-----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, NNAhlRjKnBrO2NKbaUOVCk9t9U9loHploMhS6BV9UXS3egtiYb/l2d6FWGiXawxe ZUjwme8Ccqb9hFmLkphr4g== 0000800458-03-000002.txt : 20030214 0000800458-03-000002.hdr.sgml : 20030214 20030214105119 ACCESSION NUMBER: 0000800458-03-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTRAK CORP CENTRAL INDEX KEY: 0000800458 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 930780536 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15159 FILM NUMBER: 03563551 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-Q 1 rent10q_123102.txt SECURITIES AND EXCHANGE COMMISSION QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number: 0-15159 RENTRAK CORPORATION OREGON 93-0780536 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification no.) 7700 NE Ambassador Place, Portland, Oregon 97220 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 284-7581 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( ) Indicate by check mark whether the registrant is an accelerated file (as defined in Rule 12b-2 of the Exchange Act). Yes( ) No(x) As of January 31, 2003, the Registrant had 9,523,044 shares of Common Stock outstanding. 1 PART I - FINANCIAL INFORMATION Page # Item 1 Financial Statements Consolidated Balance Sheets as of December 31, 2002 and March 31, 2002 3 Consolidated Statements of Operations for the three-month periods ended December 31, 2002 and December 31, 2001 5 Consolidated Statements of Operations for the nine-month periods ended December 31, 2002 and December 31, 2001 6 Consolidated Statements of Cash Flows for the nine-month periods ended December 31, 2002 and December 31, 2001 7 Notes to Consolidated Financial Statements 9 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3 Quantitative and Qualitative Disclosures About Market Risk 28 Item 4 Controls and Procedures 28 Part II OTHER INFORMATION Item 1 Legal Proceedings 29 Item 6 Exhibits And Reports On Form 8-K 29 Signatures 30 Certifications 31 Exhibit Index 36 2 RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
(UNAUDITED) December 31, March 31, 2002 2002 ----------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 11,543,312 $ 12,028,684 Accounts receivable, net of allowance for doubtful accounts of $1,009,006 and $1,086,143 9,711,218 11,237,396 Advances to program suppliers 1,084,789 1,042,768 Inventory 230,236 575,792 Income tax receivable 117,628 70,000 Deferred tax asset 2,320,047 2,295,567 Other current assets 1,633,520 3,084,665 Current assets of discontinued operations 659,057 2,180,360 ----------------------------------------------------- Total current assets 27,299,807 32,515,232 ----------------------------------------------------- PROPERTY AND EQUIPMENT, net 3,207,818 3,879,819 DEFERRED TAX ASSET 1,113,882 1,002,882 OTHER ASSETS 1,851,612 1,214,394 ----------------------------------------------------- TOTAL ASSETS $ 33,473,119 $ 38,612,327 =====================================================
The accompanying notes are an integral part of these consolidated balance sheets. 3 RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) December 31, March 31, 2002 2002 ---------------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 15,580,452 $ 18,192,630 Accrued liabilities 610,681 549,277 Accrued compensation 785,489 1,338,748 Deferred revenue 192,354 379,106 Current liabilities of discontinued operations 259,240 379,298 ---------------------------------------------------- Total current liabilities 17,428,216 20,839,059 ---------------------------------------------------- LONG-TERM LIABILITIES: Lease obligations and customer deposits 607,512 495,586 ---------------------------------------------------- Total long-term liabilities 607,512 495,586 ---------------------------------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value; Authorized: 10,000,000 shares - - Common stock, $.001 par value; Authorized: 30,000,000 shares Issued and outstanding: 9,522,419 shares at December 31, 2002 and 9,866,283 at March 31, 2002 9,522 9,866 Capital in excess of par value 39,780,440 41,730,216 Notes receivable - (377,565) Cumulative other comprehensive income 180,879 180,453 Accumulated deficit (24,223,450) (23,910,288) Less - Deferred charge - warrants (310,000) (355,000) ---------------------------------------------------- 15,437,391 17,277,682 ---------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,473,119 $ 38,612,327 ====================================================
The accompanying notes are an integral part of these consolidated balance sheets. 4 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three Months Ended, December 31, 2002 2001 ----------------------------------------------------- REVENUES: PPT $ 14,855,133 $ 18,145,847 Other 6,424,697 6,165,414 ----------------------------------------------------- 21,279,830 24,311,261 ----------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 18,030,371 19,562,375 Selling, general, and administrative 3,743,390 3,356,150 ----------------------------------------------------- 21,773,761 22,918,525 ----------------------------------------------------- INCOME (LOSS) FROM OPERATIONS (493,931) 1,392,736 ----------------------------------------------------- OTHER INCOME (EXPENSE): Interest income 11,354 (24,538) Interest expense - (1,896) Other - 2,366,496 ----------------------------------------------------- 11,354 2,340,062 ----------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION (482,577) 3,732,798 INCOME TAX PROVISION (BENEFIT) (183,382) 1,391,227 ----------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (299,195) 2,341,571 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX BENEFIT OF $46,193 AND $57,652 (75,369) (102,883) ----------------------------------------------------- NET INCOME (LOSS) $ (374,564) $ 2,238,688 ===================================================== EARNINGS (LOSS) PER SHARE: Basic: Continuing operations $ (0.03) $ 0.24 Discontinued operations $ (0.01) $ (0.01) ----------------------------------------------------- Total $ (0.04) $ 0.23 ===================================================== Diluted: Continuing operations $ (0.03) $ 0.24 Discontinued operations $ (0.01) $ (0.01) ----------------------------------------------------- Total $ (0.04) $ 0.23 =====================================================
The accompanying notes are an integral part of these consolidated statements. 5 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Nine Months Ended Nine Months Ended December 31, 2002 December 31, 2002 ------------------------------------------------------------- REVENUES: PPT $ 50,697,581 $ 53,656,538 Other 13,784,172 19,777,940 ------------------------------------------------------------- 64,481,753 73,434,478 ------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 53,330,943 53,516,753 Selling, general, and administrative 11,299,645 14,876,633 Net gain from litigation settlement (361,847) - ------------------------------------------------------------- 64,268,741 68,393,386 ------------------------------------------------------------- INCOME FROM OPERATIONS 213,012 5,041,092 ------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income 82,854 165,425 Interest expense - (10,872) Other - 7,717,233 ------------------------------------------------------------- 7,871,786 82,854 ------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION 295,866 12,912,878 INCOME TAX PROVISION 112,429 4,971,457 ------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 183,437 7,941,421 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX BENEFIT OF $304,367 AND $381,685 (496,599) (609,706) ------------------------------------------------------------- NET INCOME (LOSS) $ (313,162) $ 7,331,715 ============================================================= EARNINGS (LOSS) PER SHARE: Basic: Continuing operations $ 0.02 $ 0.75 Discontinued operations $ (0.05) $ (0.06) ------------------------------------------------------------- Total $ (0.03) $ 0.69 ============================================================= Diluted: Continuing operations $ 0.02 $ 0.74 Discontinued operations $ (0.05) $ (0.06) ------------------------------------------------------------- Total $ (0.03) $ 0.68 =============================================================
The accompanying notes are an integral part of these consolidated statements. 6 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Nine Months Ended December 31, ------------------------------------------- 2002 2001 ------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $ (313,162) $ 7,331,715 Adjustments to reconcile income (loss) to net cash provided by operating activities Loss from discontinued operations, net of tax 496,599 609,706 Compensation expense related to stock repurchases 326,121 - Gain on disposition of assets - (7,741,808) Depreciation and amortization 817,084 754,017 Amortization of warrants 45,000 45,000 Provision (recovery) for doubtful accounts and other assets (645,000) (415,247) Reserves on advances to program suppliers 1,599,090 1,488,601 Deferred income taxes (135,480) 4,531,149 Change in specific accounts: Accounts receivable 2,171,178 2,398,780 Advances to program suppliers (1,641,111) (1,967,598) Inventory 345,556 380,883 Income tax receivable (47,628) (38,150) Other current assets 1,676,145 996,354 Accounts payable (2,612,178) 1,117,355 Accrued liabilities & compensation (491,855) (328,902) Deferred revenue and other liabilities (74,400) (1,398,248) ------------------------------------------- Net cash provided by operations 1,515,959 7,763,607 ------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (909,872) (1,138,571) Proceeds from sale of investments in Rentrak Japan - 4,071,556 Reductions (additions) of other assets and intangibles (97,429) 874,657 ------------------------------------------- Net cash provided by (used in) investing activities (1,007,301) 3,807,642 ------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under line of credit - (1,917,705) Repurchases of common stock and warrants (2,182,269) (598,857) Issuance of common stock to employees 283,593 263,480 Issuance of common stock to non-employees - 150,560 -------------------------------------------
7
Net cash used in financing activities (1,898,676) (2,102,522) ------------------------------------------- NET CASH PROVIDED BY (USED IN) CONTINUING OPS. (1,390,018) 9,468,727 NET CASH PROVIDED BY DISCONTINUED OPS. 904,646 15,559 ------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (485,372) 9,484,286 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,028,684 3,322,917 ------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,543,312 $ 12,807,203 =========================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for - Interest $ - $ 28,929 Income taxes paid, net of refunds received 66,241 86,829 NON-CASH TRANSACTIONS Change in unrealized gain (loss) on investment securities, net of tax - 49,572 Exchange of investment in Rentrak Japan for Rentrak common stock - 3,890,500 Forgiveness of note receivable in exchange for stock (377,565) (7,350,621) Financing lease of Property and Equipment Sale 900,000 -
The accompanying notes are an integral part of these consolidated statements. 8 RENTRAK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A: Basis of Presentation The accompanying unaudited Consolidated Financial Statements of RENTRAK CORPORATION (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three-month and nine-month periods ended December 31, 2002, are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2003. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in the Company's 2002 Annual Report to Shareholders. The Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. 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 inter-company accounts and transactions. Investments in affiliated companies owned 20 to 50 percent are accounted for by the equity method. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143. "Accounting for Obligations Associated with Retirement of Long-Lived Assets." SFAS No. 143 requires the accrual, at fair value, of the estimated retirement obligation for tangible long-lived assets if the Company is legally obligated to perform retirement activities at the end of the related asset's life and is effective for fiscal years beginning after June 15, 2002. The Company is evaluating the impact of adopting SFAS No. 143 on its consolidated financial position, but does not believe SFAS No. 143 will have a material impact on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires that a liability for all costs be recognized when the liability is incurred with exit or disposal activities as opposed to when the entity commits to an exit plan under EITF No. 93-4, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The statement will be applied prospectively to activities exited from or disposed of and initiated after December 31, 2002. 9 In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based Compensation" The statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is evaluating the impact of adopting SFAS No. 148. The statement will be applied prospectively to periods after March 31, 2003. 10 NOTE B: Net Income 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 periods. Diluted earnings per common share is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from dilutive stock options and warrants. The weighted average number of shares of common stock equivalents and net income used to compute basic and diluted earnings per share for the three-month and nine-month periods ended December 31, 2002 and 2001 were as follows: 11
3-Months Ended 9-Months Ended December 31, 2002 December 31, 2002 ----------------------------------- ----------------------------------- Basic Diluted Basic Diluted ----- ------- ----- ------- Weighted average number of shares of common stock outstanding used to compute basic earnings (loss) per common share 9,520,705 9,520,705 9,684,744 9,684,744 Dilutive effect of exercise of stock options - - - 183,859 ----------------- ----------------- ----------------- ----------------- Weighted average number of shares of common stock used to compute diluted earnings (loss) per common share outstanding and common stock equivalents 9,520,705 9,520,705 9,684,744 9,868,603 ================= ================= ================= ================= Net income (loss) used in basic and diluted earnings (loss) per common share: Continuing operations $ (299,195) $ (299,195) $ 183,437 $ 183,437 Discontinued operations (75,369) (75,369) (496,599) (496,599) ----------------- ----------------- ----------------- ----------------- Net income (loss) $ (374,564) $ (374,564) $ (313,162) $ (313,162) ================= ================= ================= ================= Earnings (loss) per common share: Continuing operations $ (0.03) $ (0.03) $ 0.02 $ 0.02 Discontinued operations (0.01) (0.01) (0.05) (0.05) ----------------- ----------------- ----------------- ----------------- Earnings (loss) per common share $ (0.04) $ (0.04) $ (0.03) $ (0.03) ================= ================= ================= =================
3-Months Ended 9-Months Ended December 31, 2001 December 31, 2001 ----------------------------------- ----------------------------------- Basic Diluted Basic Diluted ----- ------- ----- ------- Weighted average number of shares of common stock outstanding used to compute basic earnings (loss) per common share 9,676,636 9,676,636 10,632,555 10,632,555 Dilutive effect of exercise of stock options - 167,305 - 86,113 ----------------------------------- ----------------------------------- Weighted average number of shares of common stock used to compute diluted earnings (loss) per common share outstanding and common stock equivalents 9,676,636 9,843,941 10,632,555 10,718,668 =================================== =================================== Net income (loss) used in basic and diluted earnings (loss) per common share: Continuing operations $ 2,341,571 $ 2,341,571 $ 7,941,421 $ 7,941,421 Discontinued operations (102,883) (102,883) (609,706) (609,706) ----------------------------------- ----------------------------------- Net income (loss) $ 2,238,688 $ 2,238,688 $ 7,331,715 $ 7,331,715 =================================== =================================== Earnings (loss) per common share: Continuing operations $ 0.24 $ 0.24 $ 0.75 $ 0.74 Discontinued operations (0.01) (0.01) (0.06) (0.06) ----------------------------------- ----------------------------------- Earnings (loss) per common share $ 0.23 $ 0.23 $ 0.69 $ 0.68 =================================== ===================================
Options and warrants to purchase approximately 2,000,000 shares for the quarter ended December 31, 2002, were outstanding but were not included in the computation of diluted EPS because their effect would be antidilutive due to a loss for the quarter. Options and warrants to purchase approximately 2,200,000 shares of common stock for the quarter ended December 31, 2001, and approximately 1,700,000 and 2,600,000 shares for the nine-month periods ended December 31, 2002 and 2001, respectively, were outstanding but were not included in the computation of diluted EPS because the exercise prices of the options and warrants were greater than the average market price of the common shares. 12 NOTE C: Business Segments, Significant Suppliers and Major Customer The Company classifies its services in three segments, PPT, 3PF.COM, Inc. ("3PF") and Other. The PPT business segment includes the following business activities: the PPT System whereby under its Pay-Per-Transaction (PPT) revenue sharing program, the Company enters into contracts to lease videocassettes and digital videodiscs ("DVD's"') 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; data tracking and reporting services provided by the Company to Studios; and internet services provided by formovies.com, Inc., a subsidiary. 3PF is a subsidiary of the Company, which provides order processing, fulfillment and inventory management services to Internet retailers, wholesalers and to other businesses requiring just-in-time fulfillment. Other includes amounts received pursuant to previous royalty agreements, primarily from Rentrak Japan. The Other segment formerly included BlowOut Video, Inc. (BlowOut Video), a video retailer, which the Company elected to discontinue during the three-month period ended June 30, 2002 (See Note D). 13 Business Segments Following are the revenues, income (loss) from continuing operations, and identifiable assets of the Company's continuing business segments for the periods indicated (unaudited):
Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 -------------------------------------------------------------------------------------- REVENUES: (1) PPT $53,116,634 $55,135,629 $15,460,518 $18,284,018 3PF.COM, Inc. (2) 12,786,135 13,629,350 6,314,907 6,353,023 OTHER 774,914 7,670,150 244,129 798,819 -------------------------------------------------------------------------------------- $66,677,683 $76,435,129 $22,019,554 $25,435,860 ====================================================================================== INCOME (LOSS) FROM OPERATIONS: (1) PPT 2,481,265 3,056,244 (165,214) 599,112 3PF.COM, Inc. (2,199,766) (3,600,959) (292,101) 819,070 OTHER 23,297 5,532,069 - - -------------------------------------------------------------------------------------- $304,796 $4,987,354 ($457,315) $1,418,182 ====================================================================================== IDENTIFIABLE ASSETS: PPT $32,280,990 $40,596,396 3PF.COM, Inc. 6,566,303 7,857,397 OTHER 24,344 37,161 -------------------------------------------- $42,871,637 $48,490,954 ============================================
(1) Total amounts differ from those reported on the consolidated financial statements, as intercompany transactions are not eliminated for segment reporting purposes. (2) 3PF's revenues related to the shipment of cassettes to PPT customers were $534,193 and $608,690 for the three-month periods ended December 31, 2002 and 2001, respectively, and were $1,620,203 and $1,816,461 for the nine-month periods ended December 31, 2002 and 2001, respectively. 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., Universal Studios Home Video, Inc., Twentieth Century Fox Home Entertainment (formerly Fox Video), a subsidiary 14 of Twentieth Century Fox Film Corporation and MGM Home Entertainment, a subsidiary of Metro Goldwyn Mayer, Inc. For the three-month period ended December 31, 2002, the Company had one program supplier whose product generated 19 percent and a second that generated 14 percent of Rentrak revenue. No other program supplier provided product which generated more than 10 percent of revenue for the three-month period ended December 31, 2002. One customer accounted for 24 percent of the Company's revenue in the three-month period ended December 31, 2002. No other customer accounted for more than 10 percent of the Company's revenue in the three-month period ended December 31, 2002. For the nine-month period ended December 31, 2002, the Company had one program supplier whose product generated 18 percent, a second that generated 14 percent, a third that generated 13 percent and a fourth that generated 12 percent of Rentrak revenue. No other program supplier provided product which generated more than 10 percent of revenue for the nine-month period ended December 31, 2002. One customer accounted for 16 percent of the Company's revenue in the nine-month period ended December 31, 2002. No other customer accounted for more than 10 percent of the Company's revenue in the nine-month period ended December 31, 2002. For the three-month period ended December 31, 2001, the Company had one program supplier whose product generated 21 percent and a second that generated 17 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the three-month period ended December 31, 2001. One customer accounted for 19 percent of the Company's revenue and a second accounted for 11 percent of the Company's revenue in the three-month period ended December 31, 2001. No other customer accounted for more than 10 percent of the Company's revenue in the three-month period ended December 31, 2001. For the nine-month period ended December 31, 2001, the Company had one program supplier whose product generated 20 percent, a second that generated 15 percent, and a third that generated 12 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the nine-month period ended December 31, 2001. One customer accounted for 11 percent of the Company's revenue in the nine-month period ended December 31, 2001. No other customer accounted for more than 10 percent of the Company's revenue in the nine-month period ended December 31, 2001. NOTE D: Discontinued Operations Due to the significant increase in sell through activity throughout the industry, the operations of BlowOut Video have not continued to meet the expectations of management. As a result, during the three-month period ended June 30, 2002, management initiated a plan to discontinue the retail store operations of BlowOut Video. The plan calls for an exit from the stores by the end of fiscal 2003, either through cancellation of the lease commitments and liquidation of assets, or through sale of the stores to a third party. Currently BlowOut Video is operating one remaining store in Pennsylvania which is expected to be closed by March 31, 15 2003, Rentrak plans to continue selling its contractually available end-of-term PPT revenue sharing product through broker channels after the store operations are fully discontinued. BlowOut Video generated revenues of $0.6 million and a net loss of $75,369, or $0.01 per share, operating two stores in the three-month period ended December 31, 2002, compared with revenues of $2.1 million and a net loss of $102,883 or $0.01 per share, during the three-month period ended December 31, 2001, during which it operated six stores. BlowOut Video generated revenues of $2.5 million and a net loss of $496,599, or $0.05 per share, in the nine-month period ended December 31, 2002, compared with revenues of $5.7 million and a net loss of $609,706, or $0.06 per share, during the nine-month period ended December 31, 2001, during which it operated seven stores. NOTE E: Related Party Transactions On June 16, 2000, the Company loaned a total of $8,097,636 to two of its officers to purchase 1,663,526 shares of stock upon exercise of their employee stock options. During the three-month period ended December 31, 2000, the Company and one of these officers terminated his stock exercise agreement for 301,518 shares of stock and corresponding loan in the amount of $1,468,250. At various times during the three-month period ended September 2000, the Company loaned an additional $1,343,743 to some of its officers to purchase 283,277 shares of stock upon exercise of their employee stock options. During the three-month period ended December 31, 2000, the Company and one of these officers terminated his stock exercise agreement for 50,535 shares of stock and corresponding loan in the amount of $244,940. During fiscal 2002, a former officer of the Company, who was loaned a total of $7,350,621 during the period from June through September 2000 to purchase 1,495,750 shares of stock upon exercise of his employee stock options, terminated his agreements with the Company. Accordingly, the common stock and related notes receivable covered by the terminated agreements noted above have been reversed in non-cash transactions. During the three-month period ended September 30, 2002, one of the remaining officers exercised his right to have the Company purchase from him his shares of stock associated with his loan. The proceeds from the purchase of his stock by the Company were partially used to pay the remaining balance of his loan associated with these shares. Additionally, during this three-month period the other remaining officer allowed his right to have the Company purchase from him his shares of stock associated with his loan to expire. The shares associated with both of these officers' loans have been cancelled and the related notes have been terminated. As a result, all common stock and related notes receivable covered by all agreements associated with this officer loan program noted above have been cancelled or terminated. The loans bore interest at the federal funds rate in effect on the date of the loan (6.5 percent) and interest was payable annually. The Company was not accruing interest on the loans. The principal amount of the loans was due on the earliest to 16 occur of: (1) one year prior to the expiration of the term of the borrower's current employment agreement with Rentrak, (2) one year after the borrower left Rentrak's employment unless such departure followed a "change of control" (as defined in the loan agreements), (3) five years from the date of the loan, or (4) one year from the date of the borrower's death. The loans were secured by the stock purchased. The loans were without recourse (except as to the stock securing the loans) as to principal and were with full recourse against the borrower as to interest. In accordance with generally accepted accounting principles, the notes receivable arising from these transactions were presented as deductions from stockholders' equity. Note F: Rentrak Japan Agreement Effective April 2, 2001, the Company entered into an agreement with Rentrak Japan amending a former agreement. As a result of the amended agreement, the Company granted Rentrak Japan PPT operating rights in Japan, the Philippines, Singapore, Taiwan, Hong Kong, the Republic of Korea, the Democratic People's Republic of Korea, the People's Republic of China, Thailand, Indonesia, Malaysia, and Vietnam. In addition, the royalty agreement was terminated. Finally, all intellectual property rights and trademarks of the PPT system were agreed to be usable by Rentrak Japan. Consideration for the above items included a cash payment from Rentrak Japan to the Company of approximately $5.7 million, forfeiture by Rentrak Japan of any right of return of the 1999 prepaid royalty of $0.7 million, and forgiveness by Rentrak Japan of approximately $0.6 million of liabilities due to Rentrak Japan from the Company. Of these amounts, $6.4 million was recorded as revenue consistent with the historical treatment of royalty payments. The remaining $0.6 million was recorded as a gain and is included in other income in the accompanying consolidated statement of operations. In April and October 2001, the Company sold all of its 5.6 percent interest in Rentrak Japan. In conjunction with the above agreements, the Company and Rentrak Japan entered into stock purchase commitments to purchase stock as described below. The Company sold 300,000 shares of Rentrak Japan stock to a sister company of Rentrak Japan on April 2, 2001, and its remaining 180,000 shares of Rentrak Japan stock on October 2, 2001 to the sister company. Total proceeds from the stock sales approximated $6.4 million. The resulting gain of $6.4 million related to the sale of this stock is included in other income in the accompanying consolidated statement of operations. Finally, Rentrak Japan purchased 17,000 shares of 3PF common stock on April 27, 2001 for $1.0 million. In return, Rentrak Japan sold 1,004,000 shares of the Company's common stock back to the Company on April 2, 2001 for approximately $3.9 million. 