 (130,287) (loss) on investment securities, net of tax
Comprehensive Income In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The Company has adopted SFAS 130. The statement establishes presentation and disclosure requirements for reporting comprehensive income. Comprehensive income includes charges or credits to equity that is not the result of transactions with shareholders. Components of the Company's comprehensive income consist of the change in unrealized gain (loss) on investment securities (net of tax), net of the reclassification adjustment for gains (losses) included in net income as of March 31 is as follows:
2000 1999 1998 Holding gains (losses) arising $(534,988) $291,761 $(166,031) during the period, net of tax Less- Reclassification 132,557 208,659 (35,744) adjustment for gains (losses) included in net income, net of tax --------- -------- --------- Change in unrealized gains $(402,431) $ 83,102 $(130,287) (losses) on investment securities, net of tax ========= ======== =========
Impact of Recent Accounting Pronouncements In June 1999, the FASB issued Statement of Financial Accounting Standard No. 137 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 137). SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging Activities." SFAS 137 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 137 also requires that changes in the derivative instrument's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS 137 is effective for the Company's fiscal year beginning April 1, 2000. The Company expects that adoption of SFAS 137 will not have a material impact on the Company's financial condition or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101) on revenue recognition. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 is effective for the Company beginning July 1, 2000. The Company does not expect the adoption of SAB 101 to have a material impact on its results of operations or financial position. Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 2. INVESTMENT SECURITIES: The carrying value and estimated fair value of marketable securities at March 31 were as follows:
Carrying Unrealized Unrealized Value Gross Gain Gross Loss Fair Value As of March 31, 2000: Available for sale- Noncurrent: Corporate $2,335,290 $ 30,319 $(457,233) $1,908,376 securities ========== ======== ========= ========== As of March 31, 1999: Available for sale- Noncurrent: Corporate $ 35,108 $222,249 $ (77) $ 257,280 securities ========== ======== ========= ==========
Investment securities that have limited marketability are classified as noncurrent as it is management's intent not to dispose of the securities within one year. 3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of: March 31, ----------------------- 2000 1999 Furniture and fixtures $ 7,054,568 $ 5,861,824 Machinery and equipment 438,312 213,412 Leasehold improvements 2,060,114 1,687,257 ----------- ----------- 9,552,994 7,762,493 Less- Accumulated depreciation (6,910,294) (6,039,045) ----------- ----------- $ 2,642,700 $ 1,723,448 =========== ===========
4. RETAILER FINANCING PROGRAM: In 1992, the Company established a retailer financing program whereby on a selective basis it provided financing to video retailers that the Company believed had potential for substantial growth. In connection with these financings, the Company typically made a loan and/or equity investment in the retailer. In some cases, a warrant to purchase stock was obtained. As part of such financings, the retailer typically agreed 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. As of March 31, 2000, the Company has invested or made oral or written commitments to loan to or invest approximately $6,900,000 in various video retailers. The amounts outstanding under this program individually range from $50,000 to $4,700,000. The notes, which have payment terms that vary according to the individual loan agreements, are due from 2000 through 2007. Interest rates on the various loans range from 5% to prime plus 1.5% (10.5% at March 31, 2000). 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 of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114). 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. The amounts the Company could ultimately receive could differ materially in the near-term from the amounts assumed in establishing the reserves. At March 31, 2000 the Company had invested or loaned approximately $6,900,000 under the program and had provided reserves of approximately $5,700,000. At March 31,1999 the Company had invested or loaned approximately $14,000,000 under the program and had provided reserves of approximately $9,600,000. These balances are included in other assets. The activity in the total reserves for the retailer-financing program is as follows for the years ended March 31:
2000 1999 Beginning balance $ 9,575,688 $9,353,995 Additions to reserve 1,245,157 240,614 Write offs (5,115,665) - Recoveries (20,997) (18,921) ----------- ---------- Ending balance $ 5,684,183 $9,575,688 =========== ==========
A substantial portion of the write-offs in fiscal 2000 related to assets which were fully reserved in prior years. 5. LINE OF CREDIT: The Company had an agreement for a line of credit with a financial institution in an amount not to exceed the lesser of $7,500,000 or the sum of 80% of the net amount of eligible accounts receivable as defined in the agreement. Interest was payable monthly at the bank's prime rate plus 1 percent (9% at March 31, 2000). The line was secured by substantially all of the Company's assets. The terms of the agreement required, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum total liabilities to tangible net worth. The agreement also restricted the amount of net losses, loans and indebtedness and limited the payment of dividends on the Company's stock. The Company was in compliance with these covenants as of March 31, 2000. At March 31, 2000 and 1999, the Company had $0 and $7,925,000, respectively, outstanding under this agreement. In May 2000 this line of credit was replaced with a $12,000,000 line of credit with a different lender. Interest under this line is payable monthly at the bank's prime rate plus 1/4 percent. The new 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 and working capital. The agreement also restricts the amount of loans and indebtedness and limits the payment of dividends on the Company's stock. The agreement expires in May 2005. 6. RELATED PARTY NOTE PAYABLE: On January 29, 1998, the Company entered into a $3,000,000 unsecured note payable with a director of the Company. The 10% interest-bearing note was repaid in full in January 2000. During fiscal 2000, the Company's subsidiary, Blowout Video Holding Company, entered into a $3,000,000 line of credit with a director of the Company. The line expires in August 2002 and bears interest at prime plus 1.5 percent (10.5% at March 31, 2000). The line is secured by substantially all the assets of BlowOut Video Holding Company. At March 31, 2000, the Company had $500,000 outstanding under this agreement which is recorded in accrued liabilities in the accompanying consolidated balance sheet. 7. INCOME TAXES:
The provision (benefit) for income taxes is as follows for the years ended March 31: 2000 1999 1998 Current tax provision: Federal $ - $ - $1,689,658 Foreign - - 1,500,000 State 125,192 - 232,133 -------- ---------- ---------- 125,192 - 3,421,791 Deferred tax provision 325,367 1,303,999 (222,759) (benefit) -------- ---------- ---------- Income tax provision $450,559 $1,303,999 $3,199,032 ======== ========== ==========
The reported provision for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes as follows for the years ended March 31:
2000 1999 1998 Provision computed at $ 510,633 $1,137,812 $2,688,549 statutory rates State taxes, net of federal 59,474 133,860 117,464 benefit Amortization of warrants 193,667 272,664 235,834 Recognition of net operating (131,507) - - loss carryforward Other (181,708) (240,337) 157,185 --------- ---------- ---------- $ 450,559 $1,303,999 $3,199,032 ========= ========== ==========
Deferred tax assets and (liabilities) from continuing operations are comprised of the following components at March 31, 2000 and 1999: 2000 1999 Deferred tax assets: Current- Allowance for doubtful accounts $ 78,113 $ 78,113 Retailer-related accruals - 140,703 Foreign tax credit 823,559 713,497 Net operating loss carryforward - 539,108 Capital loss carryforward 327,749 195,543 Deferred revenue 570,100 - Other 78,592 (87,327) ---------- ---------- Total current deferred tax assets 1,878,113 1,579,637 ---------- ---------- Noncurrent- Depreciation 423,846 433,691 Retailer financing program 320,107 552,775 reserve Program supplier reserves 484,910 442,761 Unrealized loss on investments 299,296 143,675 Foreign tax credit 1,000,000 1,000,000 Deferred revenue 637,361 - Intangibles amortization - (160,237) Other 180,692 85,097 ---------- ---------- Total noncurrent deferred tax assets 3,346,212 2,497,762 ---------- ---------- Total deferred tax assets $5,224,325 $4,077,399 ========== ==========
8. 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 750,000. 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 1,600,000. The plans are administered by the Stock Option Committee of the Board which 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, 2000, the Company has 387,170 and 168,934 options available to be granted under the 1997 Non-Officer Employee Stock Option Plan and 1997 Equity Participation Plan, respectively. The Company has elected to account for its stock-based compensation plans in accordance with APB 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 2000, 1999 and 1998, using the Black-Scholes option pricing model as prescribed by SFAS 123 and the following assumptions:
2000 1999 1998 Risk-free interest rate 5.37 - 6.91% 4.46 - 6.03% 5.56 - 7.17% Expected dividend yield 0% 0% 0% Expected lives 5 - 10 years 5 - 10 years 5 - 10 years Expected volatility 72.20% 68.94% 48.53%
Adjustments were made for options forfeited prior to vesting. Had compensation expense for these plans been determined in accordance with SFAS 123, the Company's net income and earnings per share reflected on the March 31, 2000, 1999 and 1998 statements of income would have been the following unaudited pro forma amounts:
2000 1999 1998 Net income As reported $3,424,806 $2,042,506 $4,658,466 Pro forma 2,293,758 95,767 3,873,988 Basic earnings per share As reported $.33 $.19 $.42 Pro forma .22 .01 .35 Diluted earnings per share As reported $.32 $.18 $.41 Pro forma .21 .01 .34
The table below summarizes the plans' activity:
Options Outstanding ------------------------- Weighted Number of Average Shares Exercise Price Balance at March 31, 1997 2,956,123 $4.72 Granted- Option price = fair market value 549,174 4.11 Option price > fair market value 45,714 4.98 Option price < fair market value 10,000 2.94 Issued (221,914) 4.14 Canceled (513,772) 4.89 --------- ----- Balance at March 31, 1998 2,825,325 4.60 Granted- Option price = fair market value 919,216 5.04 Issued (45,977) 2.77 Canceled (252,458) 4.77 --------- ----- Balance at March 31, 1999 3,446,106 4.73 Granted- Option price = fair market value 607,837 3.97 Option price > fair market value 15,000 7.38 Option price < fair market value 12,500 2.81 Issued (74,613) 3.08 Canceled (147,128) 5.75 --------- ----- Balance at March 31, 2000 3,859,702 $4.60 ========= =====
Using the Black Scholes methodology, the total value of options granted during fiscal years 2000, 1999 and 1998 was approximately $2,560,000, $4,633,000 and $2,510,000, which would be amortized on a pro forma basis over the vesting period of the option. The weighted average fair value of options granted during the years ended March 31, 2000, 1999 and 1998 was $4.03, $5.04 and $4.15, respectively. Options to purchase 2,494,190, 2,006,932 and 1,560,482 shares of common stock were exercisable at March 31, 2000, 1999 and 1998, respectively. These exercisable options had weighted average exercise prices of $4.70, $4.57 and $4.62 at March 31, 2000, 1999 and 1998, respectively. The following table summarizes information about stock options outstanding at March 31, 2000:
Options Outstanding Options Exercisable ------------------------------ -------------------- Weighted Outstand- Average Weighted Exercisable Weighted Range of ing as of Remaining Average as of Average Exercise March 31, Contract- Exercise March 31, Exercise Prices 2000 ual Life Price 2000 Price $1.00-$2.59 37,922 0.0 $ 1.28 37,922 $ 1.28 2.60-6.49 3,745,251 5.9 4.54 2,389,739 4.63 6.50-9.78 76,529 7.8 9.38 66,529 9.36 --------- --------- 1.00-9.78 3,859,702 5.9 4.60 2,494,190 4.70 ========= =========
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 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 13). 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 $6.578. This adjustment was done in connection with the distribution of the common stock of BlowOut Entertainment, Inc. (BlowOut) in November 1996 (Note 13). The adjustment was done pursuant to the supplier's agreement that 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. As a result of the stock adjustment which was done in connection with the distribution of the common stock of BlowOut, 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 13). The adjustment was done pursuant to the supplier's agreement that requires the Company to adjust the warrant if a distribution of the Company's assets occurs. During fiscal year 1998, the warrants were canceled. 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. These warrants expired unexcercised in March 2000. All warrants which the Company agreed to issue in 1995 and 1998 were valued by an outside valuation firm using standard warrant valuation models. The value of the warrants of $4,133,977 was recorded in the equity section and is being amortized over the associated periods to be benefited by each warrant. In fiscal 2000, 1999 and 1998, expense associated with the warrants was approximately $510,000 $718,000 and $621,000, 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 certain proposals to acquire control of the Company. Under the rights plan, each shareholder received 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. Prior to the time that a person or group acquires beneficial ownership of 15% or more of the Company's outstanding stock, the Board of Directors, at their discretion, may waive this provision with respect to any transaction or may terminate the rights plan. 9. COMMITMENTS: Leases The Company leases certain facilities and equipment under operating leases expiring at various dates through 2009. Approximate rental payments over the term of the leases exceeding one year are as follows: Year Ending March 31, 2001 $ 2,685,000 2002 2,231,000 2003 1,820,000 2004 1,655,000 2005 1,649,000 2006 and thereafter 3,411,000 ----------- $13,451,000 =========== 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 approximately $2,335,000, $1,926,000 and $2,111,000 for the years ended March 31, 2000, 1999 and 1998, 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, 2000, the Company has reserved approximately $2,000,000 for potential losses under such guarantee arrangements. On March 22, 1999, BlowOut filed for Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. At that same time BlowOut filed a motion to sell substantially all the assets of BlowOut. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The sale, to a third party video retailer, was approved on May 10, 1999 and closed on May 17, 1999. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut (Guarantee). Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the guarantee, has agreed to a payment plan to fulfill BlowOut's obligation under its credit facility. The amount outstanding at March 31, 2000 is approximately $590,000. The payments, as made, will be recorded as a reduction of "net current liabilities of discontinued operations" on the accompanying balance sheet. 10. CONTINGENCIES: 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 January 2000, the Company and Hollywood settled the case. Pursuant to the settlement, Hollywood paid the Company $14,000,000, $10,000,000 of which was paid in cash and $4,000,000 of which was paid by promissory note due within six months of the settlement. In addition, Hollywood issued to the Company 200,000 shares of Hollywood common stock. After considering legal costs and accounts receivable due from Hollywood, the Company recorded a gain of $7,791,880. 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, including 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. In August 1998, the Court granted the Company's motion to dismiss the Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule 12(b)(3) on the basis of improper venue. In August 1998, Video Update filed a new complaint against the Company in the United States District Court for the District of Oregon (the Re-Filed Complaint), Case No. 98-1013HA. The Re- Filed Complaint is substantially the same as the previous complaint. The Company believes the Re-Filed Complaint lacks merit and intends to vigorously defend against the allegations in the Complaint. The Company has answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also has counterclaimed against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation and intentional interference with business advantage, and seeks damages and equitable relief. In October 1998, the Company filed a motion for summary judgment seeking to dismiss the lawsuit filed against it by Video Update. In January of 1999, the Company filed a separate motion for partial summary judgment on its breach of contract counterclaim seeking to recover more than $4.4 million in fees and interest which the Company claims Video Update owes to it. In response to the Company's motions, Video Update asked the court for time to take discovery before having to file oppositions. The court has given the parties until June 30, 2000 to conduct discovery. The court denied Rentrak's motions without reaching the merits and without prejudice to re-filing the motions after discovery has been conducted. Rentrak expects to re-file its motions after discovery has taken place. On October 21, 1999, the Company amended its counterclaims to add additional breach of contract claims, a claim for trade secret misappropriation and a claim for recovery of personal property. The amended countercomplaint also added Video Update's chairman, Daniel Potter as a defendant to the fraud and negligent misrepresentation claims. As of March 31, 2000, the Company has approximately $4,600,000 in accounts receivable relating to PPT transactions from Video Update which the Company believes are recoverable. Management intends to monitor the situation quarterly and when management becomes aware of information that indicates that the asset will not be recovered, an appropriate reserve will be recorded. In August 1998, the Company filed a complaint (the Movie Buffs Complaint) against Susan Janae Kingston d/b/a Movie Buffs (Movie Buffs), entitled Rentrak Corporation v. Susan Janae Kingston, an individual, d/b/a Movie Buffs, Case No. CV 98-1004 HA, in the United States District Court for the District of Oregon. The Movie Buffs complaint alleges breach of contract and conversion claims and seeks damages in the amount of at least $3.3 million and punitive damages of $500,000. In September 1998, Movie Buffs filed counterclaims against the Company and Third Party Claims against Hollywood Entertainment Corp. (the Movie Buffs Counterclaims). The Movie Buffs Counterclaims allege that the Company violated the antitrust laws, including the Sherman, Clayton and Robinson-Patman Acts. The Counterclaim also seeks declaratory relief, an accounting and alleges fraud and conspiracy to defraud, breach of contract, breach of the implied covenant of good faith, and unfair trade practices. Movie Buffs seeks an unspecified amount of damages (at least $10 million), treble damages, general and consequential damages, punitive damages, Attorneys' fees and court costs. In September 1998, Roadrunner Video (Roadrunner Video) filed a third-party complaint in intervention against the Company and Hollywood Entertainment Corp. (the Roadrunner Complaint). The Roadrunner Complaint alleges the same claims as the Movie Buffs Counterclaims. The Company filed a motion to dismiss the Robinson-Patman Act claims pursuant to Federal Rules of Civil Procedure 12(b)(6), which motion was granted on March 5,1999. The court also granted Roadrunner and Movie Buff's request to dismiss their claims against Hollywood without prejudice. The Company believes the Movie Buffs Counterclaims and the Roadrunner Complaint lack merit and the Company intends to vigorously defend against all of the allegations therein. On April 12, 1999, Roadrunner and Movie Buffs filed amended claims against Rentrak that added a new claim for fraud. The Company continues to believe that the remaining Roadrunner and Movie Buffs claims are without merit and intends to continue to vigorously defend itself. On February 10, 2000, the Company filed a complaint (the "Action Video Complaint") against David D. Passerallo, and Action Video, Inc. entitled Rentrak Corporation v. David D. Passerallo, an individual and Action Video, a North Carolina corporation, Case No. CV 00-214-HA, in the United District Court for the District of Oregon. The Action Video Complaint alleges claims for conversion, and breach of contract, payment on advance agreement and personal guarantee. On April 10, 2000, Action Video filed counterclaims against the Company. Action Video's counterclaims allege that the Company violated antitrust laws, including the Sherman and Clayton Acts, based on the Company's alleged efforts to favor certain customers (such as Hollywood) over others and thereby restrain competition. The Action Video Counterclaims also include the following: (1) a demand for a declaratory ruling that the contract between the Company and Action Video is unenforceable as unconscionable and a contract of adhesion, (2) fraud and conspiracy to defraud, based on allegedly false representations intended to induce Action Video to act; (3) breach of contract based on the Company's allegedly wrongful termination of its contract with Action Video, allegedly wrongful computation of revenue entitlement, and certain other alleged actions; (4) breach of an implied covenant of good faith, based on the Company's allegedly wrongful termination of its contract with Action Video; (5) unfair trade practices based on the Company's alleged conduct during its dealings with Action Video, including termination of the Company's contract with Action Video; and (6) a demand for an accounting of the nature and amount of the parties' respective obligations under the contract. Action Video seeks unspecified monetary damages in excess of $7 million, treble damages, general and consequential damages, punitive damages in the minimum amount of $30 million, attorneys' fees and court costs. The Company has sought to dismiss a number of Action Video's counterclaims. Action Video has agreed to dismiss certain of these counterclaims and has agreed to replead its remaining counterclaims. The Company believes that the Action Video Counterclaims are without merit and intends to vigorously defend against this litigation. In the event of an unanticipated adverse final determination in respect of certain matters discussed above, the Company's consolidated net income for the period in which such determination occurs could be materially affected. The Company is also subject to certain legal proceedings and claims that 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. 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, 2000, 1999 and 1998 were approximately $77,000, $76,000 and $68,000, 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 143,773 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 3,257 shares for aggregate proceeds of $14,370, 4,245 shares for aggregate proceeds of $20,214 and 5,351 shares for aggregate proceeds of $20,993, in 2000, 1999 and 1998, respectively. 12. BUSINESS SEGMENTS, SIGNIFICANT SUPPLIERS AND MAJOR CUSTOMER: In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131). SFAS 131 requires the Company to report certain information about operating segments. The Company classifies its services in three segments, PPT, 3PF.COM and Other. Other services include operations of BlowOut Video, a video retailer, website services and amounts received pursuant to royalty agreements.
Business Segments 2000 1999 1998 Net sales (1): PPT $ 94,149,121 $106,972,685 $113,748,857 3PF.COM (2) 11,648,770 10,501,958 6,436,412 Other 13,345,044 8,102,348 4,175,449 ------------ ------------ ------------ $119,142,935 $125,576,991 $124,360,718 ============ ============ ============ Income (loss) from operations PPT $ 2,032,875 $ (1,086,669) $ 4,752,502 3PF.COM(2) (1,131,187) 862,257 664,672 Other 2,119,550 2,973,809 1,787,943 ------------ ------------ ------------ $ 3,021,238 $ 2,749,397 $ 7,205,117 ============ ============ ============ Identifiable assets(1): PPT $ 44,571,673 $ 45,618,408 $ 49,330,378 3PF.COM 2,703,360 1,152,171 549,439 Other 6,195,923 4,302,726 3,540,549 ------------ ------------ ------------ $ 53,470,956 $ 51,073,305 $ 53,420,366 ============ ============ ============ (1)Total amounts differ from those reported on the consolidated financial statements as intercompany transactions and investments in subsidiaries are not eliminated for segment reporting purposes. (2) 3PF.COM's revenues related to the shipment of cassettes to Rentrak's PPT Customers was $3,300,000, $3,800,000 and $4,500,000 for the years ended March 31, 2000, 1999 and 1998, respectively.
The Company has one program supplier that supplied product that generated 25%, a second that generated 19%, and a third that generated 13% of the Company's revenues for the year ended March 31, 2000. The Company has one program supplier that supplied product that generated 28%, a second that generated 26%, and a third that generated 15% of the Company's revenues for the year ended March 31, 1999. 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. There were no other program suppliers who provided product accounting for more than 10% of sales for the years ended March 31, 2000, 1999 and 1998. The Company currently receives a significant amount of product from three program suppliers. Although management does not believe that these relationships will be terminated in the near term, a loss of one of these suppliers could have an adverse affect on operating results. One customer accounted for 13% of the Company's revenues in 1999. Another customer accounted for 11% of the Company's revenues in 1998. No customer accounted for more than 10% of the Company's revenue in fiscal 2000. 13. DISCONTINUED OPERATIONS: 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. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. During the year ended March 31, 2000, the Company recorded a gain on the disposal of discontinued operations of $1,900,000 related to BlowOut, as the liability related to BlowOut contingencies was less than estimated. The Company also reduced the valuation allowance that was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of approximately $500,000 in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated income statement. Net current liabilities of discontinued operations at March 31, 2000 relate to amounts to be paid pursuant to the Guarantee, net of tax benefit.
