-----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, E2lBoCU8UY/soNdM06owv4THcdIhxdyGRNn4tovp2C37TZQIjhEZydOKvUXwxUfl hPmib7wCfxh5wt1WSP8/+Q== 0000892917-01-500015.txt : 20010702 0000892917-01-500015.hdr.sgml : 20010702 ACCESSION NUMBER: 0000892917-01-500015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 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-K SEC ACT: SEC FILE NUMBER: 000-15159 FILM NUMBER: 1670792 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-K 1 body.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [ X ]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for fiscal year ended March 31, 2001 or [ ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-15159 RENTRAK CORPORATION (exact name of registrant as specified in its charter) Oregon 93-0780536 (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification Number) 7700 NE Ambassador Place, Portland, Oregon 97220 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (503) 284-7581 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock $.001 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K [ ] As of June 20, 2001, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant, based on the last sales price as reported by NASDAQ, was $37,967,894. As of June 20, 2001, the Registrant had 12,292,605 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 2001 ANNUAL MEETING OF THE SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K TABLE OF CONTENTS Item PART I Page - ---- ---- 1. Business 3 2. Properties 9 3. Legal Proceedings 9 4. Submission of Matters to a Vote of Security Holders 11 PART II 5. Market for Registrant's Common Equity and Related 11 Stockholder Matters 6. Selected Financial Data 13 7. Management's Discussion and Analysis of Financial 14 Condition and Results of Operations 7A. Quantitative and Qualitative Disclosures About Market 23 Risk 8. Financial Statements and Supplementary Data 24 9. Changes in and Disagreements with Accountants on 52 Accounting and Financial Disclosure PART III 10. Directors and Executive Officers of the Registrant 52 11. Executive Compensation 52 12. Security Ownership of Certain Beneficial Owners 52 and Management 13. Certain Relationships and Related Transactions 52 PART IV 14. Exhibits, Financial Statement Schedules and Reports on 53 Form 8-K -2- PART I ITEM 1. BUSINESS GENERAL The Company's primary business is the collection and processing of rental and sales information regarding videocassettes leased to home video specialty stores and other retailers by way of its Pay Per Transaction system (the "PPT System"). Under the Company's PPT System, home video specialty stores and other retailers that rent videocassettes to consumers ("Retailers"), including grocery stores and convenience stores, lease videocassettes and other media ("Cassettes") from Rentrak for a low up-front fee and share a portion of each retail rental transaction with the Company. The Company's PPT System generated 71 percent, 82 percent and 86 percent of total revenues in fiscal years 2001, 2000 and 1999, respectively. The Company engages in additional lines of business through the following subsidiaries: 3PF.COM, Inc. (formerly ComAlliance), provides order processing, inventory management, and fulfillment services to Internet retailers and wholesalers and to other businesses requiring just-in-time fulfillment. 3PF.COM, Inc.'s Web-site can be accessed at www.3PF.COM. BlowOut Video, Inc., sells videocassettes and digital videodiscs through its Web-site www.blowoutvideo.com, and through seven retail outlets. PAY-PER-TRANSACTION SYSTEM The Company distributes Cassettes principally to home video specialty stores through its PPT System. The PPT System enables Retailers to obtain Cassettes at a significantly lower initial cost than if they purchased the Cassettes from traditional video distributors. Under the PPT System, after the Retailer is approved for participation in the PPT System, Cassettes are leased to the Retailer for a low initial fee (the "Order Processing Fee") plus a percentage of revenues generated by the Retailer from rentals to consumers (the "Transaction Fee"). The Company retains a portion of each Order Processing Fee and Transaction Fee and remits the remainder to the appropriate motion picture studios or other licensees or owners of the rights to certain video programming ("Program Suppliers") that hold the distribution rights to the Cassettes. Due to the lower cost of "bringing Cassettes in the door", Retailers generally obtain a higher number of Cassettes under the PPT System than the traditional distribution method. The expected benefit to the Retailer is a higher volume of rental transactions, as well as a reduction in capital cost and risk. The expected benefit to the Program Supplier is an increase in the total number of Cassettes shipped, resulting in increased revenues and opportunity for profit. The expected benefit to the consumer is the potential of finding more copies of certain newly released hit titles and a greater selection of other titles at Retailers participating -3- in the PPT System ("Participating Retailers"). The Company markets its PPT System throughout the United States, Canada and the United Kingdom. Following the sale of a 5.6 percent interest in Rentrak Japan Co. Ltd. ("Rentrak Japan"),in April, 2001, the Company also owns a 3.4 percent interest in Rentrak Japan a Japanese corporation which markets a similar service to video retailers in Japan. Rentrak has the right, and upon the occurrence of certain conditions will be required, to sell its remaining 3.4 percent interest in Rentrak Japan for a minimum of approximately $2.4 million. In February 1998, the Company entered into a Shareholders Agreement and a PPT License Agreement with Columbus Holdings Limited and Rentrak UK Limited to develop the Company's PPT distribution and information processing business in the United Kingdom through Rentrak UK. The Company presently owns a 92 percent equity interest in Rentrak UK. As of March 31, 2000, Rentrak UK was not generating income or positive cash flow and the Company's investment of $222,000 was written off. As of March 31, 2001, Rentrak UK continued to generate no income or cash flow. Management of the Company has made changes to decrease the cost of operations, including space and staffing costs, and it is continuing to closely evaluate the financial performance of operations. Management is considering various alternatives including selling or closing down Rentrak UK's operations. 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., and Twentieth Century Fox Home Entertainment (formerly Fox Video), a subsidiary of Twentieth Century Fox Film Corporation. The Company's arrangements with Program Suppliers are of varying duration, scope and formality. In some cases, the Company has obtained Cassettes pursuant to contracts or arrangements with Program Suppliers on a title-by-title basis and in other cases the contracts or arrangements provide that all titles released for distribution by such Program Supplier will be provided to the Company for the PPT System. Many of the Company's agreements with Program Suppliers, including all major Program Suppliers, may be terminated upon relatively short notice. Therefore, there can be no assurance that any of the Program Suppliers will continue to distribute Cassettes through the PPT System, continue to have available for distribution titles which the Company can distribute on a profitable basis, or continue to remain in business. Even if titles are otherwise available from Program Suppliers to the Company, there can be no assurance that they will be made available on terms acceptable to the Company. During the last three years, the Company has not experienced any material difficulty acquiring suitable Cassettes for the Company's markets on acceptable terms and conditions from Program Suppliers that have agreed to provide the same to the Company. The Company has one Program Supplier that supplied product that generated 18 percent, a second that generated 15 percent, and a third that generated 13 percent of Rentrak revenues for the year ended March 31, 2001. There were no other Program Suppliers who provided product that generated more than 10 percent of revenues for the year ended March 31, 2001. The Company currently receives a significant amount of product from three Program Suppliers. Although management does not believe that these relationships -4- will be terminated in the near term, a loss of any of these suppliers could have an adverse effect on the Company's operating results. Certain Program Suppliers have requested, and the Company has provided, financial or performance commitments from the Company, including advances, warrants, or guarantees, as a condition of obtaining certain titles. The Company determines whether to provide such commitments on a case-by-case basis, depending upon the Program Supplier's success with such titles prior to home video distribution and the Company's assessment of expected success in home rental distribution. The Company intends to continue this practice of providing such commitments and there can be no assurance that this practice will not in the future result in losses which may be material. Distribution of Cassettes The Company's proprietary Rentrak Profit Maker Software (the "RPM Software") allows Participating Retailers to order Cassettes through their Point of Sale ("POS") system software and provides the Participating Retailers with substantial information regarding all offered titles. Ordering occurs via a networked computer interface. To further assist the Participating Retailers in ordering, the Company also produces a monthly product catalogue called "Ontrak." To be competitive, Retailers must be able to rent their Cassettes on the "street date" announced by the Program Supplier for the title. Rentrak has contracted with its subsidiary 3PF.COM to distribute Rentrak's Cassettes via overnight air courier to assure delivery to Participating Retailers on the street date. The freight costs of such distribution comprise a portion of the Company's cost of sales. Computer Operations To participate in the Company's PPT System, Retailers must install Rentrak approved computer software and hardware to process all of their rental and sale transactions. Participating Retailers are required to use one of the POS software vendors approved by the Company as conforming to the Company's specifications. The Company's RPM Software resides on the Retailer's POS computer system and transmits a record of PPT transactions to the Company over a telecommunications network. The RPM Software also assists the Retailer in ordering newly released titles and in managing the inventory of Cassettes. The Company's information system processes these transactions and prepares reports for Program Suppliers and Participating Retailers. In addition, it determines variations from statistical norms for potential audit action. The Company's information system also transmits information on new titles and confirms orders made to the RPM Software at the Retailer location. Retailer Auditing From time to time, the Company audits Participating Retailers in order to verify that they are reporting all rentals and sales of Cassettes on a consistent, -5- accurate and timely basis. Several different types of exception reports are produced weekly. These reports are designed to identify any Participating Retailers that vary from the Company's statistical norms. Depending upon the results of the Company's analysis of the reports, the Company may conduct an in-store audit. Audits may be performed with or without notice and any refusal to allow such an audit can be cause for immediate termination from the PPT System. If audit violations are found, the Participating Retailer is subject to fines, audit fees, immediate removal from the PPT System and/or repossession of all leased Cassettes. Seasonality The Company believes that the home video industry is seasonal because Program Suppliers tend to introduce hit titles at two periods of the year, early summer and Christmas. Since the release to home video usually follows the theatrical release by approximately six months (although significant variations occur on certain titles), the seasonal peaks for home video also generally occur in early summer and at Christmas. The Company believes its volume of rental transactions reflects, in part, this seasonal pattern, although the growth of Program Suppliers, titles available to the Company, and Participating Retailers may tend to obscure any seasonal effect. The Company believes such seasonal variations may be reflected in future quarterly patterns of its revenues and earnings. Retailer Financing Program In 1992, at a time when the video industry was experiencing rapid growth, the Company established a Retailer Financing Program whereby, on a selective basis, it provided financing to Participating Retailers that the Company believed had potential for substantial growth in the industry. In connection with these financings, the Company typically made a loan and/or an equity investment in the Participating Retailer. In some cases, the Company obtained a warrant to purchase stock in the Participating Retailer. As part of such financing, the Participating Retailer typically agreed to cause all of its current and future retail locations to participate in the PPT System for a designated period of time (usually 5 - 20 years). Under these agreements, Participating Retailers were typically required to obtain all of their requirements of Cassettes offered under the PPT System or obtain a minimum amount of Cassettes based on a percentage of the Participating Retailer's revenues. Notwithstanding the long term nature of such agreements, both the Company and the Participating Retailer retained the right, in certain circumstances, to terminate such agreement upon 30-90 days' prior written notice. During the three month period ended September 30, 2000, the Company announced the discontinuance of new financings under the Retailer Financing Program. Write-offs of assets associated with this program during fiscal 2001 were $6.1 million, including $4.4 million due to the Company from Video Update, Inc. The Company continues to seek to enforce agreements entered into in connection with this program in accordance with their terms to the extent practicable. -6- Competition The Cassette distribution business is a highly competitive industry that is rapidly changing. The traditional, and still dominant, method of distributing Cassettes to Retailers is through purchase transactions; i.e., a Retailer purchases Cassettes from a distributor and then offers the Cassettes for rental or sale to the general public. As described in greater detail above (see "Pay-Per-Transaction System"), the Company's PPT System offers Retailers an alternative method of obtaining Cassettes. Accordingly, the Company faces intense competition from all of the traditional distributors, including Ingram Entertainment, Inc., VPD, Baker and Taylor, Inc., and Video One Canada, Ltd. These and other traditional distributors have extensive distribution networks, long-standing relationships with Program Suppliers and Retailers, and, in some cases, significantly greater financial resources than the Company. In the last two years certain traditional distributors have taken steps to offer Cassettes to Retailers on a revenue sharing basis. For example, several traditional distributors have executed licensing agreements with Supercomm, Inc. ("Supercomm"), a wholly-owned subsidiary of The Walt Disney Company, to market product on revenue sharing terms. Several traditional distributors have also executed revenue sharing agreements with motion picture studios ("Studios"). Several traditional distributors have also entered into licensing agreements with the Company to distribute Cassettes to Retailers using the PPT System. The Company also competes with Supercomm on two levels: (1) domestically - for processing data for certain Studios' direct relationships with Blockbuster Video and other Retailers; and (2) internationally in certain markets. Supercomm also processes data for traditional distributors such as Ingram who then compete with the Company for revenue sharing Cassettes as well as traditional Cassettes. The Company also faces direct competition from the Studios. Beginning in 1997, several major Studios offered Retailers discounted pricing if such Retailers substantially increased the quantity of Cassettes purchased. Also, some major Studios have offered Cassettes to Retailers on a lease basis. In addition, all major Studios sell Cassettes directly to major Retailers including Blockbuster, the world's largest chain of home video specialty stores. The Company believes all of the major Studios have executed direct revenue sharing agreements with Blockbuster and Hollywood Entertainment, the world's second largest chain of home video specialty stores. The Company also believes that certain Studios have executed direct revenue sharing agreements with several other large Retailers. The Company does not believe that the Studios have executed direct revenue sharing agreements with other smaller Retailers, but there can be no assurance that they will not do so in the future. The Studios also compete with the Company by releasing certain Cassette titles on a "sell- -7- through" basis; i.e., they bypass the traditional rental period by selling the Cassettes directly to consumers at a price of approximately $9.95 to $19.95. To date, such "sell-through" distribution has generally been limited to certain newly released hit titles with wide general family appeal. However, because the Company's PPT business is partially dependent upon the existence of a rental period, a shift toward such "sell-through" distribution, particularly with respect to popular titles, could have a material adverse effect on the Company's business. The Company also competes with businesses that use alternative distribution methods to provide video entertainment directly to consumers, such as the following: (1) direct broadcast satellite transmission systems; (2) traditional cable television systems; (3) pay-per-view cable television systems; and (4) delivery of programming via the Internet. Each of these distribution methods employs digital compression techniques to increase the number of channels available to consumers and, therefore, the number of movies that may be transmitted. Technological improvements in this distribution method, particularly "video-on-demand," may make this option more attractive to consumers and thereby materially diminish the demand for Cassette rentals. Such a consequence could have a material adverse effect on the Company's business. Foreign Operations On December 20, 1989, the Company entered into an agreement with Culture Convenience Club, Co., Ltd. ("CCC"), a Japanese corporation, which is Japan's largest video specialty retailer. Pursuant to the agreement, the parties formed Rentrak Japan, a Japanese corporation, which is presently owned 3.4 percent by the Company and 90 percent by CCC's largest shareholder, Tsutaya Shoten Co., Ltd. Rentrak Japan was formed to implement the PPT System in Japan. The Company provided its PPT technology and the use of certain trademarks and service marks to Rentrak Japan, and CCC provided management personnel, operating capital, and adaptation of the PPT technology to meet Japanese requirements. On August 6, 1992, the Company entered into an expanded definitive agreement with CCC to develop the PPT System in certain markets throughout the world. Beginning in 1994, the Company became entitled to a royalty of 1.67% for all sales of up to $47,905,000 plus one-half of one percent of sales greater than $47,905,000 in each royalty year (June 1 - May 31). The Company received royalty payments of $1,000,000 in fiscal year 1995 and $1,000,000 in fiscal year 1999. In December 1999, the Company received a prepayment of $2,500,000 in exchange for $4,000,000 of credit related to the annual royalty, which was recognized in revenues as royalties were earned under the terms of the contract. As of March 31, 2001, approximately $746,000 had been recorded as deferred revenue on the accompanying consolidated balance sheet to be recognized in future periods. Effective April 2, 2001 the Company and Rentrak Japan entered into a restructuring agreement of their relationship. The Company transferred exclusive rights to implement its PPT System within specified countries in the Far East, including related trademark and other intellectual property rights, to Rentrak Japan. In exchange for the transfer, Rentrak Japan made a lump sum payment of $5.65 million to the Company and released certain of the Company's payment obligations totaling $2.1 million. As part of the transaction, Rentrak Japan's obligation to pay annual royalties to the Company in connection with use of its PPT System was terminated. -8- Trademarks, Copyrights, and Proprietary Rights The Company has registered its "RENTRAK", "PPT", "Pay Per Transaction", "Ontrak", "BudgetMaker", "DataTrak", "Prize Find" , "Blowout Video", "Fastrak", "GameTrak", "RPM", "Videolink+", "Unless You're Rich Enough Already", "Sportrak", "Movies For The Hungry Mind", "VidAlert", "Active Home Video", "Movie Wizard", and "Gotta Have It Guarantee" marks under federal trademark laws. The Company has applied and obtained registered status in several foreign countries for many of its trademarks. The Company claims a copyright in its RPM Software and considers it to be proprietary. Employees As of March 31, 2001, including all subsidiaries, the Company employed 408 active employees. The Company considers its relations with its employees to be good. Financial Information About Industry Segments See Note 12 of the Notes to the Consolidated Financial Statements for information regarding the Company's business segments. ITEM 2. PROPERTIES The Company currently maintains its headquarter offices in Portland, Oregon where it leases 48,807 square feet of office space. The lease began on January 1, 1997 and expires on December 31, 2006. The Company's subsidiary, 3PF.COM, Inc., maintains two distribution facilities in Wilmington, Ohio and one in Columbus, Ohio where it leases 102,400, 121,600 and 388,264 square feet, respectively. These distribution facilities also include administrative office space. These three distribution facility leases expire on June 30, 2002, December 31, 2010 and February 28, 2008, respectively. Management believes its office space and distribution facility space is adequate and suitable for its current operations. Management does not anticipate a problem in obtaining additional suitable space to meet its needs as necessary. ITEM 3. LEGAL PROCEEDINGS In June 1998, Video Update, Inc. ("Video Update") filed a complaint (the "Video Update Complaint") against the Company entitled Video Update, Inc. v. Rentrak Corp., Civil Action No. 98-286, in the United States District Court for the District of Delaware. The Video Update Complaint alleges various violations of the antitrust laws, including that the Company has monopolized or attempted to monopolize a market for videocassettes leased to retain video stores in violation of Section 2 of the Sherman Act. Video Update further alleges that the Company's negotiation and execution of an exclusive, long-term revenue sharing agreement with Video Update violates Section 1 of the Sherman Act and Section 3 of the Clayton Act. Video Update is seeking unspecified monetary relief, including treble damages and attorney fees, and equitable relief, including an injunction prohibiting the Company from enforcing its agreement with Video -9- Update or any exclusivity provision against videocassette suppliers and video retailers. In August 1998, the Court granted the Company's motion to dismiss the Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule 12(b)(3) on the basis of improper venue. In August 1998, Video Update filed a new complaint against the Company in the United States District Court for the District of Oregon (the "Re-Filed Complaint"), Case No. 98-1013HA. The Re-Filed Complaint is substantially the same as the previous complaint. The Company believes the Re-Filed Complaint lacks merit and intends to vigorously defend against the allegations in the Complaint. The Company has answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also has counterclaimed against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation and intentional interference with business advantage, and is seeking damages and equitable relief. In October 1998, the Company filed a motion for summary judgment seeking to dismiss the lawsuit filed against it by Video Update. In January 1999, the Company filed a separate motion for partial summary judgment on its breach of contract counterclaim seeking to recover more than $4.4 million in fees and interest which the Company claims Video Update owes to it. The court denied Rentrak's motions without reaching the merits and without prejudice to refiling the motions after discovery had been conducted. On October 21, 1999, the Company amended its counterclaims to add additional claims, including a claim for trade secret misappropriation and a claim for recovery of personal property. The amended countercomplaint also added Video Update's chairman, Daniel Potter, as a defendant to the fraud and negligent misrepresentation claims. Mr. Potter filed a motion to dismiss the Company's claims against him which motion was granted by the Court on April 13, 2000. Video Update also moved to dismiss six of the Company's claims. On April 13, 2000, the Court granted Video Update's motion in part and dismissed the following claims: promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, and negligent misrepresentation. On July 31, 2000, the Company filed multiple motions for summary judgment including a motion seeking to dismiss Video Update's antitrust claim and a motion seeking a finding that Video Update breached its contract with Rentrak. On September 18, 2000, Video Update filed a voluntary petition under Chapter 11 of the federal Bankruptcy Code. In light of the bankruptcy case, the District Court dismissed the Re-Filed Complaint and counterclaims on its own motion in January 2001, but that action could be reinitiated by Video Update at any time. The Company has filed a proof of claim in the bankruptcy case asserting the claims the Company asserted in its counterclaim in the District Court action. On November 15, 2000, 3PF.COM, Inc., a subsidiary of the Company, filed a proceeding with the American Arbitration Association against Reel.com, Inc., a subsidiary of Hollywood Entertainment Corporation ("Hollywood"), for breach of a servicing, warehousing, and distribution agreement, and against Hollywood in connection with its guarantee of the obligations of Reel.com, Inc., under the agreement. 3PF.COM, Inc., is seeking damages in the amount of $4,776,237 plus an amount to be determined as consequential damages, together with prejudgment interest and attorney fees. Hollywood and Reel.com, Inc., have filed a counterclaim for attorney fees. -10- On February 20, 2001, the Company filed a complaint against Ron Berger, Chairman and Chief Executive Officer and a director of Rentrak until September 2000, in the Circuit Court of the State of Oregon for the County of Multnomah (No. 0102-01814), seeking cancellation of shares of Rentrak common stock acquired by Mr. Berger through an option loan program offered to the Company's officers in June 2000 and damages for the conversion of an automobile and computer equipment plus an over-advance payment of business expenses less setoffs. On or about March 29, 2001, Mr. Berger filed a counterclaim seeking damages of approximately $1.76 million plus attorney fees from Rentrak for conversion of Mr. Berger's director's fees and dividends from Rentrak Japan, breach of an agreement to compensate Mr. Berger for cancellation of options to purchase Rentrak stock, failure to pay accumulated wages and compensation, breach of an agreement to provide options to purchase stock in Rentrak's subsidiary 3PF.COM, Inc., and failure to reimburse Mr. Berger for life insurance premiums and cancellation of family health insurance. The claim for breach of an agreement to provide options to purchase stock in the subsidiary is also asserted against counterclaim defendant 3PF.COM, Inc. The Company has denied liability for the counterclaims. On June 15, 2001, the Company filed an amended complaint alleging claims for breach of duty of care and breach of fiduciary duty against Mr. Berger arising out of his activities as an officer and director of the Company involving Video City, Inc., and seeking damages with respect to those claims in an amount to be proved at trial but not less than $6.0 million. The case is presently in the discovery phase. The Company intends to contest the case vigorously. The Company is also subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions is not expected to materially affect the financial position or results of operations of the Company as a whole. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders of the Company through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, $.001 par value, is traded on the Nasdaq National Market, where its prices are quoted under the symbol "RENT". As of May 31, 2001 there were approximately 315 holders of record of the Company's common stock. On May 31, 2001, the closing sales price of the Company's common stock as quoted on the Nasdaq National Market was $3.50. -11- The following table sets forth the reported high and low sales prices of the Company's common stock for the periods indicated as regularly quoted on the Nasdaq National Market. QUARTER ENDED HIGH LOW JUNE 30, 1999 $5.25 $2.66 SEPTEMBER 30, 1999 $6.00 $3.50 DECEMBER 31, 1999 $7.41 $3.25 MARCH 31, 2000 $7.25 $5.13 JUNE 30, 2000 $5.88 $3.13 SEPTEMBER 30, 2000 $4.16 $3.00 DECEMBER 31, 2000 $3.69 $1.50 MARCH 31, 2001 $4.09 $2.03 DIVIDENDS Holders of the Company's common stock are entitled to receive dividends if, as, and when declared by the Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any preferred stock that may be issued and subject to the dividend restrictions in the Company's bank credit agreement described in Note 5 of the Notes to the Consolidated Financial Statements. No cash dividends have been paid or declared during the last five fiscal years. The present policy of the Board of Directors is to retain earnings to provide funds for operation and expansion of the Company's business. The Company's bank credit agreement limits the payment of dividends on the Company's stock. The Company does not intend to pay cash dividends in the foreseeable future. -12- ITEM 6. SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------(In Thousands Except Per Share Amounts) Year Ended March 31, 2001 2000 1999 1998 1997 ---------------------------------------------------------------------- Consolidated Statements of Operations Data Net revenues: Application fees $ 20 $ 311 $ 371 $ 383 $ 354 Order processing fees 18,563 23,086 22,420 25,313 22,720 Transaction fees 57,127 62,440 72,835 78,671 70,467 Sell-through fees 6,578 7,811 11,347 9,383 11,101 Other 34,111 19,736 16,814 9,001 11,634 Total net revenues 116,399 113,384 123,787 122,751 116,276 Cost of sales 93,600 91,706 103,943 100,974 90,882 Gross profit 22,799 21,678 19,844 21,777 25,394 Selling and administrative expense 32,967 26,449 15,996 14,572 16,160 Net (gain) loss on litigation settlement (225) (7,792) 1,099 - - Other income (expense) (2,149) (1,519) 597 652 999 Income (loss) from continuing operations before discontinued operations and benefit(provision) for income taxes (12,092) 1,502 3,347 7,857 10,233 Income tax benefit (provision) 4,515 (451) (1,304) (3,199) (3,950) Income (loss) from continuing operations before discontinued operations (7,577) 1,051 2,043 4,658 6,283 Discontinued Operations: (1) Gain on disposal of subsidiaries - 2,374 - - - ---------------------------------------------------------------------- Net income (loss) ($7,577) $3,425 $2,043 $4,658 $6,283 ====================================================================== Diluted earnings (loss) per common share Continuing operations $(0.63) $0.10 $0.18 $0.41 $0.52 Discontinued operations $ - $0.22 $ - $ - $ - Earnings (loss) per common share $(0.63) $0.32 $0.18 $0.41 $0.52 ---------------------------------------------------------------------- Common shares and common share equivalents used to compute diluted EPS 11,985 10,759 11,066 11,445 12,159 ---------------------------------------------------------------------- At March 31, 2001 2000 1999 1998 1997 ---------------------------------------------------------------------- Balance Sheet Data Working Capital $ 3,643 $9,871 $4,586 $1,062 $1,488 Total Assets 39,126 50,473 49,457 51,609 43,048 Long-term Liabilities 1,175 1,677 - - - Stockholders' Equity 11,387 18,081 14,292 13,254 11,272 (1) See Note 13 of the Notes to Consolidated Financial Statements. -13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements Certain information included in the Annual Report on Form 10-K (including Management's Discussion and Analysis of Financial Condition and Results of Operations regarding revenue growth, gross profit margin and liquidity) constitute forward-looking statements that involve a number of risks and uncertainties. Forward looking statements may be identified by the 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 PPT System successfully, the financial stability of the Participating Retailers and their performance of their obligations under the PPT System, non-renewal of the Company's line of credit, business conditions and growth 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 Cassettes from Program Suppliers. This Annual Report on Form 10-K further describes some of these factors. RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended March 31, 2001, 2000 and 1999 2001 2000 1999 ----------------------------------------- REVENUES $116,399,048 $113,384,220 $123,787,390 OPERATING COSTS AND EXPENSES Cost of sales 93,600,177 91,706,290 103,942,898 Selling, general, and administrative 32,967,141 26,448,569 15,995,941 Net (gain) expense on litigation (225,000) (7,791,880) 1,099,154 settlement ----------------------------------------- 110,362,979 121,037,993 26,342,318 ----------------------------------------- INCOME (LOSS) FROM OPERATIONS (9,943,270) 3,021,241 2,749,397 Other income (expense) (2,148,673) (1,519,378) 597,108 ----------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION AND GAIN FROM DISPOSAL OF DISCONTINUED OPERATIONS 1,501,863 3,346,505 (12,091,943) Income tax benefit (provision) 4,514,575 (450,559) (1,303,999) ----------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (7,577,368) 1,051,304 2,042,506 Gain from disposal of discontinued operations including income tax benefit of $483,502 - 2,373,502 - ----------------------------------------- NET INCOME (LOSS) $(7,577,368) $3,424,806 $2,042,506 =========================================
-14- Fiscal 2001 Compared to Fiscal 2000 Continuing Operations - Domestic PPT Operations and Other Continuing Subsidiaries For the year ended March 31, 2001, the Company's total consolidated revenue increased $3.0 million to $116.4 million from $113.4 million in the prior year. Total consolidated revenue includes the following PPT System fees: application fees generated when Retailers are approved for participation in the PPT System; order processing fees generated when Cassettes are ordered by and distributed to Retailers; transaction fees generated when Retailers rent Cassettes to consumers; sell-through fees generated when Retailers sell Cassettes to consumers; and buy out fees when Retailers purchase Cassettes at the end of the lease term. In addition, total revenue includes charges to customers of the Company's subsidiary 3PF.COM, Inc., which provides e-commerce order processing, fulfillment and inventory management services, sales of Cassettes through the Company's retail subsidiary BlowOut Video, Inc., charges for internet services provided by the Company's subsidiary formovies.Com, Inc. and royalty payments from Rentrak Japan. The increase in total consolidated revenue was primarily due to a decline in (i) the number of total titles released to the PPT System, as well as the number of theatrical titles released and the box office performance of those titles; and (ii) increased revenue from services provided by 3PF.COM, Inc. In addition, PPT revenue was also affected by a reduction in the total number of Cassettes leased under the PPT System, due in part to Studios offering more titles under various "copy depth" programs, intended to increase the number of Cassettes in distribution by lowering the cost of rental videocassettes to Retailers, than they have in the past and to the willingness of program suppliers to engage in direct revenue sharing arrangements with the largest retailer chains. In fiscal 2001, PPT revenues were $ 83.6 million, a decrease of $10.9 million, or 12 percent, from $94.5 million in fiscal 2000. Application-fee revenue was $20,000 compared to $300,000 in the prior year, as the Company discontinued its practice of charging new retailers a fee at the time of application to use the PPT System. During the year, order processing-fee revenue decreased to $18.6 million from $23.1 million in fiscal 2000, a decrease of $4.5 million, or 19 percent. Transaction-fee revenue totaled $57.1 million, a decrease of $5.3 million, or 8 percent, from $62.4 million the previous year. Sell-through revenue was $6.6 million in fiscal 2001 as compared to $7.8 million in fiscal 2000, a decrease of $1.2 million, or 17 percent. Royalty revenue from Rentrak Japan decreased to $1.1 million during fiscal 2001 from $1.8 million the previous year. This decrease was due to a one-time recognition of $0.5 million of royalty income in fiscal 2000, which was subsequently reversed in fiscal 2001 due to a change in the business arrangements between Rentrak and Rentrak Japan. Cost of sales for the PPT business in fiscal 2001 decreased to $67.1 million from $79.6 million the prior year, a decrease of $12.5 million. The change is primarily due to the factors that led to changes in revenue as noted above. In fiscal 2001, the Company's PPT System gross profit margin increased to 20 percent from 16 percent the previous year. -15- PPT business selling and administrative expenses were $23.8 million in fiscal 2001 compared to $22.0 million in fiscal 2000. This increase of $1.8 million, or 8 percent, was primarily attributable to the following items all reported in the quarter ended September 30, 2000: (i) a $1.3 million severance payment to the Company's former chairman and chief executive officer; (ii) $0.6 million in legal costs and proxy solicitation costs incurred by the Company related to the proxy contest at the 2000 annual shareholders meeting and (iii) $0.4 million in costs to reimburse the dissident shareholder group for their legal and other costs associated with the proxy contest. While the Company wrote off or reserved approximately $8.5 million in assets related to the Retailer Financing Program, investments and accounts receivable during the quarter ended September 30, 2000, it also increased reserves and wrote off other assets totaling approximately $9.0 million during the fourth quarter of fiscal 2000. The net gain from the litigation settlement with a prior customer of the Company, Hollywood Entertainment, was $225,000 for fiscal 2001 compared to $7.8 million for fiscal 2000, a decrease of approximately $7.6 million. Most of the proceeds from this settlement were received in fiscal 2000 when the claim was finalized; the $225,000 represents the receipt of an insurance settlement in fiscal 2001 relating to this claim. PPT other income(expense) increased from expense of $1.4 million in fiscal 2000 to expense of $2.1 million for fiscal 2001, an increase of $0.7 million. This increase is primarily due to: (i) a decrease in interest income; (ii) an increase in interest expense due to an increased use of the line of credit in fiscal 2001; (iii) an increase in loss on the sale of investment securities; (iv) a $0.5 million loss realized on the sale of stock received previously by the Company pursuant to the settlement of a claim with a customer and (v) the writeoff of assets or writedown of various assets to their net realizable value. For the fiscal year ended March 31, 2001, the Company recorded a pre-tax loss of $7.6 million, or 9 percent of total revenue, from its PPT business, including royalty revenue from Rentrak Japan, compared to pre-tax income of $1.1 million, or 1 percent of total revenue, in the prior fiscal year. This decrease is due primarily to: (i) the increase in selling and administrative expenses and (ii) the decrease in the net gain from the litigation settlement, as noted above. The Cassette distribution business is a highly competitive industry that is rapidly changing. The effect of these changes could have a material impact on the Company's operations. Item 1. Business--Competition further describes certain of these factors. Included in total consolidated revenue are the results from other subsidiaries, primarily the operations of 3PF.COM, Inc. ("3PF") and Blowout Video, Inc. Total revenues from 3PF increased to $23.4 million at March 31, 2001 compared to $11.6 million at March 31, 2000, an increase of $11.8 million. This increase was primarily due to increased volume from existing customers. Cost of sales was $21.7 million, an increase of $11.6 million over the $10.1 million recorded in fiscal 2000. This increase is due to: (1) a $1.1 million increase in occupancy cost as 3PF expanded its operations into a new facility late in fiscal 2000 to provide additional operating capacity for business growth; (2) a $4.5 million increase in -16- freight cost in conjunction with the overall increase in business growth and revenue; and (3) a $4.3 million increase in warehouse labor cost in conjunction with the overall increase in business growth and revenue. As a percentage of total 3PF revenue, total cost of sales was 93% and 87% for fiscal 2001 and 2000, respectively. Selling and administrative expenses increased to $5.5 million in fiscal 2001 from $2.6 million in fiscal 2000, an increase of $2.9 million. As a percentage of total revenue, selling and administrative expenses increased to 23 percent for fiscal 2001 from 22 percent for the prior year. This $2.9 million increase was due to increased compensation, advertising, travel and entertainment expenses, depreciation and other costs as the Company invested in the overhead infrastructure to support growth in its business. Additionally, the Company recognized $0.9 million in bad debt expense during fiscal 2001 primarily relating to a customer that filed for bankruptcy. The Company anticipates its selling and administrative expenses to moderate or lessen in the future in conjunction with the overall size of business it is operating. As a result of the foregoing factors, for the fiscal year ended March 31, 2001, 3PF recorded a pre-tax loss of $3.8 million, or 16 percent of total revenue. This compares with pre-tax loss of $1.1 million, or 9 percent of total revenue, in fiscal 2000. Total revenue from BlowOut Video, Inc. increased to $11.7 million in fiscal 2001 from $9.5 million in fiscal 2000, an increase of $2.2 million, or 23 percent. Cost of sales was $8.7 million, an increase of $2.7 million over the $6.0 million recorded in fiscal 2000. Total cost of sales as a percentage of total revenue was 74% and 63% for fiscal 2001 and 2000, respectively. As a result, the gross margin decreased to 26% in fiscal 2001 from 37% in fiscal 2000. Selling and administrative expenses increased to $3.6 million in fiscal 2001 from $3.0 million in fiscal 2000, an increase of $0.6 million. As a percentage of total revenue for BlowOut Video, Inc., selling and administrative expenses decreased to 31 percent for fiscal 2001 from 32 percent for the prior year. For the fiscal year ended March 31, 2001, BlowOut Video, Inc. recorded a pre-tax loss of $0.7 million, or 6 percent of total revenue. This compares with pre-tax income of $0.2 million, or 2 percent of total revenue, in fiscal 2000. As a result of the above, for the fiscal year ended March 31, 2001, the Company recorded a consolidated pre-tax loss from continuing operations of $12.1 million, or 10 percent of total consolidated revenue, compared to consolidated pre-tax income from continuing operations of $1.5 million, or 1 percent of total consolidated revenue, in the prior fiscal year. This decrease is due primarily to the increase in selling and administrative expenses from the PPT System and 3PF business, as well as the decrease in the litigation gain from fiscal 2000, offset by an increase in the gross margin from the Company's operations, as noted above. The consolidated effective tax rate providing the tax benefit for continuing operations for fiscal 2001 was 37.3%, compared to a consolidated effective tax rate of 30.0% providing the tax provision for fiscal 2000. The Company expects to benefit from the tax benefit created in fiscal 2001, by net operating loss carryforwards, in future periods. -17- Fiscal 2000 Compared to Fiscal 1999 Continuing Operations - Domestic PPT Operations and Other Continuing Subsidiaries For the year ended March 31, 2000, the Company's