17 Based upon the results of the transactions noted above occurring in the fiscal year ended March 31, 2002, the Company has no further obligations to, or ownership in, Rentrak Japan. NOTE G. Warrants On July 22, 1994, Disney and Rentrak entered into an agreement whereby Disney provides Rentrak titles to use in Rentrak's Pay-Per-Transaction revenue sharing program. As compensation for entering into the agreement with Rentrak, Rentrak issued warrants to Disney. The fair value of the warrants, approximately $2,000,000, were recorded as a deferred charge to stockholders' equity and have been amortized over the life of the initial agreement. The warrants were fully amortized in July 1999. However, the warrants were exercisable through March 31, 2005. On November 15, 2002, Rentrak and Disney entered into a cancellation agreement to cancel the remaining 925,521 outstanding warrants. Under the cancellation agreement, Rentrak paid Disney $300,000 in cash in consideration for the cancellation of the warrants. In addition, Rentrak agreed to pay Disney supplemental consideration in the event of a change of control (generally a greater than 50% change in ownership of the outstanding Rentrak common stock by another company or group seeking control). The amount of consideration to be paid in the event of a change in control is based on the value per common share paid by the purchaser. This compensation is also dependent on the timing of the purchase. The supplemental consideration ranges from $300,000 to $2,000,000 depending on the price and timing of the purchase. The Company has not accrued any amount as of December 31, 2002. Note H. Debt Compliance In May 2002, the Company entered into an agreement for a new secured revolving line of credit. The line of credit carries a maximum limit of $4,500,000 and expires in May 2003. The Company has the choice of either the bank's prime interest rate or LIBOR +2 percent. The line is secured by substantially all of the Company's assets. The terms of the credit agreement include financial covenants requiring: (1) $16 million of tangible net worth to be maintained at all times; (2) a consolidated net profit to be achieved each fiscal quarter beginning with the quarter ending September 30, 2002 of a minimum of $1.00; (3) minimum year to date profit of $1.00 (excluding certain exempted expenses) beginning with the quarter ending December 31, 2002; and (4) achievement of specified current and leverage financial ratios. Based upon the financial results reported as of December 31, 2002 and for the three and nine-month periods then ended, the Company has determined it is not in compliance with the tangible net worth covenant at December 31, 2002 and net profit financial covenants for the periods ended December 31, 2002. The Company is in the process of obtaining a waiver of non-compliance with these financial covenants at December 31, 2002 and for the periods ended December 31, 2002. The Company received a waiver of 18 compliance for its non-compliance with the net profit covenant for the three-month period ended September 30, 2002. At December 31, 2002 and February 13, 2003, the Company had no outstanding borrowings under this agreement. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements Certain information included in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements that involve a number of risks and uncertainties. Forward looking statements are identified by the use 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 Pay Per Transaction ("PPT") System successfully, the financial stability of participating retailers and their performance of their obligations under the PPT System, non-renewal of the Company's line of credit, business conditions in the video industry and general economic conditions, 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 prerecorded videocassettes ("Cassettes") and digital videodiscs ("DVD's") from program suppliers. Such factors are discussed in more detail in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002. Results of Operations Continuing Operations - Domestic PPT Operations and Other Continuing - -------------------------------------------------------------------------------- Subsidiaries - ------------ For the three-month period ended December 31, 2002, total revenue decreased $3.0 million, or 12 percent, to $21.3 million from $24.3 million for the three-month period ended December 31, 2001. For the nine-month period ended December 31, 2002, total revenue decreased $8.9 million, or 12 percent, to $64.5 million from $73.4 million for the nine-month period ended December 31, 2001. Total revenue includes the following PPT System fees in the PPT business segment: order processing fees generated when Cassettes and DVD's ("Units") are ordered by and distributed to retailers; transaction fees generated when retailers rent Units to consumers; sell-through fees generated when retailers sell Units to consumers; communication fees when retailers' point-of-sale systems are connected to the Company's information system; and buy out fees generated when retailers purchase Units at the end of the lease term. PPT business segment revenues also include direct revenue sharing fees from data tracking and reporting services provided by the Company to studios ("DRS"), as well as charges for internet services provided by the Company's subsidiary formovies.com, Inc. In addition, total revenue includes charges to customers of the Company's subsidiary 3PF.COM, Inc. ("3PF"), which provides order processing, fulfillment and inventory management services to Internet retailers and wholesalers and other businesses 20 requiring just-in-time fulfillment, and other revenues which include royalty payments primarily from Rentrak Japan (See Note F.). The $3.0 million decrease in total revenues for the three-month period ended December 31, 2002 is primarily due to the decrease in PPT System order processing fees and transaction fees. PPT business segment revenues decreased primarily due to the fact that PPT Units shipped decreased 11 percent during the three-month period ended December 31, 2002 compared to the three-month period ended December 31, 2001. Total order processing and transaction fees decreased a combined $3.5 million during the three-month period ended December 31, 2002 compared to the three-month period ended December 31, 2001. Order processing fees decreased due to the decrease in Units noted above and a higher percentage of Units with lower revenue sharing terms in the mix of various Units shipped during those periods, resulting in a decline in the order processing fees per Unit from period to period. Transaction fees decreased due to fewer than expected rental turns of the Units in the stores and due to the decrease in Units shipped during this period, a lesser title quality in the mix of Units, and a decrease in DRS fees during the three-month period. These decreases in order processing and transaction fees were partially offset by an approximate $0.6 million net increase in sell-through and other revenues from the PPT business segment. 3PF revenues decreased approximately $0.1 million during the same three-month period from $6.4 million to $6.3 million. The $8.9 million decrease in total revenues for the nine-month period ended December 31, 2002 is primarily due to the recognition of $6.4 million in revenue related to an agreement between the Company and Rentrak Japan (See Note F.) during the three-month period ended June 30, 2001. PPT business segment revenues decreased despite the fact that PPT Units shipped increased 11 percent during the nine-month period ended December 31, 2002 compared to the nine-month period ended December 31, 2001. Total order processing and transaction fees decreased a combined $3.1 million during the nine-month period ended December 31, 2002 compared to the nine-month period ended December 31, 2001. Order processing fees decreased due to a higher percentage of Units with lower order processing fee revenue sharing terms in the mix of various Units shipped during those periods, such that the order processing fees per Unit declined from period to period. Transaction fees decreased due to fewer than expected rental turns of the Units, a lesser title quality in the mix of Units, and a decrease in DRS fees during the nine-month period. These decreases in order processing and transaction fees were partially offset by an approximate $1.3 million net increase in sell-through and other revenues from the PPT business segment. 3PF revenues decreased approximately $0.8 million during this same nine-month period, due to a loss of a key customer during the three-month period ended June 30, 2001. Total cost of sales for the three-month period ended December 31, 2002 decreased to $18.0 million from $19.6 million for the three-month period ended December 31, 2001, a decrease of $1.6 million, or 8 percent. A significant portion this decrease in cost of sales is primarily attributable to the $2.9 million net decrease in PPT business segment revenues noted above, offset by a $1.0 million 21 increase in agency labor cost at 3PF attributable to one of its clients significant seasonal holiday business during the period. Total cost of sales as a percent of total revenues was 85% for the three-month period ended December 31, 2002 compared to 80% for the three-month period ended December 31, 2001. Total cost of sales for the nine-month period ended December 31, 2002 decreased slightly to $53.3 million from $53.5 million for the nine-month period ended December 31, 2001, a decrease of $0.2 million. Cost of sales as a percent of total revenues, excluding the $6.4 million in revenue related to the Rentrak Japan business restructuring (see Note F.), was 83% for the nine-month period ended December 31, 2002 compared to 80% for the nine-month period ended December 31, 2001. This increase is primarily attributable to the overall change in mix from period to period of studio Units shipped and rented in the PPT business segment combined with the agency labor cost increase at 3PF for the three-month period noted above. Total selling, general and administrative expenses were $3.7 million for the three-month period ended December 31, 2002, compared to $3.4 million for the three-month period ended December 31, 2001, an increase of $0.3 million, or 9 percent. The increase in selling, general and administrative expenses for the three-month period is primarily the result of: (1) an overall increase in the PPT business segment's overall overhead costs of approximately $0.1 million during the period; and (2) an approximate $0.7 million decrease in 3PF's overall fulfillment overhead costs during the three-month period ended December 31, 2002 due to improved cost controls, combined with an approximate $0.9 million recovery realized during the three-month period ended December 31, 2001 of a receivable previously reserved for one of 3PF's clients that filed for bankruptcy during the three-month period ended June 30, 2001, resulting in a net increase of $0.2 million between the two three-month periods ended December 31. Total selling, general and administrative expenses were $11.3 million for the nine-month period ended December 31, 2002, compared to $14.9 million for the nine-month period ended December 31, 2001, a decrease of $3.6 million, or 24 percent. The decrease in total selling, general and administrative expenses is the result of an approximate $1.0 million decrease primarily attributable to the following factors affecting the Company's PPT business segment: (1) an approximate $0.4 million reduction in labor expense during this period due to the capitalization cost of software development for the theatrical service business initiative; (2) an increase of approximately $0.7 million in studio advertising credits earned for its PPT business during the period; (3) an approximate $0.8 million decrease in overall general expenses; (4) an approximate $0.2 million decrease in Rentrak UK's overall overhead expenses due to the resizing of those operations to correspond to lower business activity; and (5) the recognition of $0.5 million in expense for the bonus accrual related to the pre-tax financial results for the three-month period ended September 30, 2001. These expense reductions were offset by an approximate increase of $1.3 million in overall overhead cost for the continued investment in the development of the Company's theatrical service business initiative as well as a $0.3 million charge to compensation expense during the three-month period ended September 30, 2002, as the result of a former officer of the Company exercising his right to have the Company purchase 22 from him his shares associated with his stock loan (See Note E.). The total decrease in selling, general and administrative expenses is also the result of an approximate $2.6 million decrease attributable to the following in the Company's fulfillment business segment: (1) recognition of an approximate $0.8 million in expense related to the closure of the 3PF administrative offices in Skokie, Illinois in April 2001; (2) an approximate $0.3 million of general expenses related to non-recurring contract management fees incurred during the nine-month period ended December 31, 2001; (3) an approximate $0.2 million net provision recognized during the nine-month period ended December 31, 2001 related to one of 3PF's clients that filed for bankruptcy during the three-month period ended June 30, 2001 as noted above; and (4) an approximate $1.3 million net expense reduction in overall overhead due to the implementation of better cost controls across 3PF's organization. Operating loss from continuing operations for the three-month period ended December 31, 2002 was $0.5 million compared to operating income from continuing operations of $1.4 million for the three-month period ended December 31, 2001. The decline for the fiscal 2003 three-month period ended December 31, 2002, compared to the three-month period ended December 31, 2001, was primarily due to: (1) the decrease in PPT business segment revenues and associated gross margin and the increase in selling, general and administrative expense, as noted above; and (2) the increase in 3PF's fulfillment cost of sales combined with the increased selling, general and administrative expense during the period, as noted above. Operating income from continuing operations for the nine-month period ended December 31, 2002 was $0.2 million, compared to an operating loss of $1.0 million from continuing operations for the nine-month period ended December 31, 2001, excluding the effect of the $6.4 million in revenue noted above and the selling, general and administrative expenses associated with the Rentrak Japan relationship. The improvement for the fiscal 2003 nine-month period was primarily due to: (1) an approximate $1.0 million decrease in selling, general and administrative expenses from the Company's PPT business segment noted above and a net gain from a litigation settlement partially offset by a decline in PPT margins; and (2) a $2.6 million reduction in 3PF's overall selling, general and administrative expense, as noted above, partially offset by a reduction in 3PF margins. Other income (expense) decreased from income of approximately $2.3 million for the three-month period ended December 31, 2001 to $11 thousand for the three-month period ended December 31, 2002, primarily due to the recognition of other income relating to the $2.4 million payment received in October 2001 associated with the Rentrak Japan relationship (See Note F.). Other income (expense) decreased from income of approximately $7.9 million for the nine-month period ended December 31, 2001 to income of $82 thousand for the nine-month period ended December 31, 2002, primarily due to the recognition of $8.0 million in other income during the nine-month period ended June 30, 2001 related to the business restructuring agreement between the Company and Rentrak Japan (See Note F.). 23 The effective tax rate during the three and nine-month periods ended December 31, 2002 was 38% compared to 37% and 39% during the three-month and nine-month periods ended December 31, 2001, respectively. As a result, for the three-month period ended December 31, 2002, the Company recorded a net loss from continuing operations of $0.3 million, or 1 percent of total revenue, compared to income from continuing operations of $2.3 million, or approximately 10 percent of total revenue, in the three-month period ended December 31, 2001. The decrease in net income from continuing operations is primarily attributable to: (1) the decrease in PPT business segment revenues and associated gross margin, an increase in selling, general and administrative expenses, and the receipt of $2.4 million in October 2001 associated with the Rentrak Japan relationship, as noted above; and (2) the decline in 3PF's fulfillment gross margin due to increased cost of sales, offset by a reduction in its overall selling, general and administrative expenses, as noted above. For the nine-month period ended December 31, 2002, the Company recorded net income from continuing operations of $0.2 million, or less than 1 percent of total revenue, compared to income from continuing operations of $7.9 million, or 11 percent of total revenue, in the nine-month period ended December 31, 2001. The decrease in net income from continuing operations is primarily attributable to: (1) the business restructuring between the Company and Rentrak Japan during the three-month period ended June 30, 2001 (See Note F) in the PPT business segment, combined with a reduction in PPT business segment revenues and gross margin, partially offset by decreased selling, general and administrative expenses, as noted above; and (2) the decline in 3PF fulfillment revenues, increase in cost of sales and resulting reduction in gross margin, offset by an overall decline in selling, general and administrative expenses, as noted above. Discontinued Operations - ----------------------- As discussed in Note D, during the three-month period ended June 30, 2002, the Company elected to discontinue store operations of its retail subsidiary BlowOut Video, Inc. Total revenue from BlowOut decreased $1.5 million from $2.1 million for the three-month period ended December 31, 2001, to $0.6 million for the three-month period ended December 31, 2002. Cost of sales from BlowOut decreased $1.1 million from $1.6 million for the three-month period ended December 31, 2001, to $0.5 million for the three-month period ended December 31, 2002. Selling, general and administrative expenses from BlowOut decreased $0.5 million from $0.7 million for the three-month period ended December 31, 2001, to $0.2 million for the three-month period ended December 31, 2002. The revenue, cost of sales, and selling, general and administrative expenses decreases are primarily due to the closure of four of a total of six stores operated in the three-month period ended December 31, 2002. Total revenue from BlowOut decreased $3.2 million from $5.7 million for the nine-month period ended December 31, 2001, to $2.5 million for the nine-month period ended December 31, 2002. Cost of sales from BlowOut decreased $2.2 million from $4.3 million for the nine-month period ended December 31, 2001, to $2.1 million for the nine-month period ended December 31, 2002. Selling, general and administrative 24 expenses from BlowOut decreased $1.2 million from $2.4 million for the nine-month period ended December 31, 2001, to $1.2 million for the nine-month period ended December 31, 2002. The revenue, cost of sales, and selling, general and administrative expenses decreases are primarily due to the closure of four of a total of seven stores operated in the nine-month period ended December 31, 2002. Net loss from BlowOut decreased less than $0.1 million from $102,883 for the three-month period ended December 31, 2001, to $75,369 for the three-month period ended December 31, 2002. Net loss from BlowOut decreased $0.1 million from $0.6 million for the nine-month period ended December 31, 2001, to $0.5 million for the nine-month period ended December 31, 2002. Financial Condition - ------------------- At December 31, 2002, total assets were $33.5 million, a decrease of $5.1 million from $38.6 million at March 31, 2002. As of December 31, 2002, cash decreased $0.5 million to $11.5 million from $12.0 million at March 31, 2002 (see the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements). Net accounts receivable decreased $1.5 million from $11.2 million at March 31, 2002 to $9.7 million at December 31, 2002, primarily due to a reduction in revenues. At December 31, 2002, other current assets were $1.6 million, a decrease of $1.5 million from $3.1 million at March 31, 2002, primarily due to the receipt, during May 2002, of the Reel.com cash settlement, as to which agreement was reached in March 2002. Current assets of discontinued operations decreased $1.5 million from $2.2 million at March 31, 2002 to $0.7 million at December 31, 2002, primarily due to a reduction of inventory related to store closures during the nine-month period. Property and Equipment decreased approximately $0.7 million from $3.9 million at March 31, 2002 to $3.2 million at December 31, 2002. Other assets increased approximately $0.7 million from $1.2 million at March 31, 2002 to $1.9 million at December 31, 2002. Both the decrease in property and equipment and the increase in other assets are associated with a sale of equipment to a customer of 3PF associated with a financing lease. At December 31, 2002, total liabilities were $18.0 million, a decrease of $3.3 million from $21.3 million at March 31, 2002. Accounts payable decreased $2.6 million from $18.2 million at March 31, 2002 to $15.6 million at December 31, 2002, primarily due to the timing of studio and other vendor payments, and as the result of lower revenues and associated cost of sales. Accrued compensation decreased $0.5 million from $1.3 million at March 31, 2002, to $0.8 million at December 31, 2002, in part due to the payout of most of the bonus accrual related to the pre-tax financial results for the fiscal year ended March 31, 2002. Net current liabilities of discontinued operations decreased $0.1 million from $0.4 million at March 31, 2002 to $0.3 million at December 31, 2002. At December 31, 2002, total stockholders' equity was $15.4 million, a decrease of $1.9 million from the $17.3 million at March 31, 2002. Common stock and capital in excess of par value decreased, on a combined basis, $1.9 million from $41.7 25 million at March 31, 2002 to $39.8 million at December 31, 2002, primarily due to the repurchase of stock under the Company's stock repurchase program and the stock warrants repurchased by the Company in November 2002 (See Note G.). Notes receivable decreased $0.4 million from $0.4 million as of March 31, 2002, to $0 as of December 31, 2002 (See Note E). Accumulated deficit increased $0.3 million from $23.9 million at March 31, 2002 to $24.2 million at December 31, 2002 due to the net loss from the nine-month period. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At December 31, 2002, the Company had cash of $11.5 million compared to $12.0 million at March 31, 2002. The Company's current ratio (current assets/current liabilities) was 1.57 at December 31, 2002 compared to 1.56 at March 31, 2002. In May 2002, the Company entered into an agreement for a new secured revolving line of credit. The line of credit carries a maximum limit of $4,500,000 and expires in May 2003. The Company has the choice of either the bank's prime interest rate or LIBOR +2 percent. The line is secured by substantially all of the Company's assets. The terms of the credit agreement include financial covenants requiring: (1) $16 million of tangible net worth to be maintained at all times; (2) a consolidated net profit to be achieved each fiscal quarter beginning with the quarter ending September 30, 2002 of a minimum of $1.00; (3) minimum year to date profit of $1.00 (excluding certain exempted expenses) beginning with the quarter ending December 31, 2002; and (4) achievement of specified current and leverage financial ratios. Based upon the financial results reported as of December 31, 2002 and for the three and nine-month periods then ended, the Company has determined it is not in compliance with the tangible net worth covenant at December 31, 2002 and net profit financial covenants for the periods ended December 31, 2002. The Company is in the process of obtaining a waiver of non-compliance with these financial covenants at December 31, 2002 and for the periods ended December 31, 2002. The Company received a waiver of compliance for its non-compliance with the net profit covenant for the three-month period ended September 30, 2002. At December 31, 2002 and February 13, 2003, the Company had no outstanding borrowings under this agreement. 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. 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. During fiscal 2002, the Company discontinued new financings under this program and provided reserves of $6.6 million representing the entire outstanding balance of the program loans. The Company continues to seek enforcement of agreements entered into in connection with this program in accordance with their terms to the extent practicable. On March 22, 1999 BlowOut Entertainment, Inc. ("BlowOut"), a former subsidiary of the Company, filed a petition under Chapter 11 of the Federal Bankruptcy Code 26 in March 1999. In 1996, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. At March 31, 2002, there was no remaining liability related to these discontinued operations. The payments, as made, were recorded as a reduction of "net current liabilities of discontinued operations" on the Company's balance sheet. The Company's sources of liquidity include its cash balance, cash generated from operations and its available credit resources. Based on the Company's current budget and projected cash needs, the Company believes that its available sources of liquidity will be sufficient to fund the Company's operations and other cash requirements for the fiscal year ending March 31, 2003. CRITICAL ACCOUNTING POLICIES The Company considers as its most critical accounting policies those that require the use of estimates and assumptions, specifically, accounts receivable reserves and studio guarantee reserves. In developing these estimates and assumptions, the Company takes into consideration historical experience, current and expected economic conditions and other relevant data. Please refer to the Notes to the 2002 Consolidated Financial Statements in the Company's 2002 Annual Report Form 10-K for a full discussion of the Company's accounting policies. Allowance for Doubtful Accounts - ------------------------------- Credit limits are established through a process of reviewing the financial history and stability of each customer. The Company regularly evaluates the collectibility of accounts receivable by monitoring past due balances. If it is determined that a customer may be unable to meet its financial obligations, a specific reserve is established based on the amount the Company expects to recover. An additional general reserve is provided based on aging of accounts receivable and the Company's historical collection experience. If circumstances change related to specific customers, overall aging of accounts receivable or collection experience, the Company's estimate of the recoverability of accounts receivable could materially change. Studio Reserves - --------------- The Company has entered into guarantee contracts with certain program suppliers providing titles for distribution under the PPT system. These contracts guarantee the suppliers minimum payments. The Company, using historical experience and year to date rental experience for each title, estimates the projected revenue to be generated under each guarantee. The Company establishes reserves for titles that are projected to experience a shortage under the provisions of the guarantee. The Company continually reviews these factors and makes adjustments to the reserves as needed. Actual results could materially differ from these estimates and could have a material effect on the recorded studio reserves. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The Company has considered the provisions 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 December 31, 2002. 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 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures - ------------------------------------------------- The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures, as defined by the Securities and Exchange Commission, as of a date within 90 days of the filing date of this report (the "Evaluation Date"). Based upon this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures as of the Evaluation Date were effective to ensure that information required to be disclosed by the Company is recorded, processed, summarized and reported on a timely basis. Change in Internal Controls - ------------------------------ The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are properly recorded and summarized so that reliable financial records and reports can be prepared and assets safeguarded. There are inherent limitations in the effectiveness of any system of internal controls including the possibility of human error and the circumvention or overriding of controls. Additionally, the cost of a particular accounting control should not exceed the benefit expected to be derived. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date. 28 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is from time to time a party to legal proceedings and claims that arise in the ordinary course of its business, including, without limitation, collection matters with respect to customers. In the opinion of management, the amount of any ultimate liability with respect to these types of actions is not expected to materially affect the financial position or results of operations of the Company as a whole. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - See the Exhibit Index on page 36 hereof, (b) Reports on Form 8-K . A report on Form 8-K was filed on November 18, 2002, reporting under Item 5, Other Events, the repurchase by the Company of stock purchase warrants held by Disney Enterprises, Inc. 29 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 14th day of February, 2003 RENTRAK CORPORATION By: /s/ Mark L. Thoenes ------------------------ Mark L. Thoenes Chief Financial Officer Signing on behalf of the registrant 30 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Paul A. Rosenbaum, certify that: I have reviewed this quarterly report on Form 10-Q of Rentrak Corporation; Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in 31 other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 By: /s/ Paul A. Rosenbaum ------------------------- Paul A. Rosenbaum Chairman and Chief Executive Officer 32 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Mark L. Thoenes, certify that: I have reviewed this quarterly report on Form 10-Q of Rentrak Corporation; Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 33 The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 By: /s/ Mark L. Thoenes - ----------------------- Mark L. Thoenes Chief Financial Officer 34 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Rentrak Corporation (the "Company") on Form 10-Q for the period ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul A. Rosenbaum, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Paul A. Rosenbaum - ------------------------------ Paul A. Rosenbaum Chairman and Chief Executive Officer Rentrak Corporation February 14, 2003 In connection with the Quarterly Report of Rentrak Corporation (the "Company") on Form 10-Q for the period ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark L. Thoenes, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark L. Thoenes - -------------------------------- Mark L. Thoenes Chief Financial Officer Rentrak Corporation February 14, 2003 35 EXHIBIT INDEX The following exhibit is filed herewith: Exhibit Number Exhibit 10.1 Revolving Line of Credit Agreement with Wells Fargo Bank dated June 15, 2002. 10.2 Employment Agreement with Kenneth M. Papagan dated November 18, 2002, together with form of incentive stock option agreement. 10.3 Employment Agreement with Timothy J. Erwin Dated November 1, 2002. * 10.4 Employment Agreement with Christopher E. Roberts dated November 1, 2002. * 10.5 Employment Agreement with Ronald Giambra dated July 1, 2002. *Portions omitted pursuant to a request for confidential treatment filed with the Security and Exchange Commission. 36 EX-10 3 rcex10-1.txt WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE $4,500,000.OO Portland, Oregon June 15, 2002 FOR VALUE RECEIVED, the undersigned Rentrak Corporation ("Borrower") promises to pay to the order of WELLS FARGO BANK NATIONAL ASSOCIATION ("Bank") at its office at Portland RCBO, 1300 SW Fifth Avenue T-13, Portland, OR 97201, or at such other place as the holder hereof may designate, in lawful money of the United State of America and in immediately available funds, the principal sum of $4,500,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meaning set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: a. "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Oregon are authorized or required by law to close. b. "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2 or 3 months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than $100,000.00; and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. c. "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage. (i) "Base LIBOR" means the rate per annum for Unites States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for US dollar deposits on the London Inter-Bank Market. 1 (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. d. "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: a. Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 2.00000% above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection option selected hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. b. Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation therefore not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 am pm the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at its sole option but without obligation to do so, accepts Borrower's notice and quotes a fixed rate to Borrower. If 2 Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. c. Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. d. Payment of Interest. Interest accrued on this Note shall be payable on the 1st day of each month, commencing July 1, 2002. e. Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360 day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: a. Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of the Credit Agreement between Borrower and Bank defined below; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on July 1, 2003. b. Advances. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) Paul Rosenbaum or F. Kim Cox or Mark Thoenes, any one acting alone, who are authorized to 3 request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of any Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. c. Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: a. Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. b. LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of $100,000.00; provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii)Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. 4 Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum 2.000% above Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: This note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of June 15, 2002, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS a. Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. b. Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. c. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Oregon. 5 UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK 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 BANK TO BE ENFORCEABLE. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. Rentrak Corporation By: /s/ Mark Thoenes Mark Thoenes, Chief Financial Officer 6 EX-10 4 rcex10-1a.txt CREDIT AGREEMENT THIS AGREEMENT is entered into as of July 15, 2002, by and between RENTRAK CORPORATION, an Oregon corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I CREDIT TERMS SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including July 1, 2003, not to exceed at any time the aggregate principal amount of Four Million Five Hundred Thousand Dollars ($4,500,000.00) ("Line of Credit"), the proceeds of which shall be used to finance Borrower's working capital requirements. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. INTEREST/FEES. (a) Interest. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory note or other instrument executed in connection therewith. (b) Prime Rate. The term "Prime Rate" shall mean at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof in such internal publication or publications as Bank may designate. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within Bank. 1 (c) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument required hereby. (d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one hundred eighty eight thousands of one percent (0.188%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within thirty (30) days after each billing is sent by Bank. SECTION 1.3. COLLATERAL. As security for all indebtedness of Borrower to Bank subject hereto, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment, general intangibles, inventory and equipment. As security for all indebtedness of Borrower to Bank subject hereto, Borrower shall cause 3PF.Com, Inc. and Blowout Video, Inc. to grant to Bank security interests of first priority in all accounts receivable and other rights to payment, general intangibles, inventory and equipment. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust and other documents, as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. SECTION 1.4. GUARANTIES. All indebtedness of Borrower to Bank shall be guaranteed jointly and severally by 3PF.Com, Inc. and Blowout Video, Inc. in the principal amount of Four Million Five Hundred Thirty Five Thousand Dollars ($4,535,000.00) each, as evidenced by and subject to the terms of guaranties in form and substance satisfactory to Bank. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Oregon, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. 2 SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated March 31, 2002, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a)is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c)has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 3 SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and each promissory note or other instrument required hereby. (ii) Corporate Resolution: Borrowing (iii) Certificate of Incumbency (3) (iv) Continuing Security Agreement Rights to Payment and Inventory (v) Security Agreement Equipment (vi) Exhibit A to UCC1 Financing Statement (3) (vii) Continuing Guaranty (2) (viii) Corporate Resolution: Continuing Guaranty (2) (ix) Third Party Security Agreement Rights To Payment and Inventory (2) (x) Third Party Security Agreement Equipment (2) (xi) Corporate Resolution Third Party Collateral (2) (xii) Acknowledgement of Security Interest (3); for debtor 3PF.COM, INC. (xiii) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any guarantor hereunder, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such guarantor. (d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. 4 SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 90 days after and as of the end of each fiscal year, a copy of the 10K report filed with the Securities Exchange Commission, prepared by a certified public accountant acceptable to Bank; (b) not later than 45 days after and as of the end of each fiscal quarter, a copy of the 10Q report filed with the Securities Exchange Commission, prepared by a certified public accountant acceptable to Bank: (c) from time to time such other information as Bank may reasonably request SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all 5 laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower. SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): (a) Current Ratio not at any time less than 1.10 to 1.0 determined at each fiscal quarter end, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Tangible Net Worth not at any time less than $16,000,000.00 determined at each fiscal quarter end, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.50 to 1.0 determined as of each fiscal quarter end, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" as defined above (d) Net income after taxes not less than $1.00 for fiscal quarters ending September 30, 2002, December 31, 2002 and March 31, 2003. (e) Net loss for fiscal quarter ending June 30, 2002 not to exceed $100,000.00. Net loss for fiscal quarter ended June 30, 2002 will exclude expenses related to unamortized fees and a settlement with the former CEO. The expenses shall not exceed $350,000.00 on a pre-tax basis. 6 (f) Net income after taxes not less than $1.00 on an year to date basis, determined as of the fiscal quarters ended September 30, 2002, December 31, 2002 and March 31, 2003 with expenses for the settlement and unamortized fees to be excluded form year to date net income for the quarter ended September 30, 2002. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a)the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof, and (c) new capital leases or new purchase money security interest financings in any fiscal year in excess of an aggregate of $1,000,000. .. SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. 7 SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding. SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any guarantor hereunder has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower or any guarantor hereunder; or the recording of any abstract of judgment against Borrower or any guarantor hereunder in any county in which Borrower or such guarantor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any guarantor hereunder; or the entry of a judgment against Borrower or any guarantor hereunder. (f) Borrower or any guarantor hereunder shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any guarantor hereunder shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state 8 or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any guarantor hereunder, or Borrower or any such guarantor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any such guarantor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The death or incapacity of any guarantor hereunder. The dissolution or liquidation of Borrower or any guarantor hereunder; or Borrower or any such guarantor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such guarantor. (i) Any change in ownership during the term of this Agreement of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: RENTRAK CORPORATION 7700 NE Ambassador Pl. 9 Portland, Or 97220 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION PORTLAND RCBO 1300 S.W. Fifth Avenue T-13 Portland, OR 97201 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. 10 SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon. SECTION 7.11. ARBITRATION. (a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. (b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in Oregon selected by the American Arbitration Association ('AAA'); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the 'Rules'). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section91 or any similar applicable state law. (c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph. 11 (d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Oregon or a neutral retired judge of the state or federal judiciary of Oregon, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Oregon and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Oregon Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available. (f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding. (g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding. (h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. 12 UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLDPURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, RENTRAK CORPORATION NATIONAL ASSOCIATION By:/s/ Mark Thoenes By: /s/ Marcus R. Hall Mark Thoenes, Chief Financial Officer Marcus R. Hall, Title: Assistant Vice President Relationship Manager 13 EX-10 5 rcex10-2.txt EMPLOYMENT AGREEMENT This Employment Agreement is entered into as of November 18, 2002, between KENNETH M. PAPAGAN ("Executive") and RENTRAK CORPORATION, an Oregon corporation ("Corporation"). 1. SERVICES 1.1 Employment Position. Corporation agrees to employ Executive as Executive Vice President - New Business and Strategic Planning, and Executive accepts such employment, under the terms and conditions of this Agreement. Executive also agrees to serve, if elected, without separate compensation, as a director of Corporation and an officer and/or director of any subsidiary or affiliate of Corporation. In the event that the Corporation pays directors fees to other directors who are also officers of Corporation, Corporation will pay directors fees to Executive on the same basis. Corporation represents to Executive that it currently has and will maintain directors and officers liability insurance. 1.2 Term. 1.2.1 Initial Term. The term of this Agreement (the "Term") will commence on November 18, 2002, and will expire December 31, 2003. 1.2.2 Subsequent Terms. On or before September 1, 2003, Corporation and Executive mutually agree to enter into negotiations concerning an extension of the Term or of this Agreement or the terms of a new employment agreement with a term commencing January 1, 2004. The extension of the Term beyond December 31, 2003, will require the mutual approval of both parties as to the terms of such extension, including Executive's title, duties, and overall compensation. In the event that, prior to the expiration of the Term, Corporation and Executive are not able to reach agreement for such an extension, Executive will be entitled to severance payments pursuant to Section 6.2.1(b). 1.3 Duties. During the Term, Executive will serve in an executive capacity as the Executive Vice President - New Business and Strategic Planning. Executive will report directly to Corporation's Chief Executive Officer. Executive will be responsible for new business development and strategic planning and such other or different duties on behalf of Corporation as may be assigned from time to time by Corporation's Chief Executive Officer or Corporation's Board of Directors (the "Board"). Executive will do such traveling as may be required in the performance of his duties under this Agreement. 1.4 Outside Activities. Except as expressly provided in this Section, during his employment under this Agreement, Executive will devote his full business time, energies, and attention to the business and affairs of Corporation, and to the promotion and advancement of its interests. Executive will perform his services faithfully, competently, and to the best of his abilities and will not engage in professional or personal business activities that may require an appreciable portion of Executive's time or effort to the detriment of Corporation's business. For a transition period of six months from the date of this Agreement, Executive may continue to list 1 himself as CEO of MeSoft Partners and as President of DelMar Media.Net (the "Prior Companies") and may devote up to 10 hours per month in connection with Prior Companies and other consulting activities provided that (i) such activities do not violate the noncompetition provisions of Section 4 of this Agreement and (ii) such services will not interfere with Executive's performance of his duties for Corporation. 1.5 Application of Corporate Policies. Executive will, except as otherwise provided in this Agreement, be subject to Corporation's rules, practices, and policies applicable generally to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board. 2. COMPENSATION AND EXPENSES 2.1 Base Salary. As compensation for services under this Agreement, Corporation will pay to Executive a base salary of $225,000 per year, payable in a manner consistent with Corporation's payroll practices for management employees, as such practices may be revised from time to time. (In no event will Executive's base salary be payable less often than monthly.) 2.2 Bonus Compensation. For the Term of this Agreement (through December 31, 2003), subject to the provisions of Section 6 of this Agreement, Corporation will pay Executive a bonus in an amount determined by Corporation's Chief Executive Officer, after consultation with the Committee, in his discretion based on Executive's contributions to Corporation; provided, however, that such bonus will not be less than $60,000. Such bonus will be payable on or before February 15, 2004 (and the obligation to pay such bonus will survive the expiration of the Term). 2.3 Stock Options. 2.3.1 General. Executive will participate, together with Corporation's other senior executives, in Corporation's 1997 Equity Participation Plan (the "Plan"). Executive will be granted options to purchase shares of Corporation's common stock and/or other awards under the Plan at the times and in the amounts determined by the Committee. All options will be subject to the provisions of the Plan. 2.3.2 Initial Grant. Effective as of the date of this Agreement, Executive will be granted a combination of an incentive stock option and a nonqualified stock option to purchase an aggregate of 75,000 shares of Corporation's common stock with an exercise price equal to the fair market value of the stock on the date of the grant, subject to the vesting and other provisions set forth in award agreements in the form attached to this Agreement as Appendix 2.3.2. 2.4 Additional Employee Benefits Executive will receive an annual grant of 208 hours of credit (or such higher number of hours as are credited to Corporation's other senior executives) under Corporation's Personal Time Off (PTO) program. Personal time off and vacation may be taken in accordance with Corporation's rules, practices, and policies applicable to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board or the Committee. During the Term, Executive will be entitled to any other employee benefits approved by the Board or the Committee, or available to officers and other management employees generally, including any life and medical insurance 2 plans, 401(k) and other similar plans, and health and welfare plans, each whether now existing or hereafter approved by the Board or the Committee ("Benefit Plans"). The foregoing will not be construed to require Corporation to establish any such plans or to prevent Corporation from modifying or terminating any such Benefit Plans. 2.5 Expenses. Corporation will reimburse Executive for reasonable expenses actually incurred by Executive in connection with the business of Corporation. Executive will submit to Corporation such substantiation for such expenses as may be reasonably required by Corporation. In connection with Executive's commencement of employment, Corporation will reimburse Executive for (a) moving expenses to Portland (up to $5,000), (b) up to $4,000 for transition automobile expense, (c) up to 45 days temporary lodging at the Portland Embassy Suites Hotel, and (d) up to $5,000 for attorney's fees. 3. CONFIDENTIAL INFORMATION 3.1 Definition. "Confidential Information" is all nonpublic information relating to Corporation or its business that is disclosed to Executive, that Executive produces, or that Executive otherwise obtains during employment. Confidential Information also includes information received from third parties that Corporation has agreed to treat as confidential; provided that Executive has knowledge that Corporation has agreed to treat such information as confidential. Examples of Confidential Information include, without limitation, marketing plans, customer lists or other customer information, product design and manufacturing information, and financial information. Confidential Information does not include any information that (i) is within the public domain other than as a result of disclosure by Executive in violation of this Agreement, (ii) was, on or before the date of disclosure to Executive, already known by Executive, or (iii) Executive is required to disclose in any governmental, administrative, judicial, or quasi-judicial proceeding, but only to the extent that Executive is so required to disclose and provided that Executive takes reasonable steps to request confidential treatment of such information in such proceeding. 3.2 Access to Information. Executive acknowledges that in the course of his employment he will have access to Confidential Information, that such information is a valuable asset of Corporation, and that its disclosure or unauthorized use will cause Corporation substantial harm. 3.3 Ownership. Executive acknowledges that all Confidential Information will continue to be the exclusive property of Corporation (or the third party that disclosed it to Corporation), whether or not prepared in whole or in part by Executive and whether or not disclosed to Executive or entrusted to his custody in connection with his employment by Corporation. 3.4 Nondisclosure and Nonuse. Unless authorized or instructed in advance in writing by Corporation, or required by law (as determined by licensed legal counsel or judicial or quasi-judicial order), Executive will not, except as required in the course of Corporation's business, during or after his employment, disclose to others or use any Confidential Information, unless and until, and then only to the extent that, such items become available to the public through no fault of Executive. 3 3.5 Return of Confidential Information. Upon request by Corporation during or after his employment, and without request upon termination of employment pursuant to this Agreement, Executive will deliver immediately to Corporation all written, stored, saved, or otherwise tangible materials containing Confidential Information without retaining any excerpts or copies. 3.6 Duration. The obligations set forth in this Section 3 will continue beyond the term of employment of Executive by Corporation and for so long as Executive possesses Confidential Information. 4. NONCOMPETITION 4.1 Competitive Entity. For purposes of this Agreement, a Competitive Entity is any firm, corporation, partnership, limited liability company, business trust, or other entity that is engaged in all or any of the following business activities: (a) The wholesale and/or revenue sharing physical or electronic distribution of home entertainment software in any media, including without limitation video cassettes, DVDs, video games and PC software ("Entertainment Software"); (b) The fulfillment, warehouse, or distributing business in connection with the Entertainment Software industry; (c) The collection, aggregation, tracking and dissemination of market information and data (sales, marketing, inventory), occurrence and expenditure data, and advertising data related to consumer activity in various industries including, but not limited to the entertainment industry; (d) The delivery of technological intelligence, industry analysis, and strategic and tactical guidance with respect to consumer activity in various industries including, but not limited to the entertainment industry; or (e) Any business directly competitive with a business then engaged in by Corporation or identified in Corporation's three-year business plan. 4.2 Covenant. During the Term and for a period ending on the last day of the applicable Noncompete Period described in Section 5.7, Executive will not, within any geographical area where Corporation engages in business: (a) Directly or indirectly, alone or with any individual, partnership, limited liability company, corporation, or other entity, become associated with, render services to, invest in, represent, advise, or otherwise participate in any Competitive Entity; provided, however, that nothing contained in this Section 4.2 will prevent Executive from owning less than 5 percent of any class of equity or debt securities listed on a national securities exchange or market, provided such involvement is solely as a passive investor; 4 (b) Solicit any business on behalf of a Competitive Entity from any individual, firm, partnership, corporation, or other entity that is a customer of Corporation during the 12 months immediately preceding the date Executive's employment with Corporation is terminated; or (c) Employ or otherwise engage or offer to employ the services of any person (other than Executive's assistant) who has been an employee, sales representative, or agent of Corporation during the 12 months preceding the date Executive's employment with Corporation is terminated. For purposes of this Section 4, "Corporation" means Corporation and its subsidiaries (whether now existing or subsequently created) and their successors and assigns. 4.3 Severability; Reform of Covenant. If, in any judicial proceeding, a court refuses to enforce this covenant not to compete because it covers too extensive a geographic area or is too long in its duration, the parties intend that it be reformed and enforced to the maximum extent permitted under applicable law. 5. TERMINATION Executive's employment under this Agreement will terminate prior to the end of the Term as follows: 5.1 Death. Executive's employment will terminate automatically upon the date of Executive's death. 5.2 Disability. Company may, at its option, terminate Executive's employment under this Agreement upon written notice to Executive if Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of his position, with reasonable accommodation, required of him under this Agreement for a continuous period of 120 days or any 180 days within any 12-month period. 5.3 Termination by Corporation for Cause. Corporation may terminate Executive's employment under this Agreement for Cause at any time. For purposes of this Agreement, "Cause" means: (a) a material breach of this Agreement by Executive; (b) Executive's refusal, failure, or inability to comply with any of the material and lawful policies or standards of Corporation or to perform any material job duties of Executive set forth in this Agreement; (c) any act of fraud by Executive, (d) any material act of dishonesty by Executive involving Corporation or its business; or (e) Executive's conviction of or a plea of nolo contendere to a felony; provided that Cause will not include any actions or circumstances constituting Cause under (a) or (b) above if Executive cures such actions or circumstances within 30 days of receipt of written notice from Corporation setting forth the actions or circumstances constituting Cause. 