RENTRAK CORPORATION Valuation and Qualifying Accounts Schedule II Balance at Charged to Balance at Beginning of Write Off and Other Recoveries The End of Year Ended: Period Expenses Accounts (Deductions) Period Allowance for doubtful accounts March 31, 1998 409,313 (4,655,356) - 4,832,684 586,641 March 31, 1999 586,641 (7,865,333) - 7,633,933 355,241 March 31, 2000 355,241 (3,892,947) - 4,374,651 836,945 Advances to program suppliers reserve March 31, 1998 1,768,514 110,581 (696,338) - 1,182,757 March 31, 1999 1,182,757 (17,597) - - 1,165,160 March 31, 2000 1,165,160 110,918 - - 1,276,078 Other Current Assets- Retailer Financing Program reserve March 31, 1998 - - - - - March 31, 1999 - - 994,935 1 - 994,935 March 31, 2000 994,935 - (500,000) 1 - 494,935 Other Assets- Retailer Financing Program reserve March 31, 1998 10,340,375 - (467,930) 2 (518,450) 9,353,995 March 31, 1999 9,353,995 (194,888) (559,433) 1 (18,921) 8,580,753 March 31, 2000 8,580,753 1,245,157 (4,615,665) 2 (20,997) 5,189,248 1 - Reclassified from Other Current Assets to Other Assets. 2 - Eliminated against Other Assets.
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 2000 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 2000 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 2000 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 2000 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, 2000 and 1999 Consolidated Statements of Income for Years Ended March 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity for Years Ended March 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for Years Ended March 31, 2000, 1999, and 1998 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 2000, 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 Rick Nida, Vice President Investor Relations, 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/ F. Kim Cox F. Kim Cox, President Date June 29, 2000 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 29, 2000 Ron Berger, CEO Principal Financial Officer: By /S/ Carolyn Pihl June 29, 2000 Carolyn A. Pihl, Chief Financial Officer Majority of Board of Directors: By /S/ Pradeep Batra June 29, 2000 Pradeep Batra, Director By /S/ Peter Balner June 29, 2000 Peter Balner, Director By /S/ Skipper Baumgarten June 29, 2000 Skipper Baumgarten, Director By /S/ Ron Berger June 29, 2000 Ron Berger, Chairman By /S/ Takaaki Kusaka June 29, 2000 Takaaki Kusaka, Director By /S/ James P. Jimirro June 29, 2000 James P. Jimirro, Director By /S/ Bill LeVine June 29, 2000 Bill LeVine, Director By /S/ Muneaki Masuda June 29, 2000 Muneaki Masuda, Director By /S/ Stephen Roberts June 29, 2000 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 Exhibit Page Number 3.1 Amended and Restated Articles of Incorporation and amendments thereto (1) 3.2 1995 Restated Bylaws, as amended to date (2) 3.3 Amendment No. 1 to the 1995 Restated Bylaws of Rentrak Corporation. (3) 3.4 Amendment No. 2 to the 1995 Restated Bylaws of Rentrak Corporation. (26) 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 (4) 10.2* Stock Option Agreement with Ron Berger, dated April 18, 1995 (5) 10.3* Rentrak Corporation Amended and Restated Directors Stock Option Plan (6) 10.4* Rentrak Corporation's 401-K Plan (7) 10.5* Amended and Restated 1992 Employee Stock Purchase Plan of Rentrak Corporation (8) 10.6 Joint Development Agreement with CCC dated August 6, 1993 (9) 10.7 Second Amendment to Business Cooperation Agreement between Rentrak Corporation, Culture Convenience Club Co., Ltd., and Rentrak Japan dated June 16, 1994 (10) 10.8* Employment Agreement with Carolyn Pihl dated May 6, 1996 (11) 10.9 Guarantee Agreement dated as of June 26, 1996 between Rentrak Corporation and BlowOut Entertainment, Inc. (12) 10.10* The 1997 Non-Officer Employee Stock Option Plan of Rentrak Corporation (13) 10.11* Employment Agreement with Marty Graham dated May 17, 1997 (14) 10.12* Employment Agreement with Michael Lightbourne dated July 10, 1997 (15) 10.13* Employment Agreement with Christopher Roberts dated October 27, 1997 (16) 10.14* Employment Agreement with Ron Berger dated April 21, 1998 (17) 10.15* The 1997 Equity Participation Plan of Rentrak Corporation (18) 10.16* Amendment to the 1997 Non-Officer Employee Stock Option Plan of Rentrak Corporation (19) 10.17* Form of Non-Qualified Stock Option Agreement (20) 10.18* Form of Incentive Stock Option Agreement (21) 10.19 Amendment to the 1997 Equity Participation Plan of Rentrak Corporation dated August 24, 1998. (22) 10.20 Amendment to the 1997 Equity Participation Plan of Rentrak Corporation (23) 10.21* Employment Agreement with F. Kim Cox dated April 1, 1998 (24) 10.22 Amendment to the 1997 Equity Participation Plan of Rentrak Corporation dated August 23, 1999. (25) 10.23* Addendum to Employment Agreement with 55 Marty Graham dated June 8, 2000 10.24* Addendum to Employment Agreement with 57 Christopher Roberts dated June 8, 2000 10.25* Promissory Note entered into with F. 59 Kim Cox dated June 16, 2000 10.26* Promissory Note entered into with Ron 63 Berger dated June 16, 2000 10.27 Loan and Security Agreement with 67 Guaranty Business Credit Corporation dated May 26, 2000 10.28 General Continuing Guarantee with 85 Guaranty Business Credit Corporation dated May 26, 2000 10.29 Amendment to Rentrak Corporation 98 Amended and Restated Directors Stock Option Plan dated May 19, 2000 10.30 Amendment to Rentrak Corporation 1986 99 Second Amended and Restated Stock Option Plan dated May 19, 2000 10.31 Warrant Agreement and Certificate To 100 Purchase Shares of Common Stock of 3PF.COM, Incorporated dated November 29, 1999 10.32 Loan and Security Agreement with Bill 115 LeVine dated August 1999 21 List of Subsidiaries of Registrant 138 23 Consent of Arthur Andersen LLP 139 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 B to 1994 Proxy Statement dated July 11, 1994 3. Filed as Exhibit 10.41 to 1998 Form 10-K filed on June 25, 1998 4. Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993 5. Files as Exhibit 10.5 to 1998 form 10-K filed on June 25, 1998 6. Filed as Exhibit B to 1994 Proxy Statement dated July 11, 1994 7. Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993 8. Filed as Exhibit 10.13 to Form 10-K filed on June 29, 1995 9. Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993 10. Filed as Exhibit to 1994 form 10-K filed on June 29, 1994 11. Filed as Exhibit 10.25 to Form 10-K filed on June 19, 1997 12. Filed as Exhibit 2 to Form 8-K filed on December 9, 1996 13. Filed as Exhibit 4.1 to Form S-8 filed on June 5, 1997 14. Filed as Exhibit 10.1 to Form 10-Q filed on November 3, 1997 15. Filed as Exhibit 10.2 to Form 10-Q filed on November 3, 1997 16. Filed as Exhibit 10.3 to Form 10-Q filed on November 3, 1997 17. Filed as Exhibit 10.35 to 1998 Form 10-K filed on June 25, 1998 18. Incorporated by reference to the Company's Proxy Statement dated June 25, 1997 for the Company's 1997 Annual Meeting of Shareholders 19. Filed as Exhibit 4.1 to Form S-8 filed on October 29, 1997 20. Filed as Exhibit 10.6 to Form 10-Q filed on November 3, 1997 21. Filed as Exhibit 10.1 to Form 10-Q filed on February 9, 1998 22. Filed as Exhibit 10.40 to 1998 Form 10-K filed on June 25, 1998 23. Filed as Exhibit 10.1 to Form 10-Q on November 6, 1998 24. Filed as Exhibit 10.2 to Form 10-Q filed on November 6, 1998 25. Filed as Exhibit 10.1 to Form 10-Q filed on November 9, 1999 26. Filed as Exhibit 3.4 to 1999 Form 10-K filed on June 25, 1999 EX-10.23 2 0002.txt EXHIBIT 10.23 ADDENDUM TO EMPLOYMENT AGREEMENT THIS CHANGE IN CONTROL ADDENDUM TO EMPLOYMENT AGREEMENT ("Addendum"), dated June 8th, 2000, is made by and between Rentrak, Inc., an Oregon corporation (the "Company"), and Marty Graham (the "Employee"). WHEREAS, the Company considers it essential to the best interests of the Company to foster the continued employment of its management personnel; and WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control (as defined below) exists 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 the Company; and WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Employee, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change of Control; WHEREAS, the Company and Employee executed an Employment Agreement ("Employment Agreement") on May 17, 1997; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the Company and the Employee hereby amend their Employment Agreement as follows: 1. Terms. If Employee voluntarily terminates his employment without "Good Reason" (as defined by Employee's Employment Agreement) within two (2) months following a Change of Control, Employee shall be eligible to receive the following payment in proportion to Employee's years' of service to the Company. Specifically, Employee shall be paid one week of Employee's base salary for each full year that Employee has been employed with the Company. In no case, however, shall this payment amount to less than two (2) months' of Employee's base salary. This payment shall be subject to all normal withholdings and deductions. Employee acknowledges that voluntary termination by the Employee without Good Reason at any time following a Change of Control, shall not constitute "Good Reason" as defined by Section(s) 2.05 of his/her Employment Agreement. Employee further acknowledges that such termination shall not entitle him to any rights or benefits provided by Section 4.03 of his Employment Agreement. 2. Change of Control. For purposes of this Addendum, a "Change of Control" shall be defined pursuant to Employee's Employment Agreement. 3. Confidentiality, Proprietary, Trade Secret and Non- Competition. Employee acknowledges that this Change of Control Addendum is only a modification of the Change of Control provision of his existing Employment Agreement already in effect and that it in no way alters Employee's obligations under any Agreements, including, but not limited to, the Employee Confidentiality and Noncompetition Agreement which remains in full force and effect. IN WITNESS WHEREOF, the Company has caused this Addendum to be executed on its behalf by its duly authorized officers, and Employee has set his hand, as of the date first written above. MARTY GRAHAM RENTRAK, INC. By: Date: Title: Date: EX-10.24 3 0003.txt Exhibit 10.24 ADDENDUM TO EMPLOYMENT AGREEMENT THIS CHANGE IN CONTROL ADDENDUM TO EMPLOYMENT AGREEMENT ("Addendum"), dated June 8th, 2000, is made by and between Rentrak, Inc., an Oregon corporation (the "Company"), and Chris Roberts (the "Employee"). WHEREAS, the Company considers it essential to the best interests of the Company to foster the continued employment of its management personnel; and WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control (as defined below) exists 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 the Company; and WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Employee, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change of Control; WHEREAS, the Company and Employee executed an Employment Agreement ("Employment Agreement") on October 27, 1997; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the Company and the Employee hereby amend their Employment Agreement as follows: 1. Terms. If Employee voluntarily terminates his employment without "Good Reason" (as defined by Employee's Employment Agreement) within two (2) months following a Change of Control, Employee shall be eligible to receive the following payment in proportion to Executive's years' of service to the Company. Specifically, Employee shall be paid one week of Employee's base salary for each full year that the Employee has been employed with the Company. In no case, however, shall this payment amount to less than two (2) months' of Employee's base salary. This payment shall be subject to all normal withholdings and deductions. Employee acknowledges that voluntary termination by the Employee without Good Reason at any time following a Change of Control, shall not constitute "Good Reason" as defined by Section 2.05 of his Employment Agreement. Employee further acknowledges that such termination shall not entitle him to any rights or benefits provided by Section 4.03 of his Employment Agreement. 2. Change of Control. For purposes of this Addendum, a "Change of Control" shall be defined pursuant to Employee's Employment Agreement. 3. Confidentiality, Proprietary, Trade Secret and Non- Competition. Employee acknowledges that this Change of Control Addendum is only a modification of the Change of Control provision of his existing Employment Agreement already in effect and that it in no way alters Employee's obligations under any Agreements, including, but not limited to, the Employee Confidentiality and Noncompetition Agreement which remains in full force and effect. IN WITNESS WHEREOF, the Company has caused this Addendum to be executed on its behalf by its duly authorized officers, and Employee has set his hand, as of the date first written above. CHRIS ROBERTS RENTRAK, INC. By: Date: Title: Date: EX-10.25 4 0004.txt Exhibit 10.25 PROMISSORY NOTE Portland, Oregon June 16, 2000 $1,468,250.42 FOR VALUE RECEIVED, the undersigned maker (herein "Maker") promises to pay to Rentrak Corporation, an Oregon corporation (herein "Holder"), at its office address of One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon 97220 or at such other place as Holder may designate, on or before the Maturity Date (as defined in the Loan Agreement of even date herewith), the principal sum of One Million Four Hundred Sixty Eight Thousand, Two Hundred Fifty Dollars and Forty Two Cents ($1,468,250.42), together with interest thereon as provided herein. 1. Interest and Payment. 1.1 Interest Rate. Maker promises to pay interest from and including the date hereof until paid on the unpaid principal balance hereof at the rate of six and one-half percent (6.5%) per annum which is the "Federal Funds Rate" as of the date hereof. Interest shall be computed on the basis of a 360-day year. 1.2 Interest Payments. On the sixteenth day of June, 2001, and on the sixteenth day of each twelve-month period thereafter through and including the Maturity Date, as defined above, Maker shall pay to the order of Holder all accrued and unpaid interest as provided for in section 1.1 above. 1.3 Default Interest Rate. After the maturity date (whether by acceleration or otherwise), any principal not paid shall bear interest at the annual rate of three percent (3%) over and above the rate which would otherwise apply hereunder, or the maximum amount which may be legally charged as interest, whichever is the lesser, until paid. 1.4 Final Payment. The entire unpaid principal balance hereof, and all accrued but unpaid interest thereon, shall be entirely due and payable on the earliest to occur of: (a) One year prior to the expiration of the term of Borrower's current employment agreement with Rentrak; or (b) One (1) year after Borrower leaves Rentrak's employ for any other reason (unless such departure follows a Change in Control of Rentrak (as defined in Section 10 of the Loan Agreement); or (c) Five years from the date of the Loan; or (d) One year from the date of Borrower's death; unless accelerated as provided in the Loan Agreement executed herewith. 1.5 Late Charge. If any payment hereunder is not made within ten (10) days of the date first due, Maker shall pay to Holder a late charge in an amount equal to five percent (5%) of the amount of such payment. Holder's acceptance of such late charges shall not constitute a waiver of any existing or subsequent default hereunder. 1.6 Place and Time of Payment. All payments specified herein shall be deemed made when actually received by Holder. All payments shall be made to Holder at its address set forth above, and shall be made without offset and without prior notice or demand. 1.7 No Prepayment Penalty. This note may be prepaid, in whole or in part, without penalty to the Maker. A partial prepayment shall not excuse Maker from making the regular annual payments required herein nor lessen the amount of such payment. 1.8 Form and Application of Payments. Payments shall be in lawful money of the United States of America, and when received by Holder shall be applied first to all amounts due hereunder other than principal or interest, second to accrued interest, third upon the portion of the principal balance then due, if any, and fourth as a principal prepayment. 2. Default. Time is of the essence of this Promissory Note. A default shall occur if: 2.1 Failure to Make Payments. Maker fails to make any payment under this Promissory Note within ten (10) days after notice from Holder that such payment was not received on or before the date due. 2.2 Other Failures. Maker fails to perform any other obligation contained in this Promissory Note or the Loan Agreement or Pledge Agreement securing this Promissory Note within ten (10) days after notice from Holder specifying the nature of the default. 2.3 Bankruptcy. Maker becomes insolvent, a receiver is appointed to take possession of all or a substantial part of any Maker's properties, any Maker makes an assignment for the benefit of creditors or files a voluntary petition in bankruptcy, or any Maker is the subject of an involuntary petition in bankruptcy. For purposes of this Section 2.3, (a) if any Maker is a partnership (general or limited), the term "Maker" includes any individual or entity which is a general partner of such Maker, and (b) if this Promissory Note is executed by more than one maker or co-maker, the term "Maker" means and includes each and every person or entity which is such a maker or co-maker. 3. Remedies. In the event of a default, Holder may take any one or more of the following steps: 3.1 Acceleration. Declare the entire unpaid principal balance of the debt evidenced hereby, and all interest on such debt and all other costs and expenses evidenced hereby, to be immediately due and payable, provided, however that Holder's recourse shall be limited as provided in Sections 6 and 9 of the Loan Agreement. 3.2 Other Remedies. Pursue any other right or remedy provided herein, provided in the Loan Agreement or the Pledge Agreement, as limited by the provisions of Sections 6 and 9 of the Loan Agreement. Holder may pursue any such rights or remedies singly, together or successively. Exercise of any such right or remedy shall not be deemed an election of remedies. Failure to exercise any right or remedy shall not be deemed a waiver of any existing or subsequent default nor a waiver of any such right or remedy but nothing herein is intended to modify the provisions of Sections 6 and 9 of the Loan Agreement. 4. Attorney Fees and Collection Costs. Maker and all sureties and accommodation parties hereof hereby agree to pay all costs of collection hereunder and/or under any guaranty executed in connection herewith, including reasonable attorney fees, whether or not litigation is actually commenced. In the event the Holder is made party to any litigation because of the existence of the indebtedness evidenced by this Promissory Note, Maker shall reimburse Holder for its costs and attorney fees incurred with respect to such litigation. In the event litigation is commenced by a party hereto to enforce or interpret any provision of this Promissory Note, or to collect any amount due hereunder, the prevailing party in such litigation shall be entitled to receive, in addition to all other sums and relief, its reasonable costs and attorney fees, incurred both at and in preparation for trial and any appeal or review, such amount to be set by the court(s) before which the matter is heard. Maker also agrees to pay any attorney fees incurred by Holder in connection with any bankruptcy or similar proceedings wherein Maker (as defined in Section 2.3, above) is the "debtor." 5. Governing Law and Usury; Severability. 5.1 Governing Law and Usury. This Promissory Note shall be deemed to have been executed under and shall be construed and enforced in accordance with the laws of the State of Oregon without regard to its conflicts of law principles. The Maker agrees that any suit or action relating to this Promissory Note shall be instituted and commenced in the United States District Court for the District of Oregon, or the Circuit Court of Multnomah County, State of Oregon, and each of the Makers hereby waives the right to change such venue. It is expressly stipulated and agreed to be the intent of Maker, Holder and their respective affiliates at all times to comply strictly with the applicable usury laws now or hereafter governing consideration received under this Promissory Note. If the applicable law is ever interpreted so as to render usurious any consideration called for, contracted for, charged, taken, reserved or received with respect to this Promissory Note, or if any prepayment by Maker or Holder's exercise of the option herein contained to accelerate the maturity of this Promissory Note, results in Maker having paid any interest in excess of that permitted by law, then notwithstanding anything to the contrary in this Promissory Note, it is Maker's and Holder's express intent and agreement that all excess amounts theretofore collected by Holder be credited on the principal balance of this Promissory Note (or, if this Note has been paid in full, refunded to Maker) and the provisions of this Promissory Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new documents, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. 5.2 Severability. If any provision of this Promissory Note is found by a court of competent jurisdiction to be invalid or unenforceable as written, then the parties intend and desire that (a) such provision be enforceable to the full extent permitted by law, and (b) the invalidity or unenforceability of such provision shall not affect the validity and enforceability of the remainder of this Promissory Note. 6. Amendment. This Promissory Note may not be amended, modified or changed, nor shall any provision hereof be deemed waived, except only by an instrument in writing signed by the party against whom enforcement of any such waiver, amendment, change or modification is sought. 7. Waivers; Joint and Several Liability. Maker and all sureties and accommodation parties, without affecting their liability, hereby (a) waive diligence presentment, protest and demand, (b) waive notice of protest, of demand, of nonpayment, of dishonor and of maturity, and (c) consent to any extension or alternation of the time or terms of payment hereof, any and all renewals, extension or modification of the terms hereof, any release of all or any part of any security which may be given for the payment hereof, any acceptance of additional security of any kind, and any release of or resort to any party liable for payment hereof, any of which may be made without notice to any of said parties. All such parties, including Maker (as defined in Section 2.3, above) and each constituent person and entity of Maker, agree that they shall each be jointly and severally liable for full payment of this Promissory Note and agree to pay the full amount of the principal and interest of the indebtedness evidenced hereby. 8. Binding Agreement. This Promissory Note shall be binding upon the successors and assigns of Maker. 9. Security. This Promissory Note is secured by a Stock Pledge Agreement of even date herewith. IN WITNESS WHEREOF, this Promissory Note has been executed as of the date and year first above written. ___________________________________ Name: F. Kim Cox EX-10.26 5 0005.txt EXHIBIT 10.26 PROMISSORY NOTE Portland, Oregon June 16, 2000 $6,629,386.01 FOR VALUE RECEIVED, the undersigned maker (herein "Maker") promises to pay to Rentrak Corporation, an Oregon corporation (herein "Holder"), at its office address of One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon 97220 or at such other place as Holder may designate, on or before the Maturity Date (as defined in the Loan Agreement of even date herewith), the principal sum of Six Million, Six Hundred Twenty Nine Thousand, Three Hundred Eighty Six Dollars and One Cent ($6,629,386.01), together with interest thereon as provided herein. 1. Interest and Payment. 1.1 Interest Rate. Maker promises to pay interest from and including the date hereof until paid on the unpaid principal balance hereof at the rate of six and one-half percent (6.5%) per annum which is the "Federal Funds Rate" as of the date hereof. Interest shall be computed on the basis of a 360-day year. 1.2 Interest Payments. On the sixteenth day of June, 2001, and on the sixteenth day of each twelve-month period thereafter through and including the Maturity Date, as defined above, Maker shall pay to the order of Holder all accrued and unpaid interest as provided for in section 1.1 above. 1.3 Default Interest Rate. After the maturity date (whether by acceleration or otherwise), any principal not paid shall bear interest at the annual rate of three percent (3%) over and above the rate which would otherwise apply hereunder, or the maximum amount which may be legally charged as interest, whichever is the lesser, until paid. 1.4 Final Payment. The entire unpaid principal balance hereof, and all accrued but unpaid interest thereon, shall be entirely due and payable on the earliest to occur of: (a) One year prior to the expiration of the term of Borrower's current employment agreement with Rentrak; or (b) One (1) year after Borrower leaves Rentrak's employ for any other reason (unless such departure follows a Change in Control of Rentrak (as defined in Section 10 of the Loan Agreement); or (c) Five years from the date of the Loan; or (d) One year from the date of Borrower's death; unless accelerated as provided in the Loan Agreement executed herewith. 1.5 Late Charge. If any payment hereunder is not made within ten (10) days of the date first due, Maker shall pay to Holder a late charge in an amount equal to five percent (5%) of the amount of such payment. Holder's acceptance of such late charges shall not constitute a waiver of any existing or subsequent default hereunder. 1.6 Place and Time of Payment. All payments specified herein shall be deemed made when actually received by Holder. All payments shall be made to Holder at its address set forth above, and shall be made without offset and without prior notice or demand. 1.7 No Prepayment Penalty. This note may be prepaid, in whole or in part, without penalty to the Maker. A partial prepayment shall not excuse Maker from making the regular annual payments required herein nor lessen the amount of such payment. 1.8 Form and Application of Payments. Payments shall be in lawful money of the United States of America, and when received by Holder shall be applied first to all amounts due hereunder other than principal or interest, second to accrued interest, third upon the portion of the principal balance then due, if any, and fourth as a principal prepayment. 2. Default. Time is of the essence of this Promissory Note. A default shall occur if: 2.1 Failure to Make Payments. Maker fails to make any payment under this Promissory Note within ten (10) days after notice from Holder that such payment was not received on or before the date due. 2.2 Other Failures. Maker fails to perform any other obligation contained in this Promissory Note or the Loan Agreement or Pledge Agreement securing this Promissory Note within ten (10) days after notice from Holder specifying the nature of the default. 2.3 Bankruptcy. Maker becomes insolvent, a receiver is appointed to take possession of all or a substantial part of any Maker's properties, any Maker makes an assignment for the benefit of creditors or files a voluntary petition in bankruptcy, or any Maker is the subject of an involuntary petition in bankruptcy. For purposes of this Section 2.3, (a) if any Maker is a partnership (general or limited), the term "Maker" includes any individual or entity which is a general partner of such Maker, and (b) if this Promissory Note is executed by more than one maker or co-maker, the term "Maker" means and includes each and every person or entity which is such a maker or co-maker. 3. Remedies. In the event of a default, Holder may take any one or more of the following steps: 3.1 Acceleration. Declare the entire unpaid principal balance of the debt evidenced hereby, and all interest on such debt and all other costs and expenses evidenced hereby, to be immediately due and payable, provided, however that Holder's recourse shall be limited as provided in Sections 6 and 9 of the Loan Agreement. 3.2 Other Remedies. Pursue any other right or remedy provided herein, provided in the Loan Agreement or the Pledge Agreement, as limited by the provisions of Sections 6 and 9 of the Loan Agreement. Holder may pursue any such rights or remedies singly, together or successively. Exercise of any such right or remedy shall not be deemed an election of remedies. Failure to exercise any right or remedy shall not be deemed a waiver of any existing or subsequent default nor a waiver of any such right or remedy but nothing herein is intended to modify the provisions of Sections 6 and 9 of the Loan Agreement. 