total consolidated revenue decreased $10.4 million to $113.4 million from $123.8 million in the prior year. The decrease in total revenue was primarily due to lower revenues from the Company's core PPT System business. The decrease in PPT revenue resulted primarily from the following: (i) a reduction in the total number of Cassettes leased under the PPT System, (ii) an increase in incentives offered by the Company to entice retailers to order more product; (iii) an increase in various "copy depth" programs; (iv) an increase in studio direct revenue-sharing arrangements with the larger video store chains; and (v) the loss of some customers due to continuing industry consolidation. For the PPT business in fiscal 2000, application-fee revenue was $0.3 million compared to $0.4 million in the prior year. During the year order processing-fee revenue increased to $23.1 million from $22.4 million in fiscal 1999, an increase of $0.7 million, or 3 percent. Transaction-fee revenue totaled $62.4 million, a decrease of $10.4 million, or 14 percent, from $72.8 million the previous year. Sell-through revenue was $7.8 million in fiscal 2000 as compared to $11.3 million in fiscal 1999, a decrease of $3.5 million, or 31 percent. Royalty revenue from Rentrak Japan decreased to $1.8 million during fiscal 2000 from $2.2 million the previous year. This decrease was due to a one time royalty payment from Rentrak Japan of $1.0 million in January 1999, which was partially offset by an increase in fiscal 2000 royalties due to increased revenues generated by Rentrak Japan and a one-time royalty payment of $0.5 million received from Rentrak Japan. Consolidated cost of sales in fiscal 2000 decreased to $91.7 million from $103.9 million the prior year, a decrease of $12.2 million. The change is primarily due to the factors that led to changes in revenue noted above. In fiscal 2000, the Company's gross profit margin increased to 19 percent from 15 percent the previous year, excluding the $1.0 million royalty payment from Rentrak Japan. Consolidated selling and administrative expenses were $26.4 million in fiscal 2000 compared to $16.0 million in fiscal 1999. This increase of $10.4 million, or 65 percent, was primarily due to (i) increased reserves related to an outstanding receivable account and writeoffs of other assets for a total of approximately $9.0 million in the fourth quarter of fiscal 2000; (ii) increased compensation and occupancy costs associated with the expanding fulfillment and order processing business; and (iii) increased advertising expenditures. In January 2000, the Company recorded a gain of approximately $7.8 million as a result of settling litigation with Hollywood Entertainment. Other income decreased from $0.6 million in fiscal 1999 to an expense of $1.5 million for fiscal 2000, a decrease of $2.1 million. This decrease is primarily due to the loss on sale of investments recognized in fiscal 2000 of approximately $1.2 -18- million compared to a gain on sale of investments in fiscal 1999 of approximately $0.5 million. For the fiscal year ended March 31, 2000, the Company recorded a consolidated pre-tax income from continuing operations of $1.5 million, or 1 percent of total revenue, compared to $3.3 million of pre-tax income from continuing operations, or 3 percent of total revenue, in the prior fiscal year. This decrease is due primarily to the increase in selling and administrative expenses as noted above offset by the net gain on litigation settlement. The consolidated effective tax rate providing the tax provision for continuing operations for fiscal 2000 was 30.0%, compared to a consolidated effective tax rate of 39.0% providing the tax provision for fiscal 1999. Included in the amounts above are the results from other subsidiaries, primarily the operations of 3PF and BlowOut Video, Inc. Total revenues from 3PF increased to $11.6 million at March 31, 2000 compared to $10.5 million at March 31, 1999, an increase of $1.1 million. This increase was primarily due to increased volume from existing customers. Cost of sales was $10.1 million, an increase of $1.7 million over the $8.4 million recorded in fiscal 1999. This increase is due to the increase in freight and warehouse labor due primarily to the increase in revenue as noted above. Selling and administrative expenses increased to $2.6 million in fiscal 2000 from $1.2 million in fiscal 1999, an increase of $1.4 million. As a percentage of total 3PF revenue, selling and administrative expenses increased to 22 percent for fiscal 2000 from 11 percent for the prior year. This increase was due to increased compensation, advertising and travel and entertainment expenses. These costs increased primarily due to expanded sales and marketing efforts. As a result of the foregoing factors, for the fiscal year ended March 31, 2000, 3PF recorded a pre-tax loss of $1.0 million, or 9 percent of total revenue. This compares with pre-tax income of $0.6 million, or 6 percent of total revenue, in fiscal 1999. Total revenues from BlowOut Video, Inc. increased to $9.5 million in fiscal 2000 from $8.4 million in fiscal 1999, an increase of $1.1 million, or 13 percent. Cost of sales was $6.0 million, an increase of $0.8 million over the $5.2 million recorded in fiscal 1999. Selling and administrative expenses increased to $3.0 million in fiscal 2000 from $2.4 million in fiscal 1999, an increase of $0.6 million. As a percentage of total revenue, selling and administrative expenses increased to 32 percent for fiscal 2000 from 29 percent for the prior year. These increases were primarily the result of opening three new stores during fiscal 2000. For the fiscal year ended March 31, 2000, BlowOut Video, Inc. recorded pre-tax income of $0.2 million, or 2 percent of total revenue. This compares with pre-tax income of $0.7 million, or 8 percent of total revenue, in fiscal 1999. -19- Discontinued Operations On November 26, 1996, the Company made a distribution to its shareholders of 1,457,343 shares of common stock of its then subsidiary BlowOut Entertainment, Inc. ("BlowOut"). BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The operations of BlowOut were reflected as discontinued operations in the March 31, 1996 consolidated financial statements. During the fiscal year ended March 31, 2000, the Company recorded a gain on the disposal of discontinued operations of $1.9 million related to BlowOut, as the liability related to BlowOut contingencies was less than estimated. The Company also reduced the valuation allowance that was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of approximately $0.5 million in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated income statement. FINANCIAL CONDITION At March 31, 2001, total assets were $39.1 million, a decrease of $11.4 million from $50.5 million a year earlier. The Company had $3.3 million of cash on hand at March 31, 2001, including $1.0 million of restricted cash, compared to $4.0 million at March 31, 2000. Accounts receivable decreased $10.6 million from $21.8 million at March 31, 2000 to $11.2 million at March 31, 2001, primarily due to: (1) the write off of amounts owing from two customers in the Retailer Financing Program totaling approximately $5.2 million and various other customer account write-offs during the quarter ended September 30, 2000; (2) the provision of a specific customer allowance in the amount of approximately $0.7 million for the anticipated non-collection of one of 3PF's trade accounts due the Company as the result of a bankruptcy filing by a customer during the quarter ended December 31, 2000; (3) the recording of a provision for an allowance totaling approximately $0.3 million for the quarter ended December 31, 2000 for the anticipated non-collection of other customer accounts of the PPT business and 3PF, based on the Company's assessment of the collectibility of those accounts due to changes in the financial condition and payment ability of those customers; (4) the receipt of an approximate $2.5 million payment from a customer on its account during the quarter ended March 31, 2001 in conjunction with the settlement of an agreement; and (5) continual improvement in collections from customers. Notes receivable decreased to $0 at March 31, 2001 due to a payment of $4.16 million, including interest, received by the Company in July 2000 from a customer pursuant to the settlement of a claim. Property and equipment increased $1.8 million from $2.6 million at March 31, 2000 to $4.4 million at March 31, 2001, primarily due to acquisitions of equipment by 3PF. Total deferred tax assets increased $4.5 million from $5.2 million at March 31, 2000 to $9.7 million at March 31, 2001, primarily due to the tax loss carryforward created from the loss from continuing operations during the quarter ended September 30, 2000. The Company believes it will realize this deferred tax asset in future periods. Other assets decreased $1.5 million from $3.6 million at March 31, 2000 to $2.1 million at March 31, 2001 primarily due to the sale of some of the Company's investments. -20- At March 31, 2001, total liabilities were $27.7 million, a decrease of $4.7 million from $32.4 million at March 31, 2000. The line of credit increased to $1.9 million at March 31, 2001 from $0 at March 31, 2000 primarily due to working capital requirements. Accounts payable decreased $5.5 million from $24.2 million at March 31, 2000 to $18.7 million at March 31, 2001, primarily due to payments owing to the Company's product suppliers made during the quarter ended June 30, 2000. Note payable decreased to $0 at March 31, 2001 due to the payoff of a promissory note to a former director of the Company during the quarter ended September 30, 2000. Total deferred revenue decreased approximately $1.6 million from $3.2 million at March 31, 2000 to $1.6 million at March 31, 2001, due to the recognition of earnings in accordance with agreements with related party organizations and customers. Accordingly, at March 31, 2001, stockholders' equity was $11.4 million, a decrease of $6.7 million from $18.1 million at March 31, 2000. Most of this decrease in stockholders' equity is attributable to the consolidated net loss of $7.6 million for fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had cash and other liquid investments of $3.3 million, including $1.0 million of restricted cash, compared to $4.0 million at March 31, 2000. At March 31, 2001 the Company's current ratio (current assets/current liabilities) was 1.14 compared to 1.32 a year earlier. In May 2000 the Company obtained a replacement line of credit with a lender in an amount not to exceed the lesser of (a) $12 million or (b) the sum of 85% of the net amount of eligible accounts receivable. Interest under the credit line is payable monthly at the bank's prime rate plus 1/4 percent (8.25 percent at March 31, 2001). The line is secured by substantially all of the Company's assets. The terms of the credit agreement include financial covenants requiring: (1) $15 million of tangible net worth to be maintained at all times; (2) a consolidated net profit to be achieved each fiscal year equal to or exceeding $1.00 and (3) $5 million of working capital to be maintained at all times. The agreement also restricts the amount of loans and indebtedness and limits the payment of dividends on the Company's stock, among other requirements. The agreement expires in May 2005. The Company has determined that it is out of compliance with the three financial covenants as of March 31, 2001. The Company has obtained waivers of compliance for these three financial covenants as of March 31, 2001 and for the twelve month period then ended. The Company has initiated discussions of these covenants with its lender and is seeking covenant modifications, if necessary. Based upon discussions between the Company and its lender, the Company believes it will successfully receive future waivers and/or modifications, if necessary, and also believes it will have sufficient cash resources to repay all outstanding borrowings as due. The Company received a $2.5 million payment on account from a customer on March 31, 2001, as well as it received a $5.65 million payment from Rentrak Japan in a transaction consummated in April 2001 (See Note 14 of the Notes to the Consolidated Financial Statements). At March 31, 2001, the Company had $1.9 million of outstanding borrowings under this agreement. -21- In 1992, the Company established a Video Retailer Loan Program whereby, on a selective basis, it provided financing to Participating Retailers that the Company believed had the potential for substantial growth in the industry. In connection with these financings, the Company typically made a loan to and/or an equity investment in the Participating Retailer. In some cases, the Company obtained a warrant to purchase stock in the Participating Retailer. As part of such financing, the retailer typically agreed to cause all of its current and future retail locations to participate in the PPT System for a designated period of time (usually 5-20 years). Under these agreements, Participating Retailers were typically required to obtain all of their requirements of Cassettes offered under the PPT System or obtain a minimum amount of Cassettes based on a percentage of the retailer's revenues. Notwithstanding the long term nature of such agreements, both the Company and the Participating Retailer retained the right to terminate such agreement upon 30-90 days' prior written notice in certain circumstances. During the three month period ended September 30, 2000, the Company announced the discontinuance of new financings under this program. Write-offs of assets associated with this program during the three month period ended September 30, 2000 were $6.1 million, including $4.4 million due to the Company from Video Update, Inc. The Company continues to seek to enforce agreements entered into in connection with this program in accordance with their terms to the extent practicable. The Company was the principal creditor of BlowOut, which filed a petition under Chapter 11 of the Federal Bankruptcy Code in March 1999. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut (the "Guarantee"). BlowOut had a credit facility (the "Credit Facility") in an aggregate principal amount of $2 million for a five-year term. Amounts outstanding under the Credit Facility bear interest at 14.525 percent per annum. Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under the Credit Facility. As the proceeds from the sale of the BlowOut assets in May 1999 in the bankruptcy proceeding were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, agreed to a payment plan to fulfill BlowOut's obligation under the Credit Facility. The funds remaining, if any, after payment of administrative and cost claims after dismissal of the case may further reduce the amount due under the Credit Facility. As of March 31, 2001, the balance owing under this obligation was approximately $300,000. The payments, as made, will be 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 these available sources of liquidity will be sufficient to fund the Company's operations for the fiscal year ending March 31, 2002. -22- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 March 31, 2001. 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. -23- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Item Page ---- ---- Report of Independent Public 25 Accountants Consolidated Balance Sheets as of March 31, 2001 26 and 2000 Consolidated Statements of Operations for the Years 28 Ended March 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Equity 29 for the Years Ended March 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the Years 30 Ended March 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements 32 Financial Statement Schedules -- 51 Schedule II Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. -24- Report of Independent Public Accountants To Rentrak Corporation: We have audited the accompanying consolidated balance sheets of Rentrak Corporation (an Oregon corporation) and subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2001. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rentrak Corporation and subsidiaries as of March 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Portland, Oregon May 23, 2001 -25- Rentrak Corporation and Subsidiaries Consolidated Balance Sheets As of March 31, 2001 and 2000 ASSETS 2001 2000 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents $3,322,917 $4,028,271 Accounts receivable, net of allowance for doubtful accounts of $2,090,075 and $836,945 11,151,817 21,820,168 Advances to program suppliers 1,328,165 2,982,766 Inventory 3,514,354 3,889,603 Income tax receivable 279,160 169,300 Deferred income taxes 7,319,266 1,878,113 Notes receivable - 4,061,618 Other current assets 3,291,915 1,757,081 ---------- ---------- Total current assets 30,207,594 40,586,920 ---------- ---------- PROPERTY AND EQUIPMENT, net 4,439,773 2,642,700 OTHER INVESTMENTS, net - 302,481 DEFERRED INCOME TAXES 2,419,634 3,346,212 OTHER ASSETS 2,059,247 3,595,041 ---------- --------- Total assets $39,126,248 $50,473,354 ========== ========== (Continued)
-26- Rentrak Corporation and Subsidiaries Consolidated Balance Sheets (Continued) As of March 31, 2001 and 2000 LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000 --------- ---------- CURRENT LIABILITIES: Line of credit $ 1,917,705 $ - Accounts payable 18,699,289 24,162,040 Accrued liabilities 3,418,043 2,645,567 Accrued compensation 1,127,785 1,476,703 Deferred revenue 1,245,643 1,500,262 Note payable - 500,000 Net current liabilities of discontinued operations 156,046 430,923 ---------- ---------- Total current liabilities 26,564,511 30,715,495 ---------- ---------- LONG-TERM LIABILITIES: Deferred revenue 379,104 1,677,272 Other 795,875 - ---------- ---------- 1,174,979 1,677,272 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 10) 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: 12,235,621 shares in 2001 and 10,514,561 shares in 2000 12,236 10,515 Capital in excess of par value 52,471,599 44,445,199 Notes receivable (7,728,186) - Cumulative other comprehensive loss (49,572) (264,684) Accumulated deficit (32,904,319) (25,326,951) Deferred charge - warrants (415,000) (783,492) ---------- ---------- Total stockholders' equity 11,386,758 18,080,587 ---------- ---------- Total liabilities and stockholders' equity $39,126,248 $50,473,354 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. -27- Rentrak Corporation And Subsidiaries Consolidated Statements of Stockholders' Equity For the Years Ended March 31, 2001, 2000 and 1999 Common Stock Cumulative ---------------------- Capital In Other Number of Excess of Notes Comprehensive Accumlated Shares Amount Par Value Receivable Income (Loss) Deficit ------------ ------- ---------- ---------- ------------- ---------- BALANCE AT MARCH 31, 1998 10,986,455 $10,987 $45,365,298 - $54,645 $(30,794,263) Repurchase of common stock (592,484) (593) (1,964,622) - - - Issuance of common stock under employee stock option plans 45,977 46 118,375 - - - Net income - - - - - 2,042,506 Change in unrealized gain (loss) on investment securities, net of tax - - - - 83,102 - Total comprehensive income Income tax benefit from stock option exercise - - 41,428 - - - Issuance of warrants - - 84,000 - - - Amortization of warrants - - - - - - ---------- -------- ---------- ---------- ------------- ---------- BALANCE AT MARCH 31, 1999 10,439,948 10,440 43,644,479 - 137,747 (28,751,757) Issuance of common stock under employee stock option plans 74,613 75 228,882 - - - Net income - - - - - 3,424,806 Change in unrealized gain (loss) on investment securities, net of tax - - - - (402,431) - Total comprehensive income Income tax benefit from stock option exercise - - 27,699 - - - Issuance of warrants - - 544,139 - - - Amortization of warrants - - - - - - ---------- -------- ---------- ---------- ------------- ---------- BALANCE AT MARCH 31, 2000 10,514,561 10,515 44,445,199 - (264,684) (25,326,951) Issuance of common stock under employee stock option plans 1,721,060 1,721 8,026,400 (7,728,186) - - Net loss - - - - - (7,577,368) Change in unrealized gain (loss) on investment securities, net of tax - - - - 215,112 - Total comprehensive income Amortization of warrants - - - - - - ---------- -------- ---------- ---------- ------------- ---------- BALANCE AT MARCH 31, 2001 12,235,621 $12,236 $52,471,599 $(7,728,186) $(49,572) $(32,904,319) ========== ======== ========== ========== ============= ========== Deferred Charge Comprehensive Warrants Total Income (Loss) ---------- ----- ------------- BALANCE AT MARCH 31, 1998 $(1,382,542) $13,254,125 Repurchase of common stock - (1,965,215) Issuance of common stock under employee stock option plans - 118,421 Net income - 2,042,506 $2,042,506 Change in unrealized gain (loss) on investment securities, net of tax - 83,102 83,102 --------- Total comprehensive income $2,125,608 ========= Income tax benefit from stock option exercise - 41,428 Issuance of warrants (84,000) - Amortization of warrants 717,537 717,537 ---------- --------- BALANCE AT MARCH 31, 1999 (749,005) 14,291,904 Issuance of common stock under employee stock option plans - 228,957 Net income - 3,424,806 $3,424,806 Change in unrealized gain (loss) on investment securities, net of tax - (402,431) (402,431) ---------- Total comprehensive income $3,022,375 ========== Income tax benefit from stock option exercise - 27,699 Issuance of warrants (544,139) - Amortization of warrants 509,652 509,652 ---------- ---------- BALANCE AT MARCH 31, 2000 (783,492) 18,080,587 Issuance of common stock under employee stock option plans - 299,935 Net loss - (7,577,368 $(7,577,368) Change in unrealized gain (loss) on investment securities, net of tax - 215,112 215,112 ---------- Total comprehensive income $(7,362,256) ========== Amortization of warrants 368,492 368,492 ---------- ---------- BALANCE AT MARCH 31, 2001 $(415,000) $11,386,758 ========== ==========
The accompanying notes are an integral part of these consolidated statements -28- Rentrak Corporation and Subsidiaries Consolidated Statements of Operations For the Years Ended March 31, 2001, 2000 and 1999 2001 2000 1999 ----------- ----------- ----------- REVENUES: PPT $82,773,886 $93,393,869 $106,406,342 Other 33,625,162 19,990,351 17,381,048 ----------- ----------- ----------- 116,399,048 113,384,220 123,787,390 ----------- ----------- ----------- OPERATING COSTS AND EXPENSES: Cost of sales 93,600,177 91,706,290 103,942,898 Selling and administrative 32,967,141 26,448,569 15,995,941 Net (gain) expense from litigation settlement (Note 10) (225,000) (7,791,880) 1,099,154 ----------- ----------- ----------- 126,342,318 110,362,979 121,037,993 ----------- ----------- ----------- Income (loss) from operations (9,943,270) 3,021,241 2,749,397 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest income 307,240 743,464 429,830 Interest expense (768,599) (669,373) (381,825) Gain (loss) on investments (1,687,314) (1,207,483) 549,103 Other - (385,986) - ----------- ----------- ----------- (2,148,673) (1,519,378) 597,108 ----------- ----------- ----------- Income (loss) from continuing operations before income tax benefit (provision) and gain from disposal of discontinued operations (12,091,943) 1,501,863 3,346,505 INCOME TAX BENEFIT (PROVISION) 4,514,575 (450,559) (1,303,999) ----------- ----------- ----------- Net income (loss) from continuing operations (7,577,368) 1,051,304 2,042,506 GAIN FROM DISPOSAL OF DISCONTINUED OPERATIONS, INCLUDING INCOME TAX BENEFIT OF $483,502 - 2,373,502 - ----------- ----------- ----------- Net income (loss) $ (7,577,368) $ 3,424,806 $ 2,042,506 =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE: Basic- Continuing operations $ (.63) $ .10 $ .19 Discontinued operations - .23 - ----------- ----------- ----------- Net income (loss) per common share $ (.63) $ .33 $ .19 =========== =========== =========== Diluted- Continuing operations $ (.63) $ .10 $ .18 Discontinued operations - .22 - ----------- ----------- ----------- Net income (loss) per common share $ (.63) $ .32 $ .18 =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. -29- Rentrak Corporation and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended March 31, 2001, 2000 and 1999 2001 2000 1999 ---------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(7,577,368) $3,424,806 $2,042,506 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Gain on disposal of discontinued operations - (2,373,502) - (Gain) loss on investments 597,124 1,207,483 (549,103) Gain on litigation settlement - (7,791,880) - Depreciation and amortization 1,266,515 1,780,966 1,286,515 Write-off of intangibles - 421,675 - Amortization of warrants 368,492 509,652 717,537 Provision (credit) for doubtful accounts 7,758,211 6,341,032 (125,000) Retailer financing program reserves 1,333,191 (373,394) 141,698 Reserves on advances to program suppliers 106,781 110,918 17,596 Deferred income taxes (4,646,420) (900,272) 1,176,909 Net proceeds from litigation settlement - 1,847,505 - Change in assets and liabilities: Accounts receivable 4,184,677 (3,231,008) 778,471 Advances to program suppliers 1,547,820 (253,422) (2,425,883) Inventory 162,449 (1,084,620) (377,807) Income tax receivable (109,860) 2,864,901 (1,014,739) Notes receivable and other current assets 2,106,259 1,227,099 (537,802) Accounts payable (6,778,293) 7,233,746 (4,561,190) Accrued liabilities and compensation 423,558 357,860 158,730 Deferred revenue (1,552,787) 3,077,119 (729,448) Other liabilities 795,875 - - ----------- ----------- ---------- Net cash provided by (used in) operating activities (13,776) 14,396,664 (4,001,010) ----------- ----------- ----------
(Continued) -30- Rentrak Corporation and Subsidiaries Consolidated Statements of Cash Flows (Continued) For the Years Ended March 31, 2001, 2000 and 1999 2001 2000 1999 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment $(2,947,219) $(1,790,501) $ (503,030) Investments in retailer financing program - (384,500) (1,329,778) Proceeds from retailer financing program - 228,539 - Purchases of investments - (398,122) (570,512) Proceeds from sale of investments 1,605,555 975,305 1,525,538 Additions of other assets and intangibles (792,677) (6,693) (1,238,601) ----------- ----------- --------- Net cash used in investing activities (2,134,341) (1,375,972) (2,116,383) ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) on line of credit 1,917,705 (7,925,000) 1,925,000 Net borrowing (payments) on notes payable (500,000) (2,500,000) 3,000,000 Repurchase of common stock - - (1,965,215) Issuance of common stock 299,935 228,957 118,421 ----------- ----------- --------- Net cash provided by (used in) financing activities 1,717,640 (10,196,043) 3,078,206 ----------- ----------- --------- NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (430,477) 2,824,649 (3,039,187) NET CASH USED IN DISCONTINUED OPERATIONS (274,877) (942,341) (1,176,530) ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (705,354) 1,882,308 (4,215,717) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,028,271 2,145,963 6,361,680 ----------- ----------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $3,322,917 $4,028,271 $2,145,963 =========== =========== =========
The accompanying notes are an integral part of these consolidated statements. -31- Rentrak Corporation and Subsidiaries Notes to Consolidated Financial Statements March 31, 2001, 2000 and 1999 1. Business of the Companies, Summary of Significant Accounting Policies and Other Items Introduction Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged in the processing of information regarding the rental and sale of video cassettes and the distribution of prerecorded video cassettes to the home video market throughout the United States and Canada using its Pay-Per-Transaction (PPT) revenue sharing program. Under its PPT program, the Company enters into contracts to lease video cassettes from program suppliers (producers of motion pictures and licensees and distributors of home video cassettes) which are then leased to retailers for a percentage of the rentals charged by the retailers. The Company's wholly owned subsidiary, 3PF.COM,Inc. (3PF), provides e-fulfillment order processing and inventory management services to e-tailers, wholesalers and businesses requiring just-in-time fulfillment. The Company's wholly owned subsidiary BlowOut Video, Inc. sells video cassettes and DVDs through its seven retail video stores that operate under the name of BlowOut Video. Rentrak Japan In December 1989, the Company entered into a definitive agreement with Culture Convenience Club Co., Ltd. (CCC), Rentrak's joint venture partner in Rentrak Japan, to develop the Company's PPT distribution and information processing business in certain markets throughout the world. On June 16, 1994, the Company and CCC amended the agreement. Pursuant to this amendment, the Company receives a royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of one percent (0.5 percent) of sales greater than $47,905,000 in each fiscal year. In addition, the Company received a one-time royalty of $2 million, of which $1 million was paid in fiscal 1995 and $1 million was paid in fiscal 1999. The term of the Agreement was extended from the year 2001 to the year 2039. As of March 31, 2001, the Company owned approximately 9 percent of Rentrak Japan. In April 2001, the Company sold or agreed to sell all of its interest in Rentrak Japan (Note 14). In December 1999, the Company received a prepayment of $2,500,000 in exchange for $4,000,000 of credit related to the annual royalty described above. This credit is being recognized in revenues as royalties are earned under the terms of the contract. As of March 31, 2001, $745,754 had been recorded as current deferred revenue on the accompanying consolidated balance sheet. As discussed in Note 14, in April 2001, this contract was effectively terminated with Rentrak Japan forfeiting its rights to the prepayment. Rentrak UK Limited In February 1998, the Company entered into a Shareholders Agreement and a PPT License Agreement with Columbus Holdings Limited and Rentrak UK Limited (Rentrak UK) to develop the Company's PPT distribution and information processing business in the United Kingdom through Rentrak UK. The PPT Agreement remains in force in perpetuity, unless terminated due to material breach of contract, liquidation of Rentrak UK or nondelivery, by the Company to Rentrak UK of all retailer and studio software, including -32- all updates. Pursuant to the PPT Agreement, during the term of the PPT Agreement, the Company will receive a royalty of 1.67 percent of Rentrak UK's gross revenues from any and all sources. Rentrak UK was originally structured as a joint venture between the Company, which owned 25 percent, Columbus Holdings Limited, which owned 67 percent of the venture and Rentrak Japan, which owns 8 percent. On March 31, 1999, the Company acquired Columbus Holdings Limited's 67 percent interest, and now owns 92 percent of Rentrak UK. The acquisition, which was not material to the operations of the Company, was accounted for as a purchase. During fiscal 2000, Rentrak UK did not generate income or positive cash flow and, as a result, the Company wrote off its investment of $222,000 in that year. As of March 31, 2001, Rentrak UK continues to not generate income or positive cash flow. Management of the Company is evaluating Rentrak UK's operations and is exploring its options, including selling or closing down the operations. Management intends to make a decision in the second quarter of fiscal 2002. Basis of Consolidation The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries, and those subsidiaries in which the Company has a controlling interest after elimination of all intercompany accounts and transactions. Investments in affiliated companies owned 20 percent to 50 percent are accounted for by the equity method. Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include, among others, reserves on financings under the retailer financing program investments (Note 4). Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less at acquisition to be cash equivalents. Included in cash and cash equivalents is $1,000,000 of restricted cash, as required by its bank, which is held in highly liquid investments. The classification of this cash is determined based on the expected term of the collateral requirement of the operating cash account. Investment Securities Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), requires the Company to classify and account for its security investments as trading securities, securities available for sale or securities held to maturity depending on the Company's intent and ability to hold or trade the securities at time of purchase. Securities available for sale are stated on the balance sheet at their fair market value with an adjustment to stockholders' equity reflected in other comprehensive income (loss) as change in net unrealized gains and losses, net of tax. Securities held to maturity are stated at amortized cost. -33- Details of the proceeds from the sales of available for sale securities and realized gains and losses on sales of equity securities for the years ended March 31 are as follows: Gross Gross Proceeds Gains Losses -------- ------- ------- 2001 $1,605,555 $ 9,570 $(606,694) 2000 975,305 554,971 (121,105) 1999 1,525,538 843,749 (294,646) When, in management's opinion, available for sale securities have experienced an other than temporary decline, the amount of the decline in market value below cost is recorded in the statement of operations as a loss on investments. In fiscal year 2000, management determined that certain investments had incurred unrealized losses resulting from other than temporary declines in market value below the cost of the investments. Unrealized losses from other than temporary decline in market value of $1,245,157 were recorded in gain (loss) on investments in the March 31, 2000 consolidated statement of operations. There were no unrealized losses from other than temporary declines in market value recognized in the March 31, 2001 and 1999 consolidated statements of operations. Financial Instruments A financial instrument is cash or a contract that imposes or conveys a contractual obligation or right, to deliver or receive, cash or another financial instrument. The estimated fair value of all material financial instruments, including retailer financing program notes receivable, approximated their carrying values at March 31, 2001 and 2000. Inventory Inventory consists of videocassettes, digital video discs (DVDs), and other home entertainment products held for sale and is carried at the lower of cost (first-in, first-out method) or market value. Property and Equipment Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized over the lives of the underlying leases or the service lives of the improvements, whichever is shorter. Intangibles and Other Long-Lived Assets The Company reviews its intangible and other long-lived assets for asset impairment at the end of each quarter, or more frequently when events or changes in circumstances indicate that the carrying amount of intangible and other long-lived assets may not be recoverable. The Company estimates the sum of expected future undiscounted preinterest expense net cash flows from operating activities. If the estimated net cash flows are less than the carrying amount of intangible and other long-lived assets, the Company will recognize an impairment loss in an amount necessary to write down intangible and other long-lived assets to a fair value as determined from expected discounted future cash flows. -34- Revenue Recognition The PPT agreements generally provide for a one-time initial order processing fee and continuing transaction fees based on a percentage of rental revenues earned by the retailer upon renting the video cassettes to their customers. The Company recognizes order-processing fees as revenue when the video cassettes are shipped to the retailers and recognizes transaction fees when the video cassettes are rented to consumers. When the Company's total revenue is fixed, determinable and billable at time of shipment of video cassettes to the retailers, deferred revenue is recorded and recognized as revenue in the statements of operations when the video cassettes are rented to consumers. The corresponding obligation for their share of the fees due to program suppliers is recorded as cost of sales when the revenue is recognized with a corresponding liability recorded as accounts payable. The Company also may charge retailers an application fee upon admission to the PPT program. This fee is recognized as PPT revenue when the application to participate in the PPT program is approved. Revenues derived from fulfillment activities are recognized when products are shipped and/or services are provided. During fiscal 2000, the Company received a $2,500,000 prepayment from a customer in exchange for $4,000,000 in credit related to a long-term agreement. This prepayment related to periods subsequent to March 31, 2000 and has therefore been recorded as deferred revenue on the accompanying consolidated balance sheet. Deferred revenue will be recognized in future periods as revenues are earned under the terms of the contract. Stockholders and directors, or their families owned interests in several stores participating in the PPT program through fiscal 2000. The Company realized revenues from these stores of approximately $47,000 and $99,000 during fiscal 2000 and 1999, respectively. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement basis and tax basis of assets and liabilities as measured by the enacted tax rates for the years in which the taxes are expected to be paid. Earnings Per Share Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from dilutive stock options. The weighted average number of shares of common stock and common stock equivalents and net income (loss) used to compute basic and diluted earnings (loss) per share for the years ended March 31 were calculated as follows: -35- 2001 2000 1999 ---------------- ----------------- ----------------- Basic Diluted Basic Diluted Basic Diluted ------ -------- ------ -------- ------ -------- Weighted average number of shares of common stock outstanding used to compute basic earnings (loss) per common share 11,985,023 11,985,023 10,477,334 10,477,334 10,775,126 10,775,126 Dilutive effect of exercise of stock options - - - 281,787 - 291,017 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares of common stock used to compute diluted earnings (loss) per common share outstanding and common stock equivalents 11,985,023 11,985,023 10,477,334 10,759,121 10,775,126 11,066,143 ========== ========== ========== ========== ========== ========== Net income (loss) used in basic and diluted earnings (loss) per common share: Continuing operations $(7,577,368)(7,577,368) $1,051,304 $1,051,304 $2,042,506 $2,042,506 Discontinued operations - - 2,373,502 2,373,502 - - ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $(7,577,368)(7,577,368) $3,424,806 $3,424,806 $2,042,506 $2,042,506 ========== ========== ========== ========== ========== ========== Earnings (loss) per common share: Continuing operations $ (0.63) (0.63) $ 0.10 $ 0.10 $ 0.19 $ 0.18 Discontinued operations - - 0.23 0.22 - - ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) per common share $ (0.63)$ (0.63) $ 0.33 $ 0.32 $ 0.19 $ 0.18 ========== ========== ========== ========== ========== ==========
Options and warrants to purchase approximately 3,200,000, 4,400,000 and 4,400,000 shares of common stock were outstanding during the years ended March 31, 2001, 2000 and 1999, respectively, but were not included in the computation of diluted EPS because the exercise price of the options and warrants were greater than the average market price of the common shares. Advertising Expense Advertising expense, net of advertising reimbursements, totaled approximately $492,000, $952,000 and $641,000 for the years ended March 31, 2001, 2000 and 1999, respectively. -36- Statements of Cash Flows The Company had the following transactions for the years ended March 31: 2001 2000 1999 ----------- ---------- --------- CASH PAID (RECEIVED) FOR: Interest $ 253,211 $ 656,723 $ 328,802 Income taxes, net of refunds 111,701 (1,645,085) (493,645) NONCASH FINANCING AND INVESTING ACTIVITIES: Reclassification of accounts receivable to other assets and other investments - 1,023,794 269,775 Issuance of warrants - (544,139) (84,000) Tax benefit from stock option exercises - (27,699) (41,428) Receipt of note receivable in litigation settlement - 4,000,000 - Receipt of common stock in litigation settlement - 1,944,375 - Change in unrealized gain (loss) on investment securities, net of tax 215,112 (402,431) 83,102 Notes issued, net of cancellations for common stock 7,728,186 - -
Comprehensive Income In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The Company has adopted SFAS 130. The statement establishes presentation and disclosure requirements for reporting comprehensive income. Comprehensive income includes charges or credits to equity that are not the result of transactions with shareholders. Components of the Company's comprehensive income (loss) consist of the change in unrealized gain (loss) on investment securities (net of tax), net of the reclassification adjustment for gains (losses) included in net income (loss) as of March 31 is as follows: 2001 2000 1999 --------- ---------- --------- Holding gains (losses) arising during the period, net of tax $(12,470) $(534,988) $291,761 Less- Reclassification adjustment for gains (losses) included in net income (loss), net of tax (227,582) (132,557) 208,659 -------- -------- ------- Change in unrealized gain (loss) on investment securities, net of tax $215,112 $(402,431) $ 83,102 ======== ======== =======
Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. -37- 2. Investment Securities The carrying value and estimated fair value of marketable securities at March 31 were as follows: Carrying Unrealized Unrealized Value Gross Gain Gross Loss Fair Value -------- ---------- ----------- ---------- As of March 31, 2001: Available for sale- Noncurrent: Corporate securities $ 143,309 $ 13 $ (79,969) $ 63,353 ======== ======== ======== ======== As of March 31, 2000: Available for sale- Noncurrent: Corporate securities $2,335,290 $ 30,319 $(457,233) $1,908,376 ========= ======== ======== =========