5.4 Termination by Executive for Good Reason. Executive may terminate his employment with Corporation under this Agreement for "Good Reason" if Corporation has not cured the actions or circumstances which are the basis for such termination within 30 days following receipt by the Board of written notice from Executive setting forth the actions or 5 circumstances constituting Good Reason. For purposes of this Agreement, "Good Reason" means: (a) Failure of Corporation to comply with the terms of this Agreement or any other agreement entered into with Executive by Corporation or any affiliate of Corporation; or (b) The occurrence (without Executive's express written consent) of any of the following acts by Corporation or failures by Corporation to act: (i) A substantial adverse alteration in the nature or status of Executive's title, position, duties, or reporting responsibilities as an executive of Corporation; (ii) A reduction in Executive's base salary or other material non-discretionary compensation or benefits as set forth in this Agreement or as the base salary or other material non-discretionary compensation or benefits may be increased from time to time; (iii) The failure by Corporation to continue to provide Executive with benefits and participation in Benefit Plans made available by Corporation to its senior executives; or (iv) The relocation of Corporation's executive offices at which Executive is to provide services to a location more than 35 miles from its current location on N.E. Ambassador Place in Portland, Oregon. 5.5 Termination by Corporation Without Cause. Corporation may terminate Executive's employment with Corporation without Cause at any time by written notice to Executive. 5.6 Termination by Executive Without Good Reason. Executive may terminate Executive's employment with Corporation other than for Good Reason at any time by written notice to the Secretary of the Corporation. 5.7 Applicable Noncompete Periods upon Termination. The duration of Executive's obligations under Section 4 (the "Noncompete Period") will be as follows: 5.7.1 In the event Executive terminates his employment with Corporation for Good Reason under Section 5.4 or Corporation terminates Executive's employment with Corporation without Cause under Section 5.5, the Noncompete Period will continue so long as Executive receives Monthly Severance Payments under Section 6.2. Executive's obligations under this Agreement will terminate immediately if Corporation fails to make a Monthly Severance Payment within 15 days after it is due. For this purpose, a check for a Monthly Severance Payment mailed within such 15 day period (as evidenced by official postmark) will be deemed to be made within such 15 day period. 6 5.7.2 In the event Corporation terminates Executive's employment for Cause, Executive terminates his employment with Corporation other than for Good Reason under Section 5.6, or Executive's employment with Corporation terminates due to the expiration of the Term, the Noncompete Period will be one year from the date of termination. 6. COMPENSATION UPON TERMINATION 6.1 Death, Disability, or Expiration of Term. Upon termination of Executive's employment pursuant to Section 5.1, Section 5.2, or due to the Expiration of the Term, all obligations of Corporation under this Agreement will cease, except that Executive will be entitled to: (a) Accrued base salary through the date of Executive's termination of employment; (b) A prorated portion of the bonus described in Section 2.1 (not less than a pro rata portion of the minimum bonus described in that Section); and (c) Other benefits under Benefit Plans to which Executive was entitled upon such termination of employment in accordance with the terms of such Benefit Plans. 6.2 Termination Without Cause or by Executive for Good Reason; Nonrenewal of Term. 6.2.1 Monthly Severance Payments. (a) In the event that no Change in Control (as defined in Section 7) has occurred and, prior to the expiration of the Term, Executive terminates his employment with Corporation for Good Reason under Section 5.4 or Corporation terminates Executive's employment with Corporation without Cause under Section 5.5, Executive will be entitled to the amounts described in Section 6.1 plus severance payments equal to the number of calendar months remaining in the Term plus six months multiplied by the base salary per month in effect as of the date of termination, payable in equal monthly installments (each installment, a "Monthly Severance Payment"). (b) In the event that Corporation and Executive do not extend the Term of this Agreement or enter into a replacement agreement as described in Section 1.2.2, Executive will be entitled to the amounts described in Section 6.1 plus Monthly Severance Payments equal to six months multiplied by the base salary per month in effect as of the end of the Term. (c) Corporation's obligations to pay Monthly Severance Payments (under either paragraph (a) or (b) of this Section 6.2.1) are expressly conditioned on (i)Executive's execution of a release (in the form attached to this Agreement as Appendix 6.2.1(c), with such modifications specifically in response to changes in 7 applicable law as counsel for Corporation determines to be reasonably necessary or desirable to ensure effective release of all claims) of any and all claims that Executive may hold through the date such release is executed against Corporation or any of its subsidiaries or affiliates, and (ii) the expiration of any applicable revocation period specified in such release without revocation of the release by Executive. (d) Monthly Severance Payments will be payable in a manner consistent with Corporation's payroll practices for management employees. (e) Executive will not be required to mitigate the Monthly Severance Payments pursuant to this Agreement by seeking other employment; provided however, that amounts payable by Corporation as Monthly Severance Payments will be reduced by compensation actually received by Executive from a new employer during the applicable severance period described above. 6.2.2 Medical and Dental Insurance Benefits. In addition to Monthly Severance Payments, Corporation will continue to provide or will arrange to provide Executive with medical and dental insurance benefits substantially similar to those to which Executive was entitled as of the date of termination until Corporation's obligation to make Monthly Severance Payments expires; provided, however, that if Executive is employed with another employer and is eligible to receive medical and dental insurance benefits under another employer-provided plan, the medical and dental benefits described in this paragraph will be secondary to those provided under such other plan. 6.2.3 Effect of Competition. Corporation's obligation to make Monthly Severance Payments and provide medical and dental insurance benefits to Executive will terminate if Executive breaches a material provision of Section 4. 6.3 Termination For Cause or by Executive Without Good Reason. In the event that, prior to the expiration of the Term, Corporation terminates Executive's employment with Corporation for Cause under Section 5.3, or Executive terminates his employment with Corporation for other than Good Reason under Section 5.6, Corporation's obligations under this Agreement will cease and Executive will be entitled to that portion of his base salary and employment benefits for which he is qualified as of the date of termination and Executive will not be entitled to any other compensation or consideration. 7. EFFECT OF CHANGE IN CONTROL 7.1 Definitions. "Change in Control". For purposes of this Agreement, a "Change in Control" will be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs: (a) Any "person" (as that term is defined in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee 8 benefit plan of Corporation, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Corporation representing 30 percent or more of the combined voting power of Corporation's then outstanding securities; (b) A majority of the directors elected at any annual or special meeting of shareholders are not individuals nominated by Corporation's then incumbent Board; or (c) The shareholders of Corporation approve a merger or consolidation of Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of Corporation outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51 percent of the combined voting power of the voting securities of Corporation or of such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Corporation approve a plan of complete liquidation of Corporation or an agreement for the sale or disposition by Corporation of all or substantially all of its assets. "Other Payment" means any payment or benefit payable to Executive in connection with a Change in Control of Corporation pursuant to any plan, arrangement, or agreement (other than this Agreement) with Corporation, a person whose actions result in such Change in Control, or any person affiliated with Corporation or such person. "Total Payments" means all payments or benefits payable to Executive in connection with a Change in Control, including Change in Control Payments pursuant to this Agreement and any Other Payments pursuant to any other plan, agreement, or arrangement with Corporation, a person whose actions result in the Change in Control, or any person affiliated with Corporation or such person. 7.2 Compensation Upon Termination Following a Change in Control. 7.2.1 Change in Control Payments. In the event of Corporation's termination of Executive without Cause, or Executive's termination of employment with Corporation for Good Reason, at any time following a Change in Control during the Term of this Agreement, Executive will be entitled to the following payments (the "Change in Control Payments"): (a) A lump sum severance payment equal to two times Executive's annual base salary as in effect immediately before the Change in Control plus two times Executive's bonus compensation for the most recent fiscal year ended prior to the Change in Control; (b) Continuation for a period of two years following such termination of Executive's participation in all Benefit Plans in which Executive was entitled to participate immediately before the Change in Control, provided that such continued participation is possible under the general terms and provisions of such 9 Benefit Plans. In the event Executive's continued participation in any Benefit Plan is barred by the provisions of the Benefit Plan, Corporation will arrange to provide Executive with benefits substantially similar to those which Executive was entitled to receive under the Benefit Plan. 7.2.2 Reduction. In the event that any portion of the Total Payments payable to Executive in connection with a Change in Control of Corporation would constitute an "excess parachute payment" within the meaning of IRC ss. 280G(b) that is subject to the excise tax imposed on so-called excess parachute payments pursuant to IRC ss.4999 (an "Excise Tax"), the Change in Control Payments otherwise payable under this Section 7.2.1 will be reduced to avoid such Excise Tax if, and to the extent that, such reduction will result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income and excise taxes. 7.2.3 Application. For purposes of this Section 7.2: (a) No portion of the Total Payments, the receipts or enjoyment of which Executive has effectively waived in writing prior to the date of payment of any Change in Control Payments, will be taken into account; (b) No portion of the Total Payments will be taken into account which, in the opinion of tax counsel selected by Corporation and reasonably acceptable to Executive ("Tax Counsel"), does not constitute a "parachute payment" within the meaning of IRC ss. 280G; (c) If Executive and Corporation disagree whether any payment of Change in Control Payments will result in an Excise Tax or whether a reduction in any Change in Control Payments will result in a larger after-tax benefit to Executive, the matter will be conclusively resolved by an opinion of Tax Counsel; (d) Executive agrees to provide Tax Counsel with all financial information necessary to determine the after-tax consequences of payments of Change in Control Payments for purposes of determining whether, or to what extent, Change in Control Payments are to be reduced pursuant to Section 7.2.2; and (e) The value of any noncash benefit or any deferred payment or benefit included in the Total Payments, and whether or not all or a portion of any payment or benefit is a "parachute payment" for purposes of this Section 7.2, will be determined by Corporation's independent accountants in accordance with the principles of IRC ss. 280(G)(d)(3) and (4). 7.2.4 Effect on Other Agreements. In the event that any other agreement, plan, or arrangement providing for Other Payments (an "Other Agreement") has a provision that requires a reduction in the Other Payment governed by such Other Agreement to avoid or eliminate an "excess parachute payment" for purposes of IRC ss. 280G, the reduction in Change in Control Payments pursuant to Section 7.2.2 will be given effect before any reduction in the Other Payment pursuant to the Other Agreement. To the 10 extent possible, Corporation and Executive agree that reductions in benefits under any plan, program, or arrangement of Corporation will be reduced (only to the extent described in Section 7.2.2) in the following order of priority: (a) Change in Control Payments under this Agreement; (b) Benefit Plan benefit continuation pursuant to Section 7.2.1(b); and (c) The acceleration in the exercisability of any stock option or other stock related award granted by Corporation. 8. REMEDIES The respective rights and duties of Corporation and Executive under this Agreement are in addition to, and not in lieu of, those rights and duties afforded to and imposed upon them by law or at equity. Executive acknowledges that any breach or threatened breach of Sections 3 or 4 of this Agreement will cause irreparable harm to Corporation and that any remedy at law would be inadequate to protect the legitimate interests of Corporation. Executive agrees that Corporation will be entitled to seek specific performance, or to seek any other form of injunctive relief, to enforce its rights under Sections 3 or 4 of this Agreement. Such remedies will be in addition to any other remedy available to Corporation at law or in equity. 9. SEVERABILITY OF PROVISIONS The provisions of this Agreement are severable, and if any provision of this Agreement is held invalid, unenforceable, or unreasonable, it will be enforced to the maximum extent permissible, and the remaining provisions of the Agreement will continue in full force and effect. 10. NONWAIVER Failure of Corporation at any time to require performance of any provision of this Agreement will not limit the right of Corporation to enforce the provision. No provision of this Agreement or breach of this Agreement may be waived by either party except in writing signed by that party. A waiver of any breach of a provision of this Agreement will be construed narrowly and will not be deemed to be a waiver of any succeeding breach of that provision or a waiver of that provision itself or of any other provision. 11. NOTICES All notices required or permitted under this Agreement must be in writing and will be deemed to have been given if delivered by hand, or mailed by first-class, certified mail, return receipt requested, postage prepaid, to the respective parties as follows (or to such other address as any party may indicate by a notice delivered to the other parties hereto): (i) if to Executive, to his residence as listed in Corporation's records, with a copy to: 11 Weissmann, Wolff, Bergman, Coleman, Grodin & Evall, LLP 9665 Wilshire Boulevard Suite 900 Los Angeles, California 90212 Attn: Mr. Alan L. Grodin Esq. and (ii) if to Corporation, to the address of the principal office of Corporation, at: One Airport Center 7700 N.E. Ambassador Place Portland, Oregon 97220 12. ATTORNEY FEES In the event of any suit or action or arbitration proceeding to enforce or interpret any provision of this Agreement (or which is based on this Agreement), the prevailing party will be entitled to recover, in addition to other costs, the reasonable attorney fees incurred by the prevailing party in connection with such suit, action, or arbitration, and in any appeal therefrom. The determination of who is the prevailing party and the amount of reasonable attorney fees to be paid to the prevailing party will be decided by the arbitrator or arbitrators (with respect to attorney fees incurred prior to and during the arbitration proceedings) and by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided, including the court which hears any exceptions made to an arbitration award submitted to it for confirmation as a judgment (with respect to attorney fees incurred in such confirmation proceedings). 13. GOVERNING LAW This Agreement will be construed in accordance with the laws of the state of Oregon, without regard to any conflicts of laws rules. Any suit or action arising out of or in connection with this Agreement, or any breach of this Agreement, must be brought and maintained in the Circuit Courts of the State of Oregon. The parties hereby irrevocably submit to the jurisdiction of such court for the purpose of such suit or action and hereby expressly and irrevocably waive, to the fullest extent permitted by law, any claim that any such suit or action has been brought in an inconvenient forum. 14. GENERAL TERMS AND CONDITIONS This Agreement and the Option Agreement constitute the entire understanding of the parties relating to the employment of Executive by Corporation, and supersede and replace all written and oral agreements heretofore made or existing by and between the parties relating thereto. Executive acknowledges that he has read and understood all of the provisions of this Agreement, that the restrictions contained in Sections 4 and 5.7 of this Agreement are reasonable and necessary for the protection of Corporation's business and that Executive entered into this contract in connection with a bona fide advancement of Executive with Corporation in that Executive was granted a long-term employment contract. This Agreement will inure to the benefit of any successors or assigns of Corporation. All captions used in this Agreement are intended solely for convenience of reference and will in no way limit any of the provisions of this Agreement. 12 The parties have executed this Employment Agreement as of the date stated above. RENTRAK CORPORATION /s/ Kenneth M. Papagan By /s/ F. Kim Cox Kenneth M. Papagan Title President 13 APPENDIX 6.2.1(c) AGREEMENT AND RELEASE THIS AGREEMENT AND RELEASE ("Release") is made on this ___ day of _______________, 200__, by and between Rentrak Corporation, an Oregon corporation ("Corporation") and Kenneth M. Papagan ("Executive"). Corporation and Executive agree as follows: 1. Payment to Executive. (a) Upon the execution of this Release, and after expiration of the revocation period specified in Section 9 of this Release, Corporation will commence payment of the applicable Monthly Severance Payments described in Section 6 of Executive's Employment Agreement dated __________, 2002 (the "Employment Agreement"), less normal deductions and withholdings. (b) Executive specifically acknowledges and agrees that Corporation has paid Executive all wages and other compensation and benefits to which Executive is entitled except those described in Paragraph 1(a) of this Release and that the execution of this Release (and compliance with the noncompetition provisions of Section 4 of the Employment Agreement) are conditions precedent to Corporation's obligation to make the Monthly Severance Payments. 2. Release by Executive. Executive hereby completely releases and forever discharges Corporation and each of its past, present, and future parent and subsidiary corporations and affiliates and each of their respective past, present, and future shareholders, officers, directors, agents, employees, insurers, successors, and assigns (collectively, the "Released Parties"), from any and all claims, liabilities, demands, and causes of action of any kind, whether statutory or common law, in tort, contract, or otherwise, in law or in equity, and whether known or unknown, foreseen or unforeseen, in any way arising out of, concerning, or related to, directly or indirectly, Executive's employment with Corporation, including, but not limited to, the termination of Executive's employment based on any act or omission on or prior to the effective date of this Release, but not including any claim for workers' compensation or unemployment insurance benefits. Without limiting the generality of the foregoing, this release specifically includes, but is not limited to, a release of claims arising under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act; the Worker Adjustment and Retraining Notification Act; and ORS chapters 652, 653, and 659A, and any amendments to any of such laws. 3. Return of Corporation Property. Executive represents and warrants that Executive has returned to Corporation all property belonging to Corporation, including, but not limited to, all documents or other media containing confidential or proprietary information of Corporation (including without limitation customer, 1 production, and pricing information), and all Corporation credit cards, keys, cellular telephones, and computer hardware and software. 4. No Liability or Wrongdoing. Corporation specifically denies any liability or wrongdoing whatsoever. Neither this Release nor any of its provisions, terms, or conditions constitute an admission of liability or wrongdoing or may be offered or received in evidence in any action or proceeding as evidence of an admission of liability or wrongdoing. 5. Severability. If any provision of this Release is found by any court to be illegal or legally unenforceable for any reason, the remaining provisions of this Release will continue in full force and effect. 6. Attorney Fees. If any action is brought to interpret or enforce this Release or any part of it, the prevailing party will be entitled to recover from the other party its reasonable attorney fees and costs incurred therein, including all attorney fees and costs on any appeal or review. 7. Choice of Law. This Release will be governed by the laws of the state of Oregon, without regard to its principles of conflicts of laws. 8. Consideration of Agreement. Executive acknowledges that Corporation has advised him in writing to consult with an attorney before signing this Release and that he has been given at least 21 days to consider whether to execute this Release. For purposes of this 21-day period, Executive acknowledges that this Release was delivered to him on ________, 20__, that the 21-day period will expire ___________, 20__, and that he may have until that date to consider the Release. 9. Revocation. Executive may revoke this Release by written notice, delivered to ___________ within seven days following his date of signature as set forth below. This Release becomes effective and enforceable after such seven-day period has expired. 10. Knowing and Voluntary Agreement. Executive acknowledges and agrees that: (a) the only consideration for this Release is the consideration expressly described in this document; (b) he has carefully read the entire Release; (c) he has had the opportunity to review this Release and to have it reviewed and explained to him by an attorney of his choosing; (d) he fully understands the final and binding 2 effect; and (e) he is signing this Release voluntarily and with the full intent of releasing Corporation from all claims. 11. Miscellaneous. The benefits of this Release will inure to the successors and assigns of the parties. This is the entire agreement between Executive and Corporation regarding the subject matter of this Release and neither party has relied on any representation or statement, written or oral, that is not set forth in this Release. Executive represents and warrants that Executive has not assigned any claim that Executive may have against the Released Parties to any person or entity. RENTRAK CORPORATION By: ---------------------- ---------------------------- Kenneth M. Papagan Title: --------------------- Date: Date: ---------------------- --------------------------- STATE OF ___________________ ) ) SS COUNTY OF __________________ ) This instrument was acknowledged before me on __________, 2002, by Kenneth M. Papagan. Notary Public for My commission expires: 3 EX-10 6 rcex10-2a.txt APPENDIX 2.3.2 - A Form of RENTRAK CORPORATION INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, effective as of November 18, 2002, is made by and between Rentrak Corporation, an Oregon corporation (hereinafter referred to as "Company"), and Kenneth M. Papagan, an employee of Company (hereinafter referred to as "Employee"): WHEREAS, Company wishes to afford Employee the opportunity to purchase shares of its $.001 par value Common Stock; and WHEREAS, Company has adopted the 1997 Equity Participation Plan of Rentrak Corporation (hereinafter referred to as "Plan") (the terms of which are hereby incorporated by reference and made a part of this Agreement); and WHEREAS, the Committee appointed to administer the Plan has determined that it would be to the advantage and best interest of Company and its shareholders to grant the Incentive Stock Option (the "Option") provided for herein to Employee as an inducement to remain in the service of Company and as an incentive for increased efforts during such service; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. GRANT OF OPTION 1.1 Grant of Option. In consideration of Employee's agreement to remain in the employ of Company or its Subsidiaries and for other good and valuable consideration, effective as of the date of this Agreement, Company irrevocably grants to Employee an Option to purchase any part or all of an aggregate of _______ shares of its $.001 par value Common Stock upon the terms and conditions set forth in this Agreement and the Plan; provided that to the extent that any provision of this Agreement or Employee's Employment Agreement with Company conflicts with the provisions of the Plan (including without limitation Section 1.33 of the Plan), the provisions of this Agreement or Employee's Employment Agreement will control. 1.2 Purchase Price. The purchase price of the shares of Common Stock covered by the Option is ______ per share, without commission or other charge, subject to adjustment as provided in Section 9.3(a) of the Plan. 1.3 Consideration to Company. In consideration of the granting of this Option by Company, Employee agrees to render faithful and efficient services to Company or a Subsidiary, with such duties and responsibilities as set forth in Employee's Employment Agreement with Company. Nothing in this Agreement or in the Plan confers upon Employee any right to continue in the employ of Company or any Subsidiary, or as a director of Company, or will 1 interfere with or restrict in any way the rights of Company and its Subsidiaries, which are expressly reserved, to discharge Employee at any time for any reason whatsoever, with or without cause, except as provided in Employee's Employment Agreement with Company. 1.4 Adjustments in Option. The Committee may make adjustments with respect to the Option in accordance with the provisions of Section 9.3 of the Plan; provided, however, that each such adjustment will be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code, unless the Optionee consents to an adjustment which would constitute such a "modification". 2. PERIOD OF EXERCISABILITY 2.1 Commencement of Exercisability. (a) Subject to Sections 2.1(b), 2.1(c), and 2.3, the Option will become exercisable in four cumulative installments as follows: (i) The first installment consists of 25% of the shares covered by the Option and will become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment consists of 25% of the shares covered by the Option and will become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment consists of 25% of the shares covered by the Option and will become exercisable on the third anniversary of the date the Option is granted. (iv) The fourth installment consists of 25% of the shares covered by the Option and will become exercisable on the fourth anniversary of the date the Option is granted. (b) No portion of the Option which is unexercisable at Termination of Employment will thereafter become exercisable. (c) Notwithstanding Sections 2.1(a) and 2.1(b), the Option will become fully and immediately exercisable in the event that after the occurrence of an event that would constitute a "change in control" of Company (under either the definition of that term in the Plan or the definition of that term in Employee's Employment Agreement with Company) and during the term of Employee's Employment Agreement with Company, Company terminates Employee's employment with Company without "Cause" or Employee voluntarily terminates his employment with Company with "Good Reason" (as those terms are defined in Employee's Employment Agreement). 2.2 Duration of Exercisability. Once the Option becomes exercisable pursuant to Section 2.1, it will remain exercisable until it becomes unexercisable under Section 2.3. 2 2.3 Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of 10 years from the date the Option was granted; (b) If Employee owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than 10% of the total combined voting power of all classes of stock of Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code), the expiration of five years from the date the Option was granted; (c) The expiration of one month from the date of Employee's voluntary Termination of Employment without Good Reason; (d) The expiration of three months from the date of Employee's Termination of Employment by reason of his retirement, his being discharged without Cause, or his voluntary Termination of Employment for Good Reason, unless Employee dies within said three-month period; (e) The expiration of one year from the date of Employee's Termination of Employment by reason of his permanent and total disability (within the meaning of Section 22(e)(3) of the Code); (f) The expiration of one year from the date of Employee's death; (g) Immediately upon Employee's Termination of Employment for Cause; or (h) On the date specified in Section 2.4(b) in connection with a Terminating Event (as that term is defined in Section 2.4(b)). 