4. Attorney Fees and Collection Costs. Maker and all sureties and accommodation parties hereof hereby agree to pay all costs of collection hereunder and/or under any guaranty executed in connection herewith, including reasonable attorney fees, whether or not litigation is actually commenced. In the event the Holder is made party to any litigation because of the existence of the indebtedness evidenced by this Promissory Note, Maker shall reimburse Holder for its costs and attorney fees incurred with respect to such litigation. In the event litigation is commenced by a party hereto to enforce or interpret any provision of this Promissory Note, or to collect any amount due hereunder, the prevailing party in such litigation shall be entitled to receive, in addition to all other sums and relief, its reasonable costs and attorney fees, incurred both at and in preparation for trial and any appeal or review, such amount to be set by the court(s) before which the matter is heard. Maker also agrees to pay any attorney fees incurred by Holder in connection with any bankruptcy or similar proceedings wherein Maker (as defined in Section 2.3, above) is the "debtor." 5. Governing Law and Usury; Severability. 5.1 Governing Law and Usury. This Promissory Note shall be deemed to have been executed under and shall be construed and enforced in accordance with the laws of the State of Oregon without regard to its conflicts of law principles. The Maker agrees that any suit or action relating to this Promissory Note shall be instituted and commenced in the United States District Court for the District of Oregon, or the Circuit Court of Multnomah County, State of Oregon, and each of the Makers hereby waives the right to change such venue. It is expressly stipulated and agreed to be the intent of Maker, Holder and their respective affiliates at all times to comply strictly with the applicable usury laws now or hereafter governing consideration received under this Promissory Note. If the applicable law is ever interpreted so as to render usurious any consideration called for, contracted for, charged, taken, reserved or received with respect to this Promissory Note, or if any prepayment by Maker or Holder's exercise of the option herein contained to accelerate the maturity of this Promissory Note, results in Maker having paid any interest in excess of that permitted by law, then notwithstanding anything to the contrary in this Promissory Note, it is Maker's and Holder's express intent and agreement that all excess amounts theretofore collected by Holder be credited on the principal balance of this Promissory Note (or, if this Note has been paid in full, refunded to Maker) and the provisions of this Promissory Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new documents, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. 5.2 Severability. If any provision of this Promissory Note is found by a court of competent jurisdiction to be invalid or unenforceable as written, then the parties intend and desire that (a) such provision be enforceable to the full extent permitted by law, and (b) the invalidity or unenforceability of such provision shall not affect the validity and enforceability of the remainder of this Promissory Note. 6. Amendment. This Promissory Note may not be amended, modified or changed, nor shall any provision hereof be deemed waived, except only by an instrument in writing signed by the party against whom enforcement of any such waiver, amendment, change or modification is sought. 7. Waivers; Joint and Several Liability. Maker and all sureties and accommodation parties, without affecting their liability, hereby (a) waive diligence presentment, protest and demand, (b) waive notice of protest, of demand, of nonpayment, of dishonor and of maturity, and (c) consent to any extension or alternation of the time or terms of payment hereof, any and all renewals, extension or modification of the terms hereof, any release of all or any part of any security which may be given for the payment hereof, any acceptance of additional security of any kind, and any release of or resort to any party liable for payment hereof, any of which may be made without notice to any of said parties. All such parties, including Maker (as defined in Section 2.3, above) and each constituent person and entity of Maker, agree that they shall each be jointly and severally liable for full payment of this Promissory Note and agree to pay the full amount of the principal and interest of the indebtedness evidenced hereby. 8. Binding Agreement. This Promissory Note shall be binding upon the successors and assigns of Maker. 9. Security. This Promissory Note is secured by a Stock Pledge Agreement of even date herewith. IN WITNESS WHEREOF, this Promissory Note has been executed as of the date and year first above written. ___________________________________ Name: Ron Berger EX-10.27 6 0006.txt EXHIBIT 10.27 LOAN AND SECURITY AGREEMENT This Loan and Security Agreement (this "Agreement"), dated as of May 26, 2000, is entered into by and between Rentrak Corporation, an Oregon corporation ("Rentrak") and 3PF.Com, Inc., a Delaware corporation (together with Rentrak, the "Companies"), and Guaranty Business Credit Corporation d/b/a Fidelity Funding, a Delaware corporation ("GBCC"). In consideration of the mutual covenants and agreements contained herein, the Companies and GBCC hereby agree as follows: Section 1. Definitions and Construction. 1.1. When used herein, the following terms shall have the following meanings: "Account" means the right of either Company to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not earned by performance. "Account Debtor" means the Person obligated to make payment on an Account. "Advance" has the meaning given to it in Section 2.1. "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, or is controlled by or under common control with, such Person. "Affiliated Companies" means 3PF.Com, Inc., LRC, Inc., RTK Kelley, Ltd., Rentrak Europe B.V., Mortco, Inc., PDF, Inc., Streamlined Solutions, Inc., Transition Sports, Inc., Orient Link Enterprises, Ltd., Formovies.com, Rentrak Canada Inc., Rentrak UK, and Blowout Video. "Blocked Account" means account number 1-536-9121-1640 with U.S. Bank National Association. "Blowout Video" means Blowout Video of Orlando, Inc., and Blowout Video Holding Co. and its subsidiaries. "Borrowing Base" means an amount equal to the sum, determined by GBCC from time to time, of 85% of the face amount of Eligible Accounts, not to exceed collections of Eligible Accounts for the two (2) preceding calendar months. Additionally, not more than 10% (in dollar amount) of Eligible Accounts shall be accounts receivable which are due 90 days from invoice date and not more than 10% (in dollar amount) of Eligible Account shall be accounts receivable which are due 120 days from invoice date. GBCC may change the percentage of Eligible Accounts constituting the Borrowing Base from time to time based upon dilution and other factors deemed appropriate by GBCC. "Borrowing Base Certificate" means a certificate in the form attached hereto as Exhibit A, duly executed by an authorized officer of the Companies. "Capital Expenditures" means, for any period, the aggregate expenditures by Rentrak and its Subsidiaries and its during such period that are classified as capital expenditures in accordance with GAAP. "Cash Collateral" has the meaning given to it in Section 7. "Collateral" has the meaning given to it in Section 6. "Concentration Limit" means, as of any date, an amount equal to 20% of the face amount of Eligible Accounts outstanding on such date. "Contract Rate" means, prior to the occurrence of an Event of Default or an event or circumstance that would, with the giving of notice, the passage of time or both, constitute an Event of Default, a rate of interest equal to the lesser of (a) the Prime Rate in effect from time to time plus .25% per annum and (b) the maximum rate permitted by applicable law and, after the occurrence of an Event of Default or an event or circumstance that would, with the giving of notice, the passage of time or both, constitute an Event of Default, a rate of interest equal to the lesser of (x) the Prime Rate in effect from time to time plus 5.25% per annum and (y) the maximum rate permitted by applicable law. The Contract Rate shall be automatically increased or decreased, as the case may be, without notice to the Company from time to time as of the effective date of each change in the Prime Rate. "Current Assets" means, as of any date, only those assets of Rentrak and its Subsidiaries that may, in the ordinary course of business, be converted into cash within a period of one year from such date, but excluding (a) amounts due from employees, officers, shareholders or directors of Rentrak or any Subsidiary, and (b) amounts due from Rentrak or Affiliates of the Company. "Current Liabilities" means, as of any date, the Advances outstanding on such date and all other Obligations of Rentrak and its Subsidiaries that are due within one year from such date. "Debt" means, with respect to any Person, all indebtedness, obligations and liabilities of such Person, including without limitation: (a) all liabilities which would be reflected on a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person in respect of any guaranty of any Debt of another Person, and (c) all obligations, indebtedness and liabilities secured by any lien on or security interest in any property or assets of such Person. "EBITDA" means, for any period, the sum (determined without duplication, on a consolidated basis and in accordance with GAAP) of (a) the net income (or net loss) of Rentrak and its Subsidiaries (including gains and losses from the sales of assets in the ordinary course of business) for such period before provisions for income taxes, (b) the Interest Expense of Rentrak and its Subsidiaries for such period, and (c) any depreciation or amortization expenses incurred by Rentrak and its Subsidiaries in determining its net income (or net loss) for such period. "Eligible Accounts" means, at the time of determination thereof, all Accounts of the Companies other than (i) any Account which has been outstanding more than 42 days from due date if terms for payment are 60 days from invoice date, and more than 21 days from due date if terms for payment are 90 days or 120 days from invoice date, (ii) any Account which has been outstanding for more than 141 days from invoice date, (iii) any Account as to which GBCC does not have a valid and perfected, first priority security interest, (iv) to the extent that the aggregate outstanding Accounts owed by any single Account Debtor exceeds the Concentration Limit, any Account owed by such Account Debtor, (v) any Account that is owed by an Account Debtor that is an Affiliate of Rentrak or an officer or employee of either Company, (vi) any Account that arises out of a sale made or services performed outside of the United States or that is owed by an Account Debtor located outside the United States, (vii) any Account that is owed by a creditor or supplier of either Company or with respect to which any defense, counterclaim or right of set off has been asserted, (viii) any Account owed by an Account Debtor if more than 50% (in dollar amount) of such Account Debtor's Accounts are not eligible under subsection (i) of this definition, (ix) any Account that is owed by the United States or any department, agency or instrumentality thereof, unless the right to payment under such Account is assigned to GBCC as Collateral in full compliance with the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727), and (x) any Account that has not been approved by GBCC for inclusion in the Borrowing Base. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, rules, orders, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants or industrial, toxic or hazardous substances into the environment, or otherwise relating to the manufacture, processing, treatment, transport or handling of pollutants or industrial, toxic or hazardous substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Plan" means any pension benefit plan subject to Title IV of ERISA maintained by Rentrak or any Affiliate thereof with respect to which either Company has a fixed or contingent liability. "Event of Default" has the meaning given it in Section 9. "Facility Limit" means $12,000,000. "GAAP" means generally accepted accounting principles and practices as promulgated by the American Institute of Certified Public Accountants, applied on a basis consistent with past practices. "Guarantors" means LRC, Inc., Mortco, Inc., PDF, Inc., Streamlined Solutions, Inc., Transition Sports, Inc., and Formovies.com. "Indemnified Claims" means any and all claims, demands, actions, causes of action, judgments, liabilities, damages and consequential damages, penalties, fines, costs, fees, expenses and disbursements (including, without limitation, fees and expenses of attorneys and other professional consultants and experts in connection with any investigation or defense) of every kind, known or unknown, existing or hereafter arising, foreseeable or unforeseeable, which may be imposed upon, threatened or asserted against or incurred or paid by any Indemnified Person at any time and from time to time, because of, resulting from, in connection with or arising out of any transaction, act, omission, event or circumstance in any way connected with the Collateral or the Transaction Documents (including but not limited to enforcement of GBCC's rights thereunder or the defense of GBCC's actions thereunder), excluding with respect to any Indemnified Persons, any of the foregoing resulting from such Indemnified Person's gross negligence or willful misconduct. "Indemnified Persons" means GBCC and its officers, directors, shareholders, employees, attorneys, representatives and Affiliates. "Intangible Assets" means such of Rentrak's and the Affiliated Companies' assets as are treated as intangible pursuant to GAAP, including, without limitation: (a) obligations owing by officers, directors, shareholders, employees, subsidiaries, Affiliates or any Person in which any such officer, director, shareholder, employee, subsidiary, or Affiliate owns any interest and (b) any asset which is intangible or lacks intrinsic or marketable value or collectibility, including, without limitation, goodwill, noncompetition agreements, patents, copyrights, trademarks, franchises, organization or research and development costs. "Interest Expense" means, for any period, all interest charges paid or accrued by Rentrak and its Subsidiaries during such period. "Inventory" means all goods, now owned or hereafter acquired by either Company, wherever located, that are held for sale or lease or are to be furnished under any contract of service (including, but not limited to raw materials, work in process, finished goods and materials used or consumed in the manufacture or production thereof, goods in which either Company has an interest in mass or a joint or other interest or rights of any kind, and goods which have been returned to or repossessed or stopped in transit by either Company). "Lockbox Account" means account number 00-0309893 with First Tennessee Bank National Association. "Net Profit" means, for any period, Rentrak's and its Affiliated Companies' net income after tax for such period determined in accordance with GAAP. "Obligations" means all indebtedness, obligations and liabilities of either Company to GBCC arising under the Transaction Documents, and all other indebtedness, obligations and liabilities of either Company to GBCC, whether presently existing or hereafter arising, direct or indirect, primary or secondary, joint or several, fixed or contingent, and whether originally payable to GBCC or to a third party and subsequently acquired by GBCC. "Person" means any individual, corporation, joint venture, partnership, trust, unincorporated organization or governmental entity or agency. "Prime Rate" means the rate per annum published from time to time by The Wall Street Journal as the base rate for corporate loans at large commercial banks (or, if more than one such rate is published, the higher or highest of the rates so published). If such rate is no longer published by The Wall Street Journal, then GBCC shall, in its sole discretion substitute the base or prime rate for corporate loans at a large commercial bank for the base rate published in The Wall Street Journal. Such rate may not necessarily be the lowest or best rate actually charged to any customer of such commercial bank. "Remittance Address" means such address as GBCC shall direct the Company from time to time in writing in accordance with the terms hereof. "Shareholders Equity" means, as of any date, the sum of (a) the shareholders' equity of Rentrak and the Affiliated Companies as of such date determined in accordance with GAAP and (b) the then outstanding principal balance of any Debt of either Company subordinated to the Obligations pursuant to a subordination agreement acceptable to GBCC between GBCC and the Person to whom such Debt is owed. "Subordination Agreement" means a Subordination Agreement among Rentrak, GBCC, and Bill LeVine, upon terms and conditions satisfactory to GBCC in its sole discretion. "Subsidiaries" means 3PF.Com, Inc., LRC, Inc., Mortco, Inc., PDF, Inc., Streamlined Solutions, Inc., Transition Sports, Inc., and Formovies.com. "Tangible Net Worth" means, as of any date, the amount obtained by subtracting Rentrak's and the Affiliated Companies' Intangible Assets as of such date from Shareholders' Equity as of such date. "Tangible New Worth Requirement" means $15,000,000. "Term" has the meaning given to it in Section 11.4. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA or (b) the withdrawal of Rentrak or any Affiliate of Rentrak from any ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan. "Transaction Documents" means this Agreement and all other documents and instruments executed and delivered in connection therewith. "UCC" means the Uniform Commercial Code as in effect in the applicable jurisdiction. "Working Capital" means, as of any date, the excess of Current Assets over Current Liabilities as of such date. "Working Capital Requirement" means $5,000,000. 1.2. Terms defined in the UCC and used but not defined herein shall have the meanings ascribed to them in the UCC. 1.3. References herein to a particular agreement, instrument or document also shall be deemed to refer to and include all renewals, extensions and modifications of such agreement, instrument or document. All addenda, exhibits and schedules attached to this Agreement are a part hereof for all purposes. Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. 1.4. All interest accruing hereunder shall be calculated on the basis of actual days elapsed (including the first but excluding the last day) plus one (1) business day and a year of 360 days. Unless otherwise expressly provided herein or unless GBCC otherwise consents, all financial statements and reports furnished to GBCC hereunder shall be prepared, and all financial computations and determinations pursuant hereto shall be made, in accordance with GAAP. All calculations with respect to Rentrak and its Subsidiaries shall be consolidated in accordance with GAAP. All payments received by GBCC after its internally established time for closing business on any business day shall be applied as of the next succeeding business day. Any payment which is due on a day which is not a business day shall instead be deemed to be due on the next succeeding business day, and interest thereon shall accrue and be payable at the then applicable rate during the time of such extension. GBCC's records in respect of loans advanced, accrued interest, payments received and applied and other matters in respect of calculation of the amount of the Obligations shall be deemed conclusive absent demonstration of error. All statements of account rendered by GBCC to the Company relating to principal, accrued interest or costs owing by the Company under this Agreement shall be presumed to be correct and accurate unless, within 30 days after receipt thereof, the Company shall notify GBCC in writing of any claimed error therein. Section 2. Advances. 2.1. Subject to the terms of this Agreement, including, without limitation, Section 3, GBCC shall make advances to the Companies (each an "Advance and collectively the "Advances") from time to time during the Term; provided, however, that the aggregate principal amount of Advances outstanding at any time shall not exceed the lesser of the (i) Borrowing Base determined by GBCC from time to time and (ii) the Facility Limit. Each Advance must be greater than or equal to $5,000 or must equal the unadvanced portion of the Borrowing Base. The Companies hereby jointly and severally agree to repay to GBCC all Advances made hereunder, together with interest thereon, in the manner provided herein. The principal owing hereunder in respect of the Advances at any given time shall equal the aggregate amount of Advances made hereunder minus all principal payments thereon received by GBCC hereunder. Subject to the terms and conditions hereof, the Companies may borrow, repay and reborrow under this Agreement. 2.2. Each request by the Companies to GBCC for an Advance hereunder must be in writing or promptly confirmed in writing. Each such written request or confirmation shall be accompanied by a "Borrowing Base Certificate" in the form attached hereto as Exhibit A, together with such supporting information as GBCC shall request. 2.3. Promptly after receiving each Borrowing Base Certificate, GBCC shall, based upon such Borrowing Base Certificate and such other information available to GBCC, redetermine the Borrowing Base, which redetermination shall take effect immediately and remain in effect until the next such redetermination. If all conditions precedent to any Advance requested have been met, GBCC will on the date requested make such Advance available to the Companies by wire transfer to the account designated in writing by the Companies. In the event GBCC does not receive an appropriately completed Borrowing Base Certificate, GBCC shall have no obligation to redetermine the Borrowing Base or make any additional Advances hereunder. 2.4. If the aggregate unpaid principal balance of the Advances exceeds the Borrowing Base at any time, the Companies shall, upon receipt of notice thereof from GBCC, immediately repay the principal of the Advances in an amount at least equal to such excess. Any principal repaid pursuant to this Section 2.4 shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Transaction Documents. 2.5. The aggregate unpaid principal balance of the Advances plus all accrued but unpaid interest thereon shall be payable by the Companies to GBCC on demand, or if no demand is made, on the last day of the Term. 2.6. The aggregate unpaid principal balance of all Advances shall bear interest at the Contract Rate in effect from time to time. Except as provided in Section 2.12, all accrued but unpaid interest hereunder shall be due and payable by the Companies to GBCC on the last day of each calendar month. 2.7. The Companies shall pay to GBCC a facility fee in the amount of one percent (1%) of the Facility Limit, payable on the date hereof. The Companies hereby authorize GBCC, at its sole discretion, to deduct any facility fee from any Advance hereunder, unless the Companies pay such fee at closing in immediately available funds. 2.8. The Companies shall pay to GBCC a collateral monitoring fee in the amount of $750.00 for each calendar month. The collateral monitoring fee for each calendar month shall be due and payable on the first day of the next calendar month, and shall be prorated for any partial calendar month during the Term. 2.9. In addition to, and not in lieu of, any termination fee required by Section 11.4, the Companies shall pay to GBCC a liquidation fee (in this section called the "Liquidation Fee") in the amount of five percent (5%) of the face amount of each Eligible Account included in the Borrowing Base that is outstanding at any time during the Liquidation Period (as defined below). The Liquidation Fee shall be payable on the earlier to occur of (i) the date on which GBCC collects the applicable Eligible Account and (ii) the ninetieth day after the invoice date of the applicable Eligible Account. For purposes of this section, the term "Liquidation Period" means a period beginning on the earliest of (i) the date of commencement against or by either Company of any voluntary or involuntary case under the federal Bankruptcy Code, (ii) the date of any general assignment by either Company for the benefit of its creditors; (iii) the date of any appointment or taking possession by a receiver, liquidator, assignee, custodian or similar official of all or a substantial part of either Company's assets, or (iv) the date of the cessation of business of either Company, and ending on the date on which GBCC has actually received all fees, costs, expenses and other amounts owing to it hereunder. 2.10. Contemporaneously with the execution and delivery hereof, the Companies shall pay to GBCC a fee of $25,000.00 plus out-of-pocket expenses to cover the legal costs of the negotiation, preparation, execution and delivery of the Transaction Documents. In addition, the Companies shall pay or reimburse GBCC upon demand for all other costs and expenses incurred by GBCC in connection with its due diligence review of the Companies and all Affiliated Companies and the closing of the transactions contemplated hereby and all reasonable attorney's fees, court costs and other expenses incurred by GBCC (whether or not litigation is commenced or judgment issued, and if litigation is commenced whether at trial or any appellate level) in connection with the enforcement by GBCC of this Agreement or any other Transaction Document, the protection or enforcement of GBCC's interest in the Collateral, the collection by GBCC of the Collateral, or the representation of GBCC in connection with any bankruptcy case or insolvency proceeding involving either Company, the Collateral, or any Account Debtor, including, without limitation, any representation involving relief from a stay motion, a cash collateral dispute, an assumption or rejection motion or a dispute concerning any proposed disclosure statement and plan proposed in any such proceeding. 2.11. GBCC shall be entitled to collect upon demand its normal and customary charges for the following routine services provided or obtained in the course of performing its functions with respect to the Collateral: lock box charges, credit reports, wire transfers, overnight mail delivery, UCC, judgment, litigation and tax lien searches and filings. 2.12. All interest, fees and other amounts due to GBCC pursuant to this Section 2 shall be payable on demand, and may, in GBCC's sole discretion, be deducted from Advances or paid from the Cash Collateral. 2.13. The parties hereto intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof, the parties hereto stipulate and agree that none of the terms and provisions contained in this Agreement or any other Transaction Document shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Company, nor any present or future guarantor or any other Person hereafter becoming liable for the payment of the Obligations, shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this paragraph shall control over all other provision of the Transaction Documents which may be in conflict therewith. If any indebtedness or obligation owed by the Companies under the Transaction Documents is prepaid or accelerated and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or GBCC shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on all or any part of such obligations to an amounts in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related indebtedness or obligations or, at GBCC's option returned to the Companies or the other payor thereof upon such determination. In determining whether or not any amount paid or payable, under any circumstance, exceeds the maximum amount permitted under applicable law, GBCC and the Companies shall to the greatest extent permitted under applicable law, characterize any non-principal payment as an expense, fee or premium rather than as interest, and amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of this Agreement in accordance with the amounts outstanding from time to time hereunder and the Maximum Rate from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. If at any time the rate at which interest is payable hereunder exceeds the Maximum Rate, the amount outstanding hereunder shall bear interest at the Maximum Rate only, but shall continue to bear interest at the Maximum Rate until such time as the total amount of interest accrued hereunder equals (but does not exceed) the total amount of interest which would have accrued hereunder had there been no Maximum Rate applicable hereto. In the event applicable law provides for an interest ceiling under Chapter 303 of the Texas Finance Code, that ceiling shall be the weekly ceiling and shall be used when appropriate in determining the maximum rate permitted by applicable law. As used in this paragraph, (i) the term "applicable law" means the laws of the State of Texas or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future, and (ii) the term "Maximum Rate" means, at the time of determination, the maximum rate of interest which, under applicable law, may then be charged hereunder. The parties agree that this Agreement shall not be subject to Chapter 346 of the Texas Finance Code. Section 3. Conditions Precedent to Advances. 