Investment securities that have limited marketability are classified as noncurrent as it is management's intent not to dispose of the securities within one year. 3. Property and Equipment Property and equipment, at cost, consists of: March 31, ------------------------ 2001 2000 ----------- ----------- Furniture and fixtures $8,532,210 $7,054,568 Machinery and equipment 1,875,159 438,312 Leasehold improvements 2,092,844 2,060,114 ----------- ----------- 12,500,213 9,552,994 Less- Accumulated depreciation (8,060,440) (6,910,294) ----------- ----------- $4,439,773 $2,642,700 =========== =========== 4. Retailer Financing Program In 1992, the Company established a retailer financing program whereby, on a selective basis, it provided financing to Participating Retailers that the Company believed had potential for substantial growth in the industry. In connection with these financings, the Company typically made a loan and/or equity investment in the Participating Retailer. In some cases, the Company obtained a warrant to purchase stock in the Participating Retailer. As part of such financings, the Participating Retailer typically agreed to cause all of its current and future retail locations to participate in the PPT System for a designated period of time (usually 5-20 years). These financings are speculative in nature and involve a high degree of risk and no assurance of a satisfactory return on investment can be given. The loans are reviewed for impairment in accordance with FASB Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114). A valuation allowance has been established for the amount by which the recorded investment in the loan exceeds the -38- measure of the impaired loan. As the financings are made, and periodically throughout the terms of the agreements, the Company assesses the recoverability of the amounts based on the financial position of each retailer. The amounts the Company could ultimately receive could differ materially in the near-term from the amounts assumed in establishing the reserves. During the fiscal year 2001, the Company discontinued new financings under this retailer financing program. Write-offs of assets associated with this program during the fiscal year 2001 were $6.1 million, including $4.4 million of related accounts receivable due to the Company from Video Update, Inc. The Company seeks to enforce agreements entered into in connection with this program in accordance with their terms to the extent practicable. At March 31, 2001 the Company had invested or loaned approximately $6,600,000 under the program and had provided reserves of approximately $6,600,000. At March 31, 2000 the Company had invested or loaned approximately $6,600,000 under the program and had provided reserves of approximately $5,700,000. These balances are included in other assets. The activity in the total reserves for the retailer financing program is as follows for the fiscal years ended March 31: 2001 2000 ----------- ----------- Beginning balance $5,684,183 $9,575,688 Additions to reserve 925,216 1,245,157 Write-offs - (5,115,665) Recoveries (10,885) (20,997) --------- --------- Ending balance $6,598,514 $5,684,183 ========= ========= A substantial portion of the write-offs in fiscal 2000 related to assets which were fully reserved in prior years. 5. Line of Credit In May 2000 the Company obtained a replacement line of credit with a lender in an amount not to exceed the lesser of (a) $12 million or (b) the sum of 85 percent of the net amount of eligible accounts receivable. Interest under the line is payable monthly at the bank's prime rate plus 1/4 percent (8.25 percent at March 31, 2001). The line is secured by substantially all of the Company's assets. The terms of the credit agreement include financial covenants requiring: (1) $15 million of tangible net worth to be maintained at all times; (2) a consolidated net profit to be achieved each fiscal year equal to or exceeding $1.00 and (3) $5 million of working capital to be maintained at all times. The agreement also restricts the amount of loans and indebtedness and limits the payment of dividends on the Company's stock, among other restrictions. This agreement expires in May 2005. Based upon the financial results reported as of March 31, 2001 and the year then ended, the Company has determined it is out of compliance with the three financial covenants at March 31, 2001. The Company has obtained waivers of compliance for these three financial covenants as of March 31, 2001 and for the year then ended. The Company has initiated discussions of these covenants with its lender and is seeking covenant modifications, if necessary. Based upon discussions between the Company and its lender, the Company believes it will successfully receive future waivers and/or modifications, if necessary, and will have sufficient cash resources to repay all outstanding borrowings as due. At March 31, 2001, the Company had $1,917,705 outstanding borrowings under this agreement. -39- 6. Related Party Note Payable On January 29, 1998, the Company entered into a $3,000,000 unsecured note payable with a director of the Company. The 10 percent interest-bearing note was repaid in full in January 2000. During fiscal 2000, the Company's subsidiary, Blowout Video Holding Company, entered into a $3,000,000 line of credit with the same director of the Company. The line expires in August 2002 and bears interest at prime plus 1 1/2 percent (9.5 percent at March 31, 2001). The line is secured by substantially all the assets of BlowOut Video Holding Company. At March 31, 2001 and 2000, the Company had $0 and $500,000 outstanding under this agreement, respectively. 7. Income Taxes The provision (benefit) for income taxes is as follows for the years ended March 31: 2001 2000 1999 ---------- -------- -------- Current tax provision: Federal $ - $ - $ - State - 125,192 - ---------- -------- -------- - 125,192 - Deferred tax (benefit) provision (4,514,575) 325,367 1,303,999 ---------- -------- --------- Income tax (benefit) provision $(4,514,575) $450,559 $1,303,999 ========= ======== =========
The reported provision (benefit) for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34 percent to income before provision (benefit) for income taxes as follows for the fiscal years ended March 31: 2001 2000 1999 ---------- -------- -------- Provision (benefit) computed at statutory rates $(4,111,261) $ 510,633 $1,137,812 State taxes, net of federal benefit (468,098) 59,474 133,860 Amortization of warrants 140,027 193,667 272,664 Recognition of net operating loss carryforward - (131,507) - Other (75,243) (181,708) (240,337) ---------- -------- --------- $(4,514,575) $ 450,559 $1,303,999 ========== ======== =========
-40- Deferred tax assets and (liabilities) from continuing operations are comprised of the following components at March 31, 2001 and 2000: 2001 2000 ---------- --------- Deferred tax assets: Current- Allowance for doubtful accounts $ 449,138 $ 78,113 Program supplier reserves 520,614 - Foreign tax credit 500,000 823,559 Net operating loss carryforward 4,616,162 - Unrealized loss on investments 119,015 - Capital loss carry forward 279,407 327,749 Deferred revenue 473,453 570,100 Other 361,477 78,592 --------- --------- Total current deferred tax assets 7,319,266 1,878,113 --------- --------- Noncurrent- Depreciation 445,631 423,846 Retailer financing program reserve 671,689 320,107 Program supplier reserves - 484,910 Unrealized loss on investments 30,384 299,296 Foreign tax credit 1,000,000 1,000,000 Deferred revenue 144,060 637,361 Other 127,870 180,692 --------- --------- Total noncurrent deferred tax assets 2,419,634 3,346,212 --------- --------- Total deferred tax assets $9,738,900 $5,224,325 ========= ========= As of March 31, 2001, the Company has estimated NOL carryforwards for federal income tax return purposes of approximately $12,100,000, which expire in 2021. Although realization of the deferred tax assets is not assured, management believes it is more likely than not that the Company will ultimately realize all of its deferred tax assets. 8. Stockholders' Equity Stock Options and Warrants Effective March 31, 1997, the Company adopted the 1997 Non-Officer Employee Stock Option Plan. The aggregate number of shares which may be issued upon exercise of options under the plan shall not exceed 750,000. In August 1997, the Company adopted the 1997 Equity Participation Plan. The aggregate number of shares which may be issued upon exercise of options under the plan shall not exceed 1,600,000. The plans are administered by the Stock Option Committee of the Board which determines the terms and conditions of options issued under the plans. Options granted to date under the plans become exercisable over four to five years and expire ten years after date of grant. As of March 31, 2001, the Company had 360,163 and 533,116 options available to be granted under the 1997 Non-Officer Employee Stock Option Plan and 1997 Equity Participation Plan, respectively. The Company has elected to account for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense has been recognized because the option price equals the market price of the -41- Company's stock at the grant date of the options. The Company has computed for pro forma disclosure purposes the value of all options granted during fiscal years 2001, 2000 and 1999, using the Black-Scholes option pricing model as prescribed by SFAS 123, "Accounting for Stock-Based Compensation," and the following assumptions: 2001 2000 1999 -------- -------- ------- Risk-free interest rate 4.77 - 6.82 % 5.37 - 6.91% 4.46 - 6.03% Expected dividend yield 0% 0% 0% Expected lives 5 - 10 years 5 - 10 years 5 - 10 years Expected volatility 78.21% 72.20% 68.94% Using the Black Scholes methodology, the total value of options granted during fiscal years 2001, 2000 and 1999 was approximately $1,524,000, $2,560,000 and $4,633,000, respectively, which would be amortized on a pro forma basis over the vesting period of the option. The weighted average fair value of options granted during the years ended March 31, 2001, 2000 and 1999 was $3.82, $4.03 and $5.04, respectively. Options to purchase 1,026,899, 2,494,190 and 2,006,932 shares of common stock were exercisable at March 31, 2001, 2000 and 1999, respectively. These exercisable options had weighted average exercise prices of $4.39, $4.70 and $4.57 at March 31, 2001, 2000 and 1999, respectively. Adjustments were made for options forfeited prior to vesting. Had compensation expense for these plans been determined in accordance with SFAS 123, the Company's net income (loss) and basic and diluted earnings (loss) per common share reflected on the March 31, 2001, 2000 and 1999 statements of operations would have been the following unaudited pro forma amounts: 2001 2000 1999 ----------- ----------- ---------- Net income (loss) As reported $(7,577,368) $3,424,806 $2,042,506 Pro forma (8,156,972) 2,293,758 95,767 Basic earnings (loss) per share As reported $ (.63) $ .33 $ .19 Pro forma (.68) .22 .01 Diluted earnings (loss) per share As reported $ (.63) $ .32 $ .18 Pro forma (.68) .21 .01
-42- The table below summarizes the plans' activity: Options Outstanding -------------------------------- Weighted Number of Average Shares Exercise Price ------------- ----------------- Balance at March 31, 1998 2,825,325 $4.60 Granted- Option price = fair market value 919,216 5.04 Exercised (45,977) 2.77 Canceled (252,458) 4.77 ----------- ----- Balance at March 31, 1999 3,446,106 4.73 Granted- Option price = fair market value 607,837 3.97 Option price > fair market value 15,000 7.38 Option price < fair market value 12,500 2.81 Exercised (74,613) 3.08 Canceled (147,128) 5.75 ----------- ----- Balance at March 31, 2000 3,859,702 4.60 Granted- Option price = fair market value 393,575 3.80 Option price > fair market value 5,420 4.61 Exercised (1,721,060) 4.67 Canceled (872,948) 5.12 ----------- ----- Balance at March 31, 2001 1,664,689 $4.07 =========== ===== The following table summarizes information about stock options outstanding at March 31, 2001: Options Outstanding Options Exercisable ------------------------------------------------------- ------------------------- Outstanding Weighted Exercisable Weighted Range of as of Weighted Average Average As of Average Exercise March 31, Remaining Exercise March 31, Exercise Prices 2001 Contractual Life Price 2001 Price --------------- ----------------- --------------------- ------------- ------------- --------- $1.00 - $2.59 45,000 9.8 $2.19 - $0.00 2.60 - 6.49 1,609,689 5.2 4.09 1,016,899 4.34 6.50 - 9.78 10,000 8.3 9.50 10,000 9.50 -------------- ------------- 1.00 - 9.78 1,664,689 5.4 4.07 1,026,899 4.39 ============== =============
In November 1996, the Company adjusted the number of shares of common stock issued and outstanding to employees under the 1986 stock option plan. The adjustment, which increased the number of shares outstanding by 222,408 shares, also included reduction in the exercise price. This adjustment was done -43- to equalize the options' values before and after the distribution of the common stock of BlowOut in November 1996 (Note 13). In March 1998, the Company agreed to issue warrants to buy up to 1,000,000 shares of the Company's common stock at an exercise price of $6.59 per share, which exceeded market value at date of grant. The warrants were issued in connection with entering into a long-term agreement with a customer. These warrants expired unexercised in March 2000. All warrants which the Company agreed to issue in 1995 and 1998 were valued by an outside valuation firm using standard warrant valuation models. All warrants issued in 1999 and 2000 were valued based on an internal valuation model using the Black Scholes methodology. The value of the warrants of $4,762,116 was recorded in the equity section and is being amortized over the associated periods to be benefited by each warrant. In fiscal 2001, 2000 and 1999, expense associated with the warrants was approximately $368,000, $510,000 and $718,000, respectively. In May 1995, the Board of Directors approved a shareholders' rights plan designed to ensure that all of the Company's shareholders receive fair and equal treatment in the event of certain proposals to acquire control of the Company. Under the rights plan, each shareholder received a dividend of one right for each share of the Company's outstanding common stock, entitling the holders to purchase one additional share of the Company's common stock. The rights become exercisable after any person or group acquires 15 percent or more of the Company's outstanding common stock, or announces a tender offer which would result in the offeror becoming the beneficial owners of 15 percent or more of the Company's outstanding stock. Prior to the time that a person or group acquires beneficial ownership of 15 percent or more of the Company's outstanding stock, the Board of Directors, at their discretion, may waive this provision with respect to any transaction or may terminate the rights plan. Executive Option Loan Program In June 2000, the board of directors approved a program to make loans available to those officers of the Company who had an employment agreement for the purpose of allowing them to exercise their vested, unexercised "out of the money" employee stock options. The loans under this program bear interest at the federal funds rate in effect on the date of the loan and interest is payable annually. The principal amount of the loan is due on the earliest to occur of: (1) one year prior to the expiration of the term of the borrower's current employment agreement with the Company, (2) one year after the borrower leaves the Company's employment unless such departure follows 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 are secured by the stock purchased upon the exercise of the options. The loans are without recourse (except as to the stock securing the loans) as to principal and are with full recourse against the borrower as to interest. The offer to make these loans expired September 30, 2000. Prior to September 30, 2000, several employees accepted this offer and obtained loans from the Company. Because the loan proceeds were immediately used to pay the exercise price of the options to the Company, there was no net outflow of cash from the Company in connection with these loans. The Company accounted for the options related to these loans using variable accounting as prescribed by APB 25. As the exercise price of the options was greater than the fair market value of the Company's stock through March 31, 2001, no compensation expense was recorded. The balance remaining due on these loans is reflected as an offset to equity in the accompanying consolidated balance sheet and consolidated statement of shareholders' equity. -44- 9. Commitments Leases The Company leases certain facilities and equipment under operating leases expiring at various dates through 2009. Approximate rental payments over the term of the leases exceeding one year are as follows: Year Ending March 31, ---------------------- 2002 $3,223,947 2003 3,449,400 2004 3,413,055 2005 3,404,573 2006 3,198,259 2007 and thereafter 7,139,731 ---------- $23,828,965 ========== The leases provide for payment of taxes, insurance and maintenance by the Company. The Company also rents vehicles and equipment on a short-term basis. Rent expense under operating leases was approximately $2,953,840, $2,335,000 and $1,926,000 for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Guarantees and Advances The Company has entered into several guarantee contracts with program suppliers providing titles for distribution under the PPT system. In general, these contracts guarantee the suppliers minimum payments. In some cases these guarantees were paid in advance. Any advance payments that the Company has made and will be realized within the current year are included in advances to program suppliers. The long-term portion is included in other assets. Both the current and long-term portion are amortized to cost of sales as revenues are generated from the related cassettes. The Company, using empirical data, estimates the projected revenue stream to be generated under these guarantee arrangements and accrues for projected losses or reduces the carrying amount of advances to program suppliers for any guarantee that it estimates will not be fully recovered through future revenues. As of March 31, 2001 and 2000, the Company has reserved approximately $2,400,000 and $2,000,000, respectively, for potential losses under such guarantee arrangements. On March 22, 1999, BlowOut filed for Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. At that same time BlowOut filed a motion to sell substantially all the assets of BlowOut. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The sale, to a third party video retailer, was approved on May 10, 1999 and closed on May 17, 1999. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut (Guarantee). Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, has agreed to a payment plan to fulfill BlowOut's obligation under its credit facility. The amount outstanding at March 31, 2001 is approximately $300,000. The payments, as made, will be recorded as a reduction of "net current liabilities of discontinued operations" on the accompanying balance sheet (see also Note 13). -45- Customer Agreement In June 2000, the Company entered into an agreement with one of its customers to modify an existing contract. Under terms of the agreement the customer made a payment to the Company in the amount of $2,500,000. Subsequent to the signing of the agreement, the customer took the position that it was entitled to a refund of the payment, as additional agreements were not finalized as expected. On March 31, 2001, the Company entered into a settlement agreement with the customer whereby $1,600,000 of the $2,500,000 payment was determined to be consideration for cancellation of certain rights of Rentrak under the existing contract while the balance of $900,000 was held by the Company as a deposit to be applied to future receivables generated by the customer. The $900,000 deposit is to be allocated towards future receivables at the rate of $75,000 per quarter, beginning with the quarter ended March 31, 2001. The long-term portion of this credit has been included in other long-term liabilities on the accompanying balance sheet. 10. Contingencies In June 1998, Video Update, Inc. (Video Update) filed a complaint (the Video Update Complaint) against the Company entitled Video Update, Inc. v. Rentrak Corp., Civil Action No. 98-286, in the United States District Court for the District of Delaware. The Video Update Complaint alleges various violations of the antitrust laws, including that the Company has monopolized or attempted to monopolize a market for videocassettes leased to retain video stores in violation of Section 2 of the Sherman Act. Video Update further alleges that the Company's negotiation and execution of an exclusive, long-term revenue sharing agreement with Video Update violates Section 1 of the Sherman Act and Section 3 of the Clayton Act. Video Update is seeking unspecified monetary relief, including treble damages and attorney fees, and equitable relief, including an injunction prohibiting the Company from enforcing its agreement with Video Update or any exclusivity provision against videocassette suppliers and video retailers. In August 1998, the Court granted the Company's motion to dismiss the Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule 12(b)(3) on the basis of improper venue. In August 1998, Video Update filed a new complaint against the Company in the United States District Court for the District of Oregon (the Re-Filed Complaint), Case No. 98-1013HA. The Re-Filed Complaint is substantially the same as the previous complaint. The Company believes the Re-Filed Complaint lacks merit and intends to vigorously defend against the allegations in the Complaint. The Company has answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also has counterclaimed against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation and intentional interference with business advantage, and is seeking damages and equitable relief. In October 1998, the Company filed a motion for summary judgment seeking to dismiss the lawsuit filed against it by Video Update. In January 1999, the Company filed a separate motion for partial summary judgment on its breach of contract counterclaim seeking to recover more than $4.4 million in fees and interest which the Company claims Video Update owes to it. The court denied Rentrak's motions without reaching the merits and without prejudice to refiling the motions after discovery had been conducted. On October 21, 1999, the Company amended its counterclaims to add additional claims, including a claim for trade secret misappropriation and a claim for recovery of personal property. The amended countercomplaint also added Video Update's chairman, Daniel Potter, as a defendant to the fraud and negligent misrepresentation claims. Mr. Potter filed a motion to dismiss the Company's claims against him which motion was granted by the Court on April 13, 2000. Video Update also moved to dismiss six of the Company's claims. On April 13, 2000, the Court granted Video Update's motion in part and dismissed the following claims: promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, and negligent misrepresentation. On July 31, 2000, the Company filed multiple motions for summary judgment including a motion seeking to dismiss Video Update's antitrust claim and a motion seeking a finding that Video Update breached its contract with Rentrak. On September 18, 2000, Video Update filed -46- a voluntary petition under Chapter 11 of the federal Bankruptcy Code. In light of the bankruptcy case, the District Court dismissed the Re-Filed Complaint and counterclaims on its own motion in January 2001, but that action could be reinitiated by Video Update at any time. The Company has filed a proof of claim in the bankruptcy case asserting the claims the Company asserted in its counterclaim in the District Court action. On November 15, 2000, 3PF.COM, Inc., a subsidiary of the Company, filed a proceeding with the American Arbitration Association against Reel.com, Inc., a subsidiary of Hollywood Entertainment Corporation (Hollywood), for breach of a servicing, warehousing, and distribution agreement, and against Hollywood in connection with its guarantee of the obligations of Reel.com, Inc., under the agreement. 3PF.COM, Inc., is seeking damages in the amount of $4,776,237 plus an amount to be determined as consequential damages, together with prejudgment interest and attorney fees. Hollywood and Reel.com, Inc., have filed a counterclaim for attorney fees. On February 20, 2001, the Company filed a complaint against Ron Berger, Chairman and Chief Executive Officer and a director of Rentrak until September 2000, in the Circuit Court of the State of Oregon for the County of Multnomah (No. 0102-01814), seeking cancellation of shares of Rentrak common stock acquired by Mr. Berger through an option loan program offered to the Company's officers in June 2000 and damages for the conversion of an automobile and computer equipment plus an over-advance payment of business expenses less setoffs. On or about March 29, 2001, Mr. Berger filed a counterclaim seeking damages of approximately $1.76 million plus attorney fees from Rentrak for conversion of Mr. Berger's director's fees and dividends from Rentrak Japan, breach of an agreement to compensate Mr. Berger for cancellation of options to purchase Rentrak stock, failure to pay accumulated wages and compensation, breach of an agreement to provide options to purchase stock in Rentrak's subsidiary 3PF.COM, Inc., and failure to reimburse Mr. Berger for life insurance premiums and cancellation of family health insurance. The claim for breach of an agreement to provide options to purchase stock in the subsidiary is also asserted against counterclaim defendant 3PF.COM, Inc. The Company has denied liability for the counterclaims. On June 15, 2001, the Company filed an amended complaint alleging claims for breach of duty of care and breach of fiduciary duty against Mr. Berger arising out of his activities as an officer and director of the Company involving Video City, Inc., and seeking damages with respect to those claims in an amount to be proved at trial but not less than $6.0 million. The case is presently in the discovery phase. The Company intends to contest the case vigorously. The Company is also subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions is not expected to materially affect the financial position or results of operations of the Company as a whole. 11. Employee Benefit Plans On January 1, 1991, the Company established an employee benefit plan (the 401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code for certain qualified employees. Contributions made to the 401(k) Plan are based on percentages of employees' salaries. The total amount of the Company's contribution is at the discretion of the Board of Directors. Contributions under the 401(k) Plan for the years ended March 31, 2000 and 1999 were approximately $77,000 and $76,000, respectively. As of March 31, 2001, the Board of Directors had not made a decision regarding contributions for the year ended March 31, 2001. The Company has an Employee Stock Purchase Plan (the Plan). The Board of Directors has reserved 200,000 shares of the Company's common stock for issuance under the Plan, of which 139,773 shares remain authorized and available for sale to employees. All employees meeting certain eligibility criteria may be granted the opportunity to purchase common stock, under certain limitations, at 85 percent of market value. Payment is made through payroll deductions. -47- Under the Plan, employees purchased 4,000 shares for aggregate proceeds of $13,561, 3,257 shares for aggregate proceeds of $14,370 and 4,245 shares for aggregate proceeds of $20,214, in fiscal 2001, 2000 and 1999, respectively. 12. Business Segments, Significant Suppliers and Major Customer In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131). SFAS 131 requires the Company to report certain information about operating segments. The Company classifies its services in three segments, PPT, 3PF.COM and Other. Other services include operations of BlowOut Video, a video retailer, website services and amounts received pursuant to royalty agreements. Business Segments 2001 2000 1999 ----------- ---------- ---------- Net sales (1): PPT $ 83,637,704 $ 94,149,121 $106,972,685 3PF.COM (2) 23,389,443 11,648,725 10,501,958 Other 13,488,063 11,654,081 6,912,523 ----------- ---------- ----------- $120,515,210 $117,451,927 $124,387,166 =========== =========== =========== Income (loss) from operations PPT $ (6,694,623) $ 1,892,505 $ (1,115,934) 3PF.COM (2) (3,788,576) (1,131,654) 862,257 Other 539,929 2,260,390 3,003,074 ----------- ---------- ----------- $ (9,943,270) $ 3,021,241 $ 2,749,397 =========== ========== =========== Identifiable assets (1): PPT $ 38,202,038 $ 44,571,673 $ 45,743,988 3PF.COM 8,425,876 2,703,360 1,152,171 Other 5,566,431 6,195,923 4,177,146 ----------- ---------- ----------- $ 52,194,345 $ 53,470,956 $ 51,073,305 =========== ========== ===========
(1) Total amounts differ from those reported on the consolidated financial statements as intercompany transactions and balances are not eliminated for segment reporting purposes. (2) 3PF.COM's revenues related to the shipment of cassettes to Rentrak's PPT customers was $3,300,000, $3,300,000 and $3,800,000 for the years ended March 31, 2001, 2000 and 1999, respectively. The Company has one program supplier that supplied product that generated 18 percent, a second that generated 15 percent, and a third that generated 13 percent of the Company's revenues for the year ended March 31, 2001. The Company has one program supplier that supplied product that generated 25 percent, a second that generated 19 percent, and a third that generated 13 percent of the Company's revenues for the year ended March 31, 2000. The Company has one program supplier that supplied product that generated 28 percent, a second that generated 26 percent, and a third that generated 15 percent of the Company's revenues for the year ended March 31, 1999. There were no other program -48- suppliers who provided product accounting for more than 10 percent of sales for the years ended March 31, 2001, 2000 and 1999. The Company currently receives a significant amount of product from three program suppliers. Although management does not believe that these relationships will be terminated in the near term, a loss of one of these suppliers could have an adverse effect on operating results. One customer accounted for 13 percent of the Company's revenues in 1999. No customer accounted for more than 10 percent of the Company's revenues in fiscal 2001 and 2000. 13. Discontinued Operations On November 26, 1996, the Company made a distribution to its shareholders of 1,457,343 shares of common stock (the BlowOut Common Stock) of BlowOut. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. During the year ended March 31, 2000, the Company recorded a gain on the disposal of discontinued operations of $1,900,000 related to BlowOut, as the liability related to BlowOut contingencies was less than estimated. The Company also reduced the valuation allowance that was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of approximately $500,000 in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated statement of operations. Net current liabilities of discontinued operations at March 31, 2001 relate to amounts to be paid pursuant to the Guarantee, net of tax benefit. 14. Subsequent Events Rentrak Japan On April 2, 2001, the Company transferred exclusive rights to implement its PPT system within specified countries in the Far East, including related trademark and other intellectual property rights, to Rentrak Japan, which distributes video cassettes, DVDs, and video games on a revenue-sharing basis throughout Japan. In exchange for the transfer, Rentrak Japan made a lump sum cash payment of $5.65 million and released certain payment obligations of the Company totaling $2.1 million. As a part of the transaction, Rentrak Japan's obligation to pay annual royalties to the Company in connection with use of its PPT system was terminated. The Company concurrently sold to So-Tsu Co., Ltd. (So-Tsu), an entity affiliated with Rentrak Japan, 300,000 shares of Rentrak Japan stock, or approximately 5.6 percent of the outstanding Rentrak Japan shares, in exchange for a cash payment of $4.0 million. The Company also repurchased from Rentrak Japan 614,000 shares of the Company's common stock for a cash payment of $2.4 million, or $3.875 per share. The Company repurchased an additional 390,000 shares of its common stock for the same price per share, or a total of $1.5 million, from Culture Convenience Club Co., Ltd., an entity affiliated with Rentrak Japan. The Company also has the right to, and upon the occurrence of certain conditions will be required to, sell its remaining 180,000 shares of Rentrak Japan stock, representing approximately 3.4 percent of the outstanding Rentrak Japan shares, for a minimum payment of 1,600 yen per share. Finally, the Company sold to So-Tsu 1 percent of the Company's equity interest in its wholly owned subsidiary 3PF.Com, Inc., for a cash payment of $1 million. The terms of the transactions between the Company and Rentrak Japan and its affiliates were negotiated at arm's length. A director of the Company received a fee totaling approximately $242,000 for his services in negotiating the transaction. -49- 3PF.COM On April 24, 2001, 3PF.COM announced the closure of its administrative office in Skokie, IL. Services performed at this facility will now be performed at the Company's headquarters. As a result of this closure, 3PF.COM expects to incur severance costs related to terminated employees in addition to continued payments on its operating lease of the office which was to expire in March 2003. The total estimated cost of the closure of $770,000 will be recognized in the first quarter of fiscal 2002. One of 3PF.COM's major clients filed for Chapter 11 bankruptcy during May 2001, which may negatively impact 3PF.COM's financial results during fiscal 2002. As a result, management is closely evaluating the net realizable value of its assets with respect to this matter. The Company is currently seeking opportunities to replace this client, as well as attract new clients to 3PF.COM's business. -50- RENTRAK CORPORATION Valuation and Qualifying Accounts Schedule II Balance at Charged to Balance at Beginning of Write Off and Other Recoveries The End of Year Ended: Period Expenses Accounts (Deductions) Period - ------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts March 31, 1999 586,641 (125,000) - (106,400) 355,241 March 31, 2000 355,241 6,341,030 - (5,859,326) 836,945 March 31, 2001 836,945 7,758,211 - (6,505,081) 2,090,075 Advances to program suppliers reserve March 31, 1999 1,182,757 (17,597) - - 1,165,160 March 31, 2000 1,165,160 110,918 - - 1,276,078 March 31, 2001 1,276,078 93,959 - - 1,370,037 Other Current Assets- Retailer Financing Program reserve March 31, 1999 - - 994,935 1 - 994,935 March 31, 2000 994,935 - (500,000) 1 - 494,935 March 31, 2001 494,935 343,500 - - 838,435 Other Assets- Retailer Financing Program reserve March 31, 1999 9,353,995 (194,888) (559,433) 1 (18,921) 8,580,753 March 31, 2000 8,580,753 1,245,157 (4,615,665) 2 (20,997) 5,189,248 March 31, 2001 5,189,248 581,715 - (10,884) 5,760,079
1 - Reclassified from Other Current Assets to Other Assets. 2 - Eliminated against Other Assets. -51- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) to Form 10-K, the information called for by this item 10 is incorporated by reference from the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Election of Directors", "Executive Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934." ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3) to Form 10-K, the information called for by this item 11 is incorporated by reference from the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3) to Form 10-K, the information called for by this item 12 is incorporated by reference from the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Security Ownership of Certain Beneficial Owners and Management". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3) to Form 10-K, the information called for by this item 13 is incorporated by reference from the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Compensation Committee Interlocks And Insider Participation" and "Certain Relationships And Transactions". -52- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The following documents are filed as part of the Report: Consolidated Financial Statements: The Consolidated Financial Statements of the Company are included in Item 8 of this Report as follows: Report of Independent Public Accountants Consolidated Balance Sheets as of March 31, 2001 and 2000 Consolidated Statements of Operations for the Years Ended March 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules Consolidated Financial Statement Schedules: The following consolidated financial statement schedule has been included in Item 8 of this Report: Schedule II - Valuation and Qualifying Accounts Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (a)(3) Exhibits: The exhibits required to be filed pursuant to Item 601 of Regulation S-K are set forth in the Exhibit Index. (b) Form 8-K Reports. During the fourth quarter of fiscal 2001, the Company filed no reports on Form 8-K. -53- (c) Exhibits (See Exhibit Index) 1. A shareholder may obtain a copy of any exhibit included in this Report upon payment of a fee to cover the reasonable expenses of furnishing such exhibits by written request to Rick Nida, Vice President Investor Relations, Rentrak Corporation, PO Box 18888, Portland, Oregon 97218. -54- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RENTRAK CORPORATION By /S/ F. Kim Cox -------------------------------------- F. Kim Cox, President Date June 28, 2001 -------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and the dates indicated. Principal Executive Officer and Director: By /S/ Paul A. Rosenbaum June 28, 2001 --------------------------- Paul A. Rosenbaum, Chairman and Chief Executive Officer and Director Principal Financial Officer: By /S/ Mark L. Thoenes June 28, 2001 --------------------------- Mark L. Thoenes, Vice President & Chief Financial Officer Majority of Directors: *By /S/ Cecil D. Andrus June 28, 2001 --------------------------- Cecil D. Andrus, Director *By /S/ George H. Kuper June 28, 2001 --------------------------- George H. Kuper, Director *By /S/ Joon S. Moon June 28, 2001 --------------------------- Joon S. Moon, Director *By /S/ James G. Petcoff June 28, 2001 --------------------------- James G. Petcoff, Director *By /S/ Stanford Stoddard June 28, 2001 --------------------------- Stanford Stoddard, Director ------------------ *By /S/ Mark L. Thoenes -------------------------- Mark L. Thoenes, Attorney-in-Fact -55- EXHIBIT INDEX The following exhibits are filed herewith or, if followed by a number in parentheses, are incorporated herein by reference from the corresponding exhibit filed in the report or registration statement identified in the footnotes following this index: Exhibit Number Exhibit 2 Agreement Concerning Changes to Business Cooperation Agreement (Framework) between Rentrak Japan Co., Ltd. and Rentrak Corporation. (1) 3.1 Amended and Restated Articles of Incorporation and amendments thereto. (2) 3.2 1995 Restated Bylaws, as amended to date. (3) 10.1* 1986 Second Amended and Restated Stock Option Plan and Forms of Stock Option Agreements. (4) 10.2* Amendment to 1986 Second Amended and Restated Stock Option Plan dated May 19, 2000. (5) 10.3 Guarantee Agreement dated as of June 26, 1996, between Rentrak Corporation and BlowOut Entertainment, Inc. (6) 10.4* Amended and Restated Employment Agreement with Marty Graham dated May 17, 1997. (7) 10.5* Addendum to Employment Agreement with Marty Graham dated June 8, 2000. (8) 10.6* Amendment to Employment Agreement with Marty Graham dated September 1, 2000. 10.7* Employment Agreement with Michael Lightbourne dated July 10, 1997. (9) 10.8* Employment Agreement with Christopher Roberts dated October 27, 1997. (10) 10.9* Addendum to Employment Agreement with Christopher Roberts dated June 8, 2000. (11) 10.10* Employment Agreement with Ron Berger dated April 21, 1998. (12) 10.11* Amendment to Employment Agreement with Ron Berger dated August 28, 2000. (13) 10.12* Amendment to Employment Agreement with Ron Berger dated September 11, 2000. (14) -56- 10.13* The 1997 Equity Participation Plan of Rentrak Corporation, as amended. 10.14* Form of Non-Qualified Stock Option Agreement under 1997 Equity Participation Plan. 10.15* Form of Incentive Stock Option Agreement under 1997 Equity Participation Plan. 10.16* Employment Agreement with F. Kim Cox dated April 1, 1998. (15) 10.17* Promissory Note entered into with F. Kim Cox dated June 16, 2000. (16) 10.18* Loan Agreement with F. Kim Cox dated June 16, 2000. (17) 10.19* Stock Pledge Agreement executed by F. Kim Cox, dated June 16, 2000. (18) 10.20* Promissory Note entered into with Ron Berger dated June 16, 2000. (19) 10.21* Loan Agreement with Ron Berger dated June 16, 2000. (20) 10.22* Stock Pledge Agreement executed by Ron Berger, dated June 16, 2000. (21) 10.23 Loan and Security Agreement with Guaranty Business Credit Corporation dated May 26, 2000. (22) 10.24 General Continuing Guarantee with Guaranty Business Credit Corporation dated May 26, 2000. (23) 10.25* Employment Agreement with Mark L. Thoenes dated January 1, 2001. 10.26* Employment Agreement with Timothy J. Erwin dated January 1, 2001. 10.27* Employment Agreement with Richard A. Nida dated August 14, 1998, with Addendum dated June 8, 2000. 10.28 Rights Agreement dated as of May 18, 1995, between Rentrak Corporation and U.S. Stock Transfer Corporation. (24) 10.29* Letter Agreement between Rentrak Corporation and Joon S. Moon entered into as of March 15, 2001. 10.30* Incentive Stock Option Agreement with Paul A. Rosenbaum dated March 30, 2001. 10.31* Non-Qualified Stock Option Agreement with Paul A. Rosenbaum dated March 30, 2001. -57- 21 List of Subsidiaries of Registrant. 23 Consent of Arthur Andersen LLP. 99 Description of Capital Stock of Rentrak Corporation. - --------------------------------- *Management Contract or Compensatory Plan or Arrangement. 1. Filed as Exhibit 2 to Form 8-K filed on April 17, 2001. 2. Filed in Form S-3 Registration Statement, File No. 33-8511, filed on November 21, 1994. 3. Filed as Exhibit 3.1 to Form 10-Q filed on February 14, 2001. 4. Filed as Exhibit 10.1 to 1993 Form 10-K filed on June 28, 1993 (File No. 0-15159). 5. Filed as Exhibit 10.30 to 2000 Form 10-K filed on June 29, 2000. 6. Filed as Exhibit 2 to Form 8-K filed on December 9, 1996. 7. Filed as Exhibit 10.1 to Form 10-Q filed on November 3, 1997. 8. Filed as Exhibit 10.23 to 2000 Form 10-K filed on June 29, 2000. 9. Filed as Exhibit 10.2 to Form 10-Q filed on November 3, 1997. 10. Filed as Exhibit 10.3 to Form 10-Q filed on November 3, 1997. 11. Filed as Exhibit 10.24 to 2000 Form 10-K filed on June 29, 2000. 12. Filed as Exhibit 10.35 to 1998 Form 10-K filed on June 25, 1998. 13. Filed as Exhibit 10.1 to Form 10-Q filed on November 14, 2000. 14. Filed as Exhibit 10.2 to Form 10-Q filed on November 14, 2000. 15. Filed as Exhibit 10.2 to Form 10-Q filed on November 6, 1998. 16. Filed as Exhibit 10.26 to 2000 Form 10-K filed on June 29, 2000. 17. Filed as Exhibit 10.35 to Amendment No. 1 on Form 10-K/A filed on July 31, 2000. 18. Filed as Exhibit 10.33 to Amendment No. 1 on Form 10-K/A filed on July 31, 2000. -58- 19. Filed as Exhibit 10.27 to 2000 Form 10-K filed on June 29, 2000. 20. Filed as Exhibit 10.28 to 2000 Form 10-K filed on June 29, 2000. 21. Filed as Exhibit 4 to Form 8-K filed on June 5, 1995. -59- EX-10 2 amendgrahamempagmt.txt 10.6 AMENDMENT TO EMPLOYMENT AGREEMENT Amendment to Rentrak/Graham Employment Agreement This amendment to the Amended and Restated Employment Agreement between Rentrak Corporation and Marty Graham, dated May 17, 1997 ("Agreement") is made and entered into as of this 1st day of September, 2000, by and between Rentrak Corporation, an Oregon Corporation ("Employer"), and Marty Graham ("Employee") (the "Amendment"). Accordingly, the Agreement is hereby amended by modifying Paragraph 2.01 so it shall hereafter read: 2.01 Stated Term. Employment commenced on April 15, 1997 and will end on April 15, 2004 (the "End Date"), or until Employee's employment under this Agreement is terminated pursuant to this Section 2 ("Term"). This Amendment is made as of the date above written and shall be effective upon execution by both parties. The remainder of the Agreement remains in full force and effect without alteration. RENTRAK CORPORATION EMPLOYEE: By /s/ Ron Berger By /s/ Marty Graham ----------------------- ----------------------- Ron Berger Marty Graham CEO VP Product Development EX-10 3 particplan97.txt 10.13 1997 EQUITY PARTICIPATION PLAN THE 1997 EQUITY PARTICIPATION PLAN OF RENTRAK CORPORATION Rentrak Corporation, an Oregon corporation, has adopted The 1997 Equity Participation Plan of Rentrak Corporation (the "Plan"), effective February 27, 1997, for the benefit of its eligible employees, consultants and directors. The Plan consists of two plans, one for the benefit of Employees (as such term is defined below) and consultants and one for the benefit of Independent Directors (as such term is defined below). The purposes of this Plan are as follows: (1) To provide an additional incentive for directors, Employees and consultants to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock and/or rights which recognize such growth, development and financial success. (2) To enable the Company to obtain and retain the services of directors, Employees and consultants considered essential to the long range success of the Company by offering them an opportunity to own stock in the Company and/or rights which will reflect the growth, development and financial success of the Company. ARTICLE I. DEFINITIONS 1.1 General. Wherever the following terms are used in this Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. 1.2 Award Limit. "Award Limit" shall mean 250,000 shares of Common Stock. 1.3 Board. "Board" shall mean the Board of Directors of the Company. 1.4 Change in Control. "Change in Control" shall mean a change in ownership or control of the Company effected through either of the following transactions: (a) Any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 50 percent of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board does not recommend such stockholders to accept; or -1- (b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. 1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.6 Committee. "Committee" shall mean the Stock Option Committee of the Board, or another committee of the Board, appointed as provided in Section 8.1. 1.7 Common Stock. "Common Stock" shall mean the common stock of the Company, par value $.001 per share, and any equity security of the Company issued or authorized to be issued in the future, but excluding any preferred stock and any warrants, options or other rights to purchase Common Stock. Debt securities of the Company convertible into Common Stock shall be deemed equity securities of the Company. 1.8 Company. "Company" shall mean Rentrak Corporation, an Oregon corporation. 1.9 Corporate Transaction. "Corporate Transaction" shall mean any of the following stockholder-approved transactions to which the Company is a party: (a) A merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated, form a holding company or effect a similar reorganization as to form whereupon this Plan and all Options are assumed by the successor entity; (b) The sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, in complete liquidation or dissolution of the Company in a transaction not covered by the exceptions to clause (a), above; or (c) Any reverse merger in which the Company is the surviving entity but in which securities possessing more than 50 percent of the total combined voting power of the Company's outstanding securities are transferred or issued to a person or persons different from those who held such securities immediately prior to such merger. 