2.4 Adjustments to and/or Cancellation of the Option. (a) Neither (i) the issuance of additional shares of stock of Company in exchange for adequate consideration (including services), nor (ii) the conversion of outstanding preferred shares of Company into Common Stock, will be deemed to require an adjustment in the shares covered by the Option or in the purchase price of shares subject to the Option pursuant to Section 9.3(a) of the Plan. In the event the Committee determines that an event has occurred affecting Company such that an adjustment to the Option under Section 9.3(a) of the Plan should be made but that it is not practical or feasible to make such an adjustment, such event will be deemed a Terminating Event subject to the following paragraph. (b) Subject to Section 9.3(b)(vii) of the Plan, in the event of a "Change in Control" of Company (under either the definition of that term in the Plan or the definition of that term in Employee's Employment Agreement) or the occurrence of an event in accordance with the last sentence of the previous paragraph (any of such events is herein referred to as a "Terminating Event"), the Committee will determine whether a provision 3 will be made in connection with the Terminating Event for an appropriate assumption of the Option by, or substitution of appropriate new options covering stock of, a successor corporation employing Employee or stock of an affiliate of such successor employer corporation. If the Committee determines that such an appropriate assumption or substitution will be made, the Committee will give notice of the determination to Employee and the terms of such assumption or substitution, and any adjustments made (i) to the number and kind of shares subject to the Option outstanding under the Plan (or to options issued in substitution therefor), (ii) to the Option purchase price, and (iii) to the terms and conditions of the Option, will be binding upon Employee. If the Committee determines that no assumption or substitution will be made, the Committee will give notice of this determination to Employee, whereupon Employee will have the right for a period of 30 days following the notice to exercise in full or in part the unexercised and unexpired portion of this Option, all of which will become fully and immediately vested without regard to the limitation on exercisability specified in Section 2.1(a) above. Upon the expiration of this 30 day period, the Option will expire to the extent not earlier exercised. (c) The Committee will exercise its discretion in connection with the determinations under this Section 2.4 in good faith and in a uniform and nondiscriminatory manner with respect to all participants under the Plan. 2.5 Special Tax Consequences. Employee acknowledges that, to the extent that the aggregate Fair Market Value of stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code), including the Option, are exercisable for the first time by Employee during any calendar year (under the Plan and all other incentive stock option plans of Company, any Subsidiary and any parent corporation thereof (within the meaning of Section 422 of the Code)) exceeds $100,000, such options will be treated as Non-Qualified Options to the extent required by Section 422 of the Code. Employee further acknowledges that the rule set forth in the preceding sentence will be applied by taking options into account in the order in which they were granted. For purposes of these rules, the Fair Market Value of stock will be determined as of the time the option with respect to such stock is granted. 3. EXERCISE OF OPTION 3.1 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 2.3, provided, however, that each partial exercise will be for not less than 100 shares and must be for whole shares only. 3.2 Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to Company's Secretary or his office of all of the following prior to the time when the Option or such portion becomes unexercisable under Section 2.3: 4 (a) A written notice complying with the applicable rules established by the Committee stating that the Option, or a portion thereof, is exercised. The notice must be signed by Employee or other person then entitled to exercise the Option or such portion. (b) Full payment to Company for the shares with respect to which such Option or portion is exercised, which must be: (i) In cash; or (ii) With the consent of the Committee, (A) shares of Company's Common Stock owned by Employee, and, if acquired from Company, held for at least six months, duly endorsed for transfer to Company, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the shares as to which the Option is exercised, or (B) shares of Company's Common Stock issuable to Employee upon exercise of the Option, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the shares as to which the Option is exercised; or (iii) With the consent of the Committee, by delivery of a notice that Employee has placed a market sell order with a broker with respect to shares of Company's Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to Company in satisfaction of the purchase price of the shares as to which the Option is exercised. (c) A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by Employee or other person then entitled to exercise such Option or portion as the Committee in its discretion, determines is necessary or appropriate to effect compliance with the Securities Act of 1933 and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, such agreement may provide that (i) as of the date of any subsequent transfer of the shares acquired on exercise of the Option (the "Option Shares"), the Committee may require an opinion of counsel acceptable to it to the effect that such transfer of the Option Shares does not violate the Securities Act of 1933, and (ii) Company may issue stop-transfer orders covering the Option Shares. Share certificates evidencing Option Shares will bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) will not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act of 1933, and such registration is then effective in respect of such shares. (d) Full payment to Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option. With the consent of the Committee, (i) shares of Company's Common Stock owned by Employee, duly endorsed for transfer, with a Fair Market Value equal to the sums required to be withheld, or (ii) shares of Company's Common Stock issuable to 5 Employee upon exercise of the Option with a Fair Market Value equal to the sums required to be withheld, may be used to make all or part of such payment. (e) In the event the Option or portion is exercised pursuant to Section 4.1 by any person or persons other than Employee, appropriate proof of the right of such person or persons to exercise the Option. 3.3 Rights as Shareholder. The holder of the Option is not, and does not have any of the rights or privileges of, a shareholder of Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares have been issued by Company to such holder. 4. OTHER PROVISIONS 4.1 Option Not Transferable. Neither the Option nor any interest or right therein or part thereof may be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right in the Option (or part thereof) will be liable for the debts, contracts or engagements of Employee or his successors in interest or will be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof will be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. 4.2 Shares to Be Reserved. Company will at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. 4.3 Notices. Any notice to be given under the terms of this Agreement to Company must be addressed to Company in care of its Secretary, and any notice to be given to Employee will be addressed to him at the address given beneath his signature. By a notice given pursuant to this Section 4.3, either party may designate a different address for notices to be given. Any notice which is required to be given to Employee will, if Employee is then deceased, be given to Employee's personal representative if such representative has previously informed Company of his status and address by written notice under this Section 4.3. Any notice will be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as pursuant to this Section, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 4.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. 4.5 Notification of Disposition. Employee will give prompt notice to Company of any disposition or other transfer of any shares acquired under this Agreement if such disposition 6 or transfer is made (a) within two years from the date of granting the Option with respect to such shares or (b) within one year after the transfer of such shares to him. Such notice must specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Employee in such disposition or other transfer. 4.6 Construction. This Agreement will be administered, interpreted and enforced under the internal laws of the State of Oregon without regard to conflicts of laws thereof. 4.7 Conformity to Securities Laws. Employee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act of 1933 and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan will be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement will be deemed amended to the extent necessary to conform to such laws, rules and regulations. 4.8 Definition of Terms. All capitalized terms used herein without definition have the meanings ascribed to such terms in the Plan. IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. RENTRAK CORPORATION By _______________________________ President Kenneth M. Papagan Address: Employee's Taxpayer Identification Number: ___________________ 7 EX-10 7 rcex10-3.txt *Portions of this exhibit are considered confidential by the Registrant and have been omitted from filing and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. EMPLOYMENT AGREEMENT This Employment Agreement is entered into effective as of November 1, 2002, by and between Timothy J. Erwin ("Executive") and RENTRAK CORPORATION, an Oregon corporation (the "Corporation"). 1. SERVICES 1.1 Employment Position. Corporation agrees to employ Executive as Vice President, Customer Relations, and Executive accepts such employment, under the terms and conditions of this Agreement. 1.2 Term. The term of this Agreement (the "Term") commences on December 1, 2002, and will expire November 30, , 2005. Notwithstanding the foregoing, in the event of a Change in Control of Corporation, as defined in Section 7 of this Agreement, during the Term of this Agreement, the Term will automatically be extended to December 31 of the second calendar year following the year in which the Change in Control occurs. 1.3 Duties. During the Term, Executive will serve in an executive capacity as Vice President, Customer Relations. Executive will report directly to Corporation's President. Executive will be responsible for direction and supervision of all customer relations activities on behalf of Corporation and such other or different duties on behalf of Corporation as may be assigned from time to time by Corporation's President, Chief Executive Officer, or Board of Directors (the "Board"). Executive will do such traveling as may be required in the performance of his duties under this Agreement. 1.4 Outside Activities. During his employment under this Agreement, Executive will devote his full business time, energies, and attention to the business and affairs of Corporation, and to the promotion and advancement of its interests. Executive will perform his services faithfully, competently, and to the best of his abilities and will not engage in professional or personal business activities that may require an appreciable portion of Executive's time or effort to the detriment of Corporation's business. Corporation acknowledges and consents to Executives ownership interest and management activities in Malt Enterprises, Inc., doing business in Sandy Oregon as Star Video and acknowledges that Corporation will not treat such activity as violating the provisions of this Section 1.4 or of Section 4 of this Agreement 1.5 Application of Corporate Policies. Executive will, except as otherwise provided in this Agreement, be subject to Corporation's rules, practices, and policies applicable generally to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board. 2. COMPENSATION AND EXPENSES 2.1 Base Salary. As compensation for services under this Agreement, Corporation will pay to Executive a base salary of $150,000 per year, payable in a manner consistent with Corporation's payroll practices for management employees, as such practices may be revised from time to time. Annually, during the Term, Corporation's Compensation Committee (the 1 "Committee") will review Executive's performance, the performance of Corporation, and Corporation's economic prospects for the coming year, and will consider in its sole discretion whether to increase (but not decrease) the base salary payable to Executive. 2.2 Bonus Compensation. 2.2.1 General. Executive will participate, together with Corporation's other senior executives, in Corporation's Annual Incentive Compensation Plan under which Executive will be assigned predetermined incentive target levels and performance criteria and factors established in the discretion of the Committee and will have the opportunity to receive bonus compensation based on such criteria. 2.2.2 Fiscal 2003-2004. For the fiscal year ending March 31, 2004, in lieu of participation in the Annual Incentive Compensation Plan described above, Corporation and Executive will enter into a separate program providing Executive an opportunity to earn a commission bonus in accordance with the terms and conditions set forth on Appendix 2.2.2, based on the extent to which Corporation achieves or exceeds specified revenue goals during the fiscal year ending March 31, 2004. 2.3 Stock Options. Executive will participate, together with Corporation's other senior executives, in Corporation's 1997 Equity Participation Plan (the "Plan"). Executive will be granted options to purchase shares of Corporation's common stock and/or other awards under the Plan at the times and in the amounts determined by the Committee. All options will be subject to the provisions of the Plan. 2.4 Additional Employee Benefits Executive will receive an annual grant of 208 hours of credit (or such higher number of hours as are credited to Corporation's other senior executives) under Corporation's Personal Time Off (PTO) program. Personal time off and vacation may be taken in accordance with Corporation's rules, practices, and policies applicable to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board or the Committee. During the Term, Executive will be entitled to any other employee benefits approved by the Board or the Committee, or available to officers and other management employees generally, including any life and medical insurance plans, 401(k) and other similar plans, and health and welfare plans, each whether now existing or hereafter approved by the Board or the Committee ("Benefit Plans"). The foregoing will not be construed to require Corporation to establish any such plans or to prevent Corporation from modifying or terminating any such Benefit Plans. 2.5 Expenses. Subject to review and approval by the chairman of Corporation's audit committee, Corporation will reimburse Executive for reasonable expenses actually incurred by Executive in connection with the business of Corporation. Executive will submit to Corporation such substantiation for such expenses as may be reasonably required by Corporation. 3. CONFIDENTIAL INFORMATION 3.1 Definition. "Confidential Information" is all nonpublic information relating to Corporation or its business that is disclosed to Executive, that Executive produces, or that Executive otherwise obtains during employment. Confidential Information also includes 2 information received from third parties that Corporation has agreed to treat as confidential. Examples of Confidential Information include, without limitation, marketing plans, customer lists or other customer information, product design and manufacturing information, and financial information. Confidential Information does not include any information that (i) is within the public domain other than as a result of disclosure by Executive in violation of this Agreement, (ii) was, on or before the date of disclosure to Executive, already known by Executive, or (iii) Executive is required to disclose in any governmental, administrative, judicial, or quasi-judicial proceeding, but only to the extent that Executive is so required to disclose and provided that Executive takes reasonable steps to request confidential treatment of such information in such proceeding. 3.2 Access to Information. Executive acknowledges that in the course of his employment he will have access to Confidential Information, that such information is a valuable asset of Corporation, and that its disclosure or unauthorized use will cause Corporation substantial harm. 3.3 Ownership. Executive acknowledges that all Confidential Information will continue to be the exclusive property of Corporation (or the third party that disclosed it to Corporation), whether or not prepared in whole or in part by Executive and whether or not disclosed to Executive or entrusted to his custody in connection with his employment by Corporation. 3.4 Nondisclosure and Nonuse. Unless authorized or instructed in advance in writing by Corporation, or required by law (as determined by licensed legal counsel), Executive will not, except as required in the course of Corporation's business, during or after his employment, disclose to others or use any Confidential Information, unless and until, and then only to the extent that, such items become available to the public through no fault of Executive. 3.5 Return of Confidential Information. Upon request by Corporation during or after his employment, and without request upon termination of employment pursuant to this Agreement, Executive will deliver immediately to Corporation all written, stored, saved, or otherwise tangible materials containing Confidential Information without retaining any excerpts or copies. 3.6 Duration. The obligations set forth in this Section 3 will continue beyond the term of employment of Executive by Corporation and for so long as Executive possesses Confidential Information. 3.7 Effect of Prior Agreement. Executive acknowledges that the provisions of this Section 3 are in addition to and do not supersede the provisions of that Confidentiality and Invention Agreement (the "Prior Agreement") between Corporation and Executive dated effective July 15, 1991, and that the Prior Agreement remains in full force and effect. 4. NONCOMPETITION Executive acknowledges and agrees that the provisions of Section 5 captioned "Covenant Against Competition" in the Prior Agreement will remain in full force and effect. If, in any judicial proceeding, a court refuses to enforce this covenant not to compete because it covers too 3 extensive a geographic area, is too long in its duration, or for any other reason, the parties intend that it be reformed and enforced to the maximum extent permitted under applicable law. 5. TERMINATION Executive's employment under this Agreement will terminate prior to the end of the Term as follows: 5.1 Death. Executive's employment will terminate automatically upon the date of Executive's death. 5.2 Disability. Company may, at its option, terminate Executive's employment under this Agreement upon written notice to Executive if Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of his position, with reasonable accommodation, required of him under this Agreement for a continuous period of 120 days or any 180 days within any 12-month period. 5.3 Termination by Corporation for Cause. Corporation may terminate Executive's employment under this Agreement for Cause at any time. For purposes of this Agreement, "Cause" means: (a) a material breach of this Agreement by Executive; (b) Executive's refusal, failure, or inability to comply with the general policies or standards of Corporation or to perform any job duties of Executive; (c) any act of fraud by Executive, (d) any act of dishonesty by Executive involving Corporation or its business; (e) Executive's conviction of or a plea of nolo contendere to a felony; or (f) the commission of any act in direct or indirect competition with or materially detrimental to the best interests of Corporation that is in breach of Executive's fiduciary duties to Corporation; provided that Cause will not include any actions or circumstances constituting Cause under (a) or (b) above if Executive cures such actions or circumstances within 30 days of receipt of written notice from Corporation setting forth the actions or circumstances constituting Cause. 5.4 Termination by Executive for Good Reason. Executive may terminate his employment with Corporation under this Agreement for "Good Reason" if Corporation has not cured the actions or circumstances which are the basis for such termination within 30 days following receipt by the Board of written notice from Executive setting forth the actions or circumstances constituting Good Reason. For purposes of this Agreement, "Good Reason" means: (a) Failure of Corporation to comply with the terms of this Agreement; or (b) The occurrence (without Executive's express written consent) of any of the following acts by Corporation or failures by Corporation to act: (i) A substantial adverse alteration in the nature or status of Executive's title, position, duties, or reporting responsibilities as an executive of Corporation; 4 (ii) A reduction in Executive's base salary as set forth in this Agreement or as the base salary may be increased from time to time; (iii) The failure by Corporation to continue to provide Executive with benefits and participation in Benefit Plans made available by Corporation to its senior executives; or (iv) The relocation of Corporation's executive offices at which Executive is to provide services to a location more than 35 miles from its current location on N.E. Ambassador Place in Portland, Oregon. 5.5 Termination by Corporation Without Cause. Corporation may terminate Executive's employment with Corporation without Cause at any time by written notice to Executive. 5.6 Termination by Executive Without Good Reason. Executive may terminate Executive's employment with Corporation other than for Good Reason at any time by written notice to the Secretary of the Corporation. 6. COMPENSATION UPON TERMINATION 6.1 Death, Disability, or Expiration of Term. Upon termination of Executive's employment pursuant to Section 5.1, Section 5.2, or due to the Expiration of the Term, all obligations of Corporation under this Agreement will cease, except that Executive will be entitled to: (a) Accrued base salary through the date of Executive's termination of employment; (b) A prorated portion of the bonus described in Section 2.2 (not less than a pro rata portion of the minimum bonus described in that Section); (c) Other benefits under Benefit Plans to which Executive was entitled upon such termination of employment in accordance with the terms of such Benefit Plans. 6.2 Salary Continuation Payments Upon Death or Disability. Upon termination of Executive's employment pursuant to Section 5.1 or Section 5.2, Executive will be entitled to the amounts described in Section 6.1, plus salary continuation payments equal to six months multiplied by the base salary per month in effect as of the date of termination, payable in equal monthly installments. Such salary continuation payments will be payable in a manner consistent with Corporation's payroll practices for management employees. 6.3 Termination Without Cause or by Executive for Good Reason. 6.3.1 Monthly Severance Payments. 5 (a) In the event that no Change in Control (as defined in Section 7) has occurred and, prior to the expiration of the Term, Executive terminates his employment with Corporation for Good Reason under Section 5.4 or Corporation terminates Executive's employment with Corporation without Cause under Section 5.5, Executive will be entitled to the amounts described in Section 6.1, plus severance payments equal to twelve months multiplied by the base salary per month in effect as of the date of termination, payable in equal monthly installments (each installment, a "Monthly Severance Payment"). (b) Corporation's obligations to pay Monthly Severance Payments under this Section 6.3.1 are expressly conditioned on (i) Executive's execution of a release (in the form attached to this Agreement as Appendix 6.3.1(b), with such modifications specifically in response to changes in applicable law as counsel for Corporation determines to be reasonably necessary or desirable to ensure effective release of all claims) of any and all claims that Executive may hold through the date such release is executed against Corporation or any of its subsidiaries or affiliates, and (ii) the expiration of any applicable revocation period specified in such release without revocation of the release by Executive. (c) Monthly Severance Payments will be payable in a manner consistent with Corporation's payroll practices for management employees. (d) Executive will not be required to mitigate the Monthly Severance Payments pursuant to this Agreement by seeking other employment; provided however, that amounts payable by Corporation as Monthly Severance Payments will be reduced by compensation actually received by Executive from a new employer during the severance period described above. 6.3.2 Medical and Dental Insurance Benefits. In addition to Monthly Severance Payments, Corporation will continue to provide or will arrange to provide Executive with medical and dental insurance benefits substantially similar to those to which Executive was entitled as of the date of termination until Corporation's obligation to make Monthly Severance Payments expires; provided, however, that if Executive is employed with another employer and is eligible to receive medical and dental insurance benefits under another employer-provided plan, Corporation's obligation to provide the medical and dental benefits described in this paragraph will terminate automatically. 6.3.3 Effect of Competition. Corporation's obligation to make Monthly Severance Payments and provide medical and dental insurance benefits to Executive will terminate if Executive breaches a material provision of the noncompetition provisions of the Prior Agreement described in Section 4. 6.4 Termination For Cause or by Executive Without Good Reason. In the event that, prior to the expiration of the Term, Corporation terminates Executive's employment with Corporation for Cause under Section 5.3, or Executive terminates his employment with Corporation for other than Good Reason under Section 5.6, Corporation's obligations under this Agreement will cease and Executive will be entitled to that portion of his base salary and 6 employment benefits for which he is qualified as of the date of termination and Executive will not be entitled to any other compensation or consideration. 7. EFFECT OF CHANGE IN CONTROL 7.1 Definitions. "Change in Control". For purposes of this Agreement, a "Change in Control" will be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs: (a) Any "person" (as that term is defined in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of Corporation, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Corporation representing 30 percent or more of the combined voting power of Corporation's then outstanding securities; (b) A majority of the directors elected at any annual or special meeting of shareholders are not individuals nominated by Corporation's then incumbent Board; or (c) The shareholders of Corporation approve a merger or consolidation of Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of Corporation outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51 percent of the combined voting power of the voting securities of Corporation or of such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Corporation approve a plan of complete liquidation of Corporation or an agreement for the sale or disposition by Corporation of all or substantially all of its assets. "Other Payment" means any payment or benefit payable to Executive in connection with a Change in Control of Corporation pursuant to any plan, arrangement, or agreement (other than this Agreement) with Corporation, a person whose actions result in such Change in Control, or any person affiliated with Corporation or such person. "Total Payments" means all payments or benefits payable to Executive in connection with a Change in Control, including Change in Control Payments pursuant to this Agreement and any Other Payments pursuant to any other plan, agreement, or arrangement with Corporation, a person whose actions result in the Change in Control, or any person affiliated with Corporation or such person. 7.2 Compensation Upon Termination Following a Change in Control. 