3.1. GBCC shall not be obligated to make any Advance hereunder (including the first) until it shall have received the following documents, duly executed in form and substance satisfactory to GBCC and its counsel: 3.1.1. continuing unconditional and absolute guarantees by all Guarantors of all Obligations; 3.1.2. a certificate executed by the President and the Secretary of each Company and each Guarantor certifying (i) the names and signatures of the officers of each such Person authorized to execute Transaction Documents, (ii) the resolutions duly adopted by the Board of Directors of each such Person authorizing the execution of the Transaction Documents, and (iii) correctness and completeness of the copy of the bylaws of each such Person; 3.1.3. a certificate executed by the President and the Chief Financial Officer of each Company certifying the satisfaction of the conditions set forth in Section 3.2; 3.1.4. certificates regarding the due formation, valid existence and good standing of each Company and each Guarantor in the state of its organization issued by the appropriate governmental authorities in such jurisdiction; 3.1.5. a release executed by Silicon Valley Bank and any other Person (other than Bill LeVine) with liens in the Collateral, releasing all existing liens and security interests in the Collateral, and the Subordination Agreement with respect to liens in the Collateral in favor of Bill LeVine; 3.1.6. landlord/mortgagee's lien waivers subordinating the security interest of the Landlord at Rentrak's Portland, Oregon, headquarters, in the Collateral to the security interest therein of GBCC granted herein; 3.1.7. a favorable opinion of counsel for the Companies and the Guarantor covering such matters as GBCC may request in its sole discretion; 3.1.8. endorsements naming GBCC as an additional insured or loss payee as its interest may appear, as appropriate, on all liability insurance and all property insurance policies of the Companies; 3.1.9. a lockbox and deposit account agreement and a blocked account agreement upon terms satisfactory to GBCC in its sole discretion; and 3.1.10. such other documents, certificates, opinions, and information as GBCC may request in its sole discretion. 3.2. Furthermore, GBCC shall not be obligated to make any Advance hereunder (including the first), unless: (i) all representations and warranties made by each Company in the Transaction Documents are true on and as of the date of such Advance as if such representations and warranties had been made as of the date of such Advance, (ii) each Company has performed and complied with all agreements and conditions required in the Transaction Documents to be performed or complied with by it on or prior to the date of such Advance, (iii) no Event of Default or any event or circumstance that, with the passage of time, the giving of notice or both, would become an Event of Default shall have occurred, (iv) such Advance shall not be prohibited by any law or any regulation or any order of any court or governmental agency or authority, (v) no Company shall have repudiated or made any anticipatory breach of any of its obligations under any Transaction Document, and (vi) GBCC shall not have disapproved such Advance in whole or in part. Section 4. Each Company's Representations and Warranties. Each Company represents and warrants to GBCC on the date hereof, and shall be deemed to represent and warrant to GBCC on each date on which an Advance is made to either Company hereunder, that: 4.1. Each Company is a corporation duly organized, validly existing and in good standing (or, in the case of Oregon, on active status) under the laws of the state of its incorporation, with all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to conduct its business as presently conducted. Each Company is duly qualified and authorized to do business as a foreign corporation and is in good standing (or, in the case of Oregon, on active status) in all states in which such qualification and good standing are necessary or desirable for the conduct by each Company of its business or the performance by each company of its obligations hereunder. The execution, delivery and performance by each Company of this Agreement and the other Transaction Documents to which each is a party does not and will not constitute (a) a violation of any applicable law or any Company's articles or certificate of incorporation or bylaws or (b) a material breach of any other document, agreement or instrument to which any Company is a party or by which any Company is bound. This Agreement and the other Transaction Documents to which each Company is a party have been duly authorized, executed and delivered by each Company, and are legal, valid and binding obligations of each Company enforceable against each Company in accordance with its terms. No consent of, approval by, registration or filing with or authorization from any governmental authority or agency is required in connection with the execution, delivery or performance by each Company of this Agreement or the other Transaction Documents to which each is a party. Rentrak has no Affiliates other than the Guarantors and the Affiliated Companies. The Affiliated Companies (other than 3PF.Com, Inc.) that are not Guarantors are incorporated under the laws of foreign jurisdictions and have few if any assets and activities, other than Rentrak Canada Inc. and Blowout Video. 4.2. Effective at the time of closing and payment in full of Silicon Valley Bank, none of the Eligible Accounts or any other Collateral is subject to any lien, encumbrance, security interest or other claim of any kind or nature. Neither Company has transferred, sold, pledged or given a security interest in any of its Accounts, to anyone other than GBCC. There are no financing statements on file in any public office governing any property of either Company of any kind, real or personal, in which either Company is named in or has signed as the debtor, except the financing statement or statements filed or to be filed in respect of this Agreement. Notwithstanding the foregoing, certain Collateral is subject to a security interest in favor of Bill LeVine which is subject to the Subordination Agreement. 4.3. Each Company is the sole owner and holder of, and has good and marketable title to, all Collateral. This Agreement creates a valid security interest in the Collateral in favor of GBCC, and such security interest is a perfected, first priority security interest in the Collateral superior to the rights of any other Persons therein. 4.4. The amount of each Eligible Account is due and owing to the Companies and represents an accurate statement of a bona fide sale, delivery and acceptance of Inventory or performance of service by the Companies to or for an Account Debtor. The terms for payment of the Eligible Accounts are as represented to GBCC and the payment of the Eligible Accounts is not contingent upon the fulfillment by either Company of any further performance of any nature whatsoever. There are no set-offs, allowances, discounts, deductions, counterclaims against the Eligible Accounts or any claims by Account Debtors, of any kind whatsoever, valid or invalid, that have been or may be asserted as a basis for refusing to pay an Eligible Account, in whole or in part, either at the time it is accepted by GBCC for inclusion in the Borrowing Base or prior to the date it is to be paid. To the best of each Company's knowledge, each Account Debtor's business is solvent. 4.5. The address set forth below each Company's signature hereon is, and for at least the last six months has been, such Company's mailing address, its chief executive office, its principal place of business, the office where all of the books and records concerning the Eligible Accounts are maintained and the location of all Collateral, except that 3PF.Com, Inc.'s office either simultaneous with execution hereof or promptly thereafter will move to the Skokie, Illinois, address set forth on the signature page hereon. Neither Company transacts business, and has not transacted business during the past five years, under any trade, fictitious or assumed name other than those set forth under such Company's signature hereon. During the past five years, neither Company has been a party to a merger or consolidation and acquired all or substantially all of the assets of any Person. 4.6. Each Company has filed all tax reports and returns required to be filed by it and has paid all federal, state and local taxes and governmental charges imposed upon such Company. 4.7. Each Company is in compliance with ERISA, and is not required to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA. Each Company has conducted its business in material compliance with all applicable laws, including but not limited to, applicable Environmental Laws, and maintains and is in compliance with all licenses and permits required under any such laws to conduct its business and perform its obligations hereunder. Neither Company has any known material contingent liability under any Environmental Law. 4.8. The application made by the Companies to GBCC in connection with this Agreement and the statements made therein and in any materials furnished in connection therewith are true and correct as of the date hereof. All financial statements furnished by the Companies to GBCC in connection with such application or hereunder have been prepared in accordance with GAAP and fairly present the financial condition and results of operations of the Companies as of the dates and for the periods indicated therein. 4.9. There is no fact which either Company has not disclosed to GBCC in writing which could materially adversely affect the properties, business or financial condition of either Company, or any of the Collateral, or which it is necessary to disclose in order to keep the foregoing representations and warranties from being misleading. GBCC acknowledges that a possible public offering of shares of 3PF.Com, Inc. and a possible mezzanine financing for 3PF.Com, Inc. have been disclosed to it. Section 5. Covenants of Each Company. From the date hereof and until the payment and performance in full of all of the Obligations, each Company covenants with GBCC that: 5.1. Each Company shall preserve and maintain its corporate existence, good standing and authority to transact business in all jurisdictions where necessary for the proper conduct of its business, and shall maintain all of its properties, rights, privileges and franchises necessary or desirable in the normal conduct of its business. 5.2. Each Company shall permit GBCC and its representatives, including any appraisers, auditors and accountants selected by GBCC, to inspect any of the Collateral at any time during normal business hours. In addition, GBCC shall have the right, from time to time, to audit any Company's books and records during normal business hours. Each Company shall pay all costs associated with any such audits at the rate of $750 per day per auditor plus reasonable out-of-pocket expenses. 5.3. Each Company shall maintain its and its Subsidiaries' books and records in accordance with GAAP. Each Company shall furnish GBCC, upon request, such information and statements as GBCC shall request from time to time regarding its business affairs, financial condition and results of its operations. Without limiting the generality of the foregoing, each Company shall provide GBCC, within 45 days after the end of each calendar quarter, unaudited consolidated and consolidating financial statements with respect to the prior quarter and, within 90 days after the end of each of the Company's fiscal years, annual audited consolidated and consolidating financial statements and such certificates and additional financial reports as GBCC may from time to time request including, without limitation, a monthly certificate from the president and chief financial officer of each Company stating whether any Events of Default have occurred and stating in detail the nature thereof. Each Company shall provide GBCC a Borrowing Base Certificate, appropriately completed and with all attachments, at any time that GBCC shall request and on or before the last day of each month in which the Company does not request an Advance. In addition, each Company shall furnish to GBCC upon request a current listing of all open and unpaid accounts payable and accounts receivable, names, addresses and contact persons for Account Debtors, and such other items of information that GBCC may deem necessary or appropriate from time to time. Each Company immediately shall notify GBCC in writing upon becoming aware of the existence of any condition or circumstance that constitutes an Event of Default or that would, with the giving of notice, the passage of time or both, constitute an Event of Default. Any such written notice shall specify the nature of such condition or circumstance, the period of the existence thereof and the action that any Company proposes to take with respect thereto. 5.4. Each Company promptly shall notify GBCC of any attachment or any other legal process levied against any Company and any action, suit, proceeding or other similar claim initiated against any Company. 5.5. Each Company shall keep and maintain adequate insurance by insurers acceptable to GBCC with respect to its business and all Collateral. Such insurance shall cover loss, damages and liability of amounts not less than reasonably requested by GBCC and shall include, at a minimum, general premises liability, fire, casualty, theft and all risk. Each Company shall cause GBCC to be an additional insured and loss payee under all policies of insurance covering any of the Collateral, to the extent of GBCC's interest. Each Company shall deliver copies of each insurance policy to GBCC upon request. 5.6. Each Company shall file all tax reports and returns required to be filed by it in the manner and at the times required by applicable law, and shall pay all federal, state and local taxes and charges imposed upon any Company when due. 5.7. Each Company shall comply with ERISA and shall not become required to contribute to any "multiemployee plan" as defined in Section 4001 of ERISA. Each Company shall conduct its business in material compliance with all applicable laws, and shall maintain and comply with all licenses and permits required under any such laws to conduct its business and perform its obligations hereunder. Without limiting the generality of the foregoing, each Company shall comply in all material respects with all Environmental Laws now or hereafter applicable to each Company and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations. Each Company promptly shall furnish to GBCC all written notices of violation, complaints, penalty assessments, suits or other proceedings received by the Company with respect to any alleged violation of or non-compliance with any Environmental Laws. 5.8. Rentrak shall maintain a Tangible Net Worth of not less than the Tangible Net Worth Requirement at all times. 5.9. Rentrak and the Affiliated Companies' Net Profit on a consolidated basis for each fiscal year shall equal or exceed $1.00. 5.10. Rentrak and the Affiliated Companies shall maintain Working Capital on a consolidated basis of not less than the Working Capital Requirement at all times. 5.11. No Company shall grant, create or allow to exist any security interest, lien or other encumbrance on any of the Collateral or on any assets of any of its Subsidiaries other than (a) the lien and security interest granted to GBCC herein, (b) the lien of Bill LeVine which is subject to the Subordination Agreement, and (c) liens on assets acquired pursuant to financings permitted by Section 5.13(b) of this Agreement which attach only to the assets acquired pursuant to such financings, and no Company shall execute any financing statement in favor of any Person other than GBCC. No Company shall change its mailing address, chief executive office, principal place of business or place where such records are maintained, open any new place of business, close any existing place of business or change the location of any of the Collateral or transact business under any trade, fictitious or assumed name other than those set forth under any Company's signature hereon without providing at least 30 days' prior written notice thereof to GBCC. 5.12. No Company shall accept any returns or grant any allowance or credit (other than those returns, allowances and credits accepted or granted in the ordinary course of any Company's business) to any Account Debtor without notice to and the prior written approval of GBCC, which approval shall be required only on credits given outside the ordinary course of business. Each Company shall provide to GBCC for each Account Debtor on Eligible Accounts a weekly report, in form and substance satisfactory to GBCC, itemizing all such returns and allowances made outside the ordinary course of business during the previous week with respect to such Eligible Accounts. 5.13. No Company shall incur or permit any Subsidiaries to incur, directly, or indirectly, any Debt for borrowed money or otherwise under any promissory note, bond, indenture or similar instrument, or in connection with the obligations of any Person (whether by guaranty, suretyship, purchase or repurchase agreement or agreement to make investments or otherwise), other than (a) in favor of GBCC, (b) capital or operating leases and Debt incurred in connection with the purchase of equipment required in connection with the business of the Companies incurred when no Event of Default has occurred or will result therefrom and with respect to Rentrak and its Subsidiaries (other than 3PF.Com, Inc.) which do not in the aggregate exceed $250,000.00 in principal at any time outstanding, and which with respect to 3PF.Com, Inc. do not at any time exceed $2,000,000.00 in the aggregate at any time outstanding, and (c) existing Debt owed to Bill LeVine. 5.14. No Company shall use any of the funds paid to the Companies hereunder directly or indirectly for personal, family, household or agricultural purposes. 5.15. No Company shall directly or indirectly become liable in connection with the Debt of any Person, whether by guarantee, surety, endorsement (other than endorsement of negotiable instruments for collection in the ordinary course of business), agreement to purchase or repurchase, agreement to make investments, agreement to provide funds or maintain working capital, or any agreement to assure a creditor against loss, nor shall they permit their Subsidiaries to do so, other than in favor of GBCC. Notwithstanding the foregoing, the Companies may make investments in or provisions of working capital to its retailer network at any time when no Event of Default has occurred or will result therefrom and in an aggregate amount of up to $1,000,000.00 outstanding at any time. 5.16. No Company shall discontinue, or make any material change in, its business as currently established, or enter any new or different line of business not directly related to that Company's existing line of business. 5.17. No Company shall declare, pay or issue any dividends or other distributions in respect of its capital stock or distribute, reserve, secure, or otherwise make or commit distributions on account of its capital stock, or make any payment on account of the purchase, redemption or other acquisition or retirement of any shares of its capital stock, unless immediately prior thereto and after giving effect thereto, no Event of Default or any event or circumstance that, with the giving of notice, the passage of time or both, would constitute an Event of Default, has occurred. 5.18. No Company shall make any loans or advances to or for the benefit of any employee, officer, director or shareholder of any Company except (a) advances for routine expense allowances in the ordinary course of business, (b) loans to employees of Rentrak to allow such employees to exercise outstanding options for the purchase of shares of Rentrak issued by Rentrak to such employees and outstanding on the date of this Agreement, and (c) other loans or advances to employees not to exceed $100,000 per individual at any time outstanding or $500,000 in the aggregate at any time outstanding so long as no Event of Default has occurred or will result therefrom. No Company shall make any loans or advances to or for the benefit of any Affiliate of any Company; provided that so long as no Event of Default has occurred or will result therefrom, the Companies may make loans or advances to Affiliates in an amount not to exceed $2,000,000.00 in the aggregate at any time outstanding. No Company shall make any payment on any obligation owing to any officer, director, shareholder or Affiliate of any Company, other than regularly scheduled payments to Bill LeVine on Debt existing on the date hereof which is secured solely by liens on Collateral which are subject to the Subordination Agreement. 5.19. No Company shall purchase or otherwise acquire assets from any Person outside the ordinary course of business of any Company. 5.20. No Company shall invest in or otherwise purchase or acquire the securities of any Person, except for investments in the Companies' retailer network permitted by Section 5.15 or acquisitions by Rentrak of its shares as a result of foreclosure on the security for loans made to employees to finance the exercise of options to purchase of shares of Rentrak . 5.21. No Company shall sell or dispose of any of its assets other than the sale of Inventory in the ordinary course of business or permit any Subsidiary to do so, and no Company shall dissolve or liquidate or become a party to any merger or consolidation with any Person or permit any Subsidiary to do so. Notwithstanding the foregoing, so long as no Event of Default then exists or will result therefrom, GBCC hereby agrees to release its lien upon the assets of 3PF.Com, Inc. which constitute Collateral at the time of a financing for the benefit of 3PF.Com, Inc., or an initial public offering of the shares of 3PF.Com, Inc., if at either such time all Advances then outstanding to 3PF.Com, Inc. are repaid in full and after such release of the assets of 3PF.Com, Inc., the outstanding principal amount of the Advances does not exceed the Borrowing Base. 5.22. Each Company shall keep and maintain its furniture, fixtures machinery and equipment in good operating condition and repair (normal wear and tear excepted), and shall make all necessary repairs thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Each Company shall notify GBCC immediately in writing of any material loss or damage to any item of its furniture, fixtures, machinery and equipment. 5.23. If either Company now owns or hereafter acquires any vehicles, aircraft, watercraft or other machinery and equipment for which a certificate of title has been issued or applied for, such Company immediately shall deliver to GBCC, properly endorsed, each certificate of title or application for title or other evidence of ownership for each such item of machinery and equipment, unless such asset is acquired pursuant to a financing permitted by Section 5.13(b) of this Agreement and is subject to a lien permitted by Section 5.11(c) of this Agreement. Each Company shall take all actions necessary to have GBCC's security interest properly recorded on each such certificate of title and shall take all other actions necessary to perfect GBCC's security interest in all such assets now or hereafter acquired by either Company. Section 6. Collateral. In order to secure the payment of all Obligations each Company hereby grants to GBCC a security interest in and lien upon such Company's right, title and interest in and to all of the following, whether now owned or hereafter acquired by either Company: (a) all Accounts, contract rights and general intangibles, receivables and claims whether now or hereafter arising, all guaranties and security therefor and all of either Company's right, title and interest in the goods purchased and represented thereby, if any, including all of either Company's rights in and to returned goods and rights of stoppage in transit, replevin and reclamation as unpaid vendor; (b) all chattel paper; (c) all documents and instruments; (d) all letters of credit and letter-of-credit rights; (e) all deposit accounts; (f) all investment property and financial assets; (g) all Inventory and all accessions thereto and products thereof and documents therefor; (h) all furniture, fixtures, equipment and machinery, wherever located and whether now or hereafter existing, and all parts thereof, accessions thereto, and replacements therefor and all documents and general intangibles covering or relating thereto; (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and any other designs or sources of business identifiers, indicia of origin or similar devices, all registrations with respect thereto, all applications with respect to the foregoing, and all extensions and renewals with respect to any of the foregoing, together with all of the goodwill associated therewith, in each case whether now or hereafter existing, and all rights and interest associated with the foregoing; (j) all copyrights, and all copyrights of works based on, incorporated in, derived from or relating to works covered by such copyrights, and all right, title and interest to make and exploit all derivative works based on or adopted from works covered by such copyrights, all registrations with respect thereto, all applications with respect to the foregoing, and all extensions and renewals with respect to any of the foregoing, together with all rights and interests associated with the foregoing; (k) all patents, patent applications, and patentable inventions, all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in-part, or reissues of any of the foregoing, the right to sue for past, present, and future infringements of any of the foregoing, all income, royalties, profits, damages, awards, and payments relating to or payable under any of the foregoing, and all other rights and benefits relating to any of the foregoing throughout the world; (l) the Lockbox Account, the Blocked Account, and all amounts credited thereto or on deposit therein from time to time; (m) all books and records pertaining to the foregoing, including but not limited to computer programs, data, certificates, records, circulation lists, subscriber lists, advertiser lists, supplier lists, customer lists, customer and supplier contracts, sales orders, and purchasing records; and (n) all proceeds of the foregoing (collectively, the "Collateral"). Each Company agrees to comply with all appropriate laws in order and to take all actions necessary or desirable in GBCC's judgment to perfect GBCC's security interest in and to the Collateral, to execute any financing statement or additional documents as GBCC may request and to deliver to GBCC a list of all locations of its Inventory, equipment and machinery and landlord and or mortgagee lien waivers with respect to each site where Inventory, equipment or machinery is located and which is either leased by any Company or has been mortgaged by any Company, upon request by GBCC. Section 7. Collection. Each invoice representing an Account shall state on its face that amounts payable thereunder are payable only at the Remittance Address. GBCC shall have the right at any time, either before or after the occurrence of an Event of Default and without notice to either Company, to notify any or all Account Debtors on the Collateral of the assignment of the Collateral to GBCC and to direct such Account Debtors to make payment of all amounts due or to become due to either Company directly to GBCC, and to the extent permitted by law, to enforce collection of any Collateral and to adjust, settle or compromise the amount or payment thereof. So long as no Event of Default or event that, with the passage of time, the giving of notice or both, would become an Event of Default has occurred and is continuing, all collections of Collateral received by GBCC shall be applied by GBCC to the payment of the Obligations of the Companies to GBCC whether or not then due and any remaining funds shall be delivered to the Companies. Upon the occurrence of an Event of Default or an event that, with the passage of time, the giving of notice or both, would become an Event of Default, any such remaining funds may be held by GBCC as cash collateral ("Cash Collateral") until all Obligations have been paid in full and GBCC has no further obligation to advance funds to the Companies. All amounts and proceeds (including instruments and writings) received by the Companies in respect of the Collateral shall be received in trust for the benefit of GBCC hereunder, shall be segregated from other funds of the Companies and shall be immediately paid over to GBCC in the same form as received (with any necessary endorsement) to be applied in the same manner as payments received directly by GBCC or paid over to the Blocked Account. Section 8. Power of Attorney. Each Company grants to GBCC an irrevocable power of attorney coupled with an interest authorizing and permitting GBCC, at its option, with or without notice to either Company, to do any or all of the following: (a) endorse the name of any Company on any checks or other evidences of payment whatsoever that may come into the possession of GBCC regarding Collateral, including checks received by GBCC pursuant to Section 7 hereof; (b) receive, open and forward any mail addressed to any Company and put GBCC's address on any statements mailed to Account Debtors; (c) pay, settle, compromise, prosecute or defend any action, claim, conditional waiver and release, or proceeding relating to Collateral; (d) upon the occurrence of an Event of Default, notify, in the name of either Company, the U.S. Post Office to change the address for delivery of mail addressed to such Company to such address as GBCC may designate (provided that GBCC shall turn over to such Company all such mail not relating to Collateral); (e) verify, sign, acknowledge, record, file for recording, serve as required by law, any claim of mechanic's lien, stop notice or bonded stop notice in the sole and absolute discretion of GBCC relating to any Collateral; (f) insert all recording or service information in any mechanic's lien or assignment of rights under stop notice/bonded stop notice which either Company has signed in connection with this Agreement, recorded or served to enforce payment of the Collateral; (g) execute and file on behalf of either Company any financing statement, amendment thereto or continuation thereof (i) deemed necessary or appropriate by GBCC to protect GBCC's interest in and to the Collateral or (ii) required or permitted under any provision of this Agreement; and (h) do all other things necessary and proper in order to carry out this Agreement. The authority granted to GBCC herein is irrevocable until this Agreement is terminated and all amounts due to GBCC hereunder have been paid in full. Section 9. Default. An event of default ("Event of Default") shall be deemed to have occurred hereunder, and GBCC shall have no further obligation to make any further Advances and may immediately exercise its rights and remedies with respect to the Collateral under this Agreement, the Uniform Commercial Code and applicable law, upon the happening of one or more of the following: 9.0.1. Either Company shall fail to pay on demand or otherwise as and when required or due any amount required to be paid or owed by either Company to GBCC, whether hereunder or otherwise. 