1.10 Deferred Stock. "Deferred Stock" shall mean Common Stock awarded under Article VII of this Plan. 1.11 Director. "Director" shall mean a member of the Board. -2- 1.12 Dividend Equivalent. "Dividend Equivalent" shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VII of this Plan. 1.13 Employee. "Employee" shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary. 1.14 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.15 Fair Market Value. "Fair Market Value" of a share of Common Stock as of a given date shall be (i) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any (or as reported on any composite index which includes such principal exchange), on the trading day previous to such date, or if shares were not traded on the trading day previous to such date, then on the next preceding date on which a trade occurred, or (ii) if Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, the mean between the closing representative bid and asked prices for the Common Stock on the trading day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the Fair Market Value of a share of Common Stock as established by the Committee (or the Board, in the case of Options granted to Independent Directors) acting in good faith. 1.16 Grantee. "Grantee" shall mean an Employee or consultant granted a Performance Award, Dividend Equivalent, Stock Payment, or an award of Deferred Stock, under this Plan. 1.17 Incentive Stock Option. "Incentive Stock Option" shall mean an option which conforms to the applicable provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee. 1.18 Independent Director. "Independent Director" shall mean a member of the Board who is not an Employee of the Company. 1.19 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean an Option which is not designated as an Incentive Stock Option by the Committee. 1.20 Option. "Option" shall mean a stock option granted under Article III of this Plan. An Option granted under this Plan shall, as determined by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however, that Options granted to Independent Directors and consultants shall be Non-Qualified Stock Options. 1.21 Optionee. "Optionee" shall mean an Employee, consultant or Independent Director granted an Option under this Plan. -3- 1.22 Performance Award. "Performance Award" shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VII of this Plan. 1.23 Plan. "Plan" shall mean The 1997 Equity Participation Plan of Rentrak Corporation. 1.24 QDRO. "QDRO" shall mean a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. 1.25 Restricted Stock. "Restricted Stock" shall mean Common Stock awarded under Article VI of this Plan. 1.26 Restricted Stockholder. "Restricted Stockholder" shall mean an Employee or consultant granted an award of Restricted Stock under Article VI of this Plan. 1.27 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time. 1.28 Section 162(m) Participant. "Section 162(m) Participant" shall mean any Employee designated by the Committee as an Employee whose compensation for the fiscal year in which the Employee is so designated or a future fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. 1.29 Stock Payment. "Stock Payment" shall mean (i) a payment in the form of shares of Common Stock, or (ii) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to an Employee or consultant in cash, awarded under Article VII of this Plan. 1.30 Subsidiary. "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 1.31 Termination of Consultancy. "Termination of Consultancy" shall mean the time when the engagement of an Optionee, Grantee or Restricted Stockholder as a consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement; but excluding terminations where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Consultancy. Notwithstanding any other provision of this Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a consultant's service at any time for any -4- reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 1.32 Termination of Directorship. "Termination of Directorship" shall mean the time when an Optionee who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors. 1.33 Termination of Employment. "Termination of Employment" shall mean the time when the employee-employer relationship between an Optionee, Grantee or Restricted Stockholder and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of an Optionee, Grantee or Restricted Stockholder by the Company or any Subsidiary, (ii) at the discretion of the Committee, terminations which result in a temporary severance of the employee-employer relationship, and (iii) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment; provided, however, that, unless otherwise determined by the Committee in its discretion, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. Notwithstanding any other provision of this Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate an Employee's employment at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. ARTICLE II. SHARES SUBJECT TO PLAN 2.1 Shares Subject to Plan. (a) The shares of stock subject to Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock or Stock Payments shall be Common Stock, initially shares of the Company's Common Stock, par value $.001 per share. The aggregate number of such shares which may be issued upon exercise of such options or rights or upon any such awards under the Plan shall not exceed one million six hundred thousand (1,600,000). The shares of Common Stock issuable upon exercise of such options or rights or upon any such awards may be either previously authorized but unissued shares or treasury shares. -5- (b) The maximum number of shares which may be subject to Options granted under the Plan to any individual in any fiscal year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit and if, after grant of an Option, the price of shares subject to such Option is reduced, the transaction is treated as a cancellation of the Option and a grant of a new Option and both the Option deemed to be canceled and the Option deemed to be granted are counted against the Award Limit. 2.2 Add-back of Options and Other Rights. If any Option, or other right to acquire shares of Common Stock under any other award under this Plan, expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by this Plan, the number of shares subject to such Option or other right but as to which such Option or other right was not exercised prior to its expiration, cancellation or exercise may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any shares subject to Options or other awards which are adjusted pursuant to Section 9.3 and become exercisable with respect to shares of stock of another corporation shall be considered canceled and may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or withheld by the Company upon the exercise of any Option or other award under this Plan, in payment of the exercise price thereof, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. If any share of Restricted Stock is forfeited by the Grantee or repurchased by the Company pursuant to Section 6.6 hereof, such share may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code. ARTICLE III. GRANTING OF OPTIONS 3.1 Eligibility. Any Employee or consultant selected by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each Independent Director of the Company shall be eligible to be granted Options at the times and in the manner set forth in Section 3.4(d). 3.2 Disqualification for Stock Ownership. No person may be granted an Incentive Stock Option under this Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any then existing Subsidiary or parent corporation (within the meaning of Section 422 of the Code) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. 3.3 Qualification of Incentive Stock Options. No Incentive Stock Option shall be granted to any person who is not an Employee. 3.4 Granting of Options -6- (a) The Committee shall from time to time, in its absolute discretion, and subject to applicable limitations of this Plan: (i) Select from among the Employees or consultants (including Employees or consultants who have previously received Options or other awards under this Plan) such of them as in its opinion should be granted Options; (ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Employees or consultants; (iii) Subject to Section 3.3, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and (iv) Determine the terms and conditions of such Options, consistent with this Plan; provided, however, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. (b) Upon the selection of an Employee or consultant to be granted an Option, the Committee shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Committee may, in its discretion and on such terms as it deems appropriate, require as a condition on the grant of an Option to an Employee or consultant that the Employee or consultant surrender for cancellation some or all of the unexercised Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Dividend Equivalents or Stock Payments or other rights which have been previously granted to him under this Plan or otherwise. An Option, the grant of which is conditioned upon such surrender, may have an option price lower (or higher) than the exercise price of such surrendered Option or other award, may cover the same (or a lesser or greater) number of shares as such surrendered Option or other award, may contain such other terms as the Committee deems appropriate, and shall be exercisable in accordance with its terms, without regard to the number of shares, price, exercise period or any other term or condition of such surrendered Option or other award. (c) Any Incentive Stock Option granted under this Plan may be modified by the Committee to disqualify such option from treatment as an "incentive stock option" under Section 422 of the Code. (d) (i) During the term of the Plan, each person who is an Independent Director shall automatically be granted an Option to purchase ten thousand (10,000) shares of Common Stock (subject to adjustment as provided in Section 9.3) on April 1st of each year; provided, however, that each such person who is Chairman of the Board or of any Board committee shall automatically be granted an Option to purchase an additional two thousand five hundred (2,500) -7- shares of Common Stock (subject to adjustment as provided in Section 9.3) on April 1st of each year. All the foregoing Option grants authorized by this Section 3.4(d)(i) are subject to stockholder approval of the Plan. (ii) The Board may from time to time, in its absolute discretion, and subject to applicable limitations of this Plan: (1) Determine whether, in its opinion, the Independent Directors (or any of them) should be granted Non-Qualified Stock Options in addition to the Options granted pursuant to Section 3.4(d)(i); (2) Subject to the Award Limit, determine the number of shares to be subject to such Non-Qualified Stock Options granted to selected Independent Directors; and (3) Determine the terms and conditions of such Non-Qualified Stock Options, consistent with this Plan. ARTICLE IV. TERMS OF OPTIONS 4.1 Option Agreement. Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of the Company and which shall contain such terms and conditions as the Committee (or the Board, in the case of Options granted to Independent Directors) shall determine, consistent with this Plan. Stock Option Agreements evidencing Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code. 4.2 Option Price. The price per share of the shares subject to each Option shall be set by the Committee; provided, however, that such price shall be no less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law, and (i) in the case of Incentive Stock Options and Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted; (ii) in the case of Incentive Stock Options granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code) such price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the Option is granted; and (iii) in the case of Options granted to Independent Directors pursuant to Section 3.4(d)(i), such price shall equal 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted. 4.3 Option Term. The term of an Option shall be set by the Committee in its discretion; provided, however, that, (i) in the case of Options granted to Independent Directors -8- pursuant to Section 3.4(d)(i), the term shall be ten (10)years from the date the Option is granted, without variation or acceleration hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock Options, the term shall not be more then ten (10) years from the date the Incentive Stock Option is granted, or five (5) years from such date if the Incentive Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code). Except as limited by requirements of Section 422 of the Code and regulations and rulings thereunder applicable to Incentive Stock Options, the Committee may extend the term of any outstanding Option in connection with any Termination of Employment or Termination of Consultancy of the Optionee, or amend any other term or condition of such Option relating to such a termination. 4.4 Option Vesting. (a) The period during which the right to exercise an Option in whole or in part vests in the Optionee shall be set by the Committee (or the Board, in the case of Options granted to Independent Directors) and the Committee (or the Board, in the case of Options granted to Independent Directors) may determine that an Option may not be exercised in whole or in part for a specified period after it is granted; provided, however, that, unless the Committee (or the Board, in the case of Options granted to Independent Directors) otherwise provides in the terms of the Option or otherwise, no Option shall be exercisable by any Optionee who is then subject to Section 16 of the Exchange Act within the period ending six months and one day after the date the Option is granted. At any time after grant of an Option, the Committee (or the Board, in the case of Options granted to Independent Directors) may, in its sole and absolute discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option. (b) No portion of an Option which is unexercisable at Termination of Employment, Termination of Directorship or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Committee in the case of Options granted to Employees or consultants either in the Stock Option Agreement or by action of the Committee following the grant of the Option. (c) 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) are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company and any Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options into account in the order in which they were granted. For purposes of this Section 4.4(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted. -9- 4.5 Consideration. In consideration of the granting of an Option, the Optionee shall agree, in the written Stock Option Agreement, to remain in the employ of (or to consult for or to serve as an Independent Director of, as applicable) the Company or any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Stock Option Agreement or by action of the Committee following grant of the Option) after the Option is granted (or, in the case of an Independent Director, until the next annual meeting of stockholders of the Company). Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of, or as a consultant for, the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without good cause. ARTICLE V. EXERCISE OF OPTIONS 5.1 Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Committee (or the Board, in the case of Options granted to Independent Directors) may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares. 5.2 Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his office: (a) A written notice complying with the applicable rules established by the Committee (or the Board, in the case of Options granted to Independent Directors) stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Optionee or other person then entitled to exercise the Option or such portion; (b) Such representations and documents as the Committee (or the Board, in the case of Options granted to Independent Directors), in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal or state securities laws or regulations. The Committee or Board may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars; (c) In the event that the Option shall be exercised pursuant to Section 9.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option; and (d) Full cash payment to the Secretary of the Company for the shares with respect to which the Option, or portion -10- thereof, is exercised. However, the Committee (or the Board, in the case of Options granted to Independent Directors), may in its discretion (i) allow a delay in payment up to 30 days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock owned by the Optionee, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in whole or in part, through the delivery of a promissory note (which may be without recourse or of limited recourse as determined by the Committee or the Board) bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Committee or the Board; (vi) allow payment, in whole or in part, through the delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; or (vii) allow payment through any combination of the consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v), and (vi). In the case of a promissory note, the Committee (or the Board, in the case of Options granted to Independent Directors) may also prescribe the form of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law. 5.3 Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; (b) The completion of any registration or other qualification of such shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Committee or Board shall, in its absolute discretion, deem necessary or advisable; (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee (or Board, in the case of Options granted to Independent Directors) shall, in its absolute discretion, determine to be necessary or advisable; (d) The lapse of such reasonable period of time following the exercise of the Option as the Committee (or Board, in the case of Options granted to Independent Directors) may establish from time to time for reasons of administrative convenience; and (e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax. -11- 5.4 Rights as Stockholders. The holders of Options shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. 5.5 Ownership and Transfer Restrictions. The Committee (or Board, in the case of Options granted to Independent Directors), in its absolute discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such restriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require the Employee to give the Company prompt notice of any disposition of shares of Common Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of granting such Option to such Employee or (ii) one year after the transfer of such shares to such Employee. The Committee may direct that the certificates evidencing shares acquired by exercise of an Option refer to such requirement to give prompt notice of disposition. 5.6 Limitations on Exercise of Options Granted to Independent Directors. Unless earlier terminated pursuant to Section 9.3(c)(ii) or 9.3(c)(viii), no Option granted to an Independent Director pursuant to Section 3.4(d)(i) may be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of twelve (12) months from the date of the Optionee's death; (b) The expiration of twelve (12) months from the date of the Optionee's Termination of Directorship by reason of his permanent and total disability (within the meaning of Section 22(e)(3) of the Code); (c) The expiration of three (3) months from the date of the Optionee's Termination of Directorship for any reason other than such Optionee's death or his permanent and total disability, unless the Optionee dies within said three-month period; or (d) The expiration of ten years from the date the Option was granted. ARTICLE VI. AWARD OF RESTRICTED STOCK 6.1 Award of Restricted Stock (a) The Committee may from time to time, in its absolute discretion: (i) Select from among the Employees or consultants (including Employees or consultants who have previously received other awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and (ii) Determine the purchase price, if any, and other terms and conditions applicable to such Restricted Stock, consistent with this Plan. -12- (b) The Committee shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that such purchase price shall be no less than the par value of the Common Stock to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock. (c) Upon the selection of an Employee or consultant to be awarded Restricted Stock, the Committee shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate. 6.2 Restricted Stock Agreement. Restricted Stock shall be issued only pursuant to a written Restricted Stock Agreement, which shall be executed by the selected Employee or consultant and an authorized officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with this Plan. 6.3 Consideration. As consideration for the issuance of Restricted Stock, in addition to payment of any purchase price, the Restricted Stockholder shall agree, in the written Restricted Stock Agreement, to remain in the employ of, or to consult for, the Company or any Subsidiary for a period of at least one year after the Restricted Stock is issued (or such shorter period as may be fixed in the Restricted Stock Agreement or by action of the Committee following grant of the Restricted Stock). Nothing in this Plan or in any Restricted Stock Agreement hereunder shall confer on any Restricted Stockholder any right to continue in the employ of, or as a consultant for, the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Restricted Stockholder at any time for any reason whatsoever, with or without good cause. 6.4 Rights as Stockholders. Upon delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted Stockholder shall have, unless otherwise provided by the Committee, all the rights of a stockholder with respect to said shares, subject to the restrictions in his Restricted Stock Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that in the discretion of the Committee, any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 6.5. 6.5 Restriction. All shares of Restricted Stock issued under this Plan (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Restricted Stock Agreement, be subject to such restrictions as the Committee shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment with the Company, Company performance and individual performance; provided, however, that, unless the Committee otherwise provides in the terms of the Restricted Stock Agreement or otherwise, no share of Restricted Stock granted to a person subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise transferred until at least six months and one day have elapsed from the date on which the Restricted Stock was issued, and provided, further, that by action taken -13- after the Restricted Stock is issued, the Committee may, on such terms and conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the Restricted Stock Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. Unless provided otherwise by the Committee, if no consideration was paid by the Restricted Stockholder upon issuance, a Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon Termination of Employment or, if applicable, upon Termination of Consultancy with the Company. 6.6 Repurchase of Restricted Stock. The Committee shall provide in the terms of each individual Restricted Stock Agreement that the Company shall have the right to repurchase from the Restricted Stockholder the Restricted Stock then subject to restrictions under the Restricted Stock Agreement immediately upon a Termination of Employment or, if applicable, upon a Termination of Consultancy between the Restricted Stockholder and the Company, at a cash price per share equal to the price paid by the Restricted Stockholder for such Restricted Stock; provided, however, that provision may be made that no such right of repurchase shall exist in the event of a Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company or because of the Restricted Stockholder's retirement, death or disability, or otherwise. 6.7 Escrow. The Secretary of the Company or such other escrow holder as the Committee may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Restricted Stock Agreement with respect to the shares evidenced by such certificate expire or shall have been removed. 6.8 Legend. In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Committee shall cause a legend or legends to be placed on certificates representing all shares of Restricted Stock that are still subject to restrictions under Restricted Stock Agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby. 6.9 Provisions Applicable to Section 162(m) Participants. (a) Notwithstanding anything in the Plan to the contrary, the Committee may grant Restricted Stock awards to a Section 162(m) Participant that vest upon the attainment of performance targets for the Company which are related to one or more of the following performance goals: (i) pre-tax income, (ii) operating income, (iii) cash flow, (iv) earnings per share, (v) return on equity, (vi) return on invested capital or assets, and (vii) cost reductions or savings. (b) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(c) of the Code, with respect to Restricted Stock which may be granted to one or more Section 162(m) Participants, no later than 90 days following the commencement of any fiscal year in question or any other designated fiscal period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants, (ii) select the performance goal or goals applicable to the fiscal year or other designated fiscal period, (iii) establish the various targets and bonus -14- amounts which may be earned for such fiscal year or other designated fiscal period and (iv) specify the relationship between performance goals and targets and the amounts to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period. Following the completion of each fiscal year or other designated fiscal period, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period. ARTICLE VII. PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS 7.1 Performance Awards. Any Employee or consultant selected by the Committee may be granted one or more Performance Awards. The value of such Performance Awards may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee, or may be based upon the appreciation in the market value, book value, net profits or other measure of the value of a specified number of shares of Common Stock over a fixed period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Employee or consultant. 7.2 Dividend Equivalents. Any Employee or consultant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option, Deferred Stock or Performance Award is granted, and the date such Option, Deferred Stock or Performance Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. With respect to Dividend Equivalents granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such Dividend Equivalents shall be payable regardless of whether such Option is exercised. 7.3 Stock Payments. Any Employee or consultant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Fair Market Value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter. -15- 7.4 Deferred Stock. Any Employee or consultant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Common Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Grantee of Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the award has vested and the Common Stock underlying the award has been issued. 7.5 Performance Award Agreement, Dividend Equivalent Agreement, Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by a written agreement, which shall be executed by the Grantee and an authorized Officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with this Plan. 7.6 Term. The term of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the Committee in its discretion. 7.7 Exercise Upon Termination of Employment. A Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or payable only while the Grantee is an Employee or consultant; provided that the Committee may determine that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company, or because of the Grantee's retirement, death or disability, or otherwise. 7.8 Payment on Exercise. Payment of the amount determined under Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of both, as determined by the Committee. To the extent any payment under this Article VII is effected in Common Stock, it shall be made subject to satisfaction of all provisions of Section 5.3. 7.9 Consideration. In consideration of the granting of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the Grantee shall agree, in a written agreement, to remain in the employ of, or to consult for, the Company or any Subsidiary for a period of at least one year after such Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is granted (or such shorter period as may be fixed in such agreement or by action of the Committee following such grant). Nothing in this Plan or in any agreement hereunder shall confer on any Grantee any right to continue in the employ of, or as a consultant for, the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any time for any reason whatsoever, with or without good cause. 7.10 Provisions Applicable to Section 162(m) Participants. -16- (a) Notwithstanding anything in the Plan to the contrary, the Committee may grant any performance or incentive awards described in Article VII to a Section 162(m) Participant that vest or become exercisable upon the attainment of performance targets for the Company which are related to one or more of the following performance goals: (i) pre-tax income, (ii) operating income, (iii) cash flow, (iv) earnings per share, (v) return on equity, (vi) return on invested capital or assets, and (vii) cost reductions or savings. (b) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to performance or incentive awards described in Article VII which may be granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants, (ii) select the performance goal or goals applicable to the fiscal year or other designated fiscal period, (iii) establish the various targets and bonus amounts which may be earned for such fiscal year or other designated fiscal period and (iv) specify the relationship between performance goals and targets and the amounts to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period. Following the completion of each fiscal year or other designated fiscal period, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period. ARTICLE VIII. ADMINISTRATION 8.1 Stock Option Committee. The Stock Option Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under this Plan) shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a "non-employee director" as defined by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board. 8.2 Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of this Plan in accordance with its provisions. The Committee shall have the power to interpret this Plan and the agreements pursuant to which Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Dividend Equivalents or Stock Payments are granted or awarded, and to adopt such rules for the administration, interpretation, and application of this Plan as are consistent therewith and to interpret, amend, or revoke any such rules. Notwithstanding the foregoing, the full Board, acting -17- by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options granted to Independent Directors. Any such grant or award under this Plan need not be the same with respect to each Optionee, Grantee or Restricted Stockholder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under this Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. 8.3 Majority Rule; Unanimous Written Consent. In administering the Plan, the Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee. 8.4 Compensation; Professional Assistance; Good Faith Actions. Members of the Committee shall receive such compensation for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of this Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers, or other persons. The Committee, the Company and the Company's officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Optionees, Grantees, Restricted Stockholders, the Company and all other interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Plan, Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Dividend Equivalents or Stock Payments, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation. ARTICLE IX. MISCELLANEOUS PROVISIONS 9.1 Not Transferable. Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock Payments under this Plan may not be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution or pursuant to a QDRO, unless and until such rights or awards have been exercised, or the shares underlying such rights or awards have been issued, and all restrictions applicable to such shares have lapsed. No Option, Restricted Stock award, Deferred Stock award, Performance Award, Dividend Equivalent or Stock Payment or interest or right therein shall be liable for the debts, contracts or engagements of the Optionee, Grantee or Restricted Stockholder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. -18- During the lifetime of the Optionee or Grantee, only he may exercise an Option or other right or award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a QDRO. After the death of the Optionee or Grantee, any exercisable portion of an Option or other right or award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement or other agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's or Grantee's will or under the then applicable laws of descent and distribution. 9.2 Amendment, Suspension or Termination of this Plan. Except as otherwise provided in this Section 9.2, this Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company's stockholders given within 12 months before or after the action by the Board or the Committee, no action of the Board or the Committee may, except as provided in Section 9.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under this Plan or modify the Award Limit, and no action of the Board or the Committee may be taken that would otherwise require stockholder approval as a matter of applicable law, regulation or rule. No amendment, suspension or termination of this Plan shall, without the consent of the holder of Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock Payments, alter or impair any rights or obligations under any Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock Payments theretofore granted or awarded, unless the award itself otherwise expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance Awards, Dividend Equivalents or Stock Payments may be granted or awarded during any period of suspension or after termination of this Plan, and in no event may any Incentive Stock Option be granted under this Plan after the first to occur of the following events: (a) The expiration of ten years from the date the Plan is adopted by the Board; or (b) The expiration of ten years from the date the Plan is approved by the Company's stockholders under Section 9.4. 9.3 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events. (a) Subject to Section 9.3(d), in the event that the Committee (or the Board, in the case of Options granted to Independent Directors) determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company (including, but not limited to, a Corporate Transaction), or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Committee's sole discretion (or in the case of Options granted -19- to Independent Directors, the Board's sole discretion), affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, Restricted Stock award, Performance Award, Dividend Equivalent, Deferred Stock award or Stock Payment, then the Committee (or the Board, in the case of Options granted to Independent Directors) shall, in such manner as it may deem equitable, adjust any or all of (i) The number and kind of shares of Common Stock (or other securities or property) with respect to which Options, Performance Awards, Dividend Equivalents or Stock Payments may be granted under the Plan, or which may be granted as Restricted Stock or Deferred Stock (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued and adjustments of the Award Limit), (ii) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options, Performance Awards, Dividend Equivalents, or Stock Payments, and in the number and kind of shares of outstanding Restricted Stock or Deferred Stock, and (iii) The grant or exercise price with respect to any Option, Performance Award, Dividend Equivalent or Stock Payment. (b) Subject to Sections 9.3(b)(vii) and 9.3(d), in the event of any Corporate Transaction or other transaction or event described in Section 9.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Committee (or the Board, in the case of Options granted to Independent Directors) in its discretion is hereby authorized to take any one or more of the following actions whenever the Committee (or the Board, in the case of Options granted to Independent Directors) determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any option, right or other award under this Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: (i) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the agreement or by action taken prior to the occurrence of such transaction or event and either automatically or upon the optionee's request, for either the purchase of any such Option, Performance Award, Dividend Equivalent, or Stock Payment, or any Restricted Stock or Deferred Stock for an amount of cash equal to the amount that could have been attained upon the exercise of such option, right or award or realization of the optionee's rights had such option, right or award been currently exercisable or payable or fully vested or the replacement of such option, right or -20- award with other rights or property selected by the Committee (or the Board, in the case of Options granted to Independent Directors) in its sole discretion; (ii) In its sole and absolute discretion, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event that it cannot be exercised after such event; (iii) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event, that for a specified period of time prior to such transaction or event, such option, right or award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in (i) Section 4.4 or (ii) the provisions of such Option, Performance Award, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock; (iv) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event, that upon such event, such option, right or award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (v) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options, Performance Awards, Dividend Equivalents, or Stock Payments, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future; (vi) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Committee may provide either by the terms of a Restricted Stock award or Deferred Stock award or by action taken prior to the occurrence of such event that, for a specified period of time prior to -21- such event, the restrictions imposed under a Restricted Stock Agreement or a Deferred Stock Agreement upon some or all shares of Restricted Stock or Deferred Stock may be terminated, and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase under Section 6.6 or forfeiture under Section 6.5 after such event; and (vii) None of the foregoing discretionary actions taken under this Section 9.3(b) shall be permitted with respect to Options granted under Section 3.4(d) to Independent Directors to the extent that such discretion would be inconsistent with the applicable exemptive conditions of Rule 16b-3. In the event of a Change in Control or a Corporate Transaction, to the extent that the Board does not have the ability under Rule 16b-3 to take or to refrain from taking the discretionary actions set forth in Section 9.3(b)(iii) above, each Option granted to an Independent Director shall be exercisable as to all shares covered thereby upon such Change in Control or during the five days immediately preceding the consummation of such Corporate Transaction and subject to such consummation, notwithstanding anything to the contrary in Section 4.4 or the vesting schedule of such Options. In the event of a Corporate Transaction, to the extent that the Board does not have the ability under Rule 16b-3 to take or to refrain from taking the discretionary actions set forth in Section 9.3(b)(ii) above, no Option granted to an Independent Director may be exercised following such Corporate Transaction unless such Option is, in connection with such Corporate Transaction, either assumed by the successor or survivor corporation (or parent or subsidiary thereof) or replaced with a comparable right with respect to shares of the capital stock of the successor or survivor corporation (or parent or subsidiary thereof). (c) Subject to Section 9.3(d) and 9.8, the Committee (or the Board, in the case of Options granted to Independent Directors) may, in its discretion, include such further provisions and limitations in any Option, Performance Award, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock agreement or certificate, as it may deem equitable and in the best interests of the Company. (d) With respect to Incentive Stock Options and Options intended to qualify as performance-based compensation under Section 162(m), no adjustment or action described in this Section 9.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code or would cause such option or stock appreciation right to fail to so qualify under Section 162(m), as the case may be, or any successor provisions thereto. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 unless the Committee (or the Board, in the case of Options granted to Independent Directors) determines that the option or other award is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any option, right or award shall always be rounded to the next whole number. -22- 9.4 Approval of Plan by Stockholders. This Plan will be submitted for the approval of the Company's stockholders within 12 months after the date of the Board's initial adoption of this Plan. Options, Performance Awards, Dividend Equivalents or Stock Payments may be granted and Restricted Stock or Deferred Stock may be awarded prior to such stockholder approval, provided that such Options, Performance Awards, Dividend Equivalents or Stock Payments shall not be exercisable and such Restricted Stock or Deferred Stock shall not vest prior to the time when this Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said 12-month period, all Options, Performance Awards, Dividend Equivalents or Stock Payments previously granted and all Restricted Stock or Deferred Stock previously awarded under this Plan shall thereupon be canceled and become null and void. 9.5 Tax Withholding. The Company shall be entitled to require payment in cash or deduction from other compensation payable to each Optionee, Grantee or Restricted Stockholder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting or exercise of any Option, Restricted Stock, Deferred Stock, Performance Award, Dividend Equivalent or Stock Payment. The Committee (or the Board, in the case of Options granted to Independent Directors) may in its discretion and in satisfaction of the foregoing requirement allow such Optionee, Grantee or Restricted Stockholder to elect to have the Company withhold shares of Common Stock otherwise issuable under such Option or other award (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld. 9.6 Loans. The Committee may, in its discretion, extend one or more loans to Employees in connection with the exercise or receipt of an Option, Performance Award, Dividend Equivalent or Stock Payment granted under this Plan, or the issuance of Restricted Stock or Deferred Stock awarded under this Plan. The terms and conditions of any such loan shall be set by the Committee. 9.7 Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to awards under the Plan, the Committee (or the Board, in the case of Options granted to Independent Directors) shall have the right (to the extent consistent with the applicable exemptive conditions of Rule 16b-3) to provide, in the terms of Options or other awards made under the Plan, or to require the recipient to agree by separate written instrument, that (i) any proceeds, gains or other economic benefit actually or constructively received by the recipient upon any receipt or exercise of the award, or upon the receipt or resale of any Common Stock underlying such award, must be paid to the Company, and (ii) the award shall terminate and any unexercised portion of such award (whether or not vested) shall be forfeited, if (a) a Termination of Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the award, or (b) the recipient at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Committee (or the Board, as applicable). 