7 7.2.1 Change in Control Payments. In the event of Corporation's termination of Executive without Cause, or Executive's termination of employment with Corporation for Good Reason, at any time following a Change in Control during the Term of this Agreement (as extended pursuant to Section 1.2), Executive will be entitled to the following payments (the "Change in Control Payments"): (a) A lump sum severance payment equal to the sum of Executive's annual base salary as in effect immediately before the Change in Control plus Executive's bonus compensation for the most recent fiscal year ended prior to the Change in Control; (b) Continuation for a period of one year following such termination of Executive's participation in all Benefit Plans in which Executive was entitled to participate immediately before the Change in Control, provided that such continued participation is possible under the general terms and provisions of such Benefit Plans. In the event Executive's continued participation in any Benefit Plan is barred by the provisions of the Benefit Plan, Corporation will arrange to provide Executive with benefits substantially similar to those which Executive was entitled to receive under the Benefit Plan. 7.2.2 Reduction. In the event that any portion of the Total Payments payable to Executive in connection with a Change in Control of Corporation would constitute an "excess parachute payment" within the meaning of IRC ss. 280G(b) that is subject to the excise tax imposed on so-called excess parachute payments pursuant to IRC ss.4999 (an "Excise Tax"), the Change in Control Payments otherwise payable under this Section 7.2.1 will be reduced to avoid such Excise Tax if, and to the extent that, such reduction will result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income and excise taxes. 7.2.3 Application. For purposes of this Section 7.2: (a) No portion of the Total Payments, the receipts or enjoyment of which Executive has effectively waived in writing prior to the date of payment of any Change in Control Payments, will be taken into account; (b) No portion of the Total Payments will be taken into account which, in the opinion of tax counsel selected by Corporation and reasonably acceptable to Executive ("Tax Counsel"), does not constitute a "parachute payment" within the meaning of IRC ss. 280G; (c) If Executive and Corporation disagree whether any payment of Change in Control Payments will result in an Excise Tax or whether a reduction in any Change in Control Payments will result in a larger after-tax benefit to Executive, the matter will be conclusively resolved by an opinion of Tax Counsel; (d) Executive agrees to provide Tax Counsel with all financial information necessary to determine the after-tax consequences of payments of Change in Control Payments for purposes of determining whether, or to what 8 extent, Change in Control Payments are to be reduced pursuant to Section 7.2.2; and (e) The value of any noncash benefit or any deferred payment or benefit included in the Total Payments, and whether or not all or a portion of any payment or benefit is a "parachute payment" for purposes of this Section 7.2, will be determined by Corporation's independent accountants in accordance with the principles of IRC ss. 280(G)(d)(3) and (4). 7.2.4 Effect on Other Agreements. In the event that any other agreement, plan, or arrangement providing for Other Payments (an "Other Agreement") has a provision that requires a reduction in the Other Payment governed by such Other Agreement to avoid or eliminate an "excess parachute payment" for purposes of IRC ss. 280G, the reduction in Change in Control Payments pursuant to Section 7.2.2 will be given effect before any reduction in the Other Payment pursuant to the Other Agreement. To the extent possible, Corporation and Executive agree that reductions in benefits under any plan, program, or arrangement of Corporation will be reduced (only to the extent described in Section 7.2.2) in the following order of priority: (a) Change in Control Payments under this Agreement; (b) Benefit Plan benefit continuation pursuant to Section 7.2.1(b); and (c) The acceleration in the exercisability of any stock option or other stock related award granted by Corporation. 8. REMEDIES The respective rights and duties of Corporation and Executive under this Agreement are in addition to, and not in lieu of, those rights and duties afforded to and imposed upon them by law or at equity. Executive acknowledges that any breach or threatened breach of Sections 3 or 4 of this Agreement will cause irreparable harm to Corporation and that any remedy at law would be inadequate to protect the legitimate interests of Corporation. Executive agrees that Corporation will be entitled to specific performance, or to any other form of injunctive relief to enforce its rights under Sections 3 or 4 of this Agreement without the necessity of showing actual damage or irreparable harm or the posting of any bond or other security. Such remedies will be in addition to any other remedy available to Corporation at law or in equity. 9. SEVERABILITY OF PROVISIONS The provisions of this Agreement are severable, and if any provision of this Agreement is held invalid, unenforceable, or unreasonable, it will be enforced to the maximum extent permissible, and the remaining provisions of the Agreement will continue in full force and effect. 10. NONWAIVER Failure of Corporation at any time to require performance of any provision of this Agreement will not limit the right of Corporation to enforce the provision. No provision of this 9 Agreement or breach of this Agreement may be waived by either party except in writing signed by that party. A waiver of any breach of a provision of this Agreement will be construed narrowly and will not be deemed to be a waiver of any succeeding breach of that provision or a waiver of that provision itself or of any other provision. 11. NOTICES All notices required or permitted under this Agreement must be in writing and will be deemed to have been given if delivered by hand, or mailed by first-class, certified mail, return receipt requested, postage prepaid, to the respective parties as follows (or to such other address as any party may indicate by a notice delivered to the other parties hereto): (i) if to Executive, to his residence as listed in Corporation's records, and (ii) if to Corporation, to the address of the principal office of Corporation, at: One Airport Center 7700 N.E. Ambassador Place Portland, Oregon 97220 12. ATTORNEY FEES In the event of any suit or action or arbitration proceeding to enforce or interpret any provision of this Agreement (or which is based on this Agreement), the prevailing party will be entitled to recover, in addition to other costs, the reasonable attorney fees incurred by the prevailing party in connection with such suit, action, or arbitration, and in any appeal therefrom. The determination of who is the prevailing party and the amount of reasonable attorney fees to be paid to the prevailing party will be decided by the arbitrator or arbitrators (with respect to attorney fees incurred prior to and during the arbitration proceedings) and by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided, including the court which hears any exceptions made to an arbitration award submitted to it for confirmation as a judgment (with respect to attorney fees incurred in such confirmation proceedings). 13. GOVERNING LAW This Agreement will be construed in accordance with the laws of the state of Oregon, without regard to any conflicts of laws rules. Any suit or action arising out of or in connection with this Agreement, or any breach of this Agreement, must be brought and maintained in the Circuit Courts of the State of Oregon. The parties hereby irrevocably submit to the jurisdiction of such court for the purpose of such suit or action and hereby expressly and irrevocably waive, to the fullest extent permitted by law, any claim that any such suit or action has been brought in an inconvenient forum. 14. GENERAL TERMS AND CONDITIONS This Agreement constitutes the entire understanding of the parties relating to the employment of Executive by Corporation, and supersedes and replaces all written and oral agreements heretofore made or existing by and between the parties relating thereto. Executive acknowledges that he has read and understood all of the provisions of this Agreement, that the restrictions contained in Section 4 of this Agreement are reasonable and necessary for the 10 protection of Corporation's business and that Executive entered into this contract in connection with a bona fide advancement of Executive with Corporation in that Executive was granted a long-term employment contract. This Agreement will inure to the benefit of any successors or assigns of Corporation. All captions used in this Agreement are intended solely for convenience of reference and will in no way limit any of the provisions of this Agreement. The parties have executed this Employment Agreement as of the date stated above. RENTRAK CORPORATION /s/ Timothy J. Erwin By: F. Kim Cox Timothy J. Erwin Title: President 11 APPENDIX 2.2.2 COMMISSION BONUS PROGRAM Fiscal Year Ending March 31, 2004 1. Terminology. Capitalized terms not otherwise defined in this Appendix or the Agreement have the meanings set forth in paragraph 5. 2. Quarterly Bonuses. On or before each of July 31, 2003, October 30, 2003, and January 31, 2004, subject to the overall limitations of paragraph 4, Corporation will pay Executive a Quarterly Bonus equal to the sum of (a) $2,500 and (b) 0.001% of the Excess Quarterly Revenues for the preceding fiscal quarter (ending June 30, September 30, and December 31, 2003 respectively). 3. Annual Bonus. On or before June 30, 2004, subject to the overall limitations of paragraph 4, Corporation will pay Executive an Annual Bonus equal to the excess (if any) over the aggregate amounts previously paid as Quarterly Bonuses pursuant to paragraph 2 of the sum of (a) $10,000 plus (b) 0.003% of the Excess Annual Revenues for the fiscal year ending March 31, 2004. 4. Overall Limitation. In no event will the aggregate of Quarterly Bonuses and Annual Bonus payable to Executive for the Plan Year exceed $50,000. If Qualified Revenues exceed $* million for the Plan Year, Corporation's Compensation Committee may, in its sole discretion, consider payment of an additional bonus. 5. Subsequent Fiscal Years. As provided in Section 2.2.1 of Participant's Employment Agreement, for periods following Corporation's fiscal year ending March 31, 2004, Participant will participate in Corporation's Annual Incentive Compensation Plan. 6. Definitions. For purposes of this program: "Annual Bonus" means the bonus payable pursuant to paragraph 3. "Benchmark Amount" means an amount equal to * "Excess Annual Revenues" means Corporation's Qualified Revenues for the Plan Year in excess of the Benchmark Amount. "Excess Quarterly Revenues" means, for each of the fiscal quarters ending June 30, September 30, and December 31, 2003, Corporation's Qualified Revenues for such quarter in excess of 25% of the Benchmark Amount. "Plan Year" means the fiscal year beginning April 1, 2003, and ending March 31, 2004. "Qualified Revenues" means the following categories of Corporation's revenues from video leasing activities; (a) Order processing fees; (b) Transaction fees; 1 (c) Sell-through fees; (d) End of term fees; and (e) Data communication fees "Quarterly Bonus" means a bonus payable pursuant to paragraph 2. *Confidential portions omitted pursuant to a request for confidential treatment. 2 APPENDIX 6.3.1(b) FORM OF AGREEMENT AND RELEASE THIS AGREEMENT AND RELEASE ("Release") is made on this ___ day of _______________, 200__, by and between Rentrak Corporation, an Oregon corporation ("Corporation") and _______________("Executive"). Corporation and Executive agree as follows: 1. Payment to Executive. (a) Upon the execution of this Release, and after expiration of the revocation period specified in Section 9 of this Release, Corporation will commence payment of the applicable Monthly Severance Payments described in Section 6 of Executive's Employment Agreement dated __________, 2002 (the "Employment Agreement"), less normal deductions and withholdings. (b) Executive specifically acknowledges and agrees that Corporation has paid Executive all wages and other compensation and benefits to which Executive is entitled except those described in Paragraph 1(a) of this Release and that the execution of this Release (and compliance with the noncompetition provisions of Section 4 of the Employment Agreement) are conditions precedent to Corporation's obligation to make the Monthly Severance Payments. 2. Release by Executive. Executive hereby completely releases and forever discharges Corporation and each of its past, present, and future parent and subsidiary corporations and affiliates and each of their respective past, present, and future shareholders, officers, directors, agents, employees, insurers, successors, and assigns (collectively, the "Released Parties"), from any and all claims, liabilities, demands, and causes of action of any kind, whether statutory or common law, in tort, contract, or otherwise, in law or in equity, and whether known or unknown, foreseen or unforeseen, in any way arising out of, concerning, or related to, directly or indirectly, Executive's employment with Corporation, including, but not limited to, the termination of Executive's employment based on any act or omission on or prior to the effective date of this Release, but not including any claim for workers' compensation or unemployment insurance benefits. Without limiting the generality of the foregoing, this release specifically includes, but is not limited to, a release of claims arising under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act; the Worker Adjustment and Retraining Notification Act; and ORS chapters 652, 653, and 659A, and any amendments to any of such laws. 3. Return of Corporation Property. Executive represents and warrants that Executive has returned to Corporation all property belonging to Corporation, including, but not limited to, all documents or other media containing confidential or proprietary information of Corporation (including without limitation customer, 1 production, and pricing information), and all Corporation credit cards, keys, cellular telephones, and computer hardware and software. 4. No Liability or Wrongdoing. Corporation specifically denies any liability or wrongdoing whatsoever. Neither this Release nor any of its provisions, terms, or conditions constitute an admission of liability or wrongdoing or may be offered or received in evidence in any action or proceeding as evidence of an admission of liability or wrongdoing. 5. Severability. If any provision of this Release is found by any court to be illegal or legally unenforceable for any reason, the remaining provisions of this Release will continue in full force and effect. 6. Attorney Fees. If any action is brought to interpret or enforce this Release or any part of it, the prevailing party will be entitled to recover from the other party its reasonable attorney fees and costs incurred therein, including all attorney fees and costs on any appeal or review. 7. Choice of Law. This Release will be governed by the laws of the state of Oregon, without regard to its principles of conflicts of laws. 8. Consideration of Agreement. Executive acknowledges that Corporation has advised him in writing to consult with an attorney before signing this Release and that he has been given at least 21 days to consider whether to execute this Release. For purposes of this 21-day period, Executive acknowledges that this Release was delivered to him on ________, 20__, that the 21-day period will expire ___________, 20__, and that he may have until that date to consider the Release. 9. Revocation. Executive may revoke this Release by written notice, delivered to ___________ within seven days following his date of signature as set forth below. This Release becomes effective and enforceable after such seven-day period has expired. 10. Knowing and Voluntary Agreement. Executive acknowledges and agrees that: (a) the only consideration for this Release is the consideration expressly described in this document; (b) he has carefully read the entire Release; (c) he has had the opportunity to review this Release and to have it reviewed and explained to him by an attorney of his choosing; (d) he fully understands the final and binding 2 effect; and (e) he is signing this Release voluntarily and with the full intent of releasing Corporation from all claims. 11. Miscellaneous. The benefits of this Release will inure to the successors and assigns of the parties. This is the entire agreement between Executive and Corporation regarding the subject matter of this Release and neither party has relied on any representation or statement, written or oral, that is not set forth in this Release. Executive represents and warrants that Executive has not assigned any claim that Executive may have against the Released Parties to any person or entity. RENTRAK CORPORATION By: --------------------------------- ---------------------------------- Title: ------------------------------ Date: Date: ------------------------------- ---------------------------------- STATE OF ___________________ ) ) SS COUNTY OF __________________ ) This instrument was acknowledged before me on __________, 20___, by _______ 3 EX-10 8 rcex10-4.txt *Portions of this exhibit are considered confidential by the Registrant and have been omitted from filing and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. EMPLOYMENT AGREEMENT This Employment Agreement is entered into effective as of November 1, 2002, by and between Christopher E. Roberts ("Executive") and RENTRAK CORPORATION, an Oregon corporation (the "Corporation"). 1. SERVICES 1.1 Employment Position. Corporation agrees to employ Executive as Vice President, Sales, and Executive accepts such employment, under the terms and conditions of this Agreement. 1.2 Term. The term of this Agreement (the "Term") commences on November 1, 2002, and will expire October 31, , 2005. Notwithstanding the foregoing, in the event of a Change in Control of Corporation, as defined in Section 7 of this Agreement, during the Term of this Agreement, the Term will automatically be extended to December 31 of the second calendar year following the year in which the Change in Control occurs. 1.3 Duties. During the Term, Executive will serve in an executive capacity as Vice President, Sales. Executive will report directly to Corporation's President. Executive will be responsible for direction and supervision of all store sales activities on behalf of Corporation and such other or different duties on behalf of Corporation as may be assigned from time to time by Corporation's President, Chief Executive Officer, or Board of Directors (the "Board"). Executive will do such traveling as may be required in the performance of his duties under this Agreement. 1.4 Outside Activities. During his employment under this Agreement, Executive will devote his full business time, energies, and attention to the business and affairs of Corporation, and to the promotion and advancement of its interests. Executive will perform his services faithfully, competently, and to the best of his abilities and will not engage in professional or personal business activities that may require an appreciable portion of Executive's time or effort to the detriment of Corporation's business. 1.5 Application of Corporate Policies. Executive will, except as otherwise provided in this Agreement, be subject to Corporation's rules, practices, and policies applicable generally to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board. 2. COMPENSATION AND EXPENSES 2.1 Base Salary. As compensation for services under this Agreement, Corporation will pay to Executive a base salary of $170,000 per year, payable in a manner consistent with Corporation's payroll practices for management employees, as such practices may be revised from time to time. Annually, during the Term, Corporation's Compensation Committee (the "Committee") will review Executive's performance, the performance of Corporation, and Corporation's economic prospects for the coming year, and will consider in its sole discretion whether to increase (but not decrease) the base salary payable to Executive. 1 2.2 Bonus Compensation. 2.2.1 General. Executive will participate, together with Corporation's other senior executives, in Corporation's Annual Incentive Compensation Plan under which Executive will be assigned predetermined incentive target levels and performance criteria and factors established in the discretion of the Committee and will have the opportunity to receive bonus compensation based on such criteria. 2.2.2 Fiscal 2003-2004. For the fiscal year ending March 31, 2004, in lieu of participation in the Annual Incentive Compensation Plan described above, Corporation and Executive will enter into a separate program providing Executive an opportunity to earn a commission bonus in accordance with the terms and conditions set forth on Appendix 2.2.2, based on the extent to which Corporation achieves or exceeds specified revenue goals during the fiscal year ending March 31, 2004. 2.3 Stock Options. Executive will participate, together with Corporation's other senior executives, in Corporation's 1997 Equity Participation Plan (the "Plan"). Executive will be granted options to purchase shares of Corporation's common stock and/or other awards under the Plan at the times and in the amounts determined by the Committee. All options will be subject to the provisions of the Plan. 2.4 Additional Employee Benefits Executive will receive an annual grant of 208 hours of credit (or such higher number of hours as are credited to Corporation's other senior executives) under Corporation's Personal Time Off (PTO) program. Personal time off and vacation may be taken in accordance with Corporation's rules, practices, and policies applicable to Corporation's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board or the Committee. During the Term, Executive will be entitled to any other employee benefits approved by the Board or the Committee, or available to officers and other management employees generally, including any life and medical insurance plans, 401(k) and other similar plans, and health and welfare plans, each whether now existing or hereafter approved by the Board or the Committee ("Benefit Plans"). The foregoing will not be construed to require Corporation to establish any such plans or to prevent Corporation from modifying or terminating any such Benefit Plans. 2.5 Expenses. Subject to review and approval by the chairman of Corporation's audit committee, Corporation will reimburse Executive for reasonable expenses actually incurred by Executive in connection with the business of Corporation. Executive will submit to Corporation such substantiation for such expenses as may be reasonably required by Corporation. 3. CONFIDENTIAL INFORMATION 3.1 Definition. "Confidential Information" is all nonpublic information relating to Corporation or its business that is disclosed to Executive, that Executive produces, or that Executive otherwise obtains during employment. Confidential Information also includes information received from third parties that Corporation has agreed to treat as confidential. Examples of Confidential Information include, without limitation, marketing plans, customer lists or other customer information, product design and manufacturing information, and financial 2 information. Confidential Information does not include any information that (i) is within the public domain other than as a result of disclosure by Executive in violation of this Agreement, (ii) was, on or before the date of disclosure to Executive, already known by Executive, or (iii) Executive is required to disclose in any governmental, administrative, judicial, or quasi-judicial proceeding, but only to the extent that Executive is so required to disclose and provided that Executive takes reasonable steps to request confidential treatment of such information in such proceeding. 3.2 Access to Information. Executive acknowledges that in the course of his employment he will have access to Confidential Information, that such information is a valuable asset of Corporation, and that its disclosure or unauthorized use will cause Corporation substantial harm. 3.3 Ownership. Executive acknowledges that all Confidential Information will continue to be the exclusive property of Corporation (or the third party that disclosed it to Corporation), whether or not prepared in whole or in part by Executive and whether or not disclosed to Executive or entrusted to his custody in connection with his employment by Corporation. 3.4 Nondisclosure and Nonuse. Unless authorized or instructed in advance in writing by Corporation, or required by law (as determined by licensed legal counsel), Executive will not, except as required in the course of Corporation's business, during or after his employment, disclose to others or use any Confidential Information, unless and until, and then only to the extent that, such items become available to the public through no fault of Executive. 3.5 Return of Confidential Information. Upon request by Corporation during or after his employment, and without request upon termination of employment pursuant to this Agreement, Executive will deliver immediately to Corporation all written, stored, saved, or otherwise tangible materials containing Confidential Information without retaining any excerpts or copies. 3.6 Duration. The obligations set forth in this Section 3 will continue beyond the term of employment of Executive by Corporation and for so long as Executive possesses Confidential Information. 3.7 Effect of Prior Agreement. Executive acknowledges that the provisions of this Section 3 are in addition to and do not supersede the provisions of that Employee Confidentiality Agreement (the "Prior Agreement") between Corporation and Executive dated effective June 17, 1992, and that the Prior Agreement remains in full force and effect. 4. NONCOMPETITION 4.1 Competitive Entity. For purposes of this Agreement, a Competitive Entity is any firm, corporation, partnership, limited liability company, business trust, or other entity that is engaged in all or any of the following business activities: (a) The wholesale and/or revenue sharing physical or electronic distribution of home entertainment software in any media, including without 3 limitation video cassettes, DVDs, video games, and PC software ("Entertainment Software"); (b) The fulfillment, warehouse, or distributing business in connection with the Entertainment Software industry; (c) The collection, aggregation, tracking, and dissemination of market information and data (such as sales, marketing, inventory, occurrence, expenditure, and advertising data) related to consumer activity in various industries including, but not limited to, the entertainment industry; (d) The delivery of technological intelligence, industry analysis, and strategic and tactical guidance with respect to consumer activity in various industries including, but not limited to the entertainment industry; or (e) Any business directly competitive with a business then engaged in by Corporation or identified in Corporation's three-year business plan. 4.2 Covenant. During the Term and for a period ending on the last day of the applicable Noncompete Period described in Section 5.7, Executive will not, within any geographical area where Corporation engages in business: (a) Directly or indirectly, alone or with any individual, partnership, limited liability company, corporation, or other entity, become associated with, render services to, invest in, represent, advise, or otherwise participate in any Competitive Entity; provided, however, that nothing contained in this Section 4.2 will prevent Executive from owning less than 5 percent of any class of equity or debt securities listed on a national securities exchange or market, provided such involvement is solely as a passive investor; (b) Solicit any business on behalf of a Competitive Entity from any individual, firm, partnership, corporation, or other entity that is a customer of Corporation during the 12 months immediately preceding the date Executive's employment with Corporation is terminated; or (c) Employ or otherwise engage, or offer to employ for Executive or any other person, entity, or corporation, the services or employment of any person who has been an employee, sales representative, or agent of Corporation during the 12 months preceding the date Executive's employment with Corporation is terminated. For purposes of this Section 4, "Corporation" means Corporation and its subsidiaries (whether now existing or subsequently created) and their successors and assigns. 4.3 Severability; Reform of Covenant. If, in any judicial proceeding, a court refuses to enforce this covenant not to compete because it covers too extensive a geographic area, is too long in its duration, or for any other reason, the parties intend that it be reformed and enforced to the maximum extent permitted under applicable law. 4 5. TERMINATION Executive's employment under this Agreement will terminate prior to the end of the Term as follows: 5.1 Death. Executive's employment will terminate automatically upon the date of Executive's death. 5.2 Disability. Company may, at its option, terminate Executive's employment under this Agreement upon written notice to Executive if Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of his position, with reasonable accommodation, required of him under this Agreement for a continuous period of 120 days or any 180 days within any 12-month period. 