9.0.2. Either Company shall breach any covenant or agreement made herein or in any other Transaction Document. 9.0.3. Any warranty or representation made herein or in any other Transaction Document shall be untrue when made or any report, certificate, schedule, financial statement, profit and loss statement or other statement furnished by either Company, or by any other person on behalf of either Company, to GBCC is not true and correct when furnished. 9.0.4. There shall be commenced by or against either Company or any guarantor of the Obligations any voluntary or involuntary case under the federal Bankruptcy Code, or either Company or any guarantor of the Obligations shall make an assignment for the benefit of its creditors, or of a receiver or custodian shall be appointed for either Company or any guarantor of the Obligations for a substantial portion of its assets. 9.0.5. Either Company shall become insolvent in that its debts are greater than the fair value of its assets, or either Company is generally not paying its debts as they become due. 9.0.6. Any involuntary lien, garnishment, attachment or the like shall be issued against or shall attach to the Collateral and the same is not released within ten days. 9.0.7. An event or circumstance shall have occurred which GBCC believes has or may result in a material adverse change in either Company's or any Guarantor's financial condition, business or operations or the value of the Collateral. 9.0.8. Either Company shall have a federal or state tax lien filed against any of its properties, or shall fail to pay any federal or state tax when due, or shall fail to file any federal or state tax form or report as and when due. 9.0.9. Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of $25,000 exists with respect to any ERISA Plan, or (ii) any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than $25,000. 9.0.10. Either Company suffers the entry against it a final judgment for the payment of money in excess of $25,000. 9.0.11. GBCC believes that the prospect for payment or performance of the Obligations has become impaired. 9.0.12. Any guarantor of the Obligations shall repudiate his, her or its obligations in respect of such guaranty. 9.0.13. An "event of default" shall have occurred under any agreement, document or instrument evidencing Debt of any Company, or any Debt of any Company is accelerated or called for payment prior to the due date thereof. 9.0.14. 3PF.Com, Inc. shall at any time fail to remit all collections of its Accounts to the Blocked Account more than one (1) Business Day after such collections are received by 3PF.Com, Inc. Upon the occurrence of an Event of Default described in subsections (d) or (e) of this section, all of the Obligations owing by the Companies to GBCC under any of the Transaction Documents shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, or any other notice or declaration of any kind, all of which are hereby expressly waived by each Company. During the continuation of any other Event of Default, GBCC, at any time and from time to time, may declare any or all of the Obligations owing by the Companies to GBCC under any of the Transaction Documents immediately due and payable, all without notice, demand, presentment, notice of demand or of dishonor and nonpayment, or any notice or declaration of any kind, all of which are hereby expressly waived by each Company. After any such acceleration (whether automatic or due to declaration by GBCC), any obligation of GBCC to make any further Advances or loans of any kind under this Agreement or any other agreement with the Companies shall terminate. The enumeration of Events of Default shall not impair the nature of the Obligations as demand obligations, at all times payable upon demand pursuant hereto. All Advances hereunder are subject to approval by GBCC in its sole discretion, and may be declined in whole or in part, without prior notice to either Company, whether or not an Event of Default may then be in existence. Section 10. Remedies and Application of Proceeds. 10.1. In addition to, and without limitation of, the foregoing provisions of this Agreement, if an Event of Default shall have occurred and be continuing, GBCC may from time to time in its discretion, without limitation and without notice except as expressly herein: (a) exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Transaction Documents or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral); (b) require the Companies to, and the Companies hereby agree that they will at their expense, assemble all or part of the Collateral as directed by GBCC and make it available to GBCC at a place to be designated by GBCC that is reasonably convenient to both parties; (c) reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial procedure; (d) dispose of, at its office, on the premises of either Company or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings; (e) buy the Collateral, or any part thereof, at any public sale, or at any private sale if the Collateral is of a type customarily sold in a recognized market or is of a type that is the subject to widely distributed standard price quotations; (f) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and each Company hereby consents to any such appointment; and (g) at its discretion, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that GBCC is entitled to do so under the UCC or otherwise. Each Company agrees that, to the extent notice of sale shall be required by law, at least five days' notice to the Companies of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. GBCC shall not be obligated to make any sale of Collateral regardless of whether any notice of sale has been given. GBCC may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 10.2. If any Event of Default shall have occurred and be continuing, GBCC may in its discretion apply any Cash Collateral, and any cash proceeds received by GBCC in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, to any or all of the following in such order as GBCC may elect: (a) the repayment of all or any portion of the Obligations; (b) the repayment of reasonable costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by GBCC in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of GBCC hereunder, or (iv) the failure of either Company to perform or observe any of the provisions hereof; (c) the payment or other satisfaction of any liens and other encumbrances upon any of the Collateral; (d) the reimbursement of GBCC for the amount of any obligations of either Company paid or discharged by GBCC, and of any expenses of GBCC payable by either Company hereunder or under the other Transaction Documents; (e) by holding the same as Collateral; (f) the payment of any other amounts required by applicable law (including, without limitation, Part 5 of Article 9 of the UCC or any successor or similar applicable statutory provision); and (g) by delivery to either Company or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. Section 11. Miscellaneous. 11.1. In the event that any Company commits any act or omission that prevents or unreasonably interferes with (a) GBCC's exercise of the rights and privileges arising under the power of attorney granted in Section 8 of this Agreement or (b) GBCC's perfection of or levy upon the security interest granted in the Collateral, including any seizure of any Collateral, each Company acknowledges that such conduct will cause immediate, severe, incalculable and irreparable harm and injury, and agrees that such conduct shall constitute sufficient grounds to entitle GBCC to an injunction, writ of possession, or other applicable relief in equity, and to make such application for such relief in any court of competent jurisdiction, without any prior notice to the Company. 11.2. All rights, remedies and powers granted to GBCC in this Agreement, or in any other instrument or agreement given by each Company to GBCC or otherwise available to GBCC in equity or at law, are cumulative and may be exercised singularly or concurrently with such other rights as GBCC may have. These rights may be exercised from time to time as to all or any part of the Collateral as GBCC in its discretion may determine. No waiver by GBCC of its rights and remedies shall be effective unless the waiver is in writing and signed by GBCC. A waiver by GBCC of a right or remedy under this Agreement or any other Transaction Document on one occasion shall not be deemed to be a waiver of such right or remedy on any subsequent occasion. An Advance by GBCC during the continuation of an Event of Default shall not obligate GBCC to make any further Advances during the continuation of such Event of Default. 11.3. Any notice or communication with respect to this Agreement or any other Transaction Document shall be given in writing, sent by (i) personal delivery, (ii) expedited delivery service with proof of delivery, (iii) United States mail, postage prepaid, registered or certified mail, or (iv) prepaid telegram, telex or telecopy, addressed to each party hereto at its address set forth below its signature hereon or to such other address or to the attention of such other Person as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telegram, telex or telecopy, upon receipt. Each Company hereby agrees that GBCC may publicize the amount of and borrowers under the transaction contemplated by this Agreement in newspapers, trade and similar publications including, without limitation, the publication of a "tombstone". 11.4. (a) The term of this Agreement shall be for five (5) years from the date hereof (the original term and any extension thereof are herein called the "Term") and from year to year thereafter unless either party hereto gives notice to the other party hereto not more than 90 days or less than 60 days prior to the end of the Term; provided, however, that GBCC may terminate this Agreement at any time effective immediately upon the occurrence of an Event of Default. Each Company acknowledges that it shall have no right to terminate this Agreement prior to the end of the Term, that termination of this Agreement by either Company at any time prior to the end of the Term would result in the loss by GBCC of benefits under this Agreement and that the damages incurred by GBCC as a result of such termination would be difficult and impractical to ascertain. Therefore, in the event this Agreement is or terminated for any reason during the first year of the Term, the Companies shall pay to GBCC an early termination fee in the amount of three percent (3%) of the Facility Limit; and if this Agreement is terminated for any reason during the second year of the Term, the Companies shall pay to GBCC an early termination fee in the amount of two percent (2%) of the Facility Limit; and if this Agreement is terminated for any reason during the third year of the Term, the Companies shall pay to GBCC an early termination fee in the amount of one percent (1%) of the Facility Limit, and if this Agreement is terminated for any reason during the fourth year of the Term, the Companies shall pay to GBCC an early termination fee in the amount of one-half percent (.50%) of the Facility Limit; and if this Agreement is terminated for any reason during the fifth year of the Term or thereafter, the Companies shall pay to GBCC an early termination fee in the amount of one-quarter percent (.25%) of the Facility Limit, in each case to the maximum extent permitted by applicable law and subject to Section 2.13 hereof. Any termination of this Agreement shall not affect GBCC's security interest in the Collateral, and this Agreement shall continue to be effective, until all transactions entered into and obligations incurred hereunder have been completed and satisfied in full. (b) Each Company hereby agrees that in the event either Company receives an offer either during or at the end of the Term from a third party to provide financing or factoring to such Company, which offer such Company intends to accept, it shall require the offeror to reduce such offer to a written Facility Limit (the "new Facility Limit"). In addition, each Company will (a) notify GBCC in writing of the identity of the offeror and the complete terms of the new Facility Limit and (b) if, within 30 days after GBCC's receipt of such notice and a signed copy of the new Facility Limit, GBCC elects, in its sole discretion, to offer to terminate this Agreement in accordance with Section 11.4(a) and match the new Facility Limit, accept GBCC's offer. 11.5. Each and every provision, condition, covenant and representation contained in this Agreement is, and shall be construed, to be a separate and independent covenant and agreement. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of the Agreement shall not be affected thereby. 11.6. Each Company hereby jointly and severally indemnifies and agrees to hold harmless and defend all Indemnified Persons from and against any and all Indemnified Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED PERSON. Upon notification and demand, each Company agrees to provide defense of any Indemnified Claim and to pay all costs and expenses of counsel selected by any Indemnified Person in respect thereof. Any Indemnified Person against whom any Indemnified Claim may be asserted reserves the right to settle or compromise any such Indemnified Claim as such Indemnified Person may determine in its sole discretion, and the obligations of such Indemnified Person, if any, pursuant to any such settlement or compromise shall be deemed included within the Indemnified Claims. Except as specifically provided in this section, each Company waives all notices from any Indemnified Person. The provisions of this Section 11.6 shall survive for four (4) years after the termination of this Agreement. 11.7. All grants, covenants and agreements contained in this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither Company may delegate or assign any of their respective duties or obligations under this Agreement without the prior written consent of GBCC. GBCC RESERVES THE RIGHT TO ASSIGN ITS RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR IN PART TO ANY PERSON OR ENTITY, provided that GBCC will give the Companies timely notice of such assignment. Without limiting the generality of the foregoing, GBCC may from time to time grant participations in all or any part of the Obligations to any Person on such terms and conditions as may be determined by GBCC in its sole and absolute discretion, provided that the grant of such participation shall not relieve GBCC of its obligations hereunder nor create any additional obligation of either Company. 11.8. Any action permitted or provided to be taken or omitted by GBCC hereunder may be taken or omitted, as the case may be, by GBCC in its sole and absolute discretion, and any consent or waiver required of GBCC or determination to be made by GBCC hereunder may be given, withheld or made, as the case may be, by GBCC in its sole and absolute discretion. 11.9. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW. EACH COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN GBCC AND THE COMPANY BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN GBCC AND EITHER COMPANY SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF TEXAS HAVING JURISDICTION. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER. 11.10. EACH COMPANY AND GBCC HEREBY (A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH. 11.11. THIS AGREEMENT AND THE SECURITY DOCUMENTS DESCRIBED HEREIN AND DELIVERED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT OF THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION OR AMENDMENT OF OR SUPPLEMENT TO THIS AGREEMENT OR TO ANY SUCH SECURITY DOCUMENTS SHALL BE VALID OR EFFECTIVE UNLESS THE SAME IS IN WRITING AND SIGNED BY THE PARTY AGAINST WHOM IT IS SOUGHT TO BE ENFORCED. The undersigned have entered into this Agreement as of the date first written above. GUARANTY BUSINESS CREDIT CORPORATION RENTRAK CORPORATION, D/B/A FIDELITY FUNDING, a Delaware corporation an Oregon corporation By: By: Name: Name: Title: Title: Mailing Address: 8333 Douglas Avenue, Suite 530 Mailing Address: Dallas, Texas 75225 Street Address: 8333 Douglas Avenue, Suite 530 Street Address: Dallas, Texas 75225 Trade Names: Blowout Entertainment (no longer used) Entertainment One (no longer used) Super Center (no longer used) 3PF.COM, INC., a Delaware corporation By: Name: Title: Mailing Address: Street Address: New Illinois chief executive office and principal place of business effective on ________, 2000: Trade Names: ComAlliance, Inc. (prior name) Exhibits: A - Borrowing Base Report Schedules: None at present. DAL 3285336.14 112:21676-23 EX-10.28 7 0007.txt GENERAL CONTINUING GUARANTY OF GUARANTORS In order to induce Guaranty Business Credit Corporation d/b/a Fidelity Funding ("GBCC"), a Delaware corporation, to extend and/or to continue to extend financial accommodations to Rentrak Corporation, an Oregon corporation, and 3PF.Com, Inc., a Delaware corporation (individually, a "Company" and collectively, the "Companies") pursuant to the terms and conditions of that certain Loan and Security Agreement (as the same may be amended, restated, extended, supplemented, or otherwise modified from time to time, the "Agreement"), of even date herewith, among GBCC and the Companies or pursuant to any other present or future agreement between GBCC and the Companies or either of them, and in consideration of any loans, advances, or financial accommodations heretofore or hereafter granted by GBCC to or for the account of the Companies or either of them, whether pursuant to the Agreement or otherwise, each of the undersigned Guarantors ("Guarantor"), hereby jointly and severally guarantees, promises and undertakes as follows: 1. Guaranty of Obligations. Each Guarantor jointly and severally, unconditionally, absolutely and irrevocably guarantees and promises to pay to GBCC, on order or demand, in lawful money of the United States, any and all indebtedness, liabilities and obligations of the Companies or either of them to GBCC whether under the Agreement or otherwise (collectively, the "Obligations"). Without limiting the generality of the foregoing, each Guarantor further agrees to pay to GBCC all post-petition interest, expenses and other duties and liabilities of the Companies or either of them which would be owed by the Companies or either of them but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Companies. The Obligations shall include any and all advances, debts, obligations and liabilities of the Companies, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involuntarily, however arising (including, without limitation, indebtedness owing by the Companies to GBCC under the Agreement, indebtedness owing by the Companies to third parties who have granted GBCC a security interest in the accounts, chattel paper and general intangibles of said third party, and any and all attorneys' fees, expenses, costs, premiums, charges and interest owed by the Companies to GBCC, whether under the Agreement, or otherwise), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether the Companies may be liable individually, jointly and severally, or jointly with others, whether recovery upon such indebtedness may be or hereafter becomes barred by any statute of limitations or whether such indebtedness may be or hereafter becomes otherwise unenforceable, and also shall include the Companies' prompt, full and faithful performance, observance and discharge of each and every term, condition, agreement, representation, warranty undertaking and provision to be performed by the Companies under the Agreement. Notwithstanding the foregoing or any other provision of this Guaranty, it is agreed and understood that no Guarantor shall be required to pay hereunder at any time more than the Maximum Guaranteed Amount. As used herein, the term "Maximum Guaranteed Amount" means as of the date of determination, the lesser of (a) the amount of the Obligations outstanding on such date and (b) the maximum amount which would not result in such Guarantor's liability under this Guaranty constituting a fraudulent transfer or fraudulent conveyance under applicable state or federal law as determined by a court of competent jurisdiction. 2. Continuing Guaranty. This guaranty (the "Guaranty") is a continuing guaranty and shall remain effective until it has been expressly terminated pursuant to Section 14, provided, however, that, by sending written notice (by certified mail, return receipt requested) to GBCC, any Guarantor may terminate this Guaranty as to (and only as to) Obligations of the Companies under transactions having their inception after the effective date (the "Effective Termination Date") specified in such written notice, which shall be at least 90 days after GBCC's receipt of such written notice. No such termination shall affect any rights or obligations arising out of transactions having their inception prior to the Effective Termination Date, including, without limitation, any loans or advances made, or any credit granted, to the Companies after GBCC's receipt thereof pursuant to any agreement, commitment or obligation, including, without limitation, the Agreement, made or entered into by GBCC prior to the Effective Termination Date. 3. Rights are Independent. Each Guarantor agrees that it is directly and primarily liable to GBCC, that the obligations of each Guarantor hereunder are independent of the obligations of the Companies and that a separate action or actions may be brought and prosecuted against any Guarantor, whether action is brought against the Companies or whether the Companies are joined in any such action or actions. Each Guarantor agrees that any releases which may be given by GBCC to the Company or any other Guarantor or any other guarantor or endorser of all or any part of the Obligations shall not release it from this Guaranty. 4. Default. In the event that any bankruptcy, insolvency, receivership or similar proceeding is instituted by or against any Guarantor and/or either Company or in the event that any Guarantor or either Company becomes insolvent, makes an assignment for the benefit of creditors or attempts to effect a composition with creditors, or if there be any default under the Agreement (whether declared or not), then, at GBCC's election, without notice or demand, the obligations of each Guarantor created hereunder shall become due, payable and enforceable against each Guarantor whether or not the Obligations are then due and payable and whether or not the Obligations are enforceable against the Companies. 5. Indemnification. Each Guarantor agrees to jointly and severally indemnify, defend and hold GBCC harmless from and against any and all obligations, demands and liabilities, by whomsoever asserted and against all losses in any way suffered, incurred or paid by GBCC as a result of or in any way arising out of, following or consequential to transactions with the Companies, whether under the Agreement or otherwise, and also agrees that this indemnification shall not be impaired by any modification, supplement, extension or amendment of any contract or agreement to which GBCC and the Companies may hereafter agree, or by any agreements or arrangements whatever with the Company or anyone else. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY GBCC, provided only that GBCC shall not be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs proximately caused by its own individual gross negligence or willful misconduct. 6. Consent to Modifications. Each Guarantor hereby authorizes GBCC, without notice or demand and without affecting its liability hereunder, from time to time to: (a) renew, compromise, forbear, extend, accelerate or otherwise change the time for payment or the terms of any of the Obligations, or any part thereof, including, without limitation, increasing or decreasing the rate of interest thereof or the amount of indebtedness thereunder; (b) take and hold security, guaranties, or other assurances of payment for the payment of the Obligations guaranteed hereby, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as GBCC in its discretion may determine; (d) release or substitute any one or more endorsers or guarantors of all or any part of the Obligations; and (e) assign, without notice, this Guaranty in whole or in part and GBCC's rights hereunder to anyone at any time. Each Guarantor agrees that GBCC may do any or all of the foregoing in such manner, upon such terms, and at such times as GBCC, in its discretion, deems advisable, without, in any way or respect, impairing, effecting, reducing or releasing any Guarantor from its undertakings hereunder, and each Guarantor hereby consents to each and all of the foregoing acts, events and occurrences. 7. No Duty to Pursue Others. It shall not be necessary for GBCC (and each Guarantor hereby waives any rights which such Guarantor may have to require GBCC), in order to enforce such payment to any Guarantor, first to (i) institute suit or exhaust its remedies against the Companies or others liable on the Obligations or any other person, (ii) enforce GBCC's rights against any security which shall ever have been given to secure the Obligations, (iii) enforce GBCC's rights against any Guarantors or any other guarantors of the Obligations, (iv) join the Companies or any others liable on the Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to GBCC against any security which shall ever have been given to secure the Obligations, or (vi) resort to any other means of obtaining payment of the Obligations. GBCC shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Obligations. 8. Waiver of Notices, etc. Each Guarantor agrees to the provisions of the Agreement, and hereby waives notice of (i) any loans or advances made by GBCC to the Companies, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Agreement or of any other Obligations, (iv) the execution and delivery by the Companies and GBCC of any other loan or credit agreement or of the Companies' execution and delivery of any promissory notes or other documents in connection therewith, (v) the occurrence of any breach by the Companies or Event of Default (as defined in the Agreement and collateral documents thereto), (vi) GBCC's transfer or disposition of the Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Obligations, (viii) protest, proof of non-payment or default by the Companies, or (ix) any other action at any time taken or omitted by GBCC, and, generally, all demands and notices of every kind in connection with this Guaranty, the Agreement, any documents or agreements evidencing, securing or relating to any of the Obligations and the obligations hereby guaranteed. 