9.8 Limitations Applicable to Section 16 Persons and Performance-Based Compensation. Notwithstanding any other provision of this Plan, this Plan, and any Option, -23- Performance Award, Dividend Equivalent or Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan, Options, Performance Awards, Dividend Equivalents, Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. Furthermore, notwithstanding any other provision of this Plan, any Option, Restricted Stock or performance or incentive award described in Article VII intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent necessary to conform to such requirements. 9.9 Effect of Plan Upon Options and Compensation Plans. The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company or any Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company (i) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Subsidiary or (ii) to grant or assume options or other rights otherwise than under this Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association. 9.10 Compliance with Laws. This Plan, the granting and vesting of Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock Payments under this Plan and the issuance and delivery of shares of Common Stock and the payment of money under this Plan or under Options, Performance Awards, Dividend Equivalents or Stock Payments granted or Restricted Stock or Deferred Stock awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan, Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock Payments granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 9.11 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Plan. -24- 9.12 Governing Law. This Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Oregon without regard to conflicts of laws thereof. -25- EX-10 4 promnote.txt 10.17 PROMISSORY NOTE PROMISSORY NOTE Portland, Oregon August 30, 2000 $355,375 FOR VALUE RECEIVED, the undersigned maker (herein "Maker") promises to pay to Rentrak Corporation, an Oregon corporation (herein "Holder"), at its office address of One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon 97220 or at such other place as Holder may designate, on or before the Maturity Date (as defined in the Loan Agreement of even date herewith), the principal sum of Three Hundred Fifty Five Thousand Three Hundred Seventy Five Dollars ($355,375.00), together with interest thereon as provided herein. 1. Interest and Payment. 1.1 Interest Rate. Maker promises to pay interest from and including the date hereof until paid on the unpaid principal balance hereof at the rate of six and one-half percent (6.5%) per annum which is the "Federal Funds Rate" as of the date hereof. Interest shall be computed on the basis of a 360-day year. 1.2 Interest Payments. On the 30th day of August, 2001, and on the 30th day of each twelve-month period thereafter through and including the Maturity Date, as defined above, Maker shall pay to the order of Holder all accrued and unpaid interest as provided for in section 1.1 above. 1.3 Default Interest Rate. After the maturity date (whether by acceleration or otherwise), any principal not paid shall bear interest at the annual rate of three percent (3%) over and above the rate which would otherwise apply hereunder, or the maximum amount which may be legally charged as interest, whichever is the lesser, until paid. 1.4 Final Payment. The entire unpaid principal balance hereof, and all accrued but unpaid interest thereon, shall be entirely due and payable on the earliest to occur of: (a) Upon the expiration of the term of Borrower's current employment agreement with Rentrak; or (b) One (1) year after Borrower leaves Rentrak's employ for any other reason (unless such departure follows a Change in Control of Rentrak (as defined in Section 10 of the Loan Agreement); or (c) Five years from the date of the Loan; or (d) One year from the date of Borrower's death; unless accelerated as provided in the Loan Agreement executed herewith. -1- 1.5 Late Charge. If any payment hereunder is not made within ten (10) days of the date first due, Maker shall pay to Holder a late charge in an amount equal to five percent (5%) of the amount of such payment. Holder's acceptance of such late charges shall not constitute a waiver of any existing or subsequent default hereunder. 1.6 Place and Time of Payment. All payments specified herein shall be deemed made when actually received by Holder. All payments shall be made to Holder at its address set forth above, and shall be made without offset and without prior notice or demand. 1.7 No Prepayment Penalty. This note may be prepaid, in whole or in part, without penalty to the Maker. A partial prepayment shall not excuse Maker from making the regular annual payments required herein nor lessen the amount of such payment. 1.8 Form and Application of Payments. Payments shall be in lawful money of the United States of America, and when received by Holder shall be applied first to all amounts due hereunder other than principal or interest, second to accrued interest, third upon the portion of the principal balance then due, if any, and fourth as a principal prepayment. 2. Default. Time is of the essence of this Promissory Note. A default shall occur if: 2.1 Failure to Make Payments. Maker fails to make any payment under this Promissory Note within ten (10) days after notice from Holder that such payment was not received on or before the date due. 2.2 Other Failures. Maker fails to perform any other obligation contained in this Promissory Note or the Loan Agreement or Pledge Agreement securing this Promissory Note within ten (10) days after notice from Holder specifying the nature of the default. 2.3 Bankruptcy. Maker becomes insolvent, a receiver is appointed to take possession of all or a substantial part of any Maker's properties, any Maker makes an assignment for the benefit of creditors or files a voluntary petition in bankruptcy, or any Maker is the subject of an involuntary petition in bankruptcy. For purposes of this Section 2.3, (a) if any Maker is a partnership (general or limited), the term "Maker" includes any individual or entity which is a general partner of such Maker, and (b) if this Promissory Note is executed by more than one maker or co-maker, the term "Maker" means and includes each and every person or entity which is such a maker or co-maker. 3. Remedies. In the event of a default, Holder may take any one or more of the following steps: 3.1 Acceleration. Declare the entire unpaid principal balance of the debt evidenced hereby, and all interest on such debt and all other costs and expenses evidenced hereby, to be immediately due and payable, provided, however that Holder's recourse shall be limited as provided in Sections 6 and 9 of the Loan Agreement. -2- 3.2 Other Remedies. Pursue any other right or remedy provided herein, provided in the Loan Agreement or the Pledge Agreement, as limited by the provisions of Sections 6 and 9 of the Loan Agreement. Holder may pursue any such rights or remedies singly, together or successively. Exercise of any such right or remedy shall not be deemed an election of remedies. Failure to exercise any right or remedy shall not be deemed a waiver of any existing or subsequent default nor a waiver of any such right or remedy but nothing herein is intended to modify the provisions of Sections 6 and 9 of the Loan Agreement. 4. Attorney Fees and Collection Costs. Maker and all sureties and accommodation parties hereof hereby agree to pay all costs of collection hereunder and/or under any guaranty executed in connection herewith, including reasonable attorney fees, whether or not litigation is actually commenced. In the event the Holder is made party to any litigation because of the existence of the indebtedness evidenced by this Promissory Note, Maker shall reimburse Holder for its costs and attorney fees incurred with respect to such litigation. In the event litigation is commenced by a party hereto to enforce or interpret any provision of this Promissory Note, or to collect any amount due hereunder, the prevailing party in such litigation shall be entitled to receive, in addition to all other sums and relief, its reasonable costs and attorney fees, incurred both at and in preparation for trial and any appeal or review, such amount to be set by the court(s) before which the matter is heard. Maker also agrees to pay any attorney fees incurred by Holder in connection with any bankruptcy or similar proceedings wherein Maker (as defined in Section 2.3, above) is the "debtor." 5. Governing Law and Usury; Severability. 5.1 Governing Law and Usury. This Promissory Note shall be deemed to have been executed under and shall be construed and enforced in accordance with the laws of the State of Oregon without regard to its conflicts of law principles. The Maker agrees that any suit or action relating to this Promissory Note shall be instituted and commenced in the United States District Court for the District of Oregon, or the Circuit Court of Multnomah County, State of Oregon, and each of the Makers hereby waives the right to change such venue. It is expressly stipulated and agreed to be the intent of Maker, Holder and their respective affiliates at all times to comply strictly with the applicable usury laws now or hereafter governing consideration received under this Promissory Note. If the applicable law is ever interpreted so as to render usurious any consideration called for, contracted for, charged, taken, reserved or received with respect to this Promissory Note, or if any prepayment by Maker or Holder's exercise of the option herein contained to accelerate the maturity of this Promissory Note, results in Maker having paid any interest in excess of that permitted by law, then notwithstanding anything to the contrary in this Promissory Note, it is Maker's and Holder's express intent and agreement that all excess amounts theretofore collected by Holder be credited on the principal balance of this Promissory Note (or, if this Note has been paid in full, refunded to Maker) and the provisions of this Promissory Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new documents, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. -3- 5.2 Severability. If any provision of this Promissory Note is found by a court of competent jurisdiction to be invalid or unenforceable as written, then the parties intend and desire that (a) such provision be enforceable to the full extent permitted by law, and (b) the invalidity or unenforceability of such provision shall not affect the validity and enforceability of the remainder of this Promissory Note. 6. Amendment. This Promissory Note may not be amended, modified or changed, nor shall any provision hereof be deemed waived, except only by an instrument in writing signed by the party against whom enforcement of any such waiver, amendment, change or modification is sought. 7. Waivers; Joint and Several Liability. Maker and all sureties and accommodation parties, without affecting their liability, hereby (a) waive diligence presentment, protest and demand, (b) waive notice of protest, of demand, of nonpayment, of dishonor and of maturity, and (c) consent to any extension or alternation of the time or terms of payment hereof, any and all renewals, extension or modification of the terms hereof, any release of all or any part of any security which may be given for the payment hereof, any acceptance of additional security of any kind, and any release of or resort to any party liable for payment hereof, any of which may be made without notice to any of said parties. All such parties, including Maker (as defined in Section 2.3, above) and each constituent person and entity of Maker, agree that they shall each be jointly and severally liable for full payment of this Promissory Note and agree to pay the full amount of the principal and interest of the indebtedness evidenced hereby. 8. Binding Agreement. This Promissory Note shall be binding upon the successors and assigns of Maker. 9. Security. This Promissory Note is secured by a Stock Pledge Agreement of even date herewith. IN WITNESS WHEREOF, this Promissory Note has been executed as of the date and year first above written. /s/ Michael Lightbourne Michael Lightbourne -4- EX-10 5 loanagmt.txt 10.18 LOAN AGREEMENT LOAN AGREEMENT THIS AGREEMENT is entered into this 30th day of August, 2000, by and between Rentrak Corporation ("Lender"), and Michael Lightbourne ("Borrower"). Recitals WHEREAS, Borrower wishes to borrow funds from Lender on a limited-recourse basis, under the terms and conditions set forth in this Agreement, for the purpose of exercising certain "out of the money" stock options for the common stock of Rentrak Corporation ("Rentrak") pursuant to the Rentrak 2000 Employee Loan/Option Program (the "Rentrak Stock"); and WHEREAS, Lender, having determined that a loan for such purpose would be in furtherance of Lender's best interests, is willing to loan to Borrower such funds, in the amount of Three Hundred Fifty Five Thousand Three Hundred Seventy Five Dollars ($355,375.00) (the "Loan Funds"), under the terms and conditions set forth in this Agreement and the exhibits hereto; and WHEREAS, Lender wishes to clarify and confirm that Borrower shall be under no obligation to repay the principal portion of the Loan beyond the amount of funds received by Borrower or Lender pursuant to the sale of the Rentrak Stock which is purchased with the Loan Funds; and WHEREAS, Lender has simultaneously executed a Pledge Agreement and Promissory Note which provide for this Loan Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties agree as follows: Agreement 1. Loan. Upon the effective date of this Agreement specified above, Lender agrees to loan Borrower Three Hundred Fifty Five Thousand Three Hundred Seventy Five Dollars ($355,375.00) (the "Loan"). The Loan shall be evidenced by a Promissory Note in the form attached hereto as Exhibit "A". The Loan may be advanced in one or more disbursements, each of which shall be made upon Borrower's application to Lender for advances, as set forth below: Rentrak Corporation will issue a loan (or several loans, but not more than five (5)) to Borrower in an amount not more than the amount required for Borrower to purchase from Rentrak as many of your unexercised but fully vested "out of the money" Employee Stock Options ("ESO's") as Borrower wishes to exercise at the time. Example: You have an option for 100 shares of Rentrak, at a price of $6 per share, of which 60 shares are vested and 40 are not. On the day you borrow, the Rentrak common stock is trading at a price of $5.00. Consequently, your $6.00 stock option is "out of the money." We will lend you $360.00, if you wish to exercise the entire 60 share option, or $300.00 if you wish to exercise only 50 shares and so on. You may also use a portion of your own funds to exercise the option. In the previous example -1- where you were exercising only 50 shares, you could borrow $200 and combine it with $ 100 of your own funds to exercise the option. 2. Term. The principal of the Loan will be due in one balloon payment on the earliest to occur of : (a) Upon the expiration of the term of Borrower's current employment agreement with Rentrak; or (b) One (1) year after Borrower leaves Rentrak's employ for any other reason (unless such departure follows a Change in Control of Rentrak (as defined below, in which event this subsection 2(b) shall not be applicable); or (c) Five years from the date of the Loan; or (d) One year from the date of Borrower's death. Such date may be called the Maturity Date. 3. Interest. The Loan shall accrue interest at the federal funds interest rate in effect on the date of the Loan. Interest will be payable annually on the anniversary date of the Loan. 4. Security. The Loan shall be secured by a Pledge Agreement in the form attached hereto as Exhibit B encumbering all of the Rentrak Shares purchased with the proceeds of the Loan. 5. Payment. Payments shall be applied first to interest and then to unpaid principal. Payments shall continue until the earlier of the time at which all of the Loan has been repaid, together with interest, or the Maturity Date, whichever first occurs. 6. Limited-Recourse. The Loan shall be without recourse to Borrower except as expressly set forth in Section 9 below. 7. Event of Default. The following events shall be deemed events of default under this Agreement and, if such events occur, Lender may pursue those rights and remedies set forth herein and in the Note and Pledge Agreement. The events of default are: 7.1 Borrower's failure to pay any sums due under the Note when and as due; and 7.2 Any other default under this Agreement, the Note or the Pledge Agreement. 8. Bonus Payments. From time to time, Rentrak has issued bonuses to some employees, possibly including Borrower. By borrowing this money from Lender, Borrower agrees that, until the loan and all accrued interest is fully repaid, Rentrak will, if it elects to issue a bonus to Borrower, first apply 50% of the bonus, after taxes, to paying down the outstanding interest (first) and then principal of the Loan. In other words, Borrower may only receive half of any bonuses Borrower would otherwise be entitled to until Borrower's loan is paid off. Bonuses issued prior to June 30, 2000 will not be subject to this Section 8. -2- 9. Provision for Limited-Recourse. Lender's recourse under the Loan and this Agreement shall be and is limited to sale or disposition of the Rentrak Shares pledged to Rentrak as security for the Loan for recovery of principal due on the Loan. In addition, Lender may recover interest due from Borrower pursuant to the Note, Pledge Agreement or this Agreement. Except to recover such unpaid interest amounts, Lender shall have no other recourse to or against any other asset or property owned by Borrower other than the Rentrak Shares pledged to the Loan (and certain bonus payments as detailed in Section 8). Lender agrees, in any action to foreclose on the Rentrak Shares and/or an action upon an event of default, not to institute any action against Borrower individually for payment of any sum of money that is or may be payable hereunder (including interest thereon) other than an action to recover interest owing to Lender and remaining unpaid after sale or disposition of the Rentrak Shares pledged to the Loan. 10. Change of Control of Rentrak. A "Change of Control of Rentrak" shall 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 such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of Rentrak 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 Rentrak Corporation, representing twenty-five percent (25%) or more of the combined voting power of Rentrak Corporation's then outstanding securities; or (b) a majority of the directors elected at any annual or special meeting of stockholders are not individuals nominated by Rentrak Corporation's then incumbent Board; or (c) the shareholders of Rentrak Corporation approve a merger or consolidation of Rentrak Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of Rentrak Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of Rentrak Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Rentrak Corporation approve a plan of complete liquidation of Rentrak Corporation or an agreement for the sale or disposition by Rentrak Corporation of all or substantially all of its assets. In the event of and following any Change of Control of Rentrak, and unless Borrower shall then be in default pursuant to Section 7 hereof, Borrower may: -3- 10.1 Advise Lender by written notice, of Borrower's termination of the Loan (Borrower's "Termination Notice") in which event the Loan shall be terminated and Borrower shall waive all rights of Borrower in and to the Rentrak Shares securing Borrower's Loan in return for Lender's waiver of all claims to any recovery of principal or interest under the Loan except by acceptance of the Rentrak Shares which secures the Loan. Following delivery of a Termination Notice, Lender shall take no further collection action except to realize upon the Rentrak Shares pledged to the Loan and Borrower shall irrevocably forfeit any and all right to the Rentrak Shares pledged to the Loan. Borrower agrees to execute all such other and further documents as Lender shall require, evidencing the termination of the Loan or the waiver set forth herein; or 10.2 Advise the Lender in writing (Borrower's "Market Price Notice") of Borrower's election to have Lender purchase such percentage of Borrower's Rentrak Shares pledged to the Loan as Borrower shall designate in the Market Price Notice, at the market price for such Rentrak Shares as of the close of business on the day prior to Lender's receipt of such Market Price Notice. The proceeds of a purchase pursuant to a Market Price Notice shall be applied first to accrued but unpaid interest and the balance, if any, to principal of Borrower's Loan. After the Loan has been paid in full, any additional Rentrak Shares or proceeds from the sale of Rentrak Shares shall be delivered to Borrower. During the term of this Loan Agreement, Borrower may give as many Market Price Notices as Borrower shall desire. 11. Waiver. The waiver of strict compliance of any provision in this Agreement by Lender shall not constitute a waiver of strict compliance with that or any other provision thereafter. 12. Applicable Law. The enforceability and interpretation of this Agreement shall be governed by the laws of the State of Oregon. 13. Binding Agreement. This Agreement shall be binding upon the parties, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. LENDER: BORROWER: Rentrak Corporation /s/ Ron Berger /s/ Michael Lightbourne - ---------------------------------- -------------------------- By: Ron Berger Name: Michael Lightbourne Title: Chairman & Chief Executive Officer -4- EX-10 6 stockpldg.txt 10.19 STOCK PLEDGE AGREEMENT STOCK PLEDGE AGREEMENT DATE: August 30, 2000 BETWEEN: Michael Lightbourne (Pledgor) AND: Rentrak Corporation ("Secured Party" or "Company") RECITALS A. Pledgor and Secured Party entered into a Loan Agreement of even date herewith (the "Loan Agreement"), wherein the Secured Party agreed to loan funds to Pledgor to exercise certain options to purchase stock of the Company, and Pledgor agreed to execute and deliver a Promissory Note to the Secured Party in payment therefor, a copy of which is attached to the Loan Agreement as Exhibit A (the "Note"). B. Pledgor agreed within the Loan Agreement to grant Secured Party a security interest in the shares of the common stock of the Company that Pledgor purchased with the proceeds of the Note (the "Shares" or "Pledged Shares"), to secure payment of Pledgor's obligations under the Loan Agreement and the Note. NOW, THEREFORE, in order to secure payment of the Note, the parties agree as follows: AGREEMENT 1. Grant of Security Interest. Pledgor grants to Secured Party a first priority security interest in the Shares. 2. Obligations. The obligations secured by this Agreement are the obligations of Pledgor on the Note, the Loan Agreement and this Agreement, including the obligation to make all payments on the Note. 3. Delivery of Certificates for Pledged Shares. Pledgor has delivered to Secured Party one or more stock certificates evidencing the Pledged Shares (the "Certificates"), together with a stock power endorsed in blank, to hold subject to the terms of this Agreement. 4. Care of Certificates. Secured Party shall take reasonable care in the custody and the preservation of the Certificates. On performance in full of all obligations secured by this Agreement, Secured Party shall deliver the Certificates to Pledgor, together with the stock power endorsed by Pledgor in blank. -1- 5. Covenants of Pledgor with Respect to Pledged Shares. Pledgor agrees that: (a) Pledgor shall not allow or grant any other lien or security interest with respect to the Pledged Shares. (b) Pledgor shall procure, execute, and deliver from time to time any endorsements, assignments, financing statements, and other writings deemed necessary or appropriate by Secured Party to perfect, maintain, and protect Secured Party's security interest and priority in the Pledged Shares. 6. Authorized Action by Secured Party; Proxy. Pledgor irrevocably appoints Secured Party as attorney-in-fact and grants Secured Party a proxy to do (but Secured Party shall not be obligated to, and shall incur no liability to, Pledgor or any third party for failure to, do so), after and during the continuance of an Event of Default (as defined in Section 8, below), any act that Pledgor is obligated by this Agreement to do and to exercise such rights and powers as Pledgor might exercise with respect to the Pledged Shares. With respect to voting the Pledged Shares, this Section 6 constitutes an irrevocable appointment of a proxy, coupled with an interest, which shall continue until all obligations secured hereunder are performed in full, provided, however, Secured Party shall have no rights under such proxy unless and until there is an occurrence of an Event of Default by Pledgor hereunder. 7. Voting Pledged Shares; Custody of Certificates. (a) As long as no Event of Default (as defined in Section 8, below) shall have occurred, and further subject to the other provisions of this Agreement, Pledgor shall be entitled to vote the Pledged Shares. (b) If at any time or from time to time, with respect to the Pledged Shares, Pledgor shall receive or shall become entitled to receive any dividend, warrant, option, or any other distribution (including bonus payments as discussed in the Loan Agreement), whether in securities or other property, for any reason, including without limitation, liquidation, stock split, spin-off, split-up or reclassification, combination of shares, or the like, or in case of any reorganization, consolidation, or merger, Pledgor shall immediately deliver all such dividends or other distribution, in pledge, to Secured Party as security for the payment and performance of the obligations secured by this Agreement. Pledgor shall immediately notify the Company to make all such distributions directly to Secured Party. Secured Party may endorse, in Secured Party's name or in the name of Pledgor, any and all instruments by which any payment on the Pledged Shares may be made and may take such action as Secured Party may deem appropriate from time to time, in Secured Party's name or in the name of Pledgor, to enforce collection of the Pledged Shares. For such purpose, Pledgor appoints Secured Party the attorney-in-fact of Pledgor, under a power coupled with an interest, with full power of substitution. (c) So long as the obligations secured by this Agreement remain outstanding, Pledgor will not transfer, whether by sale, gift, or otherwise, any ownership interest in the Shares without Secured Party's prior written approval. -2- 8. Events of Default. Any one or more of the following events constitutes an event of default under this Agreement ("Event of Default"): (a) The occurrence of an Event of Default under the Loan Agreement, as such term is defined in the Loan Agreement, specifically including, without limitation, failure of the Pledgor to comply with any term or condition of, or fulfill any of Pledgor's obligations under, the Note attached as an Exhibit to the Loan Agreement within the applicable cure periods, if any, set forth therein. (b) A breach of or failure to perform any of the terms of this Agreement, which has not been cured within 5 days after notice has been given of such breach or failure, including, without limitation, the covenants contained in this Agreement. 9. Remedies Upon Default. Upon the occurrence of any Event of Default by Pledgor, Secured Party may, in Secured Party's sole discretion, take the following steps: (a) Secured Party may foreclose on its security interest in the Pledged Shares in accordance with the Oregon Uniform Commercial Code, provided, however, in no event shall Pledgor be personally liable for any Principal Deficiency (such term meaning that portion of the Note balance attributable to principal (but not to interest) under the terms of the Note and Loan Agreement) in any action or suit to foreclose on Secured Party's security interest in the Pledged Shares, or any deficiency resulting from the sale of the Pledged Shares, nor shall any action or proceeding be brought against Pledgor to recover judgment against Pledgor upon any outstanding obligations or liabilities of Pledgor under the Loan Agreement or any of the Agreements attached as Exhibits thereto; and (b) Pursue any other remedy available at law or equity to recover any sums other than a Principal Deficiency. 10. Limited Recourse. Notwithstanding any provision express or implied herein to the contrary, in the event of the occurrence of an Event of Default by Pledgor hereunder, including a default by Pledgor in the payment of principal, on the Note, Pledgor shall not be personally liable therefor and Secured Party's sole remedy for such default shall be limited to the remedies set forth in Section 9 above. This Agreement and the Note are non-recourse to Pledgor with respect to Principal Deficiencies, but not with respect to payment of interest. In no event shall Pledgor be personally liable for any Principal Deficiency in any action or suit to foreclose on Secured Party's security interest in the Pledged Shares. 11. Miscellaneous. 11.1 Entire Agreement; Amendment. This document and the documents referenced herein are the entire, final and complete Agreement and understanding of the parties with respect to the subject manner hereof, and supersedes and replaces all written and oral agreements and understandings heretofore made or existing by and between the parties or their representatives with respect thereto. No supplement, modification or amendment of this Agreement shall be valid, unless the same is in writing and signed by all parties hereto. -3- 11.2 Waiver. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 11.3 Binding Effect. All rights, remedies and liabilities herein given to or imposed upon the parties shall extend to, inure to the benefit of and bind, as the circumstances may require, the parties and their respective heirs, personal representatives, administrators, successors and assigns. 11.4 Notices. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed given on the date of transmission when sent by telex or facsimile transmission, on the third business day after the date of mailing when mailed by certified mail, postage prepaid, return receipt requested, from within the United States, or on the date of actual delivery, whichever is the earliest, and shall be sent to the following addresses, or to such other address as any party may hereafter designate by written notice to the others: Secured Party Pledgor Rentrak Corporation Michael Lightbourne One Airport Center P.O. Box 510 7700 N.E. Ambassador Place Gresham, Oregon 97030 Portland, Oregon 97220 11.5 Severability. If any portion of this Agreement or its application is construed to be invalid, illegal or unenforceable, then the other portions of the Agreement or its application thereof shall not be affected thereby and shall be given full force and effect without regard to the invalid or unenforceable portions. 11.6 Attorney's Fees. In the event any suit, action or other legal proceeding shall be instituted to declare or enforce any right created by this Agreement, or by reason of any breach of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees as fixed by the trial court and all appellate courts. 11.7 Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Oregon, excluding its conflict of law principles. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute a single agreement. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute a single agreement -4- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in duplicate as of the day and year first above written. PLEDGOR: /s/ Michzel Lightbourne -------------------------- Name: Michael Lightbourne SECURED PARTY: RENTRAK CORPORATION /s/ Ron Berger ----------------------------- By: Ron Berger Title: Chairman & Chief Executive Officer -5- EX-10 7 thoenesempagmt.txt 10.25 EMPLOYMENT AGREEMENT - THOENES EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is made and entered into effective January 1, 2001 (herein referred to as the "effective date"), by and between Rentrak Corporation, an Oregon corporation (hereinafter referred to as the "Company"), and Mark L. Thoenes (hereinafter referred to as the "Executive"). WITNESSETH: WHEREAS, the Company currently retains and engages the professional services of Executive in the capacity of Vice President and Chief Financial Officer and Executive is one of the key executives of the Company. The Company desires Executive to be so continuously employed as Vice President and Chief Financial Officer; WHEREAS, the Company and Executive desire to enter into this Agreement memorializing the terms and conditions of the employment relationship; WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continuous employment of Executive; WHEREAS, the Board of Directors of the Company (hereinafter referred to as the "Board") recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control (as defined below) may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure of distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change of Control. NOW, THEREFORE, in consideration of the mutual premises, covenants and agreements herein contained, the recitals set forth hereinabove which by this reference are incorporated herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: Section 1. EMPLOYMENT 1.01 Position and Title. The Company shall employ and engage the services of Executive, in the position of Vice President and Chief Financial Officer, pursuant to the terms and conditions set forth in this Agreement. 1.02 Duties and Place of Employment. (a) Executive shall be responsible for, and perform duties customarily performed by executives employed in the position of Vice President and Chief Financial Officer or other duties as may be directed by the Company, from time to time. A position description is attached to this Agreement as Exhibit A. -1- Executive shall (i) devote his full business time which shall include the time he reasonably and in good faith deems necessary to the business and affairs of the Company; (ii) use his best efforts to promote the interests of the Company; (iii) perform faithfully and efficiently his responsibilities and duties; and (iv) refrain from any professional business endeavor outside of his employment which interferes with his ability to perform his obligations hereunder. Executive shall perform the majority of his duties in Portland, Oregon, provided, however, the both parties understand that the position may require some travel to other locations as may be directed by the Company from time to time. Subject tot he terms of this Agreement, Executive shall comply promptly and faithfully with all of the Company's policies, instructions, directions, requests, rules and regulations. (b) After a Change of Control (defined below) during the Term of this Agreement, Executive shall continue to serve the Company in the substantially similar capacity and have the substantially similar authority, responsibilities and status as he had as of the date immediately prior to the Change of Control. After a Change of Control, Executive's services shall be performed at the location where Executive was employed as of the date immediately prior to the Change of Control, or at such other location as may be mutually agreed between the Company and Executive. (c) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs: (i) Any "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the 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 the Company, representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) A majority of the directors elected at any annual or special meeting of stockholders are not individuals nominated by the Company's then incumbent Board; or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy five percent (75%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan -2- of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. Section 2. TERM AND TERMINATION 2.01 Stated Term. Employment shall commence on the effective date of this Agreement and shall continue for a term of five (5) years (i.e. until December 31, 2005), unless terminated sooner pursuant to this Section 2 ("Term"). The Company and Executive agree to review the terms and conditions of this Agreement after six (6) months of the term of this Agreement has expired, no later than July 15, 2001, to determine that the terms and conditions of this Agreement are still consistent with the then business circumstances of the Company, as contemplated by the Company and Executive in executing this Agreement, as of the effective date. Any modifications to this Agreement may be made at that time by mutual written consent of the Company and the Executive in the form of an amendment to this Agreement. Upon the completion of the review of this Agreement by the Company and the Executive, the Company may increase the Executive's Base Salary, effective July 1, 2001 as set forth in Section 3.01. 2.02 Termination by the Company or Executive At Will. Notwithstanding anything herein to the contrary, Executive's employment may be terminated at any time with or without reason by the Company or Executive upon thirty (30) days written notice to the other party. At the Company's election, Executive may be relieved of his duties and responsibilities immediately and provided payment of salary and benefits in lieu of (30) day's notice. Such pay in lieu of notice shall be in addition to severance owed to Executive pursuant to Sections 4.03 and 4.04. Nothing in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. 2.03 Termination by the Company for Cause. Executive's employment may be terminated by the Company at any time without notice for "Cause." Termination for "Cause" is defined as termination for: (i) the final conviction of Executive for a felony involving willful conduct materially injurious, harmful or detrimental to the Company; or (ii) the final adjudication of Executive in a civil proceeding for acts of omissions to act involving willful conduct materially injurious, harmful or detrimental to the Company. For purposes of this subsection, "final conviction" and "final adjudication" shall be and mean a conviction or an adjudication, as the case may be, that is no longer appealable due to the passage of time or otherwise, and with respect to which a final judgement has been entered on the judgement roles of the court in which the action was commenced. Further, for the purposes of this subsection, no act or omission to act on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive's act or omission was in the best interest of the Company. 2.04 Termination for Death or Disability. Executive's employment shall be terminable immediately upon Executive's death or disability. "Disability" is defined for purposes of this subsection as a condition that renders Executive unable to perform the essential functions of his employment hereunder with or without reasonable accommodation. -3- The parties agree that due to the importance of Executive's position with the Company, either an indefinite leave or a leave of absence for a period in excess of ninety (90) days (calculated on the same annual basis used by the Company to calculate FMLA leave entitlement) would cause an undue hardship to the Company and would not constitute a reasonable accommodation. Nothing in this Section 2.04 is intended to violate any federal or state law regarding parental or family leave, if applicable. 2.05 Termination by Executive for Good Reason. Executive's employment may be terminated by Executive at any time for "Good Reason" as that term is defined below. Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act of failure to act constituting Good Reason hereunder. "Good Reason" shall mean: (a) a material breach by the Company of the specific terms of this Agreement; provided that Executive shall have no right to terminate this Agreement pursuant to this cause unless the Company has had at least thirty (30) days to cure such failure, or (b) the occurrence (without Executive's express written consent), within two (2) years after any Change of Control of any one of the following acts by the Company, or failures by the Company to act: (i) the assignment to Executive of any duties inconsistent with Executive's status as Vice President and Chief Financial Officer of the Company or a substantial adverse alteration in the nature or conditions or responsibilities from those in effect immediately prior to the Change of Control other than any such alteration primarily attributable to the fact that the Company may no longer be a public company; (ii) a reduction by the Company in Executive's annual Base Salary, benefits and stock options on the date hereof or as the same may be increased from time to time; (iii) the relocation of the Company's Portland, Oregon offices to a location more than fifteen (15) miles from the location of such offices immediately prior to the Change of Control of the Company's requiring Executive to be based anywhere other than the Company's offices in Portland, Oregon, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to the Change of Control; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's annual Base Salary, benefits, stock options or bonuses; (v) the failure by the Company, without Executive's consent, to continue in effect any salary, benefits, stock options or bonus programs in which Executive participates immediately prior to the Change of Control -4- which is material to Executive's total compensation unless a substantially similar arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the terms and conditions of such benefits, including, without limitation, the level of Executive's participation relative to other participants, as such relative level existed at the time of the Change of Control. (vi) the failure by the Company, without Executive's consent, to continue to provide Executive with benefits substantially similar to those available to Executive or other executives under any of the Company's benefit plans including, but not limited to, pension, life insurance, medical, or health and accident or disability plans which are currently available to the Executive or other executives immediately prior to the Change of Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change of Control, or the failure by the Company to provide Executive with the number of paid vacation days to which Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation polity in effect for executives of the Company immediately prior to the Change of Control; or (vii) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 11.04. (c) Notice and Opportunity to Cure. For all terminations under this Section 2.05, Executive must present in writing to the Company a Notice of Good Reason Termination describing the act or acts potentially giving rise to the Executive's termination for "Good Reason" and providing the Company a period of thirty (30) days from the date of receipt of said Notice in which to cure said act or acts as described in Executive's Notice of Good Reason Termination (the "Cure Period"). Executive's "Good Reason" termination shall not be deemed effective unless the thirty (30) day Cure Period has elapsed and the Company has not substantially cured the alleged act or a acts giving rise to the potential "Good Cause" termination. It is further agreed by the parties that Executive must present his Notice of Good Reason Termination to the Company within six (6) months from the date of the alleged act or acts giving rise to the "Good Reason" termination or else Executive will be deemed to have waived his right to terminate this Agreement based on such alleged "Good Reason." -5- Section 3. SALARY AND BENEFITS 3.01 Base Salary. Commencing on the complete execution of this Agreement, Executive shall be paid a minimum annual base salary in the amount of One Hundred Sixty Eight Thousand Dollars ($168,000) per year ("Base Salary"), payable in regular semi-monthly installments in arrears in accordance with the Company's payroll procedures. Effective July 1, 2001 Executive's Base Salary may be increased by a minimum of five percent (5%) annually in accordance with a review of this Agreement by the Company and Executive pursuant to Section 2.01. Subsequently, Executive's Base Salary shall be automatically increased by a minimum five percent (5%) annually effective each January 1st, beginning January 1, 2002, for the Term of this Agreement. Executive's Base Salary may be increased annually greater than five percent (5%) at the discretion of the Company. 3.02 Cash Bonus Program. Commencing on the complete execution of this Agreement, Executive shall be eligible to receive an annual cash bonus or other types of cash bonuses as is awarded to the Company's executives in accordance with the policies and procedures or other executive contractual arrangements currently in effect for such cash bonus programs as approved by the Board of the Company. 