5.3 Termination by Corporation for Cause. Corporation may terminate Executive's employment under this Agreement for Cause at any time. For purposes of this Agreement, "Cause" means: (a) a material breach of this Agreement by Executive; (b) Executive's refusal, failure, or inability to comply with the general policies or standards of Corporation or to perform any job duties of Executive; (c) any act of fraud by Executive, (d) any act of dishonesty by Executive involving Corporation or its business; (e) Executive's conviction of or a plea of nolo contendere to a felony; or (f) the commission of any act in direct or indirect competition with or materially detrimental to the best interests of Corporation that is in breach of Executive's fiduciary duties to Corporation; provided that Cause will not include any actions or circumstances constituting Cause under (a) or (b) above if Executive cures such actions or circumstances within 30 days of receipt of written notice from Corporation setting forth the actions or circumstances constituting Cause. 5.4 Termination by Executive for Good Reason. Executive may terminate his employment with Corporation under this Agreement for "Good Reason" if Corporation has not cured the actions or circumstances which are the basis for such termination within 30 days following receipt by the Board of written notice from Executive setting forth the actions or circumstances constituting Good Reason. For purposes of this Agreement, "Good Reason" means: (a) Failure of Corporation to comply with the terms of this Agreement; or (b) The occurrence (without Executive's express written consent) of any of the following acts by Corporation or failures by Corporation to act: (i) A substantial adverse alteration in the nature or status of Executive's title, position, duties, or reporting responsibilities as an executive of Corporation; (ii) A reduction in Executive's base salary as set forth in this Agreement or as the base salary may be increased from time to time; 5 (iii) The failure by Corporation to continue to provide Executive with benefits and participation in Benefit Plans made available by Corporation to its senior executives; or (iv) The relocation of Corporation's executive offices at which Executive is to provide services to a location more than 35 miles from its current location on N.E. Ambassador Place in Portland, Oregon. 5.5 Termination by Corporation Without Cause. Corporation may terminate Executive's employment with Corporation without Cause at any time by written notice to Executive. 5.6 Termination by Executive Without Good Reason. Executive may terminate Executive's employment with Corporation other than for Good Reason at any time by written notice to the Secretary of the Corporation. 5.7 Applicable Noncompete Periods upon Termination. The duration of Executive's obligations under Section 4 (the "Noncompete Period") will be as follows: 5.7.1 In the event Executive terminates his employment with Corporation for Good Reason under Section 5.4 or Corporation terminates Executive's employment with Corporation without Cause under Section 5.5, the Noncompete Period will continue so long as Executive receives Monthly Severance Payments under Section 6.2. Executive's obligations under this Agreement will terminate immediately if Corporation fails to make a Monthly Severance Payment within 15 days after it is due. For this purpose, a check for a Monthly Severance Payment mailed within such 15-day period (as evidenced by official postmark) will be deemed to be made within such 15-day period. 5.7.2 Subject to optional extension by Corporation as provided below, in the event Executive terminates his employment with Corporation other than for Good Reason under Section 5.6 or Executive's employment with Corporation terminates due to the expiration of the Term, the Noncompete Period will be through the date of termination. Corporation may in its sole discretion extend the Noncompete Period for a period not to extend beyond 24 months from the date the Noncompete Period would otherwise expire by agreeing to make Monthly Severance Payments to Executive during the extended Noncompete Period. To extend the Noncompete Period, Corporation must give Executive written notice (an "Extension Notice") no later than 60 days following the date of termination, stating the elected duration of the extended Noncompete Period. The Extension Notice will constitute a binding commitment by Corporation to make Monthly Severance Payments for the full duration of the extended Noncompete Period and no further extension of the Noncompete Period will be permitted. Executive's obligations under this Agreement will terminate immediately if Corporation fails to make a Monthly Severance Payment within 15 days after it is due. 5.7.3 In the event Corporation terminates Executive's employment for Cause, the Noncompete Period will be through the date of termination. 6. COMPENSATION UPON TERMINATION 6 6.1 Death, Disability, or Expiration of Term. Upon termination of Executive's employment pursuant to Section 5.1, Section 5.2, or due to the Expiration of the Term, all obligations of Corporation under this Agreement will cease, except that Executive will be entitled to: (a) Accrued base salary through the date of Executive's termination of employment; (b) A prorated portion of the bonus described in Section 2.2 (not less than a pro rata portion of the minimum bonus described in that Section); (c) Other benefits under Benefit Plans to which Executive was entitled upon such termination of employment in accordance with the terms of such Benefit Plans. 6.2 Salary Continuation Payments Upon Death or Disability. Upon termination of Executive's employment pursuant to Section 5.1 or Section 5.2, Executive will be entitled to the amounts described in Section 6.1, plus salary continuation payments equal to six months multiplied by the base salary per month in effect as of the date of termination, payable in equal monthly installments. Such salary continuation payments will be payable in a manner consistent with Corporation's payroll practices for management employees. 6.3 Termination Without Cause or by Executive for Good Reason. 6.3.1 Monthly Severance Payments. (a) In the event that no Change in Control (as defined in Section 6) has occurred and, prior to the expiration of the Term, Executive terminates his employment with Corporation for Good Reason under Section 5.4 or Corporation terminates Executive's employment with Corporation without Cause under Section 5.5, Executive will be entitled to the amounts described in Section 6.1, plus severance payments equal to twelve months multiplied by the base salary per month in effect as of the date of termination, payable in equal monthly installments (each installment, a "Monthly Severance Payment"). (b) Corporation's obligations to pay Monthly Severance Payments under this Section 6.3.1 are expressly conditioned on (i) Executive's execution of a release (in the form attached to this Agreement as Appendix 6.3.1(b), with such modifications specifically in response to changes in applicable law as counsel for Corporation determines to be reasonably necessary or desirable to ensure effective release of all claims) of any and all claims that Executive may hold through the date such release is executed against Corporation or any of its subsidiaries or affiliates, and (ii) the expiration of any applicable revocation period specified in such release without revocation of the release by Executive. (c) Monthly Severance Payments will be payable in a manner consistent with Corporation's payroll practices for management employees. 7 (d) Executive will not be required to mitigate the Monthly Severance Payments pursuant to this Agreement by seeking other employment; provided however, that amounts payable by Corporation as Monthly Severance Payments will be reduced by compensation actually received by Executive from a new employer during the severance period described above. 6.3.2 Medical and Dental Insurance Benefits. In addition to Monthly Severance Payments, Corporation will continue to provide or will arrange to provide Executive with medical and dental insurance benefits substantially similar to those to which Executive was entitled as of the date of termination until Corporation's obligation to make Monthly Severance Payments expires; provided, however, that if Executive is employed with another employer and is eligible to receive medical and dental insurance benefits under another employer-provided plan, Corporation's obligation to provide the medical and dental benefits described in this paragraph will terminate automatically. 6.3.3 Effect of Competition. Corporation's obligation to make Monthly Severance Payments and provide medical and dental insurance benefits to Executive will terminate if Executive breaches a material provision of the noncompetition provisions of the Prior Agreement described in Section 4. 6.4 Termination For Cause or by Executive Without Good Reason. In the event that, prior to the expiration of the Term, Corporation terminates Executive's employment with Corporation for Cause under Section 5.3, or Executive terminates his employment with Corporation for other than Good Reason under Section 5.6, Corporation's obligations under this Agreement will cease and Executive will be entitled to that portion of his base salary and employment benefits for which he is qualified as of the date of termination and Executive will not be entitled to any other compensation or consideration. 7. EFFECT OF CHANGE IN CONTROL 7.1 Definitions. "Change in Control". For purposes of this Agreement, a "Change in Control" will be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs: (a) Any "person" (as that term is defined in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of Corporation, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Corporation representing 30 percent or more of the combined voting power of Corporation's then outstanding securities; (b) A majority of the directors elected at any annual or special meeting of shareholders are not individuals nominated by Corporation's then incumbent Board; or 8 (c) The shareholders of Corporation approve a merger or consolidation of Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of Corporation outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51 percent of the combined voting power of the voting securities of Corporation or of such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Corporation approve a plan of complete liquidation of Corporation or an agreement for the sale or disposition by Corporation of all or substantially all of its assets. "Other Payment" means any payment or benefit payable to Executive in connection with a Change in Control of Corporation pursuant to any plan, arrangement, or agreement (other than this Agreement) with Corporation, a person whose actions result in such Change in Control, or any person affiliated with Corporation or such person. "Total Payments" means all payments or benefits payable to Executive in connection with a Change in Control, including Change in Control Payments pursuant to this Agreement and any Other Payments pursuant to any other plan, agreement, or arrangement with Corporation, a person whose actions result in the Change in Control, or any person affiliated with Corporation or such person. 7.2 Compensation Upon Termination Following a Change in Control. 7.2.1 Change in Control Payments. In the event of Corporation's termination of Executive without Cause, or Executive's termination of employment with Corporation for Good Reason, at any time following a Change in Control during the Term of this Agreement (as extended pursuant to Section 1.2), Executive will be entitled to the following payments (the "Change in Control Payments"): (a) A lump sum severance payment equal to the sum of Executive's annual base salary as in effect immediately before the Change in Control plus Executive's bonus compensation for the most recent fiscal year ended prior to the Change in Control; (b) Continuation for a period of one year following such termination of Executive's participation in all Benefit Plans in which Executive was entitled to participate immediately before the Change in Control, provided that such continued participation is possible under the general terms and provisions of such Benefit Plans. In the event Executive's continued participation in any Benefit Plan is barred by the provisions of the Benefit Plan, Corporation will arrange to provide Executive with benefits substantially similar to those which Executive was entitled to receive under the Benefit Plan. 7.2.2 Reduction. In the event that any portion of the Total Payments payable to Executive in connection with a Change in Control of Corporation would constitute an "excess parachute payment" within the meaning of IRC ss. 280G(b) that is subject to the 9 excise tax imposed on so-called excess parachute payments pursuant to IRC ss.4999 (an "Excise Tax"), the Change in Control Payments otherwise payable under this Section 7.2.1 will be reduced to avoid such Excise Tax if, and to the extent that, such reduction will result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income and excise taxes. 7.2.3 Application. For purposes of this Section 7.2: (a) No portion of the Total Payments, the receipts or enjoyment of which Executive has effectively waived in writing prior to the date of payment of any Change in Control Payments, will be taken into account; (b) No portion of the Total Payments will be taken into account which, in the opinion of tax counsel selected by Corporation and reasonably acceptable to Executive ("Tax Counsel"), does not constitute a "parachute payment" within the meaning of IRC ss. 280G; (c) If Executive and Corporation disagree whether any payment of Change in Control Payments will result in an Excise Tax or whether a reduction in any Change in Control Payments will result in a larger after-tax benefit to Executive, the matter will be conclusively resolved by an opinion of Tax Counsel; (d) Executive agrees to provide Tax Counsel with all financial information necessary to determine the after-tax consequences of payments of Change in Control Payments for purposes of determining whether, or to what extent, Change in Control Payments are to be reduced pursuant to Section 7.2.2; and (e) The value of any noncash benefit or any deferred payment or benefit included in the Total Payments, and whether or not all or a portion of any payment or benefit is a "parachute payment" for purposes of this Section 7.2, will be determined by Corporation's independent accountants in accordance with the principles of IRC ss. 280(G)(d)(3) and (4). 7.2.4 Effect on Other Agreements. In the event that any other agreement, plan, or arrangement providing for Other Payments (an "Other Agreement") has a provision that requires a reduction in the Other Payment governed by such Other Agreement to avoid or eliminate an "excess parachute payment" for purposes of IRC ss. 280G, the reduction in Change in Control Payments pursuant to Section 7.2.2 will be given effect before any reduction in the Other Payment pursuant to the Other Agreement. To the extent possible, Corporation and Executive agree that reductions in benefits under any plan, program, or arrangement of Corporation will be reduced (only to the extent described in Section 7.2.2) in the following order of priority: (a) Change in Control Payments under this Agreement; (b) Benefit Plan benefit continuation pursuant to Section 7.2.1(b); and 10 (c) The acceleration in the exercisability of any stock option or other stock related award granted by Corporation. 8. REMEDIES The respective rights and duties of Corporation and Executive under this Agreement are in addition to, and not in lieu of, those rights and duties afforded to and imposed upon them by law or at equity. Executive acknowledges that any breach or threatened breach of Sections 3 or 4 of this Agreement will cause irreparable harm to Corporation and that any remedy at law would be inadequate to protect the legitimate interests of Corporation. Executive agrees that Corporation will be entitled to specific performance, or to any other form of injunctive relief to enforce its rights under Sections 3 or 4 of this Agreement without the necessity of showing actual damage or irreparable harm or the posting of any bond or other security. Such remedies will be in addition to any other remedy available to Corporation at law or in equity. 9. SEVERABILITY OF PROVISIONS The provisions of this Agreement are severable, and if any provision of this Agreement is held invalid, unenforceable, or unreasonable, it will be enforced to the maximum extent permissible, and the remaining provisions of the Agreement will continue in full force and effect. 10. NONWAIVER Failure of Corporation at any time to require performance of any provision of this Agreement will not limit the right of Corporation to enforce the provision. No provision of this Agreement or breach of this Agreement may be waived by either party except in writing signed by that party. A waiver of any breach of a provision of this Agreement will be construed narrowly and will not be deemed to be a waiver of any succeeding breach of that provision or a waiver of that provision itself or of any other provision. 11. NOTICES 11. NOTICES All notices required or permitted under this Agreement must be in writing and will be deemed to have been given if delivered by hand, or mailed by first-class, certified mail, return receipt requested, postage prepaid, to the respective parties as follows (or to such other address as any party may indicate by a notice delivered to the other parties hereto): (i) if to Executive, to his residence as listed in Corporation's records, and (ii) if to Corporation, to the address of the principal office of Corporation, at: One Airport Center 7700 N.E. Ambassador Place Portland, Oregon 97220 12. ATTORNEY FEES In the event of any suit or action or arbitration proceeding to enforce or interpret any provision of this Agreement (or which is based on this Agreement), the prevailing party will be entitled to recover, in addition to other costs, the reasonable attorney fees incurred by the 11 prevailing party in connection with such suit, action, or arbitration, and in any appeal therefrom. The determination of who is the prevailing party and the amount of reasonable attorney fees to be paid to the prevailing party will be decided by the arbitrator or arbitrators (with respect to attorney fees incurred prior to and during the arbitration proceedings) and by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided, including the court which hears any exceptions made to an arbitration award submitted to it for confirmation as a judgment (with respect to attorney fees incurred in such confirmation proceedings). 13. GOVERNING LAW This Agreement will be construed in accordance with the laws of the state of Oregon, without regard to any conflicts of laws rules. Any suit or action arising out of or in connection with this Agreement, or any breach of this Agreement, must be brought and maintained in the Circuit Courts of the State of Oregon. The parties hereby irrevocably submit to the jurisdiction of such court for the purpose of such suit or action and hereby expressly and irrevocably waive, to the fullest extent permitted by law, any claim that any such suit or action has been brought in an inconvenient forum. 14. GENERAL TERMS AND CONDITIONS This Agreement constitutes the entire understanding of the parties relating to the employment of Executive by Corporation, and supersedes and replaces all written and oral agreements heretofore made or existing by and between the parties relating thereto. Executive acknowledges that he has read and understood all of the provisions of this Agreement, that the restrictions contained in Sections 4 and 5.7 of this Agreement are reasonable and necessary for the protection of Corporation's business and that Executive entered into this contract in connection with a bona fide advancement of Executive with Corporation in that Executive was granted a long-term employment contract. This Agreement will inure to the benefit of any successors or assigns of Corporation. All captions used in this Agreement are intended solely for convenience of reference and will in no way limit any of the provisions of this Agreement. The parties have executed this Employment Agreement as of the date stated above. RENTRAK CORPORATION /s/ Christopher E. Roberts By: /s/ F. Kim Cox Christopher E. Roberts Title: President 12 APPENDIX 2.2.2 COMMISSION BONUS PROGRAM Fiscal Year Ending March 31, 2004 1. Terminology. Capitalized terms not otherwise defined in this Appendix or the Agreement have the meanings set forth in paragraph 6. 2. Quarterly Bonuses. On or before each of July 31, 2003, October 30, 2003, and January 31, 2004, subject to the overall limitations of paragraph 4, Corporation will pay Executive a Quarterly Bonus equal to the sum of (a) $2,500 and (b) 0.001% of the Excess Quarterly Revenues for the preceding fiscal quarter (ending June 30, September 30, and December 31, 2003 respectively). 3. Annual Bonus. On or before June 30, 2004, subject to the overall limitations of paragraph 4, Corporation will pay Executive an Annual Bonus equal to the excess (if any) over the aggregate amounts previously paid as Quarterly Bonuses pursuant to paragraph 2 of the sum of (a) $10,000 plus (b) 0.003% of the Excess Annual Revenues for the fiscal year ending March 31, 2004. 4. Overall Limitation. In no event will the aggregate of Quarterly Bonuses and Annual Bonus payable to Executive for the Plan Year exceed $50,000. If Qualified Revenues exceed $* million for the Plan Year, Corporation's Compensation Committee may, in its sole discretion, consider payment of an additional bonus. 5. Subsequent Fiscal Years. As provided in Section 2.2.1 of Participant's Employment Agreement, for periods following Corporation's fiscal year ending March 31, 2004, Participant will participate in Corporation's Annual Incentive Compensation Plan. 6. Definitions. For purposes of this program: "Annual Bonus" means the bonus payable pursuant to paragraph 3. "Benchmark Amount" means an amount equal to * "Excess Annual Revenues" means Corporation's Qualified Revenues for the Plan Year in excess of the Benchmark Amount. "Excess Quarterly Revenues" means, for each of the fiscal quarters ending June 30, September 30, and December 31, 2003, Corporation's Qualified Revenues for such quarter in excess of 25% of the Benchmark Amount. "Plan Year" means the fiscal year beginning April 1, 2003, and ending March 31, 2004. "Qualified Revenues" means the following categories of Corporation's revenues from video leasing activities; (a) Order processing fees; (b) Transaction fees; 1 (c) Sell-through fees; (d) End of term fees; and (e) Data communication fees "Quarterly Bonus" means a bonus payable pursuant to paragraph 2. *Confidential portions omitted pursuant to a request for confidential treatment. 2 APPENDIX 6.3.1(b) FORM OF AGREEMENT AND RELEASE THIS AGREEMENT AND RELEASE ("Release") is made on this ___ day of _______________, 200__, by and between Rentrak Corporation, an Oregon corporation ("Corporation") and _______________("Executive"). Corporation and Executive agree as follows: 1. Payment to Executive. (a) Upon the execution of this Release, and after expiration of the revocation period specified in Section 9 of this Release, Corporation will commence payment of the applicable Monthly Severance Payments described in Section 6 of Executive's Employment Agreement dated __________, 2002 (the "Employment Agreement"), less normal deductions and withholdings. (b) Executive specifically acknowledges and agrees that Corporation has paid Executive all wages and other compensation and benefits to which Executive is entitled except those described in Paragraph 1(a) of this Release and that the execution of this Release (and compliance with the noncompetition provisions of Section 4 of the Employment Agreement) are conditions precedent to Corporation's obligation to make the Monthly Severance Payments. 2. Release by Executive. Executive hereby completely releases and forever discharges Corporation and each of its past, present, and future parent and subsidiary corporations and affiliates and each of their respective past, present, and future shareholders, officers, directors, agents, employees, insurers, successors, and assigns (collectively, the "Released Parties"), from any and all claims, liabilities, demands, and causes of action of any kind, whether statutory or common law, in tort, contract, or otherwise, in law or in equity, and whether known or unknown, foreseen or unforeseen, in any way arising out of, concerning, or related to, directly or indirectly, Executive's employment with Corporation, including, but not limited to, the termination of Executive's employment based on any act or omission on or prior to the effective date of this Release, but not including any claim for workers' compensation or unemployment insurance benefits. Without limiting the generality of the foregoing, this release specifically includes, but is not limited to, a release of claims arising under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act; the Worker Adjustment and Retraining Notification Act; and ORS chapters 652, 653, and 659A, and any amendments to any of such laws. 3. Return of Corporation Property. Executive represents and warrants that Executive has returned to Corporation all property belonging to Corporation, including, but not limited to, all documents or other media containing confidential or proprietary information of Corporation (including without limitation customer, 1 production, and pricing information), and all Corporation credit cards, keys, cellular telephones, and computer hardware and software. 4. No Liability or Wrongdoing. Corporation specifically denies any liability or wrongdoing whatsoever. Neither this Release nor any of its provisions, terms, or conditions constitute an admission of liability or wrongdoing or may be offered or received in evidence in any action or proceeding as evidence of an admission of liability or wrongdoing. 5. Severability. If any provision of this Release is found by any court to be illegal or legally unenforceable for any reason, the remaining provisions of this Release will continue in full force and effect. 6. Attorney Fees. If any action is brought to interpret or enforce this Release or any part of it, the prevailing party will be entitled to recover from the other party its reasonable attorney fees and costs incurred therein, including all attorney fees and costs on any appeal or review. 7. Choice of Law. This Release will be governed by the laws of the state of Oregon, without regard to its principles of conflicts of laws. 8. Consideration of Agreement. Executive acknowledges that Corporation has advised him in writing to consult with an attorney before signing this Release and that he has been given at least 21 days to consider whether to execute this Release. For purposes of this 21-day period, Executive acknowledges that this Release was delivered to him on ________, 20__, that the 21-day period will expire ___________, 20__, and that he may have until that date to consider the Release. 9. Revocation. Executive may revoke this Release by written notice, delivered to ___________ within seven days following his date of signature as set forth below. This Release becomes effective and enforceable after such seven-day period has expired. 10. Knowing and Voluntary Agreement. Executive acknowledges and agrees that: (a) the only consideration for this Release is the consideration expressly described in this document; (b) he has carefully read the entire Release; (c) he has had the opportunity to review this Release and to have it reviewed and explained to him by an attorney of his choosing; (d) he fully understands the final and binding 2 effect; and (e) he is signing this Release voluntarily and with the full intent of releasing Corporation from all claims. 11. Miscellaneous. The benefits of this Release will inure to the successors and assigns of the parties. This is the entire agreement between Executive and Corporation regarding the subject matter of this Release and neither party has relied on any representation or statement, written or oral, that is not set forth in this Release. Executive represents and warrants that Executive has not assigned any claim that Executive may have against the Released Parties to any person or entity. RENTRAK CORPORATION By: ---------------------- ---------------------------------- Title: ------------------- Date: Date: -------------------- ---------------------------------- STATE OF ___________________ ) ) SS COUNTY OF __________________ ) This instrument was acknowledged before me on __________, 20___, by ______ EX-10 9 rcex10-5.txt EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is entered into effective as of July 1, 2002, by and between RENTRAK CORPORATION, an Oregon corporation ("Company"), and RONALD GIAMBRA ("Executive"). RECITALS Company and Executive desire to enter into an Employment Agreement setting forth the terms and conditions of Executive's employment with Company. AGREEMENT In consideration of the mutual covenants and agreements set forth in this Agreement, Company and Executive agree as follows: 1. Employment 1.1 Term. Company agrees to employ Executive to serve as Vice-President of Company's Theatrical Operations division and to serve in such additional or different position or positions not inconsistent with that position as Company and Executive mutually agree. The term of employment will be for a period (the "Employment Period") commencing on the effective date of this Agreement and expiring June 30, 2005, unless earlier terminated as set forth in this Agreement. 