9. Continuation of Guaranty. Each Guarantor hereby consents and agrees to each of the following, and agrees that each Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which each Guarantor might otherwise have as a result of or in connection with any of the following: 1. the invalidity, illegality or unenforceability of all or any part of the Obligations, or any document or agreement executed in connection with the Obligations, for any reason whatsoever, including without limitation the fact that (i) the Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Agreement or other documents or otherwise creating the Obligations acted in excess of their authority, (iv) the Obligations violates applicable usury laws, (v) either Company has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Obligations wholly or partially uncollectible from either Company, (vi) the creation, performance or repayment of the Obligations (or the execution, delivery and performance of any document or instrument representing part of the Obligations or executed in connection with the Obligations, or given to secure the repayment of the Obligations) is illegal, uncollectible or unenforceable, or (vii) the Agreement or other documents or instruments pertaining to the Obligations have been forged or otherwise are irregular or not genuine or authentic; 2. any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Obligations; 3. the failure of GBCC or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security; 4. the fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Obligations; 5. (i) the insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of either Company or any other party at any time liable for the payment of all or part of the Obligations; (ii) any dissolution of either Company, or any sale, lease or transfer of any or all of the assets of either Company or any Guarantor, or any change in the shareholders, partners or members of either Company, or (iii) any reorganization, merger or consolidation of either Company into or with any other corporation or entity; 6. any payment by either Company to GBCC is held to constitute a preference under bankruptcy laws, or for any reason GBCC is required to refund such payment or pay such amount to either Company or someone else; or 7. any other action taken or omitted to be taken with respect to the Agreement, the Obligations, or the security and collateral therefore, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Obligations pursuant to the terms hereof; it is the unambiguous and unequivocal intention of each Guarantor that each Guarantor shall be obligated to pay the Obligations when due, notwithstanding any occurrence, circumstance, event, action or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Obligations. 10. Waiver of Defenses. Each Guarantor hereby waives any right to assert against GBCC as a defense, counterclaim, set-off or cross-claim, any defense (legal or equitable), set-off, counterclaim or cross-claim which any Guarantor may now or any time hereafter have against the Companies and any other party liable to GBCC in any way or manner. Each Guarantor hereby waives all defenses, counterclaims and off-sets of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of the Agreement or any security interest thereunder or any Transaction Document (as defined in the Agreement). Each Guarantor hereby waives any defense arising by reason of any claim or defense based upon an election of remedies by GBCC, which, in any manner impairs, affects, reduces, releases, destroys or extinguishes any Guarantor's subrogation rights, rights to proceed against either Company for reimbursement, or any other rights of any Guarantor to proceed against the Companies or against any other rights of any Guarantor or against any other person or security. Each Guarantor waives all presentments, demands for performance, notices of non-performance, protests, notices of protests, notices of dishonor, notices of default, notice of acceptance of this Guaranty, and notices of the existence, creating or incurring of new or additional indebtedness, and all other notices or formalities to which Guarantor may be entitled. As a condition to payment or performance by any Guarantor under this Guaranty, GBCC shall not be required to, and each Guarantor hereby waives any and all rights to require GBCC to prosecute or seek to enforce any remedies against the Companies or any other party liable to GBCC on account of the Obligations or to require GBCC to seek to enforce or resort to any remedies with respect to any security interests, liens or encumbrances granted to GBCC by the Company or any other party on account of the Obligations. All monies or other property of any Guarantor at any time in GBCC's possession may be held by GBCC as security for any and all obligations of any Guarantor to GBCC no matter now existing or hereafter arising, whether absolute or contingent, whether due or to become due, and whether under this Guaranty or otherwise, each Guarantor also agrees that GBCC's books and records showing the account between GBCC and the Companies shall be admissible in any action or proceeding and shall be binding upon each Guarantor for the purpose of establishing the terms set forth therein and shall constitute prima facie proof thereof. 11. No Subrogation. Insofar as each Guarantor and Companies are concerned, any payment hereunder by any Guarantor shall be deemed a contribution to the capital of Companies, and each Guarantor shall have no right of subrogation with respect hereto (including without limitation any right of subrogation under 34.04 of the Texas Business and Commerce Code). Each Guarantor hereby waives any rights to enforce any rights of subrogation, contribution, reimbursement, indemnification, exoneration and any other remedy which any Guarantor may have against either Company or any other person with respect to this Guaranty, the Obligations, or applicable law. Each Guarantor hereby irrevocably agrees, to the fullest extent permitted by law, that it will not exercise (and herein waives) any rights against either Company or any other person which it may acquire by way of subrogation, contribution, reimbursement, indemnification or exoneration under or with respect to this Guaranty, the Obligations or applicable law, by any payment made hereunder or otherwise. If the foregoing waivers are adjudicated unenforceable by a court of competent jurisdiction, then each Guarantor agrees that no liability or obligation of either Company that shall accrue by virtue of any right to subrogation, contribution, indemnity, reimbursement or exoneration shall be paid, nor shall any such liability or obligation be deemed owed, until all of the Obligations shall have been paid in full. 12. Subordination. Each Guarantor hereby subordinates any and all indebtedness of the Companies or either of them to each Guarantor to the full and prompt payment and performance of all of the Obligations. Each Guarantor agrees that GBCC shall be entitled to receive payment of all Obligations prior to any Guarantor's receipt of payment of any amount of any indebtedness of the Companies to any Guarantor. Any payments on such indebtedness to any Guarantor, if GBCC so requests, shall be collected, enforced and received by each Guarantor, in trust, as trustee for GBCC and shall be paid over to GBCC on account of the Obligations, but without reducing or affecting in any manner the liability of any Guarantor under the other provisions of this Guaranty. GBCC is authorized and empowered, but not obligated, in its discretion, (a) in the name of each Guarantor, to collect and enforce, and to submit claims in respect of, any indebtedness of the Companies to any Guarantor and to apply any amounts received thereon to the Obligations, and (b) to require each Guarantor (i) to collect and enforce, and to submit claims in respect of, any indebtedness of Companies to each Guarantor and (ii) to pay any amounts received on such indebtedness to GBCC for application to the Obligations. 13. Financial Condition of the Company. Each Guarantor is presently informed of the financial condition of the Companies and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Guarantor hereby covenants that it will continue to keep itself informed of the Companies' financial condition and of all other circumstances which bear upon the risk of nonpayment. Each Guarantor hereby waives its right, if any, to require GBCC to disclose to each Guarantor, and GBCC is relieved of any obligation or duty to disclose to each Guarantor, any information which GBCC may now or hereafter acquire concerning such condition or circumstances. 14. Termination. Each Guarantor's obligation under this Guaranty shall continue in full force and effect until the Companies' Obligations are fully paid, performed and discharged and GBCC gives each Guarantor written notice of that fact. The Companies' Obligations shall not be considered fully paid, performed and discharged unless and until all payments by the Companies to GBCC are no longer subject to any right on the part of any person whomsoever, including but not limited to, either Company, either Company as a debtor-in-possession, or any trustee or receiver in bankruptcy, to set aside such payments or seek to recoup the amount of such payments, or any part thereof. The foregoing shall include, by way of example and not by way of limitation, all rights to recover preferences voidable under Title 11 of the United States Code. In the event that any such payments by either Company to GBCC are set aside after the making thereof, in whole or in part, or settled without litigation, to the extent of such settlement, all of which is within GBCC's discretion, each Guarantor shall be liable for the full amount GBCC is required to repay plus costs, interest, attorneys' fees and any and all expenses which GBCC paid or incurred in connection therewith. 15. Successors and Assigns. This Guaranty shall be binding upon the heirs, executors, legal representatives, successors and assigns of each Guarantor and shall inure to the benefit of GBCC's successors and assigns, provided that this provision shall not be construed to permit any Guarantor to assign this Guaranty or any obligations hereunder to any person or entity. The death of any Guarantor shall not terminate this Guaranty. 16. Modifications. This Guaranty cannot be modified orally. No modification of this Guaranty shall be effective for any purpose unless it is in writing and executed by an officer of GBCC authorized to do so. All prior agreements, understandings, representations and negotiations, if any, are merged into this Guaranty. 17. Attorneys' Fees. Each Guarantor jointly and severally agrees to pay all reasonable attorneys' fees, post-judgment interest and all other costs and out-of-pocket expenses which may be incurred by GBCC in the enforcement of this Guaranty or in any way arising out of, following, or consequential to the enforcement of either Company's Obligations, whether under this Guaranty, the Agreement, or otherwise. 18. Limitation on Interest. GBCC and each Guarantor intend to contract in strict compliance with applicable usury law from time to time in effect, and the provisions of the Agreement limiting the interest for which each Guarantor is obligated are expressly incorporated herein by reference. 19. GOVERNING LAW. ALL ACTS AND TRANSACTIONS HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON EACH GUARANTOR IN ANY LEGAL PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER RELATIONSHIP BETWEEN GBCC AND ANY GUARANTOR BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS GUARANTY OR ANY OTHER RELATIONSHIP BETWEEN GBCC AND ANY GUARANTOR SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS, HAVING JURISDICTION. EACH GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER. 20. Section Numbers and Headings. Section numbers and section titles have been set forth herein for convenience only; they shall not be construed to limit or extend the meaning of any part of this Guaranty. 21. Benefit. Each Guarantor will directly benefit from GBCC's making loans to the Companies, and such benefit has a value reasonably equivalent to the obligations and liabilities incurred hereunder. The Board of Directors of each Guarantor, acting pursuant to a duly called and constituted meeting, after proper notice, or pursuant to a valid unanimous consent, has determined that this Guaranty directly or indirectly benefits each Guarantor and is in the interests of each Guarantor. 22. Legality. The execution, delivery and performance by each Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder (i) have been duly authorized by all necessary corporate and stockholder action of each Guarantor, and (ii) do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which any Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which any Guarantor is a party or which may be applicable to any Guarantor or any of its assets, or violate any provisions of its Certificate of Incorporation, Bylaws or any other organizational document of any Guarantor; this Guaranty is a legal and binding obligation of each Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 23. Organization and Good Standing. Each Guarantor (i) is, and will continue to be, a corporation duly organized and validly existing in good standing under the laws of the state of its organization as reflected in its signature block below, and (ii) possesses all requisite authority, power, licenses, permits and franchises necessary to own its assets, to conduct its business and to execute and deliver and comply with the terms of this Guaranty. 24. Guarantor's Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, each Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities and debts, and has and will have property and assets in the State of Texas sufficient to satisfy and repay its obligations and liabilities. This Agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. EXECUTED AND AGREED as of May __, 2000: "GUARANTORS": FORMOVIES.COM, a _______________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: LRC, INC., a ________________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: MORTCO, INC., a ________________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: PDF, INC., a ____________________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: STREAMLINED SOLUTIONS, INC., a _______________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: TRANSITION SPORTS, INC., a ___________________ corporation By: Name: Title: Guarantor Address: Guarantor Telephone Number: Guarantor Tax ID Number: DAL 3284768.5 112:21676-23 EX-10.29 8 0008.txt AMENDMENT TO RENTRAK CORPORATION AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN Rentrak Corporation, an Oregon corporation (the "Company"), hereby amends the Rentrak Corporation Amended and Restated Directors Stock Option Plan (the "Plan"). The Company wishes to make funds available to optionees under the Plan for the purpose of exercising options granted thereunder. Accordingly, the following sentence is added to the end of Section 7 of the Plan. "The Committee may, in its discretion, extend one or more loans to Directors in connection with the exercise or receipt of an Option under this Plan. The terms and conditions of any such loan shall be set by the Committee." This amendment was approved by the Board of Directors of the Company by resolution adopted on May 19, 2000. EX-10.30 9 0009.txt AMENDMENT TO RENTRAK CORPORATION 1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN Rentrak Corporation, an Oregon corporation (the "Company"), hereby amends the Rentrak Corporation 1986 Amended and Restated Stock Option Plan (the "Plan"). The Company wishes to make funds available to optionees under the Plan for the purpose of exercising options granted thereunder. Accordingly, the following sentence is added to the end of Section 7 of the Plan. "The Committee may, in its discretion, extend one or more loans to Employees in connection with the exercise or receipt of an Option under this Plan. The terms and conditions of any such loan shall be set by the Committee." This amendment was approved by the Board of Directors of the Company by resolution adopted on May 19, 2000. EX-10.31 10 0010.txt Exhibit 10.31 THE TRANSFER OF THIS WARRANT IS RESTRICTED AS PROVIDED IN SECTION 7 AND 8 GRANT DATE: November 29, 1999 WARRANT AGREEMENT AND CERTIFICATE TO PURCHASE SHARES OF COMMON STOCK OF 3PF.COM, INCORPORATED In consideration of a $4 million loan from Bill LeVine ("Creditor") to Rentrak Corporation, of which approximately $2.5 million of the proceeds were used to fund the operations of 3PF.COM, INC., a Delaware corporation whose principal place of business is located at One Airport Center, 7700 N. E. Ambassador Place, Portland, Oregon 97220 (the "Company"), and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the Company grants to Holder the right, subject to the terms and conditions of this Warrant, to purchase at any time and from time to time during the period commencing November 29, 1999 (the "Grant Date") and ending on November 30, 2000, (the "Expiration Date"), Fourteen Thousand Eight Hundred and Fourteen (14,814) shares of fully paid and nonassessable shares of Common Stock of the Company (the "Shares") for a purchase price of $6.75 per share, which is equal to an aggregate purchase price of Ninety-Nine Thousand Nine Hundred Ninety-Four Dollars and Fifty Cents ($99,994.50), (the "Exercise Price"). Section 1. DEFINITIONS. As used in this Warrant, unless the context otherwise requires: 1.1 "Basic Exercise Price" means the price at which each Warrant Share may be purchased upon exercise of this Warrant as stated in the first sentence of this Warrant. 1.2 "Blue Sky Law" means the laws and regulations of any state or other jurisdiction applicable to any sale by or for the account of the Holder of all or part of this Warrant or any of the Warrant Shares. 1.3 "Common Stock" means the Common Stock ($.001 par value) of the Company, and for purposes of Sections 7.1(a) through (d) also has the meaning set forth in Section 7.1(f). 1.4 "Exercise Date" means any date when this Warrant is exercised, in whole or in part, in the manner indicated in Sections 2.1 and 2.2. 1.5 "Exercise Period" means the period commencing on the Grant Date and ending on the Expiration Date. 1.6 "Exercise Price" means the Basic Exercise Price, provided, however, that if an adjustment is required under Section 7 of this Warrant, then the "Exercise Price" means, after each such adjustment, the price at which each Warrant Share may be purchased upon exercise of this Warrant immediately after the last such adjustment. 1.7 "Expiration Date" means the Expiration Date as described on the first page of this Warrant. 1.8 "Grant Date" means the date this Warrant was first granted as stated at the beginning of this Warrant. 1.9 "Holder" means initially Creditor and his subsequent transferee. 1.10 "Related Warrant" means any other Warrant executed and delivered by the Company on terms identical with the terms of this Warrant (except as to the identity of the Holder, number of Warrant Shares or execution date) that is granted pursuant to Section 2 or Section 7 of this Agreement. 1.11 "Related Warrant Shares" means any shares of Common Stock or other securities issued or issuable upon exercise of any Related Warrant. 1.12 "Securities Act" means the Securities Act of 1933, as amended from time to time, and all rules and regulations promulgated thereunder, or any act, rules or regulations that replace the Securities Act or any such rules and regulations. 1.13 "Warrant" means this Common Stock Warrant and each previously executed and cancelled Common Stock Warrant, if any, for which this Warrant has been exchanged. 1.14 "Warrant Shares" means any shares of Common Stock or other securities issued or subject to issuance upon exercise of this Warrant or upon exchange of a Warrant Share for Warrant Shares of different denominations. Section 2. DURATION AND EXERCISE OF WARRANT. 2.1 Exercise of Warrant. This Warrant shall be immediately exercisable by Holder, in whole or in part, at any time on or after the Grant Date and on or before the Expiration Date. This Warrant may be exercised by the Holder, in whole or in part, during the Exercise Period, by (i) surrendering this Warrant to the Company, (ii) tendering to the Company the payment due with regard to the Exercise Price for the Warrant Shares for which exercise is made, and (iii) executing and delivering to the Company the attached Exercise Form. In the event of a partial exercise, the aggregate purchase price shall be adjusted pro rata to take into account such partial exercise and a Related Warrant shall be issued to Holder for the unexercised portion of the Warrant. 2.2 Certificates. Within a reasonable time but no more than 15 days after exercise, certificates for such Warrant Shares shall be delivered to the Holder. 2.3 Securities Act Compliance. Unless the issuance or transfer of the Warrant Shares shall have been registered under the Securities Act, as a condition of its delivery of the certificates for the Warrant Shares, the Company may require the Holder (including any transferee of the Warrant Shares in whose name the Warrant Shares are to be registered) to deliver to the Company, in writing, representations regarding the purchaser's sophistication, investment intent, acquisition for its own account and such other matters as are reasonable and customary for purchasers of securities in an unregistered private offering, and the Company may place conspicuously upon each certificate representing the Warrant Shares a legend substantially in the following form, the terms of which are agreed to by the Holder (including such transferee): "The securities represented by this certificate have been issued without registration or qualification under the Securities Act of 1933, as amended (the "Securities Act"), and the Blue Sky Laws of any jurisdiction. Such securities may not be sold, assigned, transferred or otherwise disposed of, beneficially or on the records of the Company, unless the securities represented by this certificate have been registered or qualified under the Securities Act and applicable Blue Sky Laws or there has been delivered to the Company an opinion of counsel, satisfactory to the Company, to the effect that such registration and qualification is not required." The Company need not register a transfer of this Warrant or the Warrant Share unless the conditions specified in such legend and in Section 8 are satisfied. Section 3. VALIDITY AND RESERVATION OF WARRANT SHARES. The Company covenants that this Warrant and all shares of Common Stock issued upon exercise of this Warrant will be validly issued, fully paid, nonassessable and free of preemptive rights. The Company agrees that so long as this Warrant may be exercised, the Company will have authorized and reserved for issuance upon exercise of this Warrant a sufficient number of Warrant Shares to provide for exercise in full. Section 4. FRACTIONAL SHARES. No fractional Warrant Share shall be issued upon the exercise of this Warrant. With respect to any fraction of a Warrant Share otherwise issuable upon any such exercise, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Exercise Price. Section 5. LIMITED RIGHTS OF THE WARRANT HOLDER. The Holder shall not, solely by virtue of being the Holder of this Warrant, have any of the rights of a holder of Common Stock of the Company, either at law or equity, until such Warrant shall have been exercised and the Holder shall have been issued certificates representing the Warrant Shares and the Holder shall be deemed to be the holder of record of Warrant Shares as provided in this Warrant, at which time the person or persons in whose name or names the certificate or certificates for Warrant Shares being purchased are to be issued shall be deemed the holder or holders of record of such shares for all purposes. Section 6. ANTI-DILUTION PROTECTION 6.1 Certain Recapitalization; Stock Splits; Reverse Stock Splits. If, prior to the expiration of this Warrant by exercise or by its terms, the Company shall effect a recapitalization of such character that the outstanding Common Stock shall be changed or converted into, or become exchangeable for, a larger or smaller number of Common Stock, then the number of Common Stock which the Holder shall be entitled to receive upon exercise of this Warrant in accordance with its terms shall be proportionately increased or decreased, in direct proportion to the increase or decrease in the number of Common Stock outstanding by reason of the recapitalization, and the per share Exercise Price hereunder in effect at the time of the recapitalization shall, in the case of an increase in the number of Common Stock purchasable hereunder, be proportionately reduced and, in the case of a decrease in the number of such Common Stock, be proportionately increased. 6.2 Mergers, Consolidations; Conveyances. If, prior to the expiration of this Warrant by exercise or by its terms, the Company shall merge or consolidate with, or convey all or substantially all of its property and assets to, any other corporation or corporations, then, upon the exercise of this Warrant in accordance with its terms after the effective date of such merger, consolidation or conveyance, the Holder shall be entitled to receive for the Exercise Price, in lieu of each of the shares of Common Stock otherwise purchasable hereunder, such shares, securities, or other property as may be issued or payable with respect to, or in exchange for, each of such shares of Common Stock and which the Holder would have received as the holder of record of each such share of Common Stock on the effective date of such merger, consolidation or conveyance. Section 7. EXCHANGE, TRANSFER OR LOSS OF WARRANT. 7.1 Exchange. This Warrant is exchangeable, without expense to the Holder and upon surrender hereof to the Company, for Related Warrants of different denominations entitling the Holder to purchase Warrant Shares equal in total number and identical in type to the Warrant Shares covered by this Warrant. 7.2 Transfer. Subject to the provisions of Section 8, upon surrender of this Warrant to the Company with the attached Assignment Form duly executed, the Company shall, without charge, execute and deliver a Related Warrant to the assignee named in such Assignment Form, and this Warrant shall promptly be cancelled. 7.3 Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Warrant and either (in the case of loss, theft or destruction) indemnification or bond in form and substance acceptable to the Company, or (in the case of mutilation) the surrender of this Warrant for cancellation, the Company will execute and deliver to the Holder, without charge, a Related Warrant of like denomination. Any such Related Warrant executed and delivered shall constitute an additional obligation of the Company, whether or not this Warrant, reportedly lost, stolen, destroyed or mutilated, shall be at any time presented by anyone to the Company for exercise. Section 8. TRANSFER RESTRICTION 8.1 General. Anything contained hereto to the contrary notwithstanding, this Warrant may not be assigned, transferred (by operation of law or otherwise), hypothecated or sold, except as set forth in Section 8.2. Any such assignment or transfer shall be made by surrender of this Warrant to the Company or at the office of its transfer agent, if any, with the Form of Assignment annexed hereto duly executed and funds sufficient to pay any transfer tax, whereupon the Company shall, without charge, execute and deliver a Related Warrant in the name of the assignee and this Warrant shall promptly be cancelled. This Warrant may only be transferred or assigned as a whole unit as to the balance of the unexercised purchase rights as of the time of transfer. Partial transfer or assignment of this Warrant shall be prohibited. 8.2 Securities Law Compliance. Except pursuant to the requirements of and in compliance with Rule 144 of the Securities Act, the Warrant and Warrant Shares may not be sold, transferred, assigned or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel satisfactory to the Company and in the opinion of the Company's counsel, is a person to whom the Warrant Shares may legally be transferred without registration under the Securities Act and without the delivery of a current prospectus with respect thereto; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities (as to which a registration statement under the Securities Act shall then be in effect) and the offering thereof for such sale or disposition. The Holder agrees that it will not at any time offer to sell, sell, transfer, pledge or otherwise dispose of this Warrant, or, upon receipt of Common Stock after exercise hereof, any of such Common Stock, except pursuant to either (a) an effective registration statement under the Securities Act or (b) an opinion of counsel satisfactory to the Company to the effect that such registration is not required. The Holder acknowledges that, in taking this unregistered Warrant, or in taking unregistered Common Stock upon exercise hereof, the Holder must continue to bear the economic risk of such investments for what may be an indefinite period of time. The Holder further agrees hereby that, prior to any transfer of this Warrant or the Common Stock received upon any exercise hereof (if such Warrant and/or Common Stock are not registered under the Securities Act), it will give written notice to the Company of its intention to effect such transfer. Upon receipt of such notice, the Company will promptly present it to counsel for the Company and counsel for the Holder and if the Company receives the opinion of such counsel, in form and substance satisfactory to the Company, that the proposed transfer may be effected without registration under the Securities Act and applicable state law, the Holder shall be promptly notified and shall be entitled to effect the transfer of this Warrant and/or the Common Stock in accordance with the terms specified in the notice delivered to the Company. The provisions of this Section 8.2 shall be binding upon all subsequent Holders of this Warrant and upon all subsequent holders of the certificates for the Common Stock bearing the legend specified in Section 3 hereof. 