3.03 Vacation, Holidays, Sick Leave and Leaves of Absence. Commencing on the complete execution of this Agreement, Executive shall be entitled to: (i) four (4) weeks of paid vacation during each year of his employment during the Term of this Agreement; (ii) the number of paid holidays provided for under the current policies and procedures of the Company from time to time; (iii) a minimum of six (6) days of paid sick leave during each year of his employment during the Term of this Agreement; and (iv) other leaves of absence on the same basis granted to other executives by the Company from time to time. 3.04 401(k) Plan. Commencing on the complete execution of this Agreement, or as of the next earliest date of eligibility, Executive shall become eligible to participate in the Company's 401(k) Plan. Executive shall be entitled to make voluntary pre-tax employee contributions consistent with the policies and procedures of the Company's 401(k) Plan into Executive's account. The Company shall also make annual contributions to Executive's account consistent with contributions made by the Company to the accounts of other executives of the Company in the Company's 401(k) Plan. 3.05 Stock Options. Commencing on the complete execution of this Agreement, the Company shall grant Executive an option to purchase Twenty Thousand (20,000) shares of the Company's stock at the market rate as set froth in the Company's Stock Option Plan on the effective date, commencing on the complete execution of this Agreement. Said options shall vest at a rate of twenty-five percent (25%) per year (i.e. five thousand (5,000) options shall vest at the end of each full year of the Executive's employment during the five-year Term of this Agreement) and shall remain exercisable for a period of (10) years from the issue date. The option shall be subject to the terms and conditions contained in and granted pursuant to that certain Incentive Stock Option Agreement adopted by the Company (the "Incentive Stock Option Agreement"), a copy which is attached to this Agreement as Exhibit B. -6- In addition to the aforementioned options, Executive shall be granted additional options for Seven Thousand Five Hundred (7,500) shares of the Company's stock per grant during each year that this Agreement remains in effect. All subsequent grants of options pursuant to this paragraph shall be at a price to be set by the Board of Directors of the Company and ahsll be the same price at which options are offered to most other employees of the Company during the year in which the options are granted. Said options shall vest at a rate of twenty-five percent (25%) per year (i.e. one thousand eight hundred seventy five (1,875) options shall vest at the end of each full year of the Executive's employment) and shall remain exercisable for a period of (10) years from the issue date. The option shall be subject to the terms and conditions contained in and granted pursuant to that certain Incentive Stock Option Agreement adopted by the Company (the "Incentive Stock Option Agreement"), a copy which is attached to this Agreement as Exhibit B. Should Executive's employment be terminated by the Company other than for Cause (pursuant to Section 2.03) prior to the Term of this Agreement, all options granted though the date of termination will fully vest immediately and all annual options granted for each year or employment through the end of the severance period shall fully vest immediately upon the date of termination as if the termination had not occurred. Should Executive be terminated for Cause, he shall be entitled only to those options, which vested through the date of termination. 3.06 Health and Welfare and Other Benefits. Commencing on the complete execution of this Agreement Executive shall become entitled to medical, dental, life insurance, worker's compensation, social security, short and long term disability and state unemployment insurance benefits as provided under the Company's then current insurance programs, policies and procedures. The Company shall provide directors' and officers' liability insurance covering the Executive and will indemnify and hold harmless Executive (and provide cash advances for expenses) to the full extent provided in the Articles of Incorporation and Bylaws of the Company. If the directors' and officers' liability insurance coverage levels are reduced during the Term of this Agreement by the Company, then Executive may seek additional coverage, on terms no less favorable (in terms of coverage and amounts), for that reduction made by the Company, and the Company shall pay Executive annually to reimburse him for the cost of such additional coverage during each year of this Agreement after such reduction in coverage becomes effective. For five (5) years following a Change of Control, the Company shall use its best efforts to continue to provide directors' and officers' liability insurance covering Executive (with respect to events occurring prior to termination of his employment) on terms no less favorable (in terms of coverage and amounts) than those of such insurance in effect immediately prior to the Change of Control. Following a Change of Control, the Company will indemnify and hold harmless Executive (and provide cash advances for expenses) to the full extent provided in the Articles of Incorporation and Bylaws of the Company as in effect immediately prior to the Change of Control. 3.07 Professional Dues, Continuing Education, Tuition Reimbursement, Publications and Subscriptions. Commencing on the complete execution of this Agreement, Executive shall be entitled to reimbursement from or payment by the Company for -7- professional dues, continuing education courses, class tuition, professional publications and subscriptions, and other such professional services and materials consistent with the needs of Executive to perform this Agreement, including but not limited to maintaining the Executive's "active status" licensure as a Certified Public Accountant. All such expenditures for reimbursement or payment shall be presented in advance of their occurrence by Executive to the Company for approval in accordance with the policies and procedures of the Company now or hereinafter in effect. 3.08 Business Expenses. Commencing on the complete execution of this Agreement, the Company will reimburse Executive for reasonable business expenses in performing Executive's duties pursuant to this Agreement and promoting the business of the Company, including without limitation, reasonable entertaining expenses, automobile expenses, and travel and lodging, when incurred, in accordance with the policies and procedures of the Company now or hereinafter in effect. 3.09 Miscellaneous Benefits. Commencing on the complete execution of this Agreement, in addition to any other compensation or benefits to be received by Executive pursuant to the terms of this Agreement, Executive shall be entitled to participate in any benefits which the Company may from time to time provide to any or all of its executives. 3.010 Working Environment/Cooperation. Commencing on the complete execution of this Agreement, Executive shall have reasonable control over his days and hours of work to provide services under the terms of this Agreement. The Company and Executive will agree to the timing and amount of time off, in conjunction with the nature and timing of services to be performed under this Agreement from time to time. The Company shall furnish Executive with adequate resources to perform this Agreement such as appropriate office space, supplies, equipment (including but not limited to, computer, printer, telephone, cellular telephone, etc.), appropriate staffing in departments of which the Company Executive has direct responsibilities, and clerical and other administrative support. The Company shall provide Executive clear direction, access to other resources (both internal and external to the Company) and other support as identified and required by Executive. Section 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT 4.01 Termination by the Company for Cause. In the event of termination of Executive's employment by the Company pursuant to Section 2.03, the Company shall pay to Executive: (i) the Base Salary accrued pursuant to Section 3.01 through and including the date of termination and (ii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03, payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. No other compensation shall be due or payable under this Agreement. Nothing in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. -8- 4.02 Termination for Death or Disability. (a) Termination for Death. In the event of termination of Executive's employment pursuant to Section 2.04 due to his death, the Company shall pay to Executive's estate or legal representative, as the case may be, in a lump sum: (i) the Base Salary accrued pursuant to Section 3.01 through and including the date of termination (ii) a lump sum severance of six (6) months Base Salary at the rate in effect on the date of Executive's death and (iii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03, payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. All stock options issued and to be issued pursuant to Section 3.05 of this Agreement shall immediately vest. No other compensation shall be due or payable under this Agreement in the event of a termination due to the Executive's death. (b) Termination for Disability. In the event of termination of Executive's employment pursuant to Section 2.04 due to his disability, the Company shall pay to Executive or his legal representative, as the case may be, in a lump sum: (i) the Base Salary accrued pursuant to Section 3.01 through and including the date of termination (ii) a lump sum severance of six (6) months Base Salary at the rate in effect on the date of the Executive's termination and (iii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03, payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. During the period of Executive's disability, but prior to Executive's termination of employment, Executive shall be entitled to receive his compensation as set forth in this Agreement. All stock options issued and to be issued pursuant to Section 3.05 of this Agreement shall immediately vest. No other compensation shall be due or payable under this Agreement in the event of termination due to the Executive's disability. 4.03 Termination by the Company Without Cause After a Change of Control or by Executive for Good Reason. In the event of the termination of Executive's employment by the Company pursuant to Section 2.02 within two (2) years after a change of Control or by Executive pursuant to Section 2.05, within ten (10) days of termination, the Company shall pay to Executive: (i) the Base Salary accrued pursuant to Section 3.01 as of the date of termination plus (ii) a lump sum severance payment in an amount equal to the lesser of (a) all Base Salary which the Company is obligated to pay to Executive pursuant to Section 3.01 through the Term or (b) one (1) year of Base Salary which the Company is obligated to pay to Executive pursuant to Section 3.01 during the then current fiscal year and (iii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03. All stock options issued and to be issued pursuant to Section 3.05 of this Agreement shall immediately vest. Nothing in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. 4.04 Other Termination by the Company. In the event of termination of Executive's employment by the Company pursuant to Section 2.02 within twenty one (21) months of -9- the effective date of this Agreement prior to a Change of Control, within ten (10) days of termination, the Company shall pay Executive: (i) the Base Salary accrued pursuant to Section 3.01 as of the date of termination plus (ii) a lump sum severance payment in an amount equal to one (1) year of Base Salary at the rate at which the Company is obligated to pay Executive pursuant to Section 3.01 during the then current fiscal year and (iii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03. All stock options issued and to be issued pursuant to Section 3.05 of this Agreement shall immediately vest. Nothing in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. In the event of termination of Executive's employment by the Company pursuant to Section 2.02 after twenty one (21) months of the effective date of this agreement prior to a Change of Control or more than two (2) years after a Change of Control, within ten (10) days of termination, the Company shall pay Executive: (i) the Base Salary accrued pursuant to Section 3.01 as of the date of termination plus (ii) a lump sum severance payment in an amount equal to one (1) year of Base Salary at the rate at which the Company is obligated to pay Executive pursuant to Section 3.01 during the then current fiscal year and (iii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03. All stock options issued and to be issued pursuant to Section 3.05 of this Agreement shall immediately vest. Nothing in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. 4.05 Other Termination by the Executive. In the event of the termination of Executive's employment by Executive pursuant to Section 2.02, within ten (10) days of termination, the Company shall pay Executive: (i) the Base Salary accrued pursuant to Section 3.01 as of the date of termination and (ii) any Paid Time Off (PTO) earned but unused by Executive pursuant to Section 3.03. No other compensation shall be due or payable under this Agreement in the event of such a termination. Noting in this provision shall operate to divest Executive of any vested benefits that he is otherwise entitled to receive under this Agreement, if any. 4.06 Insurance Benefits. Employee is entitled to elect to continue the medical and dental insurance as described in Section 3.06 for a period of eighteen (18) months following termination of employment. If Executive elects to continue such coverage, the Company shall reimburse Executive for the premiums paid by Executive for such insurance as such premiums are paid until such time as the continued insurance terminates or Executive obtains replacement full-time employment and is covered by such new employer's group medical, dental, disability and life insurance plan with benefits substantially similar to those provided by the Company's insurance plan and without any pre-existing conditions, exclusions, limitations or restrictions, whichever occurs first. Such reimbursement shall be reduced for an amount equivalent to the amounts charged Executive for health and welfare coverage immediately prior to the termination of employment. 4.07 Other Compensation. Except as set forth in this Section 4, no other compensation shall be due or payable to Executive upon termination of his employment. -10- 4.08 Stock Options. Except as provided in Section 4.02, in the event of a termination of Executive's employment, all stock options held by Executive shall be treated in the manner described in the stock option agreements entered into between the Company and Executive. Such agreements shall provide that all of Employee's previously issued stock options in the Company shall fully vest in the event of the termination of Executive's employment pursuant to Section 2.02 or within two (2) years after a Change of Control, pursuant to Section 2.04 or by Executive pursuant to Section 2.05. 4.09 Right to Decline Payments. Executive, in his sole and absolute discretion, shall have the right to decline all or a portion of any payments under this Agreement. Section 5. PERSONAL NATURE This Agreement is personal, and is being entered into based upon the singular skill, qualifications and experience of Executive. Executive shall not assign this Agreement or any rights hereunder without the express written consent of the Company which may be withheld with or without reason. Executive hereby grants to the Company the right to use Executive's name, likeness and/or biography in connection with the services performed by Executive hereunder and in connection with the services performed by Executive hereunder and in connection with the advertising, promotion or implementation of any Company-related project with respect to which Executive performs services hereunder. Section 6. NOTICES Any and all notices or other communications required or permitted by this Agreement or by law shall be deemed duly served and given when personally delivered to the party to whom such notice or communication is directed or, in lieu of such personal service, when deposited in the United States mail, certified, return receipt requested, first class postage prepaid, addressed as follows: COMPANY: Rentrak Corporation Attn: Rita Coe 7700 N.E. Ambassador Place Portland, Oregon 97220 EXECUTIVE: Mark L. Thoenes 21153 S.W. Arapaho Court Tualatin, Oregon 97213 Each party may change its address for purposes of this Section by giving written notice of such change in the manner provided for herein. Section 7. WARRANTIES 7.01 Executive warrants that he is under no agreement, written or oral, that would bar Executive from working for the Company or prevent or limit Executive from carrying out his duties for the Company. Such warranty includes non-competition, confidentiality and non-disclosure agreements. -11- 7.02 No Confidential Information. Executive understands that Company is not employing Executive in order to obtain any information that is the property of any previous employers or any other person or entity for whom Executive has performed services. The Company specifically instructs Executive not to use or disclose any information that would constitute the property or a trade secret of another person or entity. Executive agrees that she will not disclose or provide any information to the Company which the Company shall not be free to use without restriction or which, if used by the Company, would cause the Company to infringe or violate the rights of any person, including without limitation, Executive. Section 8. WAIVER AND RELEASE OF CLAIMS The Company and Executive agree that one of the purposes of this Agreement is to ensure an amicable relationship between the parties. Therefore, Executive agrees that as a precondition to his entitlement to any severance payment under Section 4.03, he shall sign and deliver a Waiver and Release of Claims Agreement, in a form to be submitted by the Company at the date of termination, only to the extent that the Company signs and delivers a Waiver and Release of Claims Agreement to the Executive, in a form to be submitted by the Company and agreeable to Executive, at the date of termination, prior to the delivery of the Waiver and Release of Claims Agreement delivered by the Company to Executive for signature and delivery to the Company. Among other things, such Waiver and Release of Claims Agreement, signed and delivered by Executive to the Company, shall fully and finally waive and release any and all claims, demands, and causes of action that Executive might have against the Company, the Company's subsidiaries, affiliates, related entities, the Company's successors and predecessors, past and then current directors, officers, employees, agents and representatives as of the date the waiver and release of claims is signed. In addition, it shall provide that Executive shall not disparage such persons and entities in any manner, directly or indirectly, at any time (except as required by lawful subpoena or court order). Correspondingly, among other things, such Waiver and Release of Claims Agreement signed and delivered by the Company to Executive shall fully and finally waive and release any and all claims, demands, and causes of action that the Company might have against the Executive. In addition, it shall provide that the Company shall not disparage Executive in any manner, directly or indirectly, at any time (except as required by lawful subpoena or court order). Section 9. RESTRICTIVE COVENANTS 9.01 Non-Competition. During the term of Executive's employment under this Agreement, or earlier termination thereof pursuant to Section 2., and for six (6) months thereafter, without the Company's written consent, Executive shall not own or have any interest directly in, or act as an officer, director, agent, employee, or consultant of, or assist in any way or in any capacity, any person, firm, association, partnership, corporation, or entity which is engaged in the business of the following: (a) The wholesale distribution of home video cassettes, digital video disks or related media; or -12- (b) Any business competitive with the businesses then engaged in by the Company, within fifty (50) miles of any geographic area where the Company has engaged or planned to engage in any business activities (a "Competitive Entity"). The restrictions of this Section prohibiting ownership in a Competitive Entity shall not apply to Executive's ownership of less than ten percent (10%) of the publicly traded securities of any Competitive Entity. Due to the fact that the Company conducts business in a number of jurisdictions with a wide geographic scope, the parties agree that his covenant not to compete shall apply anywhere in the United States or in any other geographical area in which the Company conducts its business, plans to conduct its business, or sells or distributes its products or services. Making a sale or delivering product in a geographic area constitutes doing business for the purposes of this Section. 9.02 Delivery of Records. Upon termination of Executive's employment with the Company or at any other time upon the Company's request, Executive shall deliver to the Company all books, records, lists, brochures, documents, files, notes, records, plans and other property belonging to the Company or developed in connection with the business of the Company. 9.03 Confidentiality. As used in this Agreement, the term "Confidential Information" shall mean any information of the Company (including any parent, subsidiary, predecessor, successor, or otherwise affiliated corporation, partnership or other business enterprise, hereinafter collectively referred to as the "Company"), whether or not in written form, which has not been previously disclosed to the public by the Company and which (a) is either designated or treated by the Company as confidential or proprietary or as a trade secret, (b) the Company is obligated to keep confidential because it has been provided by third parties, or (c) the Executive knows or should know is confidential. Consistent with the definition set forth above, the term "Confidential Information" shall include, but is not limited to, the Company's: trade secrets; proprietary information; inventions, discoveries, or improvements; confidential or proprietary methods of conducting or obtaining business, including methods of marketing; non-public lists of actual or prospective clients, customers, suppliers, vendors or investors provided to Executive by the Company (collectively "Corporate Contacts"); corporate documents, plans or manuals; software and data; finances; legal affairs; labor or other reports; current or future business opportunities; current or future products or technology; formulae, processes, machines, or compositions; relationships with third party companies; business relationships with Corporate Contacts, including, but not limited to, the volume of business transacted, prices, terms and nature of the business relationship; and other information marked, designated and/or treated by the Company as confidential. 9.04 Nondisclosure of Confidential Information. Executive shall hold all Confidential Information in a fiduciary capacity and shall exercise the highest degree of care in safeguarding Confidential Information against loss, theft, or other inadvertent disclosure, and shall take all steps reasonably necessary to maintain the confidentiality thereof. -13- Executive shall not, directly or indirectly, either during the term of his employment (except as required in the course of the performance of his duties), or at any time after his employment is terminated for any reason: (a) Disclose or furnish to any person, corporation or other entity, or use in his own or in any other person's business, any Confidential Information; (b) Utilize any such Confidential Information for the gain, advantage, or profit of anyone other than the Company; or (c) Take advantage of any business opportunity which, because of Confidential Information obtained in Executive's employment capacity or as a result of his employment, Executive knows the Company may or is likely to consider. If Executive is served with any subpoena or other compulsory judicial or administrative process calling for production of Confidential Information, Executive will immediately notify the Company in order that the Company may take such action as it deems necessary to protect its interests. 9.05 Non-Solicitation/Non-Provision of Services. Unless Executive receives the prior express written consent of the Company, Executive shall not during the term of Executive's employment and for six (6) months after termination of his employment, solicit, accept, invite or provide (or attempt to do any of the above), either directly or by assisting others, any work, services, goods, employment or other business from any Corporate Contacts (as defined below) of the Company if your solicitation, acceptance or provision of work is likely to negatively impact the Business Contact's contractual relationship with the Company, or solicit, encourage or entice any Business Contacts to reduce, discontinue, terminate, cancel or revoke its business or contractual relationship with the Company. For purposes of this Section 9.05, Corporate Contacts shall mean Employer's actual or prospective clients, customers, suppliers, vendors or investors. 9.06 Work for Hire. Executive agrees that all creative work, including without limitation designs, drawings, specifications, techniques, models, and processes, prepared or originated by Executive during or within the scope of employment, whether or not subject to protection under federal copyright or other law, constitutes work made for hire, all rights to which are owned by the Company; and, in any event, Executive hereby assigns to the Company all right, title and interest, whether by way of copyright, trade secret, or otherwise, in all such work, whether or not subject to protection by copyright or other law. 9.07 Remedies. Executive acknowledges that a breach of this Section 9 will result in irreparable and continuing harm to the Company for which there will be no adequate remedy at law. Therefore, in the event of a breach of this Section 9, Executive agrees that the Company shall be entitled to temporary and/or permanent injunctive relief upon a showing that Executive has breached this agreement without proof of actual damage and without posting a bond, therefore, against the Executive and any of the Executive's -14- partners, agents, employers or employees or any personas acting for or with the Executive, and/or an order of temporary specific performance enforcing this agreement, and any other temporary and/or permanent remedies provided to the Company by applicable law. Such temporary and/or permanent relief shall remain in effect until the matter in dispute is resolved. 9.08 Survival. The provisions of this Section 9 shall survive the termination of the basic term of this Agreement and shall inure to the benefit of the Company, its successors and assigns. 9.09 Scope. The parties intend the scope and effect of the covenants contained in this Agreement to be as broad as allowed by applicable law. To the extent that the language of the covenants may be greater than applicable law, the portion thereof shall be ineffective, but the other portions of the covenants shall remain in effect or shall be reformed to provide the fullest protection possible of the Company, the Company's Confidential Information, Corporate Contacts, and existing business relationships. Section 10. ARBITRATION OF CLAIMS (a) To the extent allowed by law, the Company and Executive mutually consent to the binding resolution by arbitration of all claims, arising out of or related to Executive's employment (or termination), that the Company may have against Executive or that Executive may have against the Company (including any parent, subsidiary, or otherwise affiliated corporation, partnership or other business enterprise and all of its or their officers, directors, assigns, predecessors, subsidiaries, affiliates, employers, employees' representatives and agents, herein collectively call "Associated Persons"), including but not limited to, claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, sexual orientation, medical condition, handicap, disability or any other category protected by law as all these terms are defined under federal, state, and local law, but excluding an administrative charge of discrimination); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration procedure different from this one); claims for permanent injunctive and/or equitable relief; and/or claims for violation of any federal, state, or governmental law, statute, regulation, or ordinance, except for claims excluded in this section (Claims). The aggrieved party must give notice of any claim to the other party, which shall identify and describe the nature of all claims asserted and the facts upon which such claims are based. The notice shall be sent to the other party by certified or registered mail, return receipt requested. Claims the Executive may have for workers' compensation or unemployment compensation benefits are not covered by this arbitration provision. Also not covered by this arbitration provision are claims by the Employer for damages, -15- injunctive and any other relief for the following: unfair competition, the use and/or unauthorized disclosure of trade secrets or confidential information, or violation of Sections 9 and/or 10 of this Agreement, as to which the Company may seek and obtain temporary and permanent relief from a court of competent jurisdiction. (b) Discovery and Arbitration Procedures. The Company and Executive agree that any arbitration shall be in accordance with the then current applicable Arbitration Procedures of the American Arbitration Association ("AAA"). Any claim brought under this section shall be instituted and commenced exclusively in Portland, Oregon. The Arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of Oregon or federal law of the United States of America, or both, as applicable to the Claim(s) asserted. The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or information of this Agreement, including but not limited to any Claim that all or any of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties, except as provided in this Agreement. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce any arbitration award. Except as otherwise provided in this Agreement, the Company and Executive agree that neither shall initiate or prosecute any lawsuit or administrative action (other than the sole exception of an administrative charge of discrimination) in any way related to any Claim covered by this Agreement. (c) Arbitrator Fees and Costs The Company and Executive shall equally share the fees and cost of the Arbitrator unless the Arbitrator determines that a different division is necessary in order to enforce the provisions of this Section 10. Section 11. MISCELLANEOUS PROVISIONS 11.01 Attorney's Fees; Disputes Concerning Termination. (a) Subject to Section 11.01 (b), in the event that it should become necessary for any party to bring an action, either at law or in equity, to enforce or interpret the terms of this Agreement, each party shal pay its own attorneys' fees, including those incurred in resolving the dispute prior to initiation of any litigation and at trial and on any appeal, provided, however, that in any action related to Section 7 and/or Section 9 of this Agreement, the non-prevailing party shall be responsible for paying the prevailing party's reasonable attorney's fees and costs. -16- (b) If within fifteen (15) days after any notice of termination for Good Reason is given by Executive pursuant to Section 2.05, the Company notifies Executive that a dispute exists concerning the termination, the date of termination of this Agreement shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a final determination; provided further that the date of termination shall be extended by a notice of dispute from the Company only if such notice is given in good faith and the Company pursues the resolution of such dispute with reasonable diligence. Following a Change of Control, the Company shall use its best efforts to provide all witnesses and evidence reasonably required by Executive to present Executive's case. If a purported termination by the Company within two years after a change of Control or by Executive for Good Reason occurs and such termination is disputed, the Company shall pay to Executive all reasonable expenses and legal fees incurred by Executive as a result of termination in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not Executive is successful in obtaining or enforcing such right or benefit). (c) If a purported termination by the Company within two years after a Change of Control or by Executive for Good Reason occurs and such termination is disputed, the Company shall do either of the following: (1) So long as Executive continues to provide services, the Company shall continue to pay Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary and estimated bonus) and continue Executive as a participant in all compensation, benefit and insurance plans in which Executive was a participant when the notice giving rise to the dispute was given, until the dispute is finally resolved; provided that the Executive's right to continue to provide such services is solely within the discretion of the Company, and nothing herein shall prohibit the Company from terminating such services. (2) If Executive is no longer providing services, the Company shall pay Executive fifty percent (50%) of the amount specified in Sections 4.03 and the Company will provide Executive with the other benefits provided in Section 4.06, if, but only if, Executive agrees in writing that if the dispute is resolved against Executive, Executive will promptly refund to the Company all payments specified in Section 4.03 that Executive receives under this paragraph (c) plus interest at the rate provided in Section 1274(d) of the Internal Revenue code of 1986, as amended (the "Code"), compounded quarterly. If the dispute is resolved in Executive's favor, promptly after resolution of the dispute the Company will pay Executive the sum which was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. -17- Amounts paid under this paragraph (c) shall offset against and reduce other amounts due under this Agreement. If the dispute is resolved by a determination or agreement that Executive did not have Good Reason, this Agreement, in accordance with its terms, will continue to apply to the circumstances of Executive's employment by the Company and any termination thereof. (d) The existence of a dispute concerning termination shall not alter Executive's obligation under Section 8 to sign a full waiver and release of claims as a pre-condition to severance payments under Section 4.03. 11.02 Applicable Law and Venue. This Agreement is executed and intended to be performed largely in the State of Oregon and the laws of such State shall govern its interpretation and effect. If suit is instituted by any party hereto or by any other party for any cause or matter arising from or in connection with the respective rights or obligations of the parties hereunder, the sole jurisdiction and venue for such action shall be the Circuit Court of the State of Oregon in and for the County of Multnomah. The parties hereby waive any and all of their rights to challenge such venue. 11.03 Integration. This Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes and replaces all prior agreements, negotiations, or understandings, whether oral or written, between the parties with respect thereto. 11.04 Heirs and Assigns. Subject to any restriction on assignment contained herein, this Agreement shall be binding upon and shall inure to the benefit of the respective party's heirs, successors and assigns. Executive will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or subsequently all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. This Agreement shall not be terminated by the Company's voluntary or involuntary dissolution or by any merger or consolidation or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which such assets shall be transferred. 11.05 Severability. Any provision in this Agreement which is, by judicial authority, declared illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity, or unenforceability without invalidating the remaining provisions hereof or affecting the legality, validity, or enforceability or such provision in any other jurisdiction. The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision that, to the extent possible, will preserve the economic bargain of this Agreement, or otherwise to amend this Agreement. 11.06 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and the counterparts shall together constitute one and the -18- same agreement, notwithstanding that all of the parties are not signatory to the original or the same counterpart. 11.07 Captions. The headings and captions herein are inserted solely for the purpose of convenience of reference and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 11.08 Executions. Each of the parties hereto shall execute, acknowledge and deliver any instrument necessary to carry out the provisions of this Agreement. 11.09 Construction. This Agreement has been prepared by legal counsel for the Company. Executive has been advised and by his execution hereof acknowledges, that he has the right to and should have this Agreement reviewed by his own separate legal counsel. This Agreement has been negotiated at arms' length with the benefit of or opportunity to seek legal counsel and, accordingly, shall not be construed against any of the parties. 11.10 Modification. No waiver, amendment or modification of this Agreement or any portion thereof, including any future representations that are inconsistent with the terms set forth herein will be valid unless made in writing and duly executed by each party hereto. 11.11 Acknowledgment. Executive acknowledges that he has read this Agreement, that he has had an opportunity to consult with an attorney regarding the terms and conditions hereof, that he fully understands the meaning and significance of such conditions, and that he accepts and signs this Agreement as his own free act and in full and complete understanding of its present and future legal effect. 11.12 No Disparagement or Breach of Confidentiality and Noncompetition. In the event that Executive's employment terminates under this Agreement in any manner whatsoever, Executive agrees that, execept under conpulsion of legal process or at the Company's request, he will make no oral or written comments about the Company or its business for a period of one (1) year following termination of his employment. In the event that Executive breaches this provision of this Agreement, or violates Section 9 of this Agreement, then all severance obligations which the Company may then have under this Agreement shall immediately cease and Executive shall be owned nothing under this Agreement other than wages and benefits earned thorough the date of termination of his employment. -19- IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. COMPANY: EXECUTIVE: Rentrak Corporation Mark L. Thoenes By: /s/ F. Kim Cox By: /s/ Mark L. Thoenes -------------------------------- ------------------------------ F. Kim Cox, President Date: 2/15/01 Date: 2/15/01 ----------------------------- ---------------------------- -20- EX-10 8 erwinempagmt.txt 10.26 ERWIN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is made and entered into effective January 1, 2001, by and between Rentrak Corporation, an Oregon corporation (hereinafter referred to as "Employer"), and Timothy J. Erwin (hereinafter referred to as "Employee"). WITNESSETH: WHEREAS, Employer currently employs Employee in the capacity of Vice President, Customer Relations, and Employee is one of the key executives of the Employer and desires to be so employed; WHEREAS, Employer and Employee desire to enter into an Employment Agreement memorializing the terms and conditions of the employment relationship; WHEREAS, Employer considers it essential to the best interests of its shareholders to foster the continuous employment of Employee; NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements herein contained, the recitals set forth herein above which by this reference are incorporated herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: SECTION 1. EMPLOYMENT 1.01 Position and Title. Employer shall employ and engage the services of Employee, in the position of Vice President, Customer Relations, pursuant to the terms and conditions set forth in this Agreement. 1.02 Duties and Place of Employment. (a) Employee shall be responsible for, and perform duties customarily performed by executives employed in the position of Vice President, Customer Relations or other duties as may be directed by the Employer, from time to time. Employee shall: (i) devote his full business time which shall include the time he reasonably and in good faith deems necessary to the business and affairs of Employer; (ii) use his best efforts to promote the interests of Employer; (iii) perform faithfully and efficiently his responsibilities and duties; and (iv) refrain from any endeavor outside of his employment which interferes with his ability to perform his obligations hereunder. Employee shall perform the majority of his duties in Portland, Oregon, provided, however, that both parties understand that the position may require frequent travel to other locations as may be directed by Employer from time to time. Subject to the terms of this Agreement, Employee shall comply promptly and faithfully with all of Employer's policies, instructions, directions, requests, rules and regulations. (b) After a Change of Control (as defined below) during the Term of this Agreement, Employee shall continue to serve Employer in the substantially similar capacity and have the substantially similar authority, responsibilities and status as he had as of the date -1- immediately prior to the Change of Control. After a Change of Control, Employee's services shall be performed at the location where Employee was employed as of the date immediately prior to the Change of Control, or at such other location as may be mutually agreed between Employer and Employee. (c) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs: (i) Any "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of Employer, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Employer, representing twenty-five percent (25%) or more of the combined voting power of Employer's then outstanding securities; or (ii) A majority of the directors elected at any annual or special meeting of stockholders are not individuals nominated by Employer's then incumbent Board; or (iii) The shareholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Employer approve a plan of complete liquidation of Employer or an agreement for the sale or disposition by Employer of all or substantially all of its assets. SECTION 2. TERM AND TERMINATION 2.01 Stated Term. Employment shall commence on the effective date of this Agreement and shall continue for a term of five years, until December 31, 2006, unless terminated sooner pursuant to this Section 2 ("Term"). 2.02 At Will Termination. Notwithstanding anything herein to the contrary, Employee's employment may be terminated at any time with or without reason by Employer upon thirty (30) days written notice to Employee. At Employer's election, Employee may be relieved of his duties and responsibilities immediately and provided pay in lieu of the thirty (30) days notice. Such pay in lieu of notice shall be in addition to severance owed pursuant to Section 4.03. 2.03 For Cause Termination. Employee's employment may be terminated by Employer at any time without notice for "cause." Termination for "cause" is defined for purposes of this subsection as termination for: (a) failure of Employee to perform his duties or insubordination; or (b) violation by Employee of any provision of this Agreement. -2- 2.04 Disability or Death. Employee's employment shall be terminable immediately upon Employee's death or disability. "Disability" is defined for purposes of this subsection as a condition that renders Employee unable to perform the essential functions of his employment hereunder with or without reasonable accommodation. The parties agree that due to the importance of Employee's position with Employer, either an indefinite leave or a leave of absence for a period in excess of ninety (90) days (calculated on the same annual basis used by Employer to calculate FMLA leave entitlement) would cause an undue hardship to the Company and would not constitute a reasonable accommodation. Nothing in this Section 2.04 is intended to violate any federal or state law regarding parental or family leave, if applicable. 2.05 Termination by Employee for Good Reason. Employee's employment may be terminated by Employee at any time for "Good Reason" as that term is defined below. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. "Good Reason" shall mean a material breach by employer of the terms of this Agreement; provided that Employee shall have no right to terminate this Agreement pursuant to this clause unless Employer has had at least 15 days to cure such failure. 