1.2 Duties and Responsibilities. Executive will report directly to Christopher Aronson, Senior Vice-President of Company's Theatrical Operations Division. Executive will perform such duties on behalf of Company and its Theatrical Operations division as may be assigned from time to time by Company's Senior Vice President - Theatrical Operations. 1.3 Location. The principal locations at which Executive will perform services for Company will be at Company's Theatrical Operations office in the in Los Angeles, California, area. Executive will do such traveling as may be required from time to time in the performance of his duties under this Agreement. 1.4 Outside Activities. During his employment under this Agreement, Executive will devote his full business time, energies, and attention to the business and affairs of Company, and to the promotion and advancement of its interests. Executive will perform his services faithfully, competently, and to the best of his abilities and will not engage in professional or personal business activities that may require an appreciable portion of Executive's time or effort to the detriment of Company's business. 1 1.5 Application of Corporate Policies. Executive will, except as otherwise provided in this Agreement, be subject to Company's rules, practices, and policies applicable generally to Company's executive employees as set forth in Company's Employee Handbook, as such rules, practices, and policies may be revised from time to time by the Board. 2. Compensation 2.1 Base Salary. Executive will be paid a base salary ("Base Salary") at the annual rate of $135,000 (effective May 1, 2002). The annual Base Salary will be reviewed by the Company's Senior Vice-President-Theatrical Operations on or before April 1 of each year (commencing in 2003), unless Executive's employment has been terminated earlier pursuant to this Agreement, to determine if such Base Salary should be increased for the following year in recognition of services to Company. 2.2 Payment. Payment of all compensation to Executive will be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and will be subject to all applicable employment and withholding taxes. 2.3 Bonuses. ------- 2.3.1 Annual Bonus. Executive will participate, together with Company's other executives, in Company's discretionary annual bonus program and will be eligible to receive an annual bonus in such amounts, if any, as are determined by the Board in its discretion. 3. Other Employment Benefits 3.1 Business Expenses. Upon submission of itemized expense statements in the manner specified by Company, Executive will be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of his duties under this Agreement. Executive's travel expenses, and all other expenditures by Executive in connection with his services for Company, must be strictly in accordance with the budget for the Theatrical Operations approved by Company. Executive will have an active role in the creation and periodic revision of such budget. 3.2 Benefit Plans. Executive will be entitled to participate in Company's medical and dental plans, life and disability insurance plans, retirement plans, and other benefit plans offered by Company to its executives during the term of this Agreement (collectively the "Benefit Plans") pursuant to the respective terms and conditions of such Benefit Plans. Nothing in this Agreement will preclude Company or any affiliate of Company from terminating or amending any Benefit Plan or benefit program from time to time. 2 3.3 Personal Time Off. Executive will receive an annual grant of 208 hours of credit (or such higher number of hours as are credited to Company's other executives) under Company's Personal Time Off (PTO) program. 3.4 Stock Options. Effective May 8, 2002, Company granted Executive an option (the "Option") to purchase 10,000 shares of Company's common stock pursuant to the terms of Company's 1997 Equity Participation Plan (the "Plan"). The Option will be evidenced by a stock option agreement (the "Option Agreement") dated May 8, 2002 (the "Grant Date"), subject to the provisions of the Plan and the following terms and conditions: (a) The option purchase price is $ 5.73 per-share; (b) The Option is initially not exercisable and will vest and become exercisable in full on the first anniversary of the Grant Date; (c) The Option will not continue to vest after Executive's death, disability, or termination of employment with Company for any reason; (d) The Option will be an incentive stock option (within the meaning of Internal Revenue Code ("IRC") ss. 422); (e) The Option will become fully and immediately exercisable upon (i) a change in control of Company (as that term is defined in the Plan or in Executive's Option Agreement), (ii) any sale of all or a substantial portion of Company's business operations, (iii) a sale by Company of its Theatrical Operations business, or (4) a termination of Executive's employment by Company without Cause or by Executive for Good Reason (as those terms are defined in Section 4.3.2 and 4.5.2); and (f) The Option will be subject to such other terms and conditions as determined by Company's Compensation Committee and set forth in the Option Agreement. 4. Termination of Employment Prior to a Change in Control 4.1 Death. Upon the death of Executive during the Employment Period, this Agreement will automatically terminate and all rights of Executive and his heirs, executors and administrators to compensation and other benefits under this Agreement will cease, except that Executive's heirs, executors and administrators, as the case may be, will be entitled to: (a) Accrued Base Salary through Executive's date of death; (b) Other benefits under Benefit Plans to which Executive was entitled on Executive's date of death in accordance with the terms of such Benefit Plans, including without limitation payment for all accrued and unused Person Time Off credits; and (c) The accrued but unpaid annual bonus, if any, for any fiscal year of Company ended prior to the date of death. 3 4.2 Disability. Company may, at its option, terminate Executive's employment under this Agreement upon written notice to Executive if Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of his position, with reasonable accommodation, required of him under this Agreement for a continuous period of 120 days or any 180 days within any 12-month period. Upon such termination during the Employment Period, all obligations of the Company under this Agreement will cease, except that Executive will be entitled to: (a) Accrued Base Salary through the date of Executive's termination of employment; (b) Other benefits under Benefit Plans to which Executive was entitled upon such termination of employment in accordance with the terms of such Benefit Plans, including without limitation payment for all accrued and unused Person Time Off credits; and (c) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination. In the event of any dispute regarding the existence of Executive's incapacity or disability, the matter will be resolved by the determination of an independent physician to be selected by the Board. Executive agrees to submit to appropriate medical examinations for purposes of such determination. 4.3 Cause. 4.3.1 Termination for Cause. The Company may, at its option, terminate Executive's employment under this Agreement for Cause (as defined in Section 4.3.2). Any such termination for Cause must be authorized by the Board. At least 60 days prior to such Board authorization, Executive must be given written notice by the Board of the claimed bases for the termination of his employment for Cause and must be given the opportunity to appear before the Board, with legal representation, to present arguments and evidence on his own behalf. 4.3.2 Definition. As used in this Agreement, the term "Cause" means: (a) Commission of an act of fraud, embezzlement, or theft constituting a felony; or (b) Willful commission of an act (or failure to take an action) that is intentionally against the interest of Company and that causes Company material injury. For purposes of this Agreement, Executive will not be deemed to be terminated for Cause unless and until Company delivers to Executive a copy of a formal resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for this purpose (after reasonable notice to Executive and an opportunity for Executive, together with his legal counsel, to attend and be heard before the 4 Board) expressly finding that in the good faith opinion of the Board Executive was guilty of conduct constituting Cause as defined in this Section and specifying in detail the particulars of such conduct. 4.3.3 Effect on Other Remedies. The exercise of the right of the Company to terminate this Agreement pursuant to this Section 4.3.3 will not abrogate the rights or remedies of the Company in respect of the actions giving rise to such termination. 4.3.4 Effect of Termination for Cause. If the Company terminates Executive's employment for Cause, all obligations of the Company under this Agreement will cease, except that Executive will be entitled to the payments and benefits specified in Sections 4.2(a) and 4.2(b). 4.4 Termination Without Cause. If during the Employment Period and prior to a Change in Control (or more than two years following a Change in Control), the Board terminates the employment of Executive for any reason other than a reason set forth in Sections 4.1 (death), 4.2 (Disability), or 4.3 (Cause), all obligations of the Company under this Agreement will cease, except that Executive will be entitled to: (a) The payments and benefits specified in Sections 4.2(a) and 4.2(b); and (b) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination; and, in addition (c) Severance payments (the "Severance Payments") equal to the amounts described in either paragraph (i), (ii), or (iii) below, payable contingent on Executive's execution of a comprehensive release (in a form to be drafted by Company and its counsel) of any and all claims that Executive may hold through the date such release is executed against Company or any of its subsidiaries or affiliates. Executive will not be entitled to Severance Payments in the event the Employment Period is not extended or this Agreement is not renewed by Company. (i) In the event that, on or before the date of termination, Company has signed two of the following studios (Fox, Columbia, Disney, Paramont, MGM, Universal, or Warner) to a theatrical agreement satisfactory to Company, the Severance Payments will be equal to either (at the election of Executive, subject to the approval of Company): (A) a continuation of Executive's Base Salary for two years, payable in accordance with Company's regular payroll practices, or (B) a single lump sum cash payment equal to 18 months of Base Salary (net of applicable taxes); (ii) If paragraph (i) does not apply, the Severance Payments will be an amount equal to a continuation of Executive's Base Salary for 5 six months, payable in accordance with Company's regular payroll practices; or (iii) In the event such termination (whether paragraph (i) or paragraph (ii) would otherwise apply) is in connection with a sale or closure by Company of its Theatrical Operations business, the Severance Payments will be equal to a continuation of Executive's Base Salary, payable in accordance with Company's regular payroll practices, through the expiration of the Employment Period or the expiration of two years following the date of termination, which ever is greater. During the period that Executive is receiving Severance Payments pursuant to either paragraph (i), (ii), or (iii) of this Section 4.4(c), Company will pay (or reimburse Executive for) Executive's cost for COBRA continuation of his health insurance coverage at the same levels as he enjoyed prior to termination. 4.5 Good Reason. 4.5.1 Termination for Good Reason. Executive may terminate his employment with the Company prior to the end of the Employment Period for Good Reason (as defined in Section 4.5.2) upon 60 days prior written notice to the Company (or such shorter period as may be permitted by the Board). If Executive terminates his employment under this Agreement for Good Reason during the Employment Period and prior to a Change in Control, all obligations of the Company under this Agreement will cease, except that Executive will be entitled to: (a) The payments and benefits specified in Sections 4.2(a) and 4.2(b); (b) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination; and (c) The Severance Payments described in Section 4.4, subject to the release condition set forth in that Section. 4.5.2 Definition. As used in this Agreement, the term "Good Reason" means the occurrence, without Executive's written consent, of any one or more of the following, to the extent not cured within a reasonable period of time (not to exceed 30 days) after written notice specifying the basis for Executive's termination of employment pursuant to this Section 5(e) is given to Company by Executive: (a) Any reduction in the Base Salary of Executive; (b) Any reduction in the benefits, taken as a whole, provided to Executive pursuant to the Benefit Plans; (c) Any reduction in the Severance Payments or in the events upon which such payments are to be made to Executive under this Agreement; 6 (d) Any reduction or elimination of Executive's right to participate in Company's annual bonus program or the 1997 Equity Participation Plan (or any successor or similar annual bonus program or stock-based compensation plan); (e) Any diminution in the title or position or reporting level of Executive; or (f) Any significant diminution in the responsibilities of Executive, as set forth in this Agreement. 4.6 Voluntary Termination Other Than For Good Reason. Executive may voluntarily terminate his employment with Company prior to the end of the Employment Period for any reason other than a reason set forth in Section 4.5 upon 60 days prior written notice to the Company (or such shorter period as may be permitted by the Board). If Executive voluntarily terminates his employment pursuant to this Section 4.6, all obligations of the Company under this Agreement will cease, except that Executive will be entitled to the payments and benefits specified in Sections 4.2(a) and 4.2(b). 4.7 Cooperation. After notice of termination and prior to the effective date of termination, Executive will cooperate with Company, as reasonably requested by Company, to effect a transition of Executive's responsibilities and to ensure that Company is aware of all matters being handled by Executive. 5. Effect Of Change In Control 5.1 Definitions. "Change in Control". For purposes of this Agreement, a "Change in Control" will be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs unless the events leading to such condition have been approved by two-thirds of the directors of Company then in office: (a) Any "person" (as that term is defined in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of Company, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Company representing 25 percent or more of the combined voting power of Company's then outstanding securities; (b) A majority of the directors elected at any annual or special meeting of shareholders are not individuals nominated by Company's then incumbent Board; or (c) The shareholders of Company approve a merger or consolidation of Company with any other corporation, other than a merger or consolidation which would result in the voting securities of Company outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into 7 voting securities of the surviving entity) at least 75 percent of the combined voting power of the voting securities of Company or of such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of its assets. "Excise Tax" means a tax imposed by IRC ss. 4999(a), or any successor provision, with respect to "excess parachute payments" as described in IRC ss. 280G(b). "Other Agreement" means a plan, arrangement, or agreement pursuant to which an Other Payment is made. "Other Payment" means any payment or benefit payable to Executive in connection with a Change in Control of Company pursuant to any plan, arrangement, or agreement (other than this Agreement) with Company, a person whose actions result in such Change in Control, or any person affiliated with Company or such person. "Total Payments" means all payments or benefits payable to Executive in connection with a Change in Control, including Change in Control Payments pursuant to this Agreement and any other payments or benefits pursuant to any other plan, agreement, or arrangement with Company, a person whose actions result in the Change in Control, or any person affiliated with Company or such person. 5.2 Compensation Upon Termination Following a Change in Control. In the event of Company's termination of Executive without Cause, or Executive's termination of employment with Company for Good Reason, at any time within two years following a Change in Control during the Employment Period, Executive will be entitled to the payments described in Section 4.4; provided, however, that the Severance Payments described in Section 4.4 will be equal to a continuation of Executive's Base Salary through the expiration of two years following the date of termination. The payments and benefits payable to Executive pursuant to this Section 5.2 in connection with a Change in Control of Company are referred to as the "Change in Control Payments." 5.3 Reduction in Change in Control Payments to Avoid Excess Parachute Tax Payments. 5.3.1 Reduction. In the event that any portion of the Total Payments payable to Executive in connection with a Change in Control of Company would constitute an "excess parachute payment" within the meaning of IRC ss. 280G(b) that is subject to an Excise Tax, the Change in Control Payments otherwise payable under this Agreement will be reduced to the extent necessary to avoid such excise tax if, and only if, such reduction would result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income 8 and excise taxes, until either (i) no portion of the Total Payments are subject to such Excise Tax or (ii) the Change in Control Payments are reduced to zero. 5.3.2 Application. For purposes of this limitation: (a) No portion of the Total Payments, the receipts or enjoyment of which Executive has effectively waived in writing prior to the date of payment of any Change in Control Payments, will be taken into account; (b) No portion of the Total Payments will be taken into account which, in the opinion of tax counsel selected by Company and reasonably acceptable to Executive ("Tax Counsel"), does not constitute a "parachute payment" within the meaning of IRC ss. 280G; (c) If Executive and Company disagree whether any payment of Change in Control Payments will result in an Excise Tax or whether a reduction in any Change in Control Payments will result in a larger after-tax benefit to Executive, the matter will be conclusively resolved by an opinion of Tax Counsel; (d) Executive agrees to provide Tax Counsel with all financial information necessary to determine the after-tax consequences of payments of Change in Control Payments for purposes of determining whether, or to what extent, Change in Control Payments are to be reduced pursuant to this Section 5.3; and (e) The value of any noncash benefit or any deferred payment or benefit included in the Total Payments, and whether or not all or a portion of any payment or benefit is a "parachute payment" for purposes of this Section 5.3, will be determined by Company's independent accountants in accordance with the principles of IRC ss. 280(G)(d)(3) and (4). 5.3.3 Effect on Other Agreements. In the event that any Other Agreement has a provision that requires a reduction in the Other Payment governed by such Other Agreement to avoid or eliminate an "excess parachute payment" for purposes of IRC ss. 280G, the reduction in Change in Control Payments pursuant to this Section 5.3 will be given effect before any reduction in the Other Payment pursuant to the Other Agreement. To the extent possible, Company and Executive agree that reductions in benefits under any plan, program, or arrangement of Company will be reduced (only to the extent described in Section 5.3.1) in the following order of priority: (a) Change in Control Payments under this Agreement; (b) Benefit Plan benefit continuation; and (c) The acceleration in the exercisability of any stock option or other stock related award granted by Company. 6. No Mitigation 9 In the event Company makes payments to Executive pursuant to any provision of this Agreement following a termination of his employment relationship with Company, Executive will not be required to mitigate damages with respect to the amount of any such payments by seeking other employment or otherwise, nor will the amount of any such payments pursuant to this Agreement be reduced by any compensation earned or received by Executive as a result of employment by another employer. 7. Confidential Information 7.1 Definition. "Confidential Information" is all nonpublic information relating to Company or its business that is disclosed to Executive, that Executive produces, or that Executive otherwise obtains during employment. Confidential Information also includes information received from third parties that Company has agreed to treat as confidential. Examples of Confidential Information include, without limitation, marketing plans, customer lists or other customer information, product design and manufacturing information, and financial information. Confidential Information does not include any information that (i) is within the public domain other than as a result of disclosure by Executive in violation of this Agreement, (ii) was, on or before the date of disclosure to Executive, already known by Executive, or (iii) Executive is required to disclose in any governmental, administrative, judicial, or quasi-judicial proceeding, but only to the extent that Executive is so required to disclose and provided that Executive takes reasonable steps to request confidential treatment of such information in such proceeding. 7.2 Access to Information. Executive acknowledges that in the course of his employment he expects to have access to Confidential Information, that such information is a valuable asset of Company, and that its disclosure or unauthorized use will cause Company substantial harm. 7.3 Ownership. Executive acknowledges that all Confidential Information will continue to be the exclusive property of Company (or the third party that disclosed it to Company), whether or not prepared in whole or in part by Executive and whether or not disclosed to Executive or entrusted to his custody in connection with his employment by Company. 7.4 Nondisclosure and Nonuse. Unless authorized or instructed in advance in writing by Company, or required by law (as determined by licensed legal counsel), Executive will not, except as required in the course of Company's business, during or after his employment, disclose to others or use any Confidential Information, unless and until, and then only to the extent that, such items become available to the public through no fault of Executive. 10 7.5 Return of Confidential Information. Upon request by Company during or after his employment, and without request upon termination of employment pursuant to this Agreement, Executive will deliver immediately to Company all written, stored, saved, or otherwise tangible materials containing Confidential Information without retaining any excerpts or copies. 7.6 Duration. The obligations set forth in this Section 7 will continue beyond the term of employment of Executive by Company and for so long as Executive possesses Confidential Information. 8. Exclusive Employment During employment with Company, Executive will not do anything to compete with Company's present or contemplated business, nor will he plan or organize any competitive business activity. Executive will not enter into any agreement which conflicts with his duties or obligations to Company. Executive will not during his employment or within one year after it ends, without Company's express written consent, directly or indirectly, solicit or encourage any employee, agent, independent contractor, supplier, customer, consultant or any other person or company to terminate or alter any existing contractual relationship with Company. 9. Assignment and Transfer Executive's rights and obligations under this Agreement are not transferable by assignment or otherwise, and any purported assignment, transfer or delegation of such rights or obligations will be void. This Agreement will inure to the benefit of, and be binding upon and enforceable by, any purchaser of substantially all of Company's assets, any successor to Company or any assignee from Company or such successor. 10. No Inconsistent Obligations Executive is aware of no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with Company. Executive will not disclose to Company, or use, or induce Company to use, any proprietary information or trade secrets of others. Executive represents and warrants that he or she has returned all property and confidential information belonging to all prior employers. 11. Miscellaneous 11.1 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California without regard to conflict of law principles. 11 11.2 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties and supersedes any prior or contemporaneous written or oral agreements, representations and warranties between them respecting the subject matter of this Agreement. 11.3 Amendment. This Agreement may be amended only by a writing signed by Executive and by a duly authorized representative of Company. 11.4 Severability. If any term, provision, covenant or condition of this Agreement, or the application of any such term, provision, covenant, or condition to any person, place or circumstance, is held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances will remain in full force and effect. 11.5 Construction. The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement will be in all cases construed according to its fair meaning and not strictly for or against Company or Executive. 11.6 Rights Cumulative. The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party (or by his or its successor), whether pursuant to this Agreement, to any other agreement, or to law, will not preclude or waive its right to exercise any or all other rights and remedies. 11.7 Nonwaiver. No failure or neglect of either party in any instance to exercise any right, power or privilege under this Agreement or under law will constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party must be contained in a written instrument signed by the party to be charged and, in the case of Company, by an officer of Company (other than Executive) or other person duly authorized by Company. 11.8 Equitable Remedies for Breach. The parties agree that, in the event of breach or threatened breach of any covenants of Executive, the damage or imminent damage to the value and the goodwill of Company's business will be inestimable, and that therefore any remedy at law or in damages will be inadequate. Accordingly, the parties agree that Company will be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any of such provisions by Executive, in addition to any other relief (including damages) available to Company under this Agreement or under law. 12 11.9 Notices. Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law will be sufficient if in writing, and if and when sent by certified or registered mail, with postage prepaid, to Executive's residence (as noted in Company's records), or to Company's principal office, as the case may be. 11.10 Assistance in Litigation. Executive will, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to Company as may reasonably be required by Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become a party; provided, however, that such assistance following termination will be furnished at mutually agreeable times and for mutually agreeable compensation. 11.11 Attorneys' Fees. In the event of any suit or action or arbitration proceeding to enforce or interpret any provision of this Agreement (or which is based on this Agreement), the prevailing party will be entitled to recover, in addition to other costs, reasonable attorneys' fees in connection with such suit, action, arbitration, and in any appeal. The determination of who is the prevailing party and the amount of reasonable attorneys' fees to be paid to the prevailing party will be decided by the arbitrator or arbitrators (with respect to attorneys' fees incurred prior to and during any arbitration proceedings) and by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided, including the court which hears any exceptions made to an arbitration award submitted to it for confirmation as a judgment (with respect to attorneys' fees incurred in any such judicial proceedings). The parties have duly executed this Agreement effective as of July 1, 2002. RENTRAK CORPORATION EXECUTIVE: By ---------------------------- -------------------------------- Name: Ronald Giambra ------------------------ Title: ----------------------- -----END PRIVACY-ENHANCED MESSAGE-----