8.3 Representations of Holder. The Holder represents that it has acquired this Warrant for investment only, for its own account, and not with any present view to, or any offer to sale in connection with, the distribution thereof. The Holder represents that it is an "accredited investor" as that term is defined under Regulation D of the Securities Act and is able to bear the economic risk associated with an entire loss of its investment. Section 9. REGISTRATION RIGHTS. 9.1 Definitions. For purposes of this Section 9: (a) The term "Act" shall mean the Securities Act of 1933, as amended; (b) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document by the Securities and Exchange Commission; (c) The term "Registrable Securities" means the Common Stock issuable or issued upon the exercise of this Warrant, or Related Warrants. 9.2 Piggyback Registration. If the Company proposes to register (but excluding for this purpose the Company's initial public offering of securities and any registration effected by the Company on a Form S-8 registration statement) any securities under the Act, it shall each such time: (a) Promptly (but in no event less than 30 days prior to the proposed filing date of the registration statement relating thereto) give written notice to Holder of such proposed registration; and (b) Upon the written request of Holder to register any of its Registrable Securities, which request shall be given within 30 days after receipt of such written notice by the Company, the Company shall cause to be registered under the Act all of the Registrable Securities that Holder has requested to be registered. 9.3 Obligations of the Company. Whenever required under this Section 9 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of Holder, keep such registration statement effective for up to 90 days, or in the case of a shelf registration, the earlier of the time at which all of the Registrable Securities registered on the shelf registration have been sold, or the longest period permitted for registering securities or such shelf registration. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith, as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky Laws of such jurisdictions as shall be requested by Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business in any such states or jurisdictions, provided that this section shall be limited to the United States. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 9, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 9, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters, if any, and to the Holder requesting registration of Registrable Securities, and (ii) a letter dated such date, from the independent certified public accounts of the Company, in form and substance as customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holder requesting registration of Registrable Securities. (h) List the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed or exercise its best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. ("NASD"), including the NASDAQ National Market System, as the case may be, if the Company does not have a class of equity securities listed on a national securities exchange. 9.4 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 9 that the Holder shall furnish to the Company such information regarding themselves, the Registrable Securities held by Holder, and the intended method of disposition of such securities as shall be required to effect the registration of the Registrable Securities. 9.5 Expenses of Company Registration. The Company shall bear and pay expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to registrations pursuant to Section 9.2 for Holder, including, without limitation, all printers' bills and account fees and the fees and disbursements of counsel for the Company, but excluding underwriting discounts and commissions relating to Registrable Securities and the fees and disbursements of special counsel for Holder. 9.6 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 9.2 to include any of Holder's securities in such underwriting unless Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities requested by Holder to be included in such offering, exceeds the amount of securities that the underwriters reasonably believe are compatible with the success of the offering, then the Company shall be required to include in the offering only that number of Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among all selling shareholders according to the total amount of securities entitled to be included therein owned by each selling holder based on the then existing priority of registration rights, or in such other proportions as shall mutually be agreed to by such selling shareholders). 9.7 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 9: (a) To the extent permitted by law, the Company will indemnify and hold harmless Holder, the officers and directors or controlling persons of any Holder, any underwriter (as defined in the Act) for Holder, and each person, if any, who controls any Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934 (the "1934 Act"), against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged Omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, or any state law; and the Company will reimburse Holder, officer or director, underwriter or controlling person for any legal or other expense reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, nor shall the Company be liable in any such case for any such loss, claim damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holders, officer, director, underwriter or controlling person. (b) To the extent permitted by law, Holder will indemnify and hold harmless the Company and its underwriter, and any officers, directors or controlling persons thereof, against losses, claims, damages or liabilities that arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading to the extent that any such untrue statement, alleged untrue statement, omission or alleged omission occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by Holders or (ii) any violation or alleged violation by Holder of the Act, the 1934 Act, or any state law. (c) Promptly after receipt by an indemnified party under this Section 9.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties, in which case the indemnifying party shall not be liable to the indemnified party for any attorneys fees or expenses incurred by the indemnified party; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 9.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9.7. (d) In order to provide for just and equitable contribution in any case in which any indemnified party makes claim for indemnification pursuant to this Section 9.7 but it is judicially determined (by entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that the provisions of this Section 9.7 hereof so provide for indemnification in such case, then, and in each such case, each indemnifying party and the indemnified party shall contribute to the aggregate losses, claims, damages, or liabilities to which they may be subject (after contribution from all others) in such proportion as is appropriate to reflect the relative benefits received by each indemnifying party and the indemnified party from the registration of Registrable Securities; provided, however, that if such allocation is not permitted by applicable law, then the relative fault of each indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such damages and other relevant equitable considerations shall also be considered. The relative fault shall be determined by reference to, among other things, whether in the case of an untrue statement of a material fact or the omission to state a material fact, such statement or omission relates to information supplied by the indemnified party or by the indemnifying parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if the respective obligations of the parties to contribute pursuant to this Section 9.7(d) were to be determined by pro rata or per capita allocation of the aggregate damages or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this Section 9.7(d). For purposes of this Section 9.7(d), the term "damages" shall include any legal or other expenses reasonably incurred by the indemnified party in connection with investigating or defending against or appearing as a third party witness in any action or claim that is the subject of the contribution provisions of this Section 9.7(d). Notwithstanding the provisions of this Section 9.7(d), a Holder, the officers and directors of each Holder, any underwriter (as defined in the Act) for such Holder, if any, and any person who controls such Holder or underwriter within the meaning of the 1934 Act in the aggregate shall not be required to contribute any amount in excess of the amount by which the total price of the Registrable Securities purchased by any such person or entity, directly or indirectly, from the Company exceeds the amount of any damages that such persons in the aggregate have otherwise been required to pay by reason of such untrue statement or omission. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The foregoing contribution agreement shall in no way affect the contribution liabilities of any person having liability under applicable law, other than the parties hereto and the persons controlling the parties hereto. (e) The obligations of the Company under this Section 9.7 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 9. 9.8 Reports Under 1934 Act. With a view to making available to Holders the benefits of Rule 144 and Rule 144A promulgated under the Act, and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public if the Company is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144; (b) file with the SEC in a timely manner all reports and other documents as may be required of the Company under the Act and the 1934 Act; (c) furnish to Holders, so long as Holders own any Registrable Securities, forthwith upon request such information as may be reasonably requested in availing Holders of any rule or regulation of the SEC which permits the selling of any such securities without registration. 9.9 Participation in Underwritten Registrations. Holder may not participate in any registration hereunder which is underwritten unless Holder (a) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the person or persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting arrangements and other documents required under the terms of such underwriting arrangements. Section 10. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to Holder the following: 10.1 Authority. The Company has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder or contemplated hereby; this Agreement has been duly authorized, executed and delivered by the Company and is enforceable in accordance with its terms. 10.2 Valid Agreement. This Warrant, and the issue and delivery thereof has been duly and validly authorized, and this Warrant, when issued and delivered as provided in this Agreement, will be duly and validly issued and outstanding, and will constitute a valid and binding obligation of the Company. Section 11. MISCELLANEOUS. 11.1 Successors and Assigns. All the covenants and provisions of this Warrant that are by or for the benefit of the Company shall bind and inure to the benefit of its successors and assigns hereunder. 11.2 Notice. Notice or demand pursuant to this Warrant to be given or made by the Holder to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed, until another address is designated in writing by the Company, as follows: 3PF.Com, Inc. One Airport Center 7700 N. E. Ambassador place Portland, Oregon 97220 Attention: Bill Polich Any notice or demand authorized by this Warrant to be given or made by the Company to or on the Holder shall be given to the Holder by first-class mail, postage prepaid, addressed, until another address is designated in writing by the Company, as follows: Bill LeVine LeVine Enterprises 211 Spalding Drive, #604 South Beverly Hills, CA 90212 and to any other Holder addressed at his last known address as it shall appear on the books of the Company, until another address is designated in writing, with a copy to Holder by like mail. 11.3 Jurisdiction; Waiver of Jury Trial. For any action related to the judicial enforcement or interpretation of this Warrant, and all other agreements or documents contemplated in or by this Warrant, the Company and Holder expressly consent to the jurisdiction of the Circuit Court for the County of Multnomah, State of Oregon or the Federal Court for the District of Oregon. The Holder waives his right to a jury trial of any claim or cause of action based upon or arising out of this Warrant or any dealings between the Company and Holder relating to this Warrant. 11.4 Applicable Law. The validity interpretation and performance of this Warrant shall be governed by laws of the State of Oregon. 11.5 Headings. The article headings herein are for convenience only and are not part of this Warrant and shall not affect the interpretation thereof. This Warrant is executed as of November 7, 1999. 3PF.COM, INC. By:____________________________ _______ F. Kim Cox, Secretary EXERCISE FORM (To Be Executed by the Warrant Holder if the Warrant is Exercised) TO: 3PF.COM, INCORPORATED The undersigned _________________________________________________ (Please insert name and Social Security or other identifying number of Subscriber) hereby irrevocably elects to exercise the right of purchase represented by the attached Warrant for, and to purchase thereunder, __________ shares of your Common Stock provided for therein and tenders payment herewith to the order of 3PF.Com, Incorporated in the amount of $____________. The undersigned requests that certificates for such shares of Common Stock be issued as follows: Name: __________________________________________________________ Address: _______________________________________________________ Deliver to: ____________________________________________________ Address: _______________________________________________________ and, if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable hereunder, that a new Warrant for the balance remaining of the Shares of Common Stock purchasable under the attached Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Address: _______________________________________________________ Dated: _______________, 2000. Signature ___________________________ Note: Signature must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatever. FORM OF ASSIGNMENT (To Be Signed Only Upon Assignment) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ______________________________, of ________________________________________ the right to purchase __________ shares of Common Stock evidenced by the within Warrant, and appoints _____________________________ to transfer the same on the books of 3PF.Com, Inc. with the full power of substitution in the premises. Dated: _____________________, 2000. Signature:___________________________________________ Note: Signature must correspond with the name as written upon the face of the Warrant. g:\forms\warrantagr-LeVine FKC.dtw 032100.3:21pm EX-10.32 11 0011.txt 1 Exhibit 10.32 LOAN AND SECURITY AGREEMENT Borrower: Blowout Video Holding Company Address: c/o Rentrak Corporation 7700 NE Ambassador Place Portland, Oregon 97220 Date: August ____, 1999 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between Bill LeVine, an individual, ("LeVine"), whose address is 211 Spalding Drive # 604 South, Beverly Hills, California, 90025 and the borrower named above (the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). LeVine and the Borrower desire to enter into this Loan and Security Agreement. 1. Loans. 1.1 Loans. LeVine will make loans to the Borrower (the "Loans") up to $3,000,000 (Three Million Dollars) (the "Credit Limit"). The Borrower is responsible for monitoring the total amount of Loans and other monetary obligations outstanding from time to time, and the Borrower shall not permit the same, at any time, to exceed the Credit Limit. If at any time the total of all outstanding Loans and all other monetary obligations exceed the Credit Limit, the Borrower shall immediately pay the amount of the excess to LeVine, without notice or demand. Upon execution of this Agreement, Borrower shall draw no less than $500,000 (Five Hundred Thousand Dollars). Thereafter all draws or repayments shall be made on no less than ten (10) days written notice and in amounts of no less than $250,000 (Two Hundred Fifty Thousand Dollars). There shall be no penalty for prepayment of any Loans. 1.2 Interest; Debit to Deposit Accounts. All Loans and all other monetary obligations shall bear interest at prime rate as quoted by Silicon Valley Bank from time to time plus one and one- half percent (1.5%). 1.3 Fees. The Borrower shall pay to LeVine a loan origination fee in the amount of $30,000 upon execution of this Agreement. This fee is in addition to all interest and other sums payable to LeVine and is not refundable. 1.4 Statements. Borrower shall cause a monthly statement to be delivered to LeVine within fifteen (15) days after month end. The statement will detail the outstanding principal and interest as of month end and any borrowing or repayment during the month to the best of Borrower's knowledge. 2. GRANT OF SECURITY INTEREST. 2.1 Obligations. The term "Obligations" as used in this Agreement means the following: the obligation to pay all Loans and all interest thereon when due, and to pay and perform when due all other present and future indebtedness, liabilities, obligations, guarantees, covenants, agreements, warranties and representations of the Borrower to LeVine, whether joint or several, monetary or non-monetary, and whether created pursuant to this Agreement or any other present or future agreement or otherwise. LeVine may, in his sole discretion, require that the Borrower pay monetary Obligations in cash to LeVine, or charge them to Borrower, in which event they will bear interest at the same rate applicable to the Loans. 2.2 Collateral. As security for all Obligations, the Borrower hereby grants LeVine a continuing security interest in all of the Borrower's assets including but not limited to all of the Borrower's interest in the types of property described below, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): (a) All accounts, contacts, right, chattel paper, letters of credit, documents, securities, money , and instruments, and all other obligations now or in the future owing to the Borrower; (b) All inventory, goods, merchandise, materials, raw materials, work in process, finished goods, farm products, advertising, packaging and shipping materials, supplies, and all other tangible personal property which is held for sale or lease or furnished under contracts of service or consumed in the Borrower's business, and all warehouse receipts and other documents; (c) All equipment, including without limitation all machinery, fixtures, trade fixtures, vehicles, furnishing furniture, materials, tools, machine tools, office equipment, computers and peripheral devices, appliances, apparatus, pats, dies, and jigs; (d) All general intangibles including, but no limited to, deposit accounts, goodwill, names, trade names, trademarks and the goodwill of the business symbolized thereby, trademark applications, security deposits, loan commitment fees, federal, state and local tax refunds and claims, all rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of the Borrower against LeVine, all rights to purchase or sell real or personal property, all rights as a licensor or licensee of any kind, all royalties, licenses, processes, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation credit, liability, property and other insurance), and all other rights, privileges and franchises of any kind; (e) All books and records, whether stored on computers or otherwise maintained; (f) All of the Borrower's cash; and (g) All substitutions, additions and accessions to any of the foregoing, and all products, proceeds and insurance proceeds of the foregoing, and all guaranties of and security for the foregoing, and all books and records relating to any of the foregoing. LeVine's security interest in any present or future technology (including patents, trade secrets, copyrights and trademarks related thereto and other technology) shall be subject to any license or rights now or in the future granted by the Borrower to any third parties in the ordinary course of the Borrower's business; provided that if the Borrower proposes to sell, license or grant any other rights with respect to any technology in a transaction that, in substance, conveys a major part of the economic value of that technology, LeVine shall first be requested to release its security interest in the same, and LeVine may withhold such release in his reasonable discretion. The Borrower will not, either itself or though any agent, employee, licensee or designee, (a) file an application for the registration of any patent, trademark, or copyright with the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any similar office or agency in any other country, state, or any political subdivision (the "Offices"), or (b) file any assignment of any patent, trademark, or copyright which the Borrower may acquire from a third party with any one of the Offices unless the Borrower shall, on or prior to the date of such filing, notify LeVine thereof, and, upon request of LeVine, execute and deliver any and all assignments, agreements, instruments, documents and papers as LeVine may request to evidence LeVine's interest in such patents, trademarks, or copyrights, as the case may be, including the goodwill and general intangibles of the Borrower relating thereto or represented thereby, and the Borrower authorizes LeVine to amend any applicable notice of security interest or assignment executed pursuant to Section 4.9 of this Agreement without first obtaining the Borrower's approval of or signature to such amendment and to record such assignment with one or more of the Offices. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The Borrower represents and warrants to LeVine as follows, and the Borrower covenants that the following representations will continue to be true, and that the Borrower will comply with all of the following covenants: 3.1 Corporate Existence and Authority. The Borrower is and will continue to be duly authorized, validly existing and in good standing under the laws of the State of Oregon. The Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on the Borrower. The execution, delivery and performance by the Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, are enforceable against the Borrower in accordance with their terms (except as such enforcement as may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights and except as the remedies of specific performance, injunctive and other forms of equitable relief may be subject to equitable defenses and the discretion of the court before which any proceeding may be brought), and do not violate any law or any provision of, and are not grounds for acceleration under, any agreement or instrument which is binding upon the Borrower. 3.2 Name, Trade Names and Styles. The name of the Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule 3.2 hereto are all prior names of the Borrower and all of the Borrower's present trade names. The Borrower shall give LeVine 15 days' prior written notice before changing its name or doing business under any other name. Notwithstanding the foregoing, LeVine acknowledges and agrees that Borrower has multiple wholly owned subsidiaries which are parties to leases for certain of the retailer locations operated by Borrower. Borrower may change the name of these subsidiaries or cease using one or more at anytime. The Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name. 3.3. Place of Business, Location of Collateral. The address set forth in the heading to this Agreement is the Borrower's chief executive office. In addition, the Borrower has places of business and Collateral located only at the locations set forth on the Schedule 3.3 to this Agreement. The Borrower will give LeVine at least 15 days prior written notice before changing its chief executive office or moving the Collateral to any other location. 3.4 Title to Collateral; Permitted Liens. The Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for video-cassettes which are consigned to the Borrower and items of equipment. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for the following ("Permitted Liens"): (i) purchase money security interest in specific items of equipment; and security interest in inventory up to $100,000 (such security interest being given to the suppliers of such equipment); (ii) leases of specific items of equipment; (iii) liens for taxes, assessments and other governmental charges not yet payable; (iv) additional security interests and liens consented to in writing by LeVine in his sole discretion; (v) security interests being terminated substantially concurrently with this Agreement; (vi) statutory liens of landlords, carriers, warehousemen, mechanics, materialmen and other similar lines imposed by law, which are incurred in the ordinary course of business; (vii) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, statutory obligations, surety and appeal bonds, leases, trade contracts, and other similar obligations; (viii) leases or subleases granted to others not interfering in any material respect with the business of the Borrower; and (ix) easements, rights-of-way restrictions, and other similar charges or encumbrances not interfering in any material respect with the ordinary course of the business of the Borrower. LeVine will have the right to require, as a condition to his consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an inter creditor agreement on terms satisfactory to LeVine in his sole discretion, acknowledge that the holder's security interest is subordinate to the security interest in favor of LeVine, and that the Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. To the extent a security interest can be perfected in the Collateral by the filing of a Uniform Commercial Code financing statement, LeVine now has, and will continue to have, a first priority, perfected and enforceable security interest in all of the Collateral subject only to the Permitted Liens. The Collateral shall not be subject to any other liens or security interests of any type except for the Permitted Liens. The Borrower will at all times defend LeVine and the Collateral against all claims of others pertaining to the Collateral. None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. 3.5 Maintenance of Collateral. The Borrower will maintain the Collateral in good working condition, reasonable wear and tear excepted, and the Borrower will not use the Collateral for any unlawful purpose. The Borrower will immediately advise LeVine in writing of any material loss or damage to the Collateral. 3.6 Books and Records. The Borrower has maintained and will maintain at the Borrower's address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 Financial Condition and Statements. All financial statements now or in the future delivered to LeVine 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 LeVine: (i) within 45 days after the end of each quarter (except the fourth fiscal quarter), a quarterly financial statement (consisting of a company prepared balance sheet and company prepared statements of operations and changes in financial position) certified as correct to the best knowledge and belief by the Borrower's chief financial officer or other officer or person acceptable to LeVine; (ii) within 90 days after the end of the last calendar quarter of each year, a Compliance Certificate in such form as LeVine 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 (iii) 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 LeVine. 3.8 Tax Returns and Payments: Pension Contributions. The Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and the Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by the Borrower. The Borrower may, however, defer payment of any contested taxes, provided that the Borrower (i) in good faith contests the Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies LeVine in writing of the commencement of and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. The Borrower is unaware of any claims or adjustments proposed for any of the Borrower's prior tax years which could result in additional taxes becoming due and payable by the Borrower. The Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and the Borrower has not and will not withdraw from participation in, permit partial or complete termination of or permit the occurrence of any other event with respect to, any such plan which could result in any liability of the Borrower, including, without limitation, any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 3.9 Compliance with Law. The Borrower has complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to the Borrower, including, but not limited to, those relating to the Borrower's ownership of real or personal property, conduct and licensing of the Borrower's business, and environmental matters. 3.10 Litigation. There is no claim, suit, litigation, proceeding or investigation pending or (to best of the Borrower's knowledge) threatened by or against or affecting the Borrower in any court or before any governmental agency (or any basis therefor known to the Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of the Borrower, or in any material impairment in the ability of the Borrower to carry on its business in substantially the same manner as it is now being conducted. The Borrower will promptly inform LeVine in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against the Borrower involving amounts in excess of $100,000. 3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for lawful business purposes. 3.12 No Patents or Trademarks. The Borrower does not own and has no pending application for the registration of any patent or trademark with the U.S. Patent and Trademark Office or any similar office or agency of any state, of the United States of America or of any foreign jurisdiction. Borrower uses certain patents and trademarks pursuant to a license from its parent, Rentrak Corporation. 3.13 Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. S 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. Na. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. S 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. ~ 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, S 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by LeVine in writing, the Borrower represents and warrants that: (a) the Borrower has no knowledge of (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters; (b) Neither the Borrower nor any subtenant, contractor, agent or other user authorized by Borrower of any of the properties shall use; generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, or about any of the properties owned or operated by the Borrower; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. The Borrower authorizes LeVine and his agents, upon 24 hours prior notice (which need not be in writing), to enter upon the properties to make such inspections and tests as LeVine may deem appropriate to determine compliance of the properties owned or operated by the Borrower with this section of the Agreement. Any inspections or tests made by LeVine shall be for LeVine's purposes only and shall not be construed to create any responsibility or liability on the part of LeVine to the Borrower or to any other person. The Borrower hereby (a) releases and waives any future claims against LeVine for indemnity or contribution in the event the Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless LeVine against any and all claims, losses, liabilities, damages, penalties, and expenses which LeVine may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to the Borrower's ownership or interest in the properties, whether or not the same was or should have been known to the Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by LeVine's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. 4. ADDITIONAL DUTIES OF THE BORROWER. 4.1 Financial and Other Covenants. The Borrower shall at all times comply with this Agreement. 4.2 Overadvance: Proceeds of Accounts. If for any reason the total of all outstanding Loans and all other monetary Obligations exceeds the Credit Limit, without limiting LeVine's other remedies, and whether or not LeVine declares an Event of Default, the Borrower shall remit to LeVine all checks and other proceeds of the Borrower's accounts and general intangibles, in the same form as received by the Borrower, properly endorsed (with recourse) to the order of LeVine, within one day after the Borrower's receipt of the same, to be applied to the Obligations in such order as LeVine shall determine in his discretion. 4.3 Insurance. The Borrower shall at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to LeVine, in such form and amounts as LeVine may reasonably require. All such insurance policies shall name LeVine as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to LeVine. Upon receipt of the proceeds of any such insurance, LeVine may in his option apply such proceeds in reduction of the Obligations as LeVine shall determine in his sole and absolute discretion, except that, provided no Event of Default has occurred, LeVine shall release to the Borrower all insurance proceeds totaling less than $100,000 which shall be utilized by the Borrower for the replacement of the items with respect to which the insurance proceeds were paid. LeVine may require reasonable assurance that the insurance proceeds so-released will be so used. If the Borrower fails to provide or pay for any insurance, LeVine may, but is not obligated to, obtain the same at the Borrower's expense. The Borrower shall promptly deliver to LeVine copies of all reports made to insurance companies. 4.4 Report. The Borrower shall provide LeVine with such written reports with respect to the Borrower as LeVine, shall from time to time reasonably specify. 4.5 Access to Collateral, Books and Records. At all reasonable times, LeVine, or his agents, shall have the right to inspect the Collateral, and the right to audit and copy the Borrower's accounting books, records, ledgers, journals, or registers and the Borrower's books and records relating to the Collateral. LeVine shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but LeVine shall have the right to disclose any such information to his auditors, regulatory agencies and attorneys, and pursuant to any subpoena or other legal process. The foregoing audits shall be at LeVine's expense unless the audit reveals a discrepancy of ten percent (10%) or more the Borrower shall pay the costs of conducting the audit and such discrepancy shall constitute an Event of Default. Notwithstanding the foregoing, during the continuation of an Event of Default all audits shall be at the Borrower's expense. 4.6 Negative Covenants. The Borrower shall not, without LeVine's prior written consent, which shall not be unreasonably withheld, do any of the following: (i) merge or consolidate with another corporation, except that the Borrower may merge or consolidate with a wholly owned subsidiary; (ii) sell or transfer any Collateral, except for the sale of finished inventory in the ordinary course of the Borrower's business, and except for the sale of obsolete or unneeded equipment in the ordinary course of business; (iii) loan money or guarantee loans of others that in the aggregate exceed $50,000 (for purposes of calculating the aggregate amount of loans and or guarantees, advances to suppliers of product to the Borrower shall not be considered to be loans and advances (or guarantee of loans) to subsidiaries of the Borrower in which the Borrower is the largest shareholder shall not require prior approval of LeVine so long as such advances are extended in the ordinary course of the Borrower's business; (iv) incur any indebtedness for borrowed money, except for trade debt incurred in the ordinary course of the Borrower's business, indebtedness to LeVine, and purchase money or lease financing for equipment in an aggregate amount of less than $1,000,000.00; (v) pay or declare any dividends on the Borrower's stock (except for dividends payable solely in stock of the Borrower); (vi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the Borrower's stock except for the repurchase of stock pursuant to an employee stock purchase plan not to exceed $100,000 in any fiscal year; or (vii) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section are only permitted if no Event of Default exist and no event which (with notice or passage of time or both) would constitute an Event of Default would occur as a result of such transaction. 4.7 Litigation Cooperation. Should any third-party suit or proceeding be instituted by or against LeVine with respect to any Collateral or in any manner relating to the Borrower, the Borrower shall, without expense to LeVine, make available the Borrower and its officers, employees and agents and the Borrower's books and records to the extent that LeVine may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. In addition, with respect to such third party suit or proceeding. Borrower shall pay all LeVine's attorney's fees and cost, including on appeal, and indemnify an hold him harmless on all such litigation. 4.8 Verification. LeVine may, from time to time, verify directly with the respective account debtors the validity, amount and other matters relating to the Borrower's accounts, by means of mail, telephone or otherwise, either in the name of the Borrower or LeVine or such other name as LeVine may reasonably choose. 4.9 Execute Additional Documentation. The Borrower agrees, at its expense, on request by LeVine, to execute and deliver from time to time all documents in form satisfactory to LeVine, as LeVine may deem reasonably necessary or useful in order to perfect and maintain LeVine's perfected security interest in the Collateral, and in order to fully consummate all of the transactions contemplated by this Agreement. 5. TERM. 5.1 Maturity Date. This Agreement shall continue' in effect until the payment in full of the Obligations, provided, however, that the Borrower shall repay in full all Obligations not later than three years after the date of execution of this Agreement (the "Maturity Date"). 5.2 Early Termination. Subject to Section 5.3, this Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by the Borrower, effective ten business days after written notice of termination is given to LeVine; or (ii) by LeVine at any time after the occurrence of an Event of Default, effective immediately upon written notice to the Borrower. 5.3 Payment of Obligations. On the Maturity Date, or on any earlier effective date of termination, the Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Notwithstanding any termination of this Agreement, all of LeVine's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are discretionary on the part of LeVine, LeVine may, in his sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of LeVine, nor shall any such termination relieve the Borrower of any Obligation to LeVine, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations, LeVine shall promptly deliver to the Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate any of LeVine's security interests. 6. EVENTS OF DEFAULT AND REMEDIES. 6.1 Events of Default. Without notice from LeVine, the occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and the Borrower shall give LeVine immediate written notice thereof: (a) any warranty, representation, statement, report or certificate made or delivered to LeVine by the Borrower or any of the Borrower's officers or employees, now or in the future, shall be untrue or misleading in any material respect; or (b) the Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation within five days after the due date; or (c) the total Loans and other monetary Obligations outstanding at any time exceed the Credit Limit; or (d) the Borrower shall fail to pay or perform any other non-monetary Obligation, under this Agreement or any other agreement or document relating to the Loans; or (e) any levy, assessment, attachment, seizure, lien or encumbrance is made on all or any part of the Collateral; or (f) dissolution, termination of existence, insolvency or business failure of the Borrower, or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by the Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, provided Borrower may allow the foregoing to occur to one of its wholly owned subsidiaries; or (g) the commencement of any proceeding against the Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement; readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (h) commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (i) the Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, or if any person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; (j) the Borrower shall generally not pay its debts as they become due; or the Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (k) the Borrower shall breach any subordination agreement executed in connection with the Loans. If any of the foregoing defaults, other than a failure to pay money, is curable and if Borrower has not been given a notice of a similar default within the preceding twelve months, it may be cured (and no Event of Default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the failure within fifteen days; or (b) if the cure requires more than fifteen days, immediately initiates steps sufficient to cure such default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LeVine may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred. 6.2 Remedies. Upon the occurrence of any Event of Default and the expiration of any applicable cure period under Section 6.1, and at any time thereafter, LeVine, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by the Borrower), may do any one or more of the following simultaneously or in any order LeVine chooses and without first exhausting any one remedy: (a) Cease making Loans or otherwise extending credit to the Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose the Borrower hereby authorizes LeVine without judicial process to enter onto any of the Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof without charge for so long as LeVine deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should LeVine seek to take possession of any or all of the Collateral by Court process, the Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; and (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; (d) Require the Borrower to assemble any or all of the Collateral and make it available to LeVine at places designated by LeVine which are reasonably convenient to LeVine and the Borrower, and to remove the Collateral to such locations as LeVine may deem advisable; (e) Require the Borrower to deliver to LeVine, in kind, all checks and other payments received with respect to all accounts and general intangibles, together with any necessary endorsements, within one day after the date received by the Borrower; (f) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, LeVine shall have the right to use the Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (g) Sell, lease or otherwise dispose of any of the Collateral in its condition at the time LeVine obtains possession of it or after further manufacturing, processing or repair, at any one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. LeVine shall have the right to conduct such disposition on the Borrower's premises without charge, for such time or times as LeVine deems reasonable, or on LeVine's premises, or elsewhere and the Collateral need not be located at the place of disposition. LeVine may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve the Borrower of any liability the Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (h) Demand payment of, and collect any accounts and general intangibles comprising collateral and, in connection therewith, the Borrower irrevocably authorizes LeVine to endorse or sign the Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to the Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in LeVine's sole discretion, to grant extensions of time to pay, compromise claims and settle accounts and the like for less than face value; (i) Offset against any sums in any of the Borrower's general, special or other deposit accounts with LeVine; and (j) Demand and receive possession of any of the Borrower's federal and state income tax and the books and records utilized in the preparation thereof or referring thereto. Notwithstanding any other provision of this Agreement, if the Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation, LeVine may cease making Loans or otherwise extending credit to the Borrower under this Agreement or any other document or agreement without waiting for the expiration of any notice or cure period. All reasonable fees of professionals (including attorneys' fees), expenses, costs, liabilities and obligations incurred by LeVine with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the monetary Obligations. Without limiting any of LeVine's rights and remedies, from and after the occurrence of any Event of Default the interest rate applicable to the monetary Obligations shall be increased by an additional four percent per annum or such lesser rate, if necessary to avoid usury law. 6.3 Standards for Determining Commercial Reasonableness. The Borrower and LeVine agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to the Borrower at least seven days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the Collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by LeVine, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, LeVine may (but is not obligated to) direct any prospective purchaser to ascertain directly from the Borrower any and all information concerning the same. LeVine may employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 6.4 Power of Attorney. Upon the occurrence of any Event of Default, without limiting LeVine's other rights and remedies, the Borrower grants to LeVine an irrevocable power of attorney coupled with an interest, authorizing and permitting LeVine (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to the Borrower, and at the Borrower's expense, to do any or all of the following, in the Borrower's name or otherwise, but only in connection with enforcement of its security interests or collection of proceeds of its Collateral: (a) Execute on behalf of the Borrower any documents that LeVine may, in its reasonable judgment, deem advisable in order to perfect and maintain LeVine's security interest in the Collateral, or in order to exercise a right of the Borrower or LeVine, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of the Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of LeVine's Collateral or in which LeVine has an interest; (c) Execute on behalf of the Borrower, any invoices relating to any account, any draft against any account debtor and any notice to any account debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of the Borrower upon any instruments, or documents', evidence of payment or Collateral that may come into LeVine's possession; (e) Endorse all checks and other forms of remittances received by LeVine; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle accounts and general intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of the Borrower's taxes or to secure the release of any liens therefore, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, the Borrower to give LeVine the same rights of access and other rights with respect thereto as LeVine has under this Agreement; and (k) Take any action or pay any sum required of the Borrower pursuant to this Agreement and any other present or future agreements. LeVine shall exercise the foregoing powers in a commercially reasonable manner. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by LeVine with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the monetary Obligations. In no event shall LeVine's rights under the foregoing power of attorney or any of LeVine's other rights under this Agreement be deemed to indicate that LeVine is in control of the business, management or properties of the Borrower. 6.5 Application of Proceeds. All proceeds realized as the result of any sale of the Collateral shall be applied by LeVine first to the costs, expenses, liabilities, obligations and attorneys' fees incurred by LeVine in the exercise of its rights under this Agreement, second to the interest due upon any of the monetary Obligations, and third to the principal of the monetary Obligations, in such order as LeVine shall determine in its sole discretion. Any surplus shall be paid to the Borrower or other persons legally entitled thereto; the Borrower shall remain liable to LeVine for any deficiency. If LeVine, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale or other disposition of Collateral, LeVine shall have the option, exercisable at any time, in its sole discretion, of either reducing the monetary Obligations by the principal amount of purchase price or deferring the reduction of the monetary Obligations until the actual receipt by LeVine of the cash therefore. 6.6 Remedies Cumulative. In addition to the rights and remedies set forth in this Agreement, LeVine shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between LeVine and the Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by LeVine of one or more of its rights or remedies shall not be deemed an election, nor bar LeVine from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of LeVine to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 7. GENERAL PROVISIONS. 7.1 Notices. All notices to be given under this Agreement shall be in writing and shall be given either personally, fax, or by regular first-class mail, or certified mail return receipt requested, addressed to LeVine or the Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered to the Borrower or to LeVine, or at the expiration of two business days following the deposit thereof in the United States mail, with postage prepaid. 7.2 Severability. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 7.3 Integration. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between the Borrower and LeVine and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LEVINE AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LEVINE TO BE ENFORCEABLE. 7.4 Waivers. The failure of LeVine at any time or times to require the Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between the Borrower and LeVine shall not waive or diminish any right of LeVine later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent thereto. None of the provisions of this Agreement or any other agreement now or in the future executed by the Borrower and delivered to LeVine shall be deemed to have been waived by any act or knowledge of LeVine or its agents or employees, but only by a specific written waiver signed by an officer of LeVine and delivered to the Borrower. The Borrower waives demand, protest, notice of protest or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by LeVine on which the Borrower is or may in any way be liable, and notice of any action taken by LeVine, unless expressly required by this Agreement. 7.5 No Liability for Ordinary Negligence. Neither LeVine, nor his agents, attorneys or any other person affiliated with or representing LeVine shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by the Borrower or any other party through the ordinary negligence of LeVine, or any of his agents, attorneys or any other person affiliated with or representing LeVine. Nothing in this Agreement shall relieve LeVine of liability for gross negligence. 7.6 Amendment. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by the Borrower and authorized by LeVine. 7.7 Time of Essence. Time is of the essence in the performance by the Borrower of each and every obligation under this Agreement. 7.8 Attorneys' Fees and Costs. The Borrower shall pay LeVine $12,500 (Twelve Thousand Five Hundred Dollars) to cover his attorneys' fees and fees of other professionals, and all filing, recording, search, title insurance, appraisal, audit, and other costs incurred by LeVine, pursuant to, or in connection with the execution of this Agreement and perfection of the Security Interest granted LeVine. If either LeVine or the Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and professionals' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All fees and costs to which LeVine may be entitled pursuant to this Paragraph shall immediately become part of the Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the monetary obligations. 7.9 Benefit of Agreement. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of the parties hereto. The Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to LeVine. LeVine may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge LeVine may have about the Borrower or about any other matter relating to the Loan and the Borrower hereby waives any rights to privacy it may have with respect to such matters. The Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. The Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. The Borrower further waives all rights of offset or counterclaim that it may have now or later against LeVine or against any purchaser of such a participation interest and unconditionally agrees that either LeVine or such purchaser may enforce the Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. The Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that the Borrower may have against LeVine. 7.10 Paragraph Headings; Construction. Paragraph headings are only used in this Agreement for convenience. The Borrower acknowledges that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against LeVine or the Borrower under any rule of construction or otherwise. 7.11 Mutual Waiver of Jury Trial. The Borrower and LeVine each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, this Agreement or any other present or future instrument or agreement between LeVine and the Borrower, or any conduct, acts or omissions of LeVine or the Borrower or any of their directors, officers, employees, agents, attorneys or any other persons affiliated with LeVine or the Borrower, in all of the foregoing cases, whether sounding in contract or tort or otherwise. 7.12 Governing Law; Jurisdiction; Venue. This Agreement and all acts and transactions hereunder and all rights and obligations of LeVine and the Borrower shall be governed by, and construed in accordance with, the laws of the State of California. Any undefined term used in this Agreement that is defined in the California Uniform Commercial Code shall have the meaning assigned to that term in the California Uniform Commercial Code. As a material part of the consideration to LeVine to enter into this Agreement, the Borrower (i) agrees that all actions and proceedings relating directly or indirectly hereto shall at LeVine's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Los Angeles County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights the Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. SIGNATURE PAGE Borrower: BLOWOUT VIDEO HOLDING COMPANY By: _____________________________________ Title: _____________________________________ LeVine: BILL LEVINE By: _____________________________________ Title: _____________________________________ FKC.dtw - G:\agreement\LeVineBlowoutloanagr.doc.7/22/99-9:16am SCHEDULE 3.2 Blowout Video Blowout Video Holding Company Blowout Video Seattle Blowout Video of New York, Inc. Blowout Video of Colorado, Inc. Blowout Video of Ohio, Inc. Blowout Video of Pennsylvania, Inc. Blowout Video of Orlando, Inc. Dover Aggregates, Inc. Schedule 3.3 Blowout Video 5050 Factory Shops Blvd, Space 150 Castle Rock, CO 80104 Blowout Video 8830 Factory Shops Blvd Jeffersonville, OH Blowout Video I-79 & Rt. 208, Space 825 Grove City, PA 16127 Blowout Video 15742 S. Apopka Vineland Orlando, FL 32821 Blowout Video 1521 Broadway New York, NY 10036 EX-21 12 0012.txt Exhibit 21 Subsidiaries of Registrant: BlowOut Video, Inc. an Oregon corporation. formovies.com., an Oregon corporation. LRC Inc., 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. Rentrak UK Limited, a foreign corporation. RTK Kelly Limited a foreign corporation. Streamlined Solutions, Inc., an Oregon corporation. 3PF.COM, Inc., a Delaware Corporation. Transition Sports, Inc., a Utah Corporation. EX-23 13 0013.txt Exhibit 23 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, (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, and (7) Registration Statement File No. 333-62523 on Form S-8 of the 1997 Equity Participation Plan dated August 31, 1998. ARTHUR ANDERSEN LLP Portland, Oregon June 28, 2000 EX-27 14 0014.txt
5 12-MOS MAR-31-2000 MAR-31-2000 4,028,271 0 22,657,113 836,945 3,889,603 40,586,920 9,552,994 6,910,294 50,473,354 30,715,495 0 0 0 10,515 18,070,072 50,473,354 113,384,220 113,384,220 91,706,290 110,362,979 1,519,378 0 669,373 1,501,863 450,559 1,051,304 2,373,502 0 0 3,424,806 0.33 0.32
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