2.06 Other Termination by Employee. Employee's employment may be terminated by Employee at any time without Good Reason upon thirty (30) days prior written notice to Employer. SECTION 3. SALARY AND BENEFITS 3.01 Base Salary. Commencing on the complete execution of this Agreement, Employee shall be paid an annual base salary in the amount of One Hundred Ten Thousand Dollars ($110,000) ("Base Salary"). The Base Salary shall be paid to Employee in equal semi-monthly installments in arrears, commencing as of the month following the effective date of this Agreement. Should the normal payroll date not be a business day, Employee's semi-monthly installment of the Base Salary otherwise due on such date shall be paid to Employee on the business day closest to the normal payroll date (i.e., if the normal payroll date falls on a Saturday, the semi-monthly installment shall be paid on the preceding business day or if the normal payroll date falls on a Sunday, the semi-monthly installment shall be paid on the next following business day). Employee's Base Salary may be increased by four percent (4%) per annum during the Term of this Agreement, at the discretion of Employer. 3.02 Bonus. Commencing on the complete execution of this Agreement, Employee shall be eligible to receive an annual bonus as is generally given to Employer's Vice Presidents in accordance with the policies and procedures currently in effect for such bonus program. 3.03 Vacation and Holidays. Employee shall be entitled to four (4) weeks of paid vacation during each year of his employment during the Term of this Agreement. In addition to the above vacation, Employee shall be entitled to the number of paid holidays provided for under the current policies and procedures in effect from time to time. -3- 3.04 Other Benefits. Employee shall be entitled to medical, dental, life insurance, worker's compensation, social security, long-term disability, and state unemployment insurance benefits as provided under Employer's then current terms, policies, and procedures. 3.05 Business Expenses. During the Term of this Agreement, Employee shall be entitled to receive reimbursement for all reasonable expenses incurred by Employee in the performance of his duties pursuant to this Agreement in accordance with the policies and procedures of Employer now or hereinafter in effect. 3.06 Stock Options. Commencing on the complete execution of this Agreement, the Company shall grant Executive an option to purchase Twenty Five Thousand (25,000) shares of the Company's stock at the market rate as set forth in the Company's Stock Option Plan on the date of the execution of this Agreement. Said options shall vest at a rate of 5,000 per year. Such vesting to occur on each anniversary of this Agreement. Said options shall remain exercisable for a period of Ten (10) years from the issue date. 3.07 Miscellaneous Benefits. In addition to any other compensation or benefits to be received by Employee pursuant to the terms of this Agreement, Employee shall be entitled to participate in any benefits which Employer may from time to time provide all of its Vice Presidents. SECTION 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT 4.01 Termination for Cause. In the event of the termination of Employee's employment by Employer pursuant to Section 2.03, Employer shall pay to Employee the Base Salary accrued pursuant to Section 3.01 through and including the date of termination payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. No other compensation shall be due or payable under this Agreement. 4.02 Termination for Death or Disability. (a) Termination for Death. In the event of the termination of Employee's employment pursuant to Section 2.04 due to his death, Employer shall pay to Employee's estate or legal representative, as the case may be, in a lump sum, the Base Salary accrued pursuant to Section 3.1 through and including the date of termination plus a lump sum severance of Ninety (90) days Base Salary at the rate in effect on the date of Employee's death payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. No other compensation shall be due or payable under this Agreement in the event of a termination due to the Employee's death. (b) Termination for Disability. In the event of the termination of Employee's employment pursuant to Section 2.04 due to his disability, Employer shall pay to Employee or his legal representative, as the case may be, in a lump sum, the Base Salary accrued pursuant to Section 3.01 through and including the date of termination, payable in accordance with applicable state and federal law, but in no event later than ten (10) days from the date of termination. During the period of Employee's disability, but prior to Employee's termination of Employment, Employee shall be entitled to receive his compensation as set forth in this -4- Agreement. No other compensation shall be due or payable under this Agreement in the event of a termination due to the Employee's disability. 4.03 Termination by Employer Without Cause After Change of Control or by Employee for Good Reason. In the event of the termination of Employee's employment by Employer pursuant to Section 2.02 within two (2) years after a Change of Control or by Employee pursuant to Section 2.05, within ten (10) days of termination, Employer shall pay to Employee, in a lump sum, the lesser of (a) all Base Salary which Employer is obligated to pay to Employee pursuant to Section 3.01 through the Term or (b) one year of Base Salary which Employer is obligated to pay to Employee pursuant to Section 3.01 during the current fiscal year. 4.04 Other Termination by Employer. In the event of termination of Employee's employment by Employer pursuant to Section 2.02 prior to a Change of Control or more than two (2) years after a Change of Control, Employer shall pay Employee the Base Salary accrued pursuant to Section 3.01 as of the date of termination plus a severance payment in an amount equal to six (6) months Base Salary at the rate at which Employer is obligated to pay Employee pursuant to Section 3.01 during the current fiscal year, paid pursuant to Employee's normal payroll payment schedule; provided, however, that during the period that Employer is making severance payments pursuant to this Section 4.04, Employer shall have the right to request Employee to provide reasonable evidence that he is using his best efforts to obtain other employment of comparable status in the Portland metropolitan area, and in the event that Employee fails to provide such reasonable evidence, then Employer shall not be obligated to pay any severance payments; and provided further that if Employee is successful in obtaining such employment, the amount of severance payments that would have been payable after the time that Employee obtains such employment shall be reduced by the amount of any remuneration received from such employment. For the purposes of this Section (and solely this Section), "remuneration" shall be defined to include cash payments, the face value of any promissory notes issued to Employee regardless of the terms of payment or whether payments are ever received, stock or stock options valued as of the day granted, or any other compensation given in any form whatsoever. 4.05 Other Termination by Employee. In the event of the termination of Employee's employment by Employee pursuant to Section 2.06 within ten (10) days of termination, Employer shall pay to Employee only the amount of Base Salary accrued pursuant to Section 3.01 through and including the date of termination. No other compensation shall be due or payable under this Agreement in the event of such a termination. 4.06 Insurance Benefits. Employee is entitled to elect to continue the medical and dental insurance as described in Section 3.04 for a period of eighteen (18) months following termination of employment. If Employee elects to continue such coverage, Employer shall reimburse Employee for the premiums paid by Employee for such insurance as such premiums are paid until such time as the continued insurance terminates or Employee obtains replacement full-time employment and is covered by such new employer's group medical, health, and life insurance plan with benefits substantially similar to those provided by Employer's insurance plan and without any pre-existing conditions, exclusions, limitations or restrictions, whichever occurs first. Such reimbursement shall be reduced for an amount equivalent to the amounts charged Employee for health coverage immediately prior to the occurrence of the Change of Control. -5- 4.07 Other Compensation. Except as set forth in this Section 4, no other compensation shall be due or payable to Employee upon termination of his employment. 4.08 Right to Decline Payments. Employee, in his sole and absolute discretion, shall have the right to decline all or a portion of any payments under this Agreement. SECTION 5. PERSONAL NATURE This Agreement is personal, and is being entered into based upon the singular skill, qualifications and experience of Employee. Employee shall not assign this Agreement or any rights hereunder without the express written consent of Employer which may be withheld with or without reason. Employee hereby grants to Employer the right to use Employee's name, likeness, and/or biography in connection with the services performed by Employee hereunder and in connection with the advertising, promotion or implementation of any Employer-related project with respect to which Employee performs services hereunder. SECTION 6. NOTICES Any and all notices or other communications required or permitted by this Agreement or by law shall be deemed duly served and given when personally delivered to the party to whom such notice or communication is directed or, in lieu of such personal service, when deposited in the United States mail, certified, return receipt requested, first class postage prepaid, addressed as follows: EMPLOYER: Rentrak Corporation Attn: Rita Coe 7700 N.E. Ambassador Place Portland, Oregon 97220 EMPLOYEE: Timothy J. Erwin 2397 S.W. Right Pl. Troutdale, OR 97060 Each party may change its address for purposes of this Section by giving written notice of such change in the manner provided for herein. SECTION 7. WAIVER AND RELEASE OF CLAIMS Employee agrees that one of the purposes of this Agreement is to ensure an amicable relationship between the parties. Therefore, Employee agrees that as a precondition to his entitlement to any severance payment under Section 4.03, he shall sign and deliver a Waiver and Release of Claims Agreement, in a form to be submitted by the Employer at such time. Among other things, such Waiver and Release of Claims Agreement shall fully and finally waive and release any and all claims, demands, and causes of action that Employee might have against Employer, Employer's subsidiaries, affiliates, related entities, Employer's successors and predecessors, past and then current directors, officers, employees, agents and representatives as of the date the waiver and release of claims is signed. In addition, it shall provide that Employee -6- shall not disparage such persons and entities in any manner, directly or indirectly, at any time (except as required by lawful subpoena or court order). SECTION 8. MISCELLANEOUS PROVISIONS 8.01 Attorney Fees; Disputes Concerning Termination. (a) Subject to Section 8.01(b), in the event that it should become necessary for any party to bring an action, either at law or in equity, to enforce or interpret the terms of this Agreement, each party shall pay its own attorney fees, including those incurred in resolving the dispute prior to initiation of any litigation and at trial and on any appeal. (b) The existence of a dispute concerning termination shall not alter Employee's obligation under Section 7 to sign a full waiver and release of claims as a pre-condition to severance payments under Section 4.03. 8.02 Applicable Law and Venue. This Agreement is executed and intended to be performed largely in the State of Oregon and the laws of such State shall govern its interpretation and effect. If suit is instituted by any party hereto or by any other party for any cause or matter arising from or in connection with the respective rights or obligations of the parties hereunder, the sole jurisdiction and venue for such action shall be the Circuit Court of the State of Oregon in and for the County of Multnomah. The parties hereby waive any and all of their rights to challenge such venue. 8.03 Integration. Employee has executed an Employee Confidentiality and Noncompetition Agreement (a copy of which (i) as attached hereto as Annex A) which remains in effect and is incorporated into the terms and conditions of employment under this Agreement. Except as set forth in the preceding sentence, this Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes and replaces all prior agreements, negotiations, or understandings, whether oral or written, between the parties with respect thereto. 8.04 Heirs and Assigns. Subject to any restriction on assignment contained herein, this Agreement shall be binding upon and shall inure to the benefit of the respective party's heirs, successors and assigns. Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or subsequently all of the business and/or assets of Employer, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall not be terminated by Employer's voluntary or involuntary dissolution or by any merger or consolidation in which Employer is not the surviving or resulting corporation, or on any transfer of all or substantially all of the assets of Employer. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which such assets shall be transferred. 8.05 Severability. Any provision in this Agreement which is, by judicial authority, declared illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be -7- ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining provisions hereof or affecting the legality, validity or enforceability of such provision in any other jurisdiction. The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision that, to the extent possible, will preserve the economic bargain of this Agreement, or otherwise to amend this Agreement. 8.06 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and the counterparts shall together constitute one and the same agreement, notwithstanding that all of the parties are not signatory to the original or the same counterpart. 8.07 Captions. The headings and captions herein are inserted solely for the purpose of convenience of reference and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 8.08 Executions. Each of the parties hereto shall execute, acknowledge and deliver any instrument necessary to carry out the provisions of this Agreement. 8.09 Construction. This Agreement has been prepared by legal counsel for Employer. Employee has been advised and by his execution hereof acknowledges, that he has the right to and should have this Agreement reviewed by his own separate legal counsel. This Agreement has been negotiated at arms' length with the benefit of or opportunity to seek legal counsel and, accordingly, shall not be construed against any of the parties. 8.10 Modification. No waiver, amendment or modification of this Agreement or any portion thereof, including any future representations that are inconsistent with the terms set forth herein, will be valid unless made in writing and duly executed by each party hereto. 8.11 Acknowledgment. Employee acknowledges that he has read this Agreement, that he has had an opportunity to consult with an attorney regarding the terms and conditions hereof, that he fully understands the meaning and significance of such conditions, and that he accepts and signs this Agreement as his own free act and in full and complete understanding of its present and future legal effect. 8.12 No Disparagement or Breach of Confidentiality and Noncompetition. In the event that Employee's employment terminates under this Agreement in any manner whatsoever, Employee agrees that, except under compulsion of legal process or at Employer's request, he will make no oral or written comments about Employer or its business for a period of one (1) year following termination of his employment. In the event that Employee breaches this provision of this Agreement, or violates the terms of the Employee Confidentiality and Noncompetition Agreement executed by him, then all severance obligations which Employer may then have under this Agreement shall immediately cease and Employee shall be owed nothing under this Agreement other than wages and benefits earned through the date of the termination of his employment. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. EMPLOYER: EMPLOYEE: Rentrak Corporation By: /s/ F. Kim Cox /s/ Timothy J. Erwin - ---------------------- ---------------------- F. Kim Cox, President Timothy J. Erwin -8- EX-10 9 nidaempagmt.txt 10.27 NIDA EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is made and entered into as of this 14th day of August, 1998, by and between RENTRAK CORPORATION, an Oregon corporation (hereinafter referred to as "Employer"), and RICHARD A. NIDA (hereinafter referred to as "Employee"). WITNESSETH: WHEREAS, Employer desires to employ Employee in the capacity of Vice President, Investor Relations; WHEREAS, Employee will be one of the key executives of the Employer and desires to be employed in the capacity of Vice President, Investor Relations; and WHEREAS, Employer and Employee desire to enter into an Employment Agreement memorializing the terms and conditions of the employment relationship. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, the recitals set forth hereinabove which by this reference are incorporated herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT 1.01 Duties and Place of Employment. (a) Employee shall be responsible for, and perform duties associated with his position as Vice President, Investor Relations or other duties as may be directed by the Employer, from time to time. Employee shall: (i) devote his full business time during normal business hours to the business and affairs of Employer; (ii) use his best efforts to promote the interests of Employer; (iii) perform faithfully and efficiently his responsibilities. Employee shall perform his duties at the Employer's principal executive offices which are currently located at One Airport Center, 7700 N.E. Ambassador Place, Portland, Oregon, or such other locations as may be directed by Employer from time to time. Subject to the terms of this Agreement, Employee shall comply promptly and faithfully with all of Employer's policies, instructions, directions, requests, rules and regulations. (b) After a Change of Control (as defined below) during the Term of this Agreement, Employee shall continue to serve Employer in the same capacity and have the same authority, responsibilities and status as he had as of the date immediately prior to the Change of Control. After a Change of Control, during the Term of this Agreement, Employee's services shall be performed at the location where Employee was employed as of the date immediately prior to the Change of Control, or at such other location as may be mutually agreed between Employer and Employee. -1- (c) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following four paragraphs: (1) any "person" (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of Employer, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Employer, representing twenty-five percent (25%) or more of the combined voting power of Employer's then outstanding securities; or (2) a majority of the directors elected at any annual or special meeting of stockholders are not individuals nominated by Employer's then incumbent Board; or (3) the shareholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Employer approve a plan of complete liquidation of Employer or an agreement for the sale or disposition by Employer of all or substantially all of its assets. 2. TERM AND TERMINATION 2.01 Stated Term. Employment shall commence on September 1, 1998, and will end on August 31, 2000 (the "End Date"), or until Employee's employment under this Agreement is terminated pursuant to this Section 2 ("Term"). 2.02 At Will Termination. Notwithstanding anything herein to the contrary, Employee's employment may be terminated at any time without cause upon thirty (30) days written notice to Employee. 2.03 For Cause Termination. Employee's employment may be terminated by Employer for "cause" without notice. Termination for "cause" is defined for purposes of this subsection as termination for: (i)material failure of Employee to substantially perform the reasonable and attainable instructions of Employer as to his duties hereunder; or (ii) an act or acts of misconduct by Employee which is determined by the Employer to be materially injurious to Employer monetarily or otherwise; or (iii) material violation by Employee of any provision of this Agreement. For purposes of this subsection, termination for "cause" shall not include any act or failure to act on Employee's part if done or omitted to be done by him in demonstrable good faith and with the reasonable belief that his act or omission was in the best interest of the Employer or pursuant to an express policy of Employer at the time of such act or omission. 2.04 Disability or Death. Employee's employment shall be terminable immediately upon Employee's death or disability. "Disability" is defined for purposes of this subsection as absence from Employee's full time duties with Employer as a result of Employee's incapacity due to physical or mental illness for ninety (90) days calculated on a cumulative basis during any one (1) -2- year period during the Term of this Agreement. Nothing in this Section 2.04 is intended to violate any Oregon State law regarding parental or family leave policies or any other applicable law. 2.05 Termination by Employee for Good Reason. Employee's employment may be terminated by Employee at any time for "Good Reason" as that term is defined below. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. "Good Reason" shall mean (i) a material breach by Employer of the terms of this Agreement; provided that Employee shall have no right to terminate this Agreement pursuant to this clause (i) unless Employer has had at least 15 days to cure such failure, or (ii) the occurrence (without Employee's express written consent), within two (2) years after any Change of Control of any one of the following acts by Employer, or failures by Employer to act: (a) The assignment to Employee of any duties inconsistent with Employee's status as an executive officer of Employer or a substantial adverse alteration in the nature or status of Employee's title, position, duties, functions, working conditions or responsibilities from those in effect immediately prior to the Change of Control other than any such alteration primarily attributable to the fact that Employer may no longer be a public company; (b) A reduction by Employer in Employee's annual Base Salary as in effect on the date hereof or as the same may be increased from time to time. (c) The relocation of Employer's principal executive offices to a location more than thirty-five (35) miles from the location of such offices immediately prior to the Change of Control or Employer's requiring Employee to be based anywhere other than Employer's principal executive offices except for required travel on Employer's business to an extent substantially consistent with Employee's business travel obligations immediately prior to the Change of Control; (d) The failure by Employer, without Employee's consent, to pay to Employee any portion of Employee's current compensation; (e) The failure by Employer to continue in effect any compensation plan in which Employee participates immediately prior to the Change of Control which is material to Employee's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Employer to continue Employee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the terms and conditions of such benefits, including, without limitation, the level of Employee's participation relative to other participants, as such relative level existed at the time of the Change of Control; (f) The failure by Employer to continue to provide Employee with benefits substantially similar to those enjoyed by Employee under any of Employer's pension, life insurance, medical, health and accident, or disability plans in which Employee was participating immediately prior to the Change of Control, the taking of any action by Employer which would directly or indirectly materially reduce any of such benefits or deprive Employee of any material -3- fringe benefit enjoyed by Employee immediately prior to the Change of Control, or the failure by Employer to provide Employee with the number of paid vacation days to which Employee is entitled on the basis of years of service with Employer in accordance with Employer's normal vacation policy in effect immediately prior to the Change of Control; or (g) The failure of Employer to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 7.04. 2.06 Other Termination by Employee. Employee's employment may be terminated by Employee at any time without Good Reason upon thirty (30) days prior written notice to Employer. 3. COMPENSATION 3.01 Base Salary. Commencing September 1, 1998, through August 31, 1999, Employee shall be paid an annual base salary in the amount of One Hundred Twenty Thousand Dollars ($120,000) ("Base Salary"). From September 1, 1999, through August 31, 2000, Employee shall be paid an annual base salary in the amount of One Hundred Twenty Eight Thousand Dollars ($128,000). The Base Salary shall be paid to Employee in equal semi-monthly installments in arrears on the seventh (7th) and twenty-second (22nd) day of each month, commencing as of the first semi-monthly pay period following the effective date of this Agreement. Should the seventh (7th) or the twenty-second (22nd) day of any month not be a business day, Employee's semi-monthly installment of the Base Salary otherwise due on such date shall be paid to Employee on the business day closest to the date such semi-monthly installment is due (i.e., if the seventh (7th) day of the month falls on a Saturday, the semi-monthly installment shall be paid on the preceding business day or if the 7th day of the month falls on a Sunday, the semi-monthly installment shall be paid on the next following business day). 3.02 Bonus Compensation. Employee shall be entitled to an annual cash bonus as set forth in this Section 3.2. Said bonus is in lieu of participation in any and all other bonus programs, including any cash bonus pools, established from time to time by Employer for Corporate Officers and shall be based on the sole criterion of stock price appreciation according to the following schedule: (a) For stock price appreciation of less than One Dollar ($1.00) per share, including any loss in share price, no bonus ($0); (b) For stock price appreciation of at least One Dollar ($1.00) per share but less than two-dollars ($2.00) per share, a bonus equal to five percent (5%) of Employee's Base Salary; (c) For stock price appreciation of at least two-dollars ($2.00) per share but less than Two Dollars and Seventy-Six Cents ($2.76) per share, a bonus equal to ten percent (10%) of Employee's Base Salary; (d) For stock price appreciation of at least Two Dollars and Seventy-Six Cents ($2.76) per share but less than Three Dollars and Fifty-One Cents ($3.51) per share, a bonus equal to fifteen percent (15%) of Employee's Base Salary; (e) For stock price appreciation of at least Three Dollars and Fifty-One Cents ($3.51) per share but less than Four Dollars and One Cent ($4.01) per share, a bonus equal to twenty percent (20%) of Employee's Base Salary; and -4- (f) For stock price appreciation of Four Dollars and One Cent ($4.01) per share or more, a bonus equal to Thirty percent (30%) of Employee's Base Salary. The bonus is payable September 15, 1999, for the period from September 1, 1998, through August 31, 1999 (the "First Period"), and September 15, 2000, for the period from September 1, 1999, through August 31, 2000 (the "Second Period"). The bonus owed for the First Period shall be determined by subtracting the opening price of Rentrak common stock on September 1, 1998, from the average closing price of said stock for the 30 trading days immediately preceding August 31, 1999, referring to the above schedule for the appropriate bonus percentage, and multiplying that percentage by Employee's Base Salary for the first year of this Agreement. The bonus owed for the Second Period shall be determined by subtracting the opening price of Rentrak common stock on September 1, 1999, from the average closing price of said stock for the 30 trading days immediately preceding August 31, 2000, referring to the above schedule for the appropriate bonus percentage, and multiplying that percentage by Employee's Base Salary for the second year of this Agreement. 3.03 Benefits (a) Vacation and Holiday Pay. As of the effective date of this Agreement, Employee will be entitled to: (i) take vacation from September 28 through October 2, 1998, and January 5 through January 9, 1999, to (ii) accrue vacation time at the rate of twenty-one (21) days of paid vacation during each year of employment; and (iii) will be eligible to receive pay for Employer-paid holidays. (b) Insurance. Employee shall be entitled to medical, dental, life, flexplan, employee stock purchase plan, 401k plan, pre-paid legal plan, worker's compensation, social security and state unemployment insurance benefits as provided under Employer's then current terms, policies and procedures. Employee shall also be entitled to officers' disability insurance benefits. For five years following a Change of Control, Employer shall use its best efforts to continue to provide directors' and officers' liability insurance covering Employee (with respect to events occurring prior to termination of Employment) on terms no less favorable (in terms of coverage and amounts) than those of such insurance in effect immediately prior to the Change of Control. Following a Change of Control, Employer will indemnify and hold harmless Employee (and advance expenses) to the full extent provided in the Articles of Incorporation and Bylaws of Employer as in effect immediately prior to the Change of Control. (c) Tuition Reimbursement. Employee shall be entitled to reimbursement for all tuition, enrollment fees, and books pursuant to Employer's education assistance program. Employee shall comply with all Employer's terms, policies and procedures regarding its education assistance program. (d) Business Expenses. During the Term of this Agreement, Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Employee in the performance of his duties pursuant to this Agreement in accordance with the policies and procedures of Employer now or hereinafter in effect. -5- (e) Moving Expenses. Employer will directly pay to the moving company selected by Employee the cost of shipping Employee's household goods from Lawrence, Kansas, to Portland, Oregon. Employer will also reimburse Employee for travel costs incurred by Employee and his immediate family in relocating from Lawrence, Kansas, to Portland, Oregon, and for one night's lodging prior to and one night's lodging after the move. The total amount of such moving, travel, and lodging expenses shall be reimbursed in an amount not to exceed Sixteen Thousand Dollars ($16,000). In the event that the cost of moving, travel, and lodging is less than Sixteen Thousand Dollars ($16,000), Employer shall pay to Employee on September 1, 1998, the difference between Sixteen Thousand Dollars ($16,000) and the actual cost of the move. Employee agrees that this Section establishes Employer's complete liability for Employee's relocation to Portland, Oregon, and agrees not to submit to Employer any expenses associated with the move in addition to those referenced herein. (f) Miscellaneous Benefits. In addition to any other compensation or benefits to be received by Employee pursuant to the terms of this Agreement, Employee shall be entitled to participate in any employee or officer(s) benefits which Employer may from time to time provide its employees or officer(s) generally. 3.04 Stock Options. Upon commencement of the Term of this Agreement, Employer shall grant Employee Ten Thousand (10,000) shares of Employer's stock with an exercise price equal to the closing price of Rentrak common stock on the date of grant. Said options shall vest at a rate of Twenty-Five percent (25%) per year during Employee's employment by Employer. Said options shall remain exercisable for a period of Ten (10) years from the issue date. In addition to the aforementioned options, Employee shall be granted additional options for Five Thousand (5,000) shares per grant on April 1, 1999, and April 1, 2000. Said options shall carry an exercise price equal to the closing price of Rentrak common stock on the date of grant, shall vest at a rate of Twenty-Five percent (25%) per year during Employee's employment by Employer, and shall remain exercisable for a period of ten years. 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT 4.01 Termination for Cause. In the event of the termination of Employee's employment by Employer pursuant to Section 2.03 within Ten (10) days of termination Employer shall pay to Employee only the Base Salary accrued pursuant to Section 3.01 through and including the date of termination. No other compensation shall be due or payable under this Agreement in the event of a termination for Cause. 4.02 Termination for Death or Disability. (a) Termination for Death. In the event of the termination of Employee's employment pursuant to Section 2.04 due to his death, within ten days of termination Employer shall pay to Employee's estate or legal representative, as the case may be, in a lump sum, the Base Salary accrued pursuant to Section 3.01 through and including the date of termination plus a lump sum severance of Ninety (90) days Base Salary at the rate in effect on the date of Employee's death. Employer shall also convey to Employee's estate or legal representative all options granted to Employee during his employment, regardless of whether or not said options vested prior to Employee's death. Said options shall remain exercisable for a period of One (1) year from the date of -6- death. No other compensation shall be due or payable under this Agreement in the event of a termination due to the Employee's death. (b) Termination for Disability. In the event of the termination of Employee's employment pursuant to Section 2.04 due to his disability, within ten days of termination Employer shall pay to Employee or his legal representative, as the case may be, in a lump sum, the Base Salary accrued pursuant to Section 3.01 through and including the date of termination. During the period of Employee's disability, but prior to Employee's termination of Employment, Employee shall be entitled to receive all compensation as set forth in this Agreement. No other compensation shall be due or payable under this Agreement in the event of a termination due to the Employee's disability. 4.03 Termination by Employer Without Cause After Change of Control or by Employee for Good Reason. In the event of the termination of Employee's employment by Employer pursuant to Section 2.02 within two years after a Change of Control or by Employee pursuant to Section 2.05, within ten days of termination, Employer shall pay to Employee, in a lump sum, the lesser of (i) all Base Salary which Employer is obligated to pay to Employee pursuant to Section 3.01 through the End Date or (ii) one year of Base Salary which Employer is obligated to pay to Employee pursuant to Section 3.01 during the current fiscal year. 4.04 Other Termination by Employer. In the event of termination of Employee's employment by Employer pursuant to Section 2.02 prior to a Change of Control or more than two years after a Change of Control, Employer shall pay Employee the Base Salary accrued pursuant to Section 3.01 as of the date of termination plus a severance payment in an amount equal to six months' Base Salary at the rate at which Employer is obligated to pay Employee pursuant to Section 3.01 during the current fiscal year, payable in installments as if still employed; provided, however, that during the period that Employer is making severance payments pursuant to this Section 4.04, Employer shall have the right to request Employee to provide reasonable evidence that he is using his best efforts to obtain other employment of comparable status in the Portland metropolitan area, and in the event that Employee fails to provide such reasonable evidence, then Employer shall not be obligated to pay any severance payments; and provided further that if Employee is successful in obtaining such employment, the amount of severance payments that would have been payable after the time that Employee obtains such employment shall be reduced by the amount of any remuneration received from such employment. For the purposes of this Agreement, "remuneration" shall be defined to include cash payments, the face value of any promissory notes issued to Employee regardless of the terms of payment or whether payments are ever received, stock or stock options valued as of the day granted, or any other compensation given in any form whatsoever. 4.05 Other Termination by Employee. In the event of the termination of Employee's employment by Employee pursuant to Section 2.06 within ten days of termination, Employer shall pay to Employee only the amount of Base Salary accrued pursuant to Section 3.01 through and including the date of termination. No other compensation shall be due or payable under this Agreement in the event of such a termination. 4.06 Insurance Benefits. Employee is entitled to elect to continue the insurance as described in Section 3.03(b) for a period of two years following an event of termination described -7- in Section 2.05 and a period of six months following an event of termination described in Section 2.02. If Employee elects to continue such coverage, Employer shall reimburse Employee for the premiums paid by Employee for such insurance as such premiums are paid until such time as the continued insurance terminates or Employee obtains replacement full-time employment and is covered by such new employer's group medical, health, and life insurance plan with benefits substantially similar to those provided by Employer's insurance plan and without any pre-existing conditions, exclusions, limitations or restrictions, whichever occurs first. Such reimbursement shall be reduced for an amount equivalent to the amounts charged Employee for health coverage immediately prior to the occurrence of the Change of Control. 4.07 Other Compensation. Except as set forth in this Section 4, no other compensation shall be due or payable to Employee upon termination of his employment. 4.08 Right to Decline Payments. Employee, in his sole and absolute discretion, shall have the right to decline all or a portion of any payments under this Agreement. 5. PERSONAL NATURE This Agreement is personal, and is being entered into based upon the singular skill, qualifications and experience of Employee. Employee shall not assign this Agreement or any rights hereunder without the express written consent of Employer which may be withheld with or without reason. Employee hereby grants to Employer the right to use Employee's name, likeness, and/or biography in connection with the services performed by Employee hereunder and in connection with the advertising or exploitation of any project with respect to which Employee performs services hereunder. 6. NOTICES Any and all notices or other communications required or permitted by this Agreement or by law shall be deemed duly served and given when personally delivered to the party to whom such notice or communication is directed or, in lieu of such personal service, when deposited in the United States mail, certified, return receipt requested, first class postage prepaid, addressed as follows: EMPLOYER: Rentrak Corporation One Airport Center 7700 N.E. Ambassador Place Portland, Oregon 97220 Attn: Ron Berger EMPLOYEE: Richard A. Nida 2707 Freedom Hill Court Lawrence, Kansas 66047 Each party may change its address for purposes of this Section by giving written notice of such change in the manner provided for herein. -8- 7. MISCELLANEOUS PROVISIONS 7.01 Attorney Fees; Disputes Concerning Termination. (a) Subject to Section 7.01(b), in the event that it should become necessary for any party to bring an action, including arbitration, either at law or in equity, to enforce or interpret the terms of this Agreement, each party shall pay its own attorneys' fees, including those incurred in resolving the dispute prior to initiation of any litigation and at trial and on any appeal. (b) If within Fifteen (15) days after any notice of termination for Good Reason is given by Employee pursuant to Section 2.05, Employer notifies Employee that a dispute exists concerning the termination, the date of termination of this Agreement shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a final determination; provided further that the date of termination shall be extended by a notice of dispute from Employer only if such notice is given in good faith and Employer pursues the resolution of such dispute with reasonable diligence. Following a Change of Control, Employer shall provide all witnesses and evidence reasonably required by Employee to present Employee's case. If a purported termination by Employer within two years after a Change of Control or by Employee for Good Reason occurs and such termination is disputed, Employer shall pay to Employee all reasonable expenses and legal fees incurred by Employee as a result of a termination in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not Employee is successful in obtaining or enforcing such right or benefit). (c) If a purported termination by Employer within two years after a Change of Control or by Employee for Good Reason occurs and such termination is disputed, Employer shall do either of the following: (i) So long as Employee continues to provide services, Employer shall continue to pay Employee the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary and estimated bonus) and continue Employee as a participant in all compensation, benefit and insurance plans in which Employee was a participant when the notice giving rise to the dispute was given, until the dispute is finally resolved; provided that Employee's right to continue to provide such services is solely within the discretion of Employer, and nothing herein shall prohibit Employer from terminating such services. (ii) If Employee is no longer providing services, Employer shall pay Employee Fifty percent (50%) of the amount specified in Sections 4.3 and Employer will provide Employee with the other benefits provided in Section 4.06 if, but only if, Employee agrees in writing that if the dispute is resolved against Employee, Employee will promptly refund to Employer all payments specified in Section 4.03 that Employee receives under this paragraph (c) plus interest at the rate provided in Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), compounded quarterly. If the dispute is resolved in Employee's favor, promptly after resolution of the dispute Employer will pay Employee the sum which was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. -9- Amounts paid under this paragraph (c) shall offset against and reduce other amounts due under this Agreement. If the dispute is resolved by a determination that Employee did not have Good Reason, this Agreement, in accordance with its terms, will continue to apply to the circumstances of Employee's employment by Employer and any termination thereof. 7.02 Applicable Law and Venue. This Agreement is executed and intended to be performed largely in the State of Oregon and the laws of such State shall govern its interpretation and effect. If suit is instituted by any party hereto or by any other party for any cause or matter arising from or in connection with the respective rights or obligations of the parties hereunder, the sole jurisdiction and venue for such action shall be the Circuit Court of the State of Oregon in and for the County of Multnomah. 7.03 Integration. Employee has executed an Employee Confidentiality and Noncompetition Agreement (a copy of which is attached hereto as Exhibit A) which remains in effect and is incorporated into the terms and conditions of employment under this Agreement. Except as set forth in the preceding sentence, this Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes and replaces all prior agreements, negotiations, or understandings, whether oral or written, between the parties with respect thereto. 7.04 Heirs and Assigns. Subject to any restriction on assignment contained herein, this Agreement shall be binding upon and shall inure to the benefit of the respective party's heirs, successors and assigns. Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall not be terminated by Employer's voluntary or involuntary dissolution or by any merger or consolidation in which Employer is not the surviving or resulting corporation, or on any transfer of all or substantially all of the assets of Employer. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which such assets shall be transferred. 7.05 Severability. Any provision in this Agreement which is, by competent judicial authority, declared illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining provisions hereof or affecting the legality, validity or enforceability of such provision in any other jurisdiction. The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision that, to the extent possible, will preserve the economic bargain of this Agreement, or otherwise to amend this Agreement. 7.06 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and the counterparts shall together constitute one and the same agreement, notwithstanding that all of the parties are not signatory to the original or the same counterpart. -10- 7.07 Captions. The headings and captions herein are inserted solely for the purpose of convenience of reference and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 7.08 Execution. Each of the parties hereto shall execute, acknowledge and deliver any instrument necessary to carry out the provisions of this Agreement. 7.09 Construction. This Agreement has been prepared by legal counsel for Employer. Employee has been advised and by his execution hereof acknowledges, that he has the right to and should have this Agreement reviewed by his own separate legal counsel. This Agreement has been negotiated at arms' length with the benefit of or opportunity to seek legal counsel and, accordingly, shall not be construed against any of the parties. 7.10 No Disparagement or Breach of Confidentiality and Noncompetition. In the event that Employee's employment terminates under this Agreement in any manner whatsoever, Employee agrees that, except under compulsion of legal process, he will make no oral or written comments about Employer or its business for a period of one year following termination of his employment. In the event that Employee breaches this provision of this Agreement, or violates the terms of the Employee Confidentiality and Noncompetition Agreement executed by him, then all severance obligations which Employer may then have under this Agreement shall immediately cease and Employee shall be owed nothing under this Agreement other than wages and benefits earned through the date of the termination of his employment. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. EMPLOYER: Rentrak Corporation, an Oregon corporation By: /s/ Ron Berger ------------------------ Ron Berger, President I acknowledge that I have read and agree to the foregoing Agreement, including, without limitation, the provision allowing termination of my employment "at will" by Employer in Section 2.02. /s/ Richard A. Nida - -------------------------- Richard A. Nida -11- ADDENDUM TO EMPLOYMENT AGREEMENT THIS CHANGE IN CONTROL ADDENDUM TO EMPLOYMENT AGREEMENT ("Addendum"), dated June 8, 2000, is made by and between Rentrak Corporation, an Oregon corporation (the "Company"), and Richard A. Nida (the "Employee"). WHEREAS, the Company considers it essential to the best interests of the Company to foster the continued employment of its management personnel; and WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control (as defined below) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change of Control; WHEREAS, the Company and Employee executed an Employment Agreement ("Employment Agreement") on August 14, 1998; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the Company and the Employee hereby amend their Employment Agreement as follows: 1. Term. Employee's Employment Agreement is hereby extended by two years beginning on August 31, 2000, and ending on August 31, 2002 (the "End Date"), or until Employee's employment under his Employment Agreement is terminated pursuant to Section 2 of that Agreement. 2. Severance. If Employee voluntarily terminates his employment without "Good Reason" (as defined by Executive's Employment Agreement) within two (2) months following a Change of Control, Employee shall be eligible to receive the following payment in proportion to Employee's years' of service to the Company. Specifically, Employee shall be paid one week of Employee's base salary for each full year that Employee has been employed with the Company. In no case, however, shall this payment amount to less than two (2) months' of Employee's base salary. This payment shall be subject to all normal withholdings and deductions. Employee acknowledges that voluntary termination by the Employee without Good Reason at any time following a Change of Control, shall not constitute "Good Reason" as defined by Section(s) 2.05 of his/her Employment Agreement. Employee further acknowledges that such termination shall not entitle him to any rights or benefits provided by Section 4.03 of his Employment Agreement. 3. Change of Control. For purposes of this Addendum, a "Change of Control" shall be defined pursuant to Executive's Employment Agreement. -1- 4. Confidentiality, Proprietary, Trade Secret and Non-Competition. Employee acknowledges that this Change of Control Addendum is only a modification of the Change of Control provision of his existing Employment Agreement already in effect and that it in no way alters Employee's obligations under any Agreements, including, but not limited to, the Employee Confidentiality and Noncompetition Agreement which remains in full force and effect. IN WITNESS WHEREOF, the Company has caused this Addendum to be executed on its behalf by its duly authorized officers, and Employee has set his hand, as of the date first written above. RICHARD A. NIDA RENTRAK CORPORATION /s/ Richard A. Nida By: /s/F. Kim Cox - -------------------- -------------------- Date: 6/6/00 Title: President Date: 6/15/00 -2- EX-10 10 moonltragmt.txt 10.29 LETTER AGREEMENT [date] Dr. Joon S. Moon Director Rentrak Corporation Post Office Box 18888 Portland, Oregon 97218-0888 Dear Dr. Moon: This letter agreement confirms our understanding that you will provide Rentrak Corporation ("Rentrak") with certain "Services," described in more detail below, relating to the restructuring of Rentrak's business relationship with Rentrak Japan ("RJ"). You will provide these Services according to the following terms and conditions: 1. Services. The Services include: (a) The sale to RJ of all RJ common stock currently held by Rentrak (a "Sale"). (b) Renegotiation of the terms of Rentrak's current licensing agreement with RJ, dated _____ (the "Current Licensing Agreement"). For purposes of this letter agreement, a "Renegotiation" has occurred when Rentrak and RJ execute a duly authorized licensing agreement that covers substantially the same subject matter as the Current Licensing Agreement but differs in some material respect from the Current Licensing Agreement. 2. Success Fees. (a) In the event of a Sale during the term of this letter agreement, Rentrak will pay you cash (in the form of a cashier's check or by bank wire transfer) in an amount equal to 2 percent of the total consideration paid by RJ to Rentrak or its shareholders in connection with the Sale. Such consideration may include, among other forms of payment: cash, cash equivalents, securities (other than the common stock of RJ), notes payable to Rentrak or its assignee, and any liabilities of Rentrak assumed by RJ. Rentrak will pay this fee to you in full upon closing of the Sale; provided, however, that any portion of the fee attributable to payments that are to be made by RJ after the closing of the Sale will be deferred until such payment is received by Rentrak. Any portion of the fee consisting of securities or other non-cash consideration will be valued at fair market value as of the day of closing. (b) In the event of a Renegotiation during the term of this letter agreement, Rentrak will pay you cash (in the form of a cashier's check or by bank wire) in an amount equal to _______________. 3. Right of First Refusal. Rentrak shall have the right to accept or reject, in its sole and absolute discretion, any offer received from RJ in connection with a Sale or Renegotiation. Rentrak will only be obligated to pay the fees described in section 2(a) and (b) above if a Sale or Renegotiation occurs within the term of this letter agreement. -1- 4. Term. The term of this letter agreement will begin as of the date of your acceptance, as indicated below, and will continue until one year thereafter. 5. Exclusivity. During the term of this letter agreement, Rentrak will not enter into an agreement with any other person for the Services described in section 1 above. 6. Representations and Warranties. Neither you nor Rentrak makes any representation, express or implied, that a Sale or Renegotiation will occur pursuant to this agreement. 7. Governing Law. This letter agreement will be governed by and construed in accordance with Oregon law without reference to its choice of law principles. 8. Entire Agreement. This letter agreement constitutes the entire agreement between you and Rentrak concerning the subject matter of this letter agreement and supersedes any prior or contemporaneous understandings, agreements, or representations by or between you and Rentrak, written or oral, to the extent they relate in any way to the subject matter of this letter agreement. 9. Assignment. This letter agreement may not be assigned or transferred to any person by you without Rentrak's prior written consent. 10. Counterparts. This letter agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. 11. Amendment. No change or amendment will be made to this letter agreement except by an instrument in writing signed on behalf of both Rentrak and you. Please indicate your acceptance of this letter agreement by executing and returning the enclosed copy of this letter. Very truly yours, Rentrak Corporation By: /s/ Paul A. Rosenbaum ------------------------ Title: CEO Accepted and agreed to this 15 day of March, 2001. /s/ Joon S. Moon - ------------------------ Dr. Joon S. Moon -2- EX-10 11 incentvstkopagmt.txt 10.30 INCENTIVE STOCK OPTION AGREEMENT RENTRAK CORPORATION INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, effective as of March 30, 2001, is made by and between Rentrak Corporation, an Oregon corporation (hereinafter referred to as "Company"), and Paul A. Rosenbaum, an employee of the Company (hereinafter referred to as "Employee"): WHEREAS, the Company wishes to afford the Employee the opportunity to purchase shares of its $.001 par value Common Stock; and WHEREAS, the 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 the Company and its shareholders to grant the Incentive Stock Option (the "Option") provided for herein to the Employee as an inducement to remain in the service of the 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 hereby acknowledged, the parties agree as follows: ARTICLE I GRANT OF OPTION Section 1.1 - Grant of Option In consideration of the Employee's agreement to remain in the employ of the Company or its Subsidiaries and for other good and valuable consideration, effective as of the date hereof, the Company irrevocably grants to the Employee an Option to purchase any part or all of an aggregate of 28,571 shares of its $.001 par value Common Stock upon the terms and conditions set forth in this Agreement. Section 1.2 - Purchase Price The purchase price of the shares of Common Stock covered by the Option shall be $3.50 per share, without commission or other charge, subject to adjustment as provided in Section 9.3(a) of the Plan. Section 1.3 - Consideration to Company In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employ of the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause. -1- Section 1.4 - Adjustments in Option The Committee shall make adjustments with respect to the Option in accordance with the provisions of Section 9.3 of the Plan; provided, however, that each such adjustment shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code, unless the Optionee consents to an adjustment which would constitute such a "modification". ARTICLE II PERIOD OF EXERCISABILITY Section 2.1 - Commencement of Exercisability (a) Subject to Sections 2.1(b) and 2.3, the Option shall become exercisable in full on September 19, 2001. (b) No portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable. Section 2.2 - Duration of Exercisability Once the Option becomes exercisable pursuant to Section 2.1, it shall remain exercisable until it becomes unexercisable under Section 2.3. Section 2.3 - Expiration of Option The Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of ten (10) years from the date the Option was granted; or (b) If the Employee owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code), the expiration of five (5) years from the date the Option was granted; or (c) The expiration of one (1) month from the date of the Employee's voluntary Termination of Employment; or (d) The expiration of three (3) months from the date of the Employee's Termination of Employment by reason of his retirement or his being discharged not for good cause (for purposes of this Agreement, "good cause" means any act of fraud by the Employee, any act of dishonesty by the Employee involving the Company or its business, the Employee's conviction of or a plea of nolo contendere to a felony, or the commission of any act in direct or indirect competition with or materially detrimental to the best interests of the Company that is in breach of the Employee's fiduciary duties to the Company), unless the Employee dies within said three-month period; or (e) The expiration of one (1) year from the date of the Employee's Termination of Employment by reason of his permanent and total disability (within the meaning of Section 22(e)(3) of the Code); or (f) The expiration of one (1) year from the date of the Employee's death; or (g) Immediately following the Employee's Termination of Employment by reason of being discharged for good cause; or -2- (h) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. As soon as practicable prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Committee shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 2.3. Section 2.4 - Adjustments to and/or Cancellation of the Option Neither (i) the issuance of additional shares of stock of the Company in exchange for adequate consideration (including services), nor (ii) the conversion of outstanding preferred shares of the Company into Common Stock, shall be deemed 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 shall determine that an event has occurred affecting the 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 shall be deemed a Termination Event subject to the following paragraph. Subject to Section 9.3(b)(vii) of the Plan, in the event of (a) the dissolution or liquidation of the Company, (b) a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company will not be a surviving corporation, (c) the sale of all or substantially all of the assets of the Company, (d) a sale or other transfer of more than eighty percent (80%) of the then outstanding shares of Common Stock of the Company, or (e) 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 shall determine whether a provision 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 the 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 shall give notice of the determination to the 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, shall be binding upon the Employee. If the Committee determines that no assumption or substitution will be made, the Committee shall give notice of this determination to the Employee, whereupon the Employee shall have the right for a period of thirty (30) days following the notice to exercise in full or in part the unexercised and unexpired portion of this Option, without regard to the limitation on exercisability specified in Section 2.1(a) above. Upon the expiration of this thirty (30) day period, the Option shall expire to the extent not earlier exercised. Section 2.5 - Special Tax Consequences The Employee acknowledges that, to the extent that the aggregate Fair Market Value of stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code), including the Option, are exercisable for the first time by the Employee during any calendar year (under the Plan and all other incentive stock option plans of the Company, any Subsidiary and any parent corporation thereof (within the meaning of Section 422 of the Code)) exceeds $100,000, such options shall be treated as Non-Qualified Options to the extent required by Section 422 of the Code. The Employee further acknowledges that the rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted. For purposes of these rules, the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. -3- ARTICLE III EXERCISE OF OPTION Section 3.1 - Partial Exercise Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 2.3; provided, however, that each partial exercise shall be for not less than 100 shares and shall be for whole shares only. Section 3.2 - Manner of Exercise The Option, or any exercisable portion thereof, may be exercised solely by delivery to the 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: (a) A written notice complying with the applicable rules established by the Committee stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Employee or other person then entitled to exercise the Option or such portion. (b) Full payment to the Company for the shares with respect to which such Option or portion is exercised, which shall be: (i) In cash; or (ii) With the consent of the Committee, (A) shares of the Company's Common Stock owned by the Employee, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery (and, if acquired from the Company, held for at least six months) equal to the aggregate purchase price of the shares as to which the Option is exercised, or (B) shares of the Company's Common Stock issuable to the Employee upon exercise of the Option, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the shares as to which the Option is exercised; or (ii) With the consent of the Committee, by delivery of a notice that the Employee has placed a market sell order with a broker with respect to shares of the Company's Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the 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 the Employee or other person then entitled to exercise such Option or portion as the Committee in its discretion, shall determine is necessary or appropriate to effect compliance with the Securities Act of 1933 and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of the Option does not violate the Securities Act of 1933, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act of 1933, and such registration is then effective in respect of such shares. (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option. With the consent of the Committee, (i) shares of the Company's Common Stock owned by the Employee, duly endorsed for transfer, with a Fair Market Value equal to the sums required to be withheld, or (ii) shares of the Company's Common Stock issuable to the Employee upon exercise of the Option with a Fair Market Value equal to the sums required to be withheld, may be used to make all or part of such payment. -4- (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Option. Section 3.3 - Rights as Shareholder The holder of the Option shall not be, and shall not have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. ARTICLE IV OTHER PROVISIONS Section 4.1 - Option Not Transferable Neither the Option nor any interest or right therein or part thereof shall be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Section 4.2 - Shares to Be Reserved The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. Section 4.3 - Notices Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 4.3, either party may hereafter designate a different address for notices to be given. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 4.3. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 4.4 - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 4.5 - Notification of Disposition The Employee shall give prompt notice to the Company of any disposition or other transfer of any shares acquired under this Agreement if such disposition or transfer is made (a) within two (2) years from the date of granting the Option with respect to such shares or (b) within one (1) year after the transfer of such shares to him. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Employee in such disposition or other transfer. -5- Section 4.6 - Construction This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Oregon without regard to conflicts of laws thereof. Section 4.7- Conformity to Securities Laws The Employee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act 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 shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 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 /s/ F. Kim Fox --------------------- President /s/ Paul A. Rosenbaum - --------------------- (Paul A. Rosenbaum) Address: c/o Rentrak Corporation 7700 NE Ambassador Place Portland, OR 97220 Employee's Taxpayer Identification Number: ###-##-#### -6- EX-10 12 nonqualstockoptagmt.txt 10.31 NON-QUALIFIED STOCK OPTION AGREEMENT RENTRAK CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, effective as of March 30, 2001, is made by and between Rentrak Corporation, an Oregon corporation (hereinafter referred to as "Company"), and Paul A. Rosenbaum, an employee of the Company (hereinafter referred to as "Employee"): WHEREAS, the Company wishes to afford the Employee the opportunity to purchase shares of its $.001 par value Common Stock; and WHEREAS, the 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 the Company and its shareholders to grant the Non-Qualified Stock Option (the "Option") provided for herein to the Employee as an inducement to remain in the service of the 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 hereby acknowledged, the parties agree as follows: ARTICLE I. GRANT OF OPTION Section 1.1. - Grant of Option In consideration of the Employee's agreement to remain in the employ of the Company or its Subsidiaries and for other good and valuable consideration, effective as of the date hereof, the Company irrevocably grants to the Employee an Option to purchase any part or all of an aggregate of 71,429 shares of its $.001 par value Common Stock upon the terms and conditions set forth in this Agreement. Section 1.2. - Purchase Price The purchase price of the shares of Common Stock covered by the Option shall be $3.50 per share, without commission or other charge, subject to adjustment as provided in Section 9.3(a) of the Plan. Section 1.3. - Consideration to Company In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe. Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employ of the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause. Section 1.4. - Adjustments in Option The Committee shall make adjustments with respect to the Option in accordance with the provisions of Section 9.3 of the Plan. -1- ARTICLE II. PERIOD OF EXERCISABILITY Section 2.1. - Commencement of Exercisability (a) Subject to Sections 2.1(b) and 2.3, the Option shall become exercisable in four cumulative installments as follows: (i) The first installment shall consist of 25 percent of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted. (ii) The second installment shall consist of 25 percent of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted. (iii) The third installment shall consist of 25 percent of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted. (iv) The fourth installment shall consist of 25 percent of the shares covered by the Option and shall 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 shall thereafter become exercisable. Section 2.2. - Duration of Exercisability Once the Option becomes exercisable pursuant to Section 2.1, it shall remain exercisable until it becomes unexercisable under Section 2.3. Section 2.3. - Expiration of Option The Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of ten (10) years from the date the Option was granted; or (b) The expiration of one (1) month from the date of the Employee's voluntary Termination of Employment; or (c) The expiration of three (3) months from the date of the Employee's Termination of Employment by reason of his retirement or his being discharged not for good cause (for purposes of this Agreement, "good cause" means any act of fraud by the Employee, any act of dishonesty by the Employee involving the Company or its business, the Employee's conviction of or a plea of nolo contendere to a felony, or the commission of any act in direct or indirect competition with or materially detrimental to the best interests of the Company that is in breach of the Employee's fiduciary duties to the Company), unless the Employee dies within said three-month period; or (d) The expiration of one (1) year from the date of the Employee's Termination of Employment by reason of his permanent and total disability; or (e) The expiration of one (1) year from the date of the Employee's death; or (f) Immediately following the Employee's Termination of Employment by reason of being discharged for good cause; or (g) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or eighty percent (80%) or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. As soon as practicable prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Committee shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 2.3. Section 2.4. - Adjustments to and/or Cancellation of the Option Neither (i) the issuance of additional shares of stock of the Company in exchange for adequate consideration (including services), nor (ii) the conversion of outstanding preferred shares of the Company into Common Stock, shall be deemed 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 shall determine that an event has occurred affecting the Company such that an adjustment to the Option under -2- 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 shall be deemed a Termination Event subject to the following paragraph. Subject to Section 9.3(b)(vii) of the Plan, in the event of (a) the dissolution or liquidation of the Company, (b) a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company will not be a surviving corporation, (c) the sale of all or substantially all of the assets of the Company, (d) a sale or other transfer of more than eighty percent (80%) of the then outstanding shares of Common Stock of the Company, or (e) 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 shall determine whether a provision 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 the 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 shall give notice of the determination to the 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, shall be binding upon the Employee. If the Committee determines that no assumption or substitution will be made, the Committee shall give notice of this determination to the Employee, whereupon the Employee shall have the right for a period of thirty (30) days following the notice to exercise in full or in part the unexercised and unexpired portion of this Option without regard to the limitation on exercisability specified in Section 2.1(a) above. Upon the expiration of this thirty (30) day period, the option shall expire to the extent not earlier exercised. ARTICLE III. GRANT OF OPTION Section 3.1. - Partial Exercise Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 2.3; provided, however, that each partial exercise shall be for not less than 100 shares and shall be for whole shares only. Section 3.2. - Manner of Exercise The Option, or any exercisable portion thereof, may be exercised solely by delivery to the 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: (a) A written notice complying with the applicable rules established by the Committee stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Employee or other person then entitled to exercise the Option or such portion. (b) Full payment to the Company for the shares with respect to which such Option or portion is exercised, which shall be: (i) In cash; or (ii) With the consent of the Committee, (A) shares of the Company's Common Stock owned by the Employee (and, if acquired from the Company, held for at least six months), duly endorsed for transfer to the 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 the Company's Common Stock issuable to the Employee upon exercise of the Option, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the shares as to which the Option is exercised; or -3- (iii) With the consent of the Committee, by delivery of a notice that the Employee has placed a market sell order with a broker with respect to shares of the Company's Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the 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 the Employee or other person then entitled to exercise such Option or portion, as the Committee in its discretion shall determine is necessary or appropriate to effect compliance with the Securities Act of 1933 and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of the Option does not violate the Securities Act of 1933, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act of 1933, and such registration is then effective in respect of such shares. (d) Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option. With the consent of the Committee, (i) shares of the Company's Common Stock owned by the Employee, duly endorsed for transfer, with a Fair Market Value equal to the sums required to be withheld, or (ii) shares of the Company's Common Stock issuable to the Employee upon exercise of the Option with a Fair Market Value equal to the sums required to be withheld, may be used to make all or part of such payment. (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Option. Section 3.3. - Rights as Shareholder The holder of the Option shall not be, and shall not have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. ARTICLE IV. OTHER PROVISIONS Section 4.1. - Option Not Transferable Neither the Option nor any interest or right therein or part thereof shall be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Section 4.2. - Shares to Be Reserved The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. -4- Section 4.3. - Notices Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 4.3, either party may hereafter designate a different address for notices to be given. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 4.3. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 4.4. - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 4.5.- Construction This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Oregon without regard to conflicts of laws thereof. Section 4.6. - Conformity to Securities Laws The Employee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act 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 shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 4.7 - 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 /s/ F. Kim Cox ----------------- President /s/ Paul A. Rosenbaum - ---------------------- (Paul A. Rosenbaum) Address: ========================== - -------------------------- Employee's Taxpayer Identification Number: ___________________ -5- EX-21 13 ex21.txt Exhibit 21 Subsidiaries of Registrant: BlowOut Video, Inc., an Oregon corporation. formovies.com, inc., an Oregon corporation. LRC, Inc., an Oregon corporation. Orient Link Enterprises, a foreign corporation. Rentrak Canada, Inc., a foreign corporation. Rentrak UK, Ltd., a foreign corporation. RTK Kelly, Ltd., a foreign corporation. 3PF.COM, Inc., a Delaware corporation. EX-23 14 exh23.txt Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports included in this Form 10-K, into the Company's previously filed Registration Statements: (1) Registration Statement File No. 33-40472 on Form S-8 of the 1986 Stock Option Plan, the 1985 Stock Incentive Plan, the 1985 Key Employee Incentive Stock Option Plan and the Individual Written Compensation Plan dated May 10, 1991, (2) Registration Statement File No. 33-44864 on Form S-8 of the 1986 Restated and Amended Stock Option Plan and Directors' Stock Option Plan dated January 8, 1992, (3) Registration Statement on Form S-8 of the 1992 Employee Stock Purchase Plan dated June 16, 1992, (4) Registration Statement File No. 33-86548 on Form S-3 dated November 21, 1994, (5) Registration Statement File No. 33-65463 on Form S-3 dated December 28, 1995, as amended on February 9, 1996, (6) Registration Statement File No. 333-28565 on Form S-8 of the 1997 Non-Officer Employee Stock Option Plan dated June 5, 1997, as amended on October 29, 1997, and (7) Registration Statement File No. 333-62523 on Form S-8 of the 1997 Equity Participation Plan dated August 31, 1998. /s/ Arthur Andersen LLP Portland, Oregon June 25, 2001 EX-24 15 poa.txt POWER OF ATTORNEY Each person whose signature appears below designates and appoints PAUL A. ROSENBAUM and MARK L. THOENES, and either of them, true and lawful attorneys-in-fact and agents to sign the Annual Report on Form 10-K for the year ended March 31, 2001, of Rentrak Corporation, an Oregon corporation, and to file said report, with all exhibits thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Each person whose signature appears below also grants to these attorneys-in-fact and agents full power and authority to perform every act and execute any instruments that they deem necessary or desirable in connection with said report, as fully as he could do in person, hereby ratifying and confirming all that the attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done. IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 23rd day of May, 2001. Signature Title /s/ Paul A. Rosenbaum - ----------------------------- Chairman and Chief Executive Officer Paul A. Rosenbaum and Director (Principal Executive Officer) /s/ Mark L. Thoenes - ----------------------------- Chief Financial Officer Mark L. Thoenes (Principal Financial and Accounting Officer) /s/ Cecil D. Andrus - ----------------------------- Director Cecil D. Andrus /s/ George H. Kuper - ----------------------------- Director George H. Kuper /s/ Joon S. Moon - ----------------------------- Director Joon S. Moon /s/ James G. Petcoff - ----------------------------- Director James G. Petcoff /s/ Stanford C. Stoddard - ----------------------------- Director Stanford C. Stoddard EX-99 16 desccapstock.txt DESCRIPTION OF CAPITAL STOCK DESCRIPTION OF RENTRAK CORPORATION CAPITAL STOCK General - --------- The authorized capital stock of Rentrak Corporation, a corporation organized under the laws of the state of Oregon, consists of 30,000,000 shares of common stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per share, 300,000 shares of which have been designated Series A Junior Participating Preferred Stock and reserved for issuance upon the exercise of the rights distributed to the holders of Rentrak Corporation common stock pursuant to the rights plan described below under "Description of Rights." All of the outstanding shares of the capital stock of Rentrak Corporation are duly authorized, validly issued, fully paid, and nonassessable. Rentrak Corporation Common Stock - ---------------------------------------------- Subject to the rights of holders of any outstanding Rentrak Corporation preferred stock, the holders of outstanding shares of Rentrak Corporation common stock are entitled to share ratably in dividends declared out of assets legally available therefor at such time and in such amounts as the Rentrak Corporation Board of Directors may from time to time lawfully determine. Each holder of Rentrak Corporation common stock is entitled to one vote for each share held and, except as otherwise provided by law or by the Rentrak Corporation Board of Directors with -1- respect to any series of Rentrak Corporation preferred stock, the holders of Rentrak Corporation common stock will exclusively possess all voting power. Holders of Rentrak Corporation common stock are not entitled to accumulate votes for the election of directors. The Rentrak Corporation common stock is not entitled to conversion or preemptive rights and is not subject to redemption or assessment. Subject to the rights of holders of any outstanding Rentrak Corporation preferred stock, upon liquidation, dissolution, or winding up of Rentrak Corporation, any assets legally available for distribution to stockholders are to be distributed ratably among the holders of the Rentrak Corporation common stock at that time outstanding. Rentrak Corporation Preferred Stock - ---------------------------------------------- The Rentrak Corporation Board of Directors has the authority to issue Rentrak Corporation preferred stock in one or more series with such distinctive serial designations, at such price or prices, and for such other consideration as may be fixed by the Rentrak Corporation Board of Directors. Rentrak Corporation preferred stock of all series shall be in all respects entitled to the same preferences, rights, and privileges and subject to the same qualifications, limitations, and restrictions; provided, however, that different series of Rentrak Corporation preferred stock may vary with respect to, among other things, dividend rates, conversion rights, voting rights, redemption rights, liquidation preferences, and the number of shares constituting each such series as shall be determined and fixed by resolution or resolutions of the Rentrak Corporation Board of Directors providing for the issuance of such series, without any further vote or action by the stockholders of Rentrak Corporation. All the shares of any one series will be alike in all respects. The ability of the Rentrak Corporation Board of Directors to issue Rentrak Corporation -2- preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of Rentrak Corporation. Description of Rights - -------------------------- On May 18, 1995, the Rentrak Corporation Board of Directors adopted a Rights Plan. Pursuant to the Rights Plan, Rentrak Corporation has distributed a dividend of one right to purchase shares of capital stock of Rentrak Corporation, under certain circumstances specified in the Rights Plan, for each outstanding share of common stock. These purchase rights are hereinafter referred to as the "Rights." The Rights trade with the common stock and will detach and become exercisable ten business days after either a person (together with that person's affiliates or associates) acquires beneficial ownership of 15% or more of the outstanding shares of Rentrak Corporation common stock, or announces a tender offer the completion of which would result in beneficial ownership by a person (together with such person's affiliates or associates) of 15% or more of those shares. If the Rights detach and become exercisable, unless subsequently redeemed, each Right then would entitle its holder to purchase one one-hundredth of a share of the Series A Junior Participating Preferred Stock for and exercise price of $40, subject to antidilution adjustment. If Rentrak Corporation were to be involved in a merger or other business combination transaction in which Rentrak Corporation is not the surviving corporation after the Rights -3- become exercisable, each Right would entitle its holder to purchase, for the Right's exercise price, a number of the acquiring or surviving company's shares of common stock having a market value equal to twice the exercise price. If, in a transaction not approved by the Rentrak Corporation Board of Directors, a person (together with such person's affiliates or associates) acquires 15% or more of the outstanding shares of Rentrak Corporation common stock or Rentrak Corporation is the surviving corporation in a merger or other business combination with such a person, each Right would entitle its holder (other than the acquiring person and its affiliates and associates, all of whose Rights become automatically void) to purchase, for the Right's exercise price, a number of shares of Rentrak Corporation common stock having a market value equal to twice the exercise price. At any time after a person (together with such person's affiliates or associates) acquires at least 15%, but not more than 50%, of the outstanding shares of Rentrak Corporation common stock, the Rentrak Corporation Board of Directors can elect to exchange that number of shares of common stock having an aggregate value equal to the spread (the excess of the value of the common stock issuable upon exercise of a Right over the exercise price) for each Right (other than Rights held by such acquiring person and its affiliates and associates). Rentrak Corporation would be entitled to redeem the Rights at $.01 per Right at any time until ten business days following a public announcement that a person (together with such person's affiliates or associates) has acquired beneficial ownership of 15% or more of the outstanding shares of common stock. Following an announcement confirming Rentrak Corporation's intent to redeem the Rights, the entitlement to exercise the Rights will terminate and the only right of the holders of Rights (other than the acquiring person, whose Rights shall be void) will be to receive the redemption price. Prior to the date upon which the Rights detach, the terms of the Rights Plan may be amended by the Rentrak Corporation Board of Directors without the consent of the holders of the Rights. The Rights expire on May 18, 2005, unless -4- earlier redeemed or exchanged by Rentrak Corporation or terminated. The Rights Plan may deter takeover bids for Rentrak Corporation. To the extent an acquirer would be discouraged by the Rights Plan from acquiring an equity position in Rentrak Corporation, stockholders may be deprived from receiving a premium for their shares. The issuance of additional shares of common stock prior to the time the Rights become exercisable would result in an increase in the number of Rights outstanding. Each share of Series A Junior Participating Preferred Stock would have a quarterly dividend rate per share equal to 100 times the per share amount of any dividend (other than a dividend payable in shares of common stock or a subdivision of the common stock) (but not less than $1.00 per share) declared from time to time on the common stock, subject to certain adjustments. The holders of Series A Junior Participating Preferred Stock would be entitled to receive a preferred liquidation payment per share of $100 (plus accrued and unpaid dividends) or, if greater, an amount equal to 100 times the payment to be made per share of common stock. Generally, the holder of each share of Series A Junior Participating Preferred Stock would vote together with the common stock (and any other series of preferred stock entitled to vote on such matter) on any matter as to which the common stock is entitled to vote, including the election of directors. The holder of each share of Series A Junior Participating Preferred Stock would be entitled to 100 votes. In the event of any merger, consolidation, combination, or other transaction in which shares of common stock are exchanged for or changed into other stock or securities, cash, and/or property, the holder of each share of Series A Junior Participating Preferred Stock would be entitled to receive 100 times the aggregate amount of stock, securities, cash, and/or property into which or for -5- which each share of common stock is changed or exchanged. The foregoing dividend, voting, and liquidation rights of the Series A Junior Participating Preferred Stock would be protected against dilution in the event that additional shares of common stock are issued pursuant to a stock split or stock dividend. Because of the nature of the Series A Junior Participating Preferred Stock's dividend, voting, liquidation, and other rights, the value of the one one-hundredth of a share of Series A Junior Participating Preferred Stock purchasable with each Right is intended to approximate the value of one share of common stock. Statutory Business Combination Provision - --------------------------------------------------- Rentrak Corporation is subject to Section 60.835 of the Oregon Revised Statutes, which generally prohibits an Oregon corporation from engaging in a "business combination" -6- with an "interested stockholder" for a period of three years after the time that the person became an interested stockholder, unless (i) prior to such time the Board of Directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and by certain employee stock plans, or (iii) at or after such time the business combination is approved by the Board of Directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the corporation that is not owned by the interested stockholder. A "business combination" generally includes mergers, asset sales, and similar transactions between the corporation and the interested stockholder, and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who owns 15% or more of the corporation's voting stock or who is an affiliate or associate of the corporation and, together with his or her affiliates and associates, has owned 15% or more of the corporation's voting stock within the three year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. Other Matters - ----------------- The bylaws of Rentrak Corporation contain provisions (i) requiring that advance notice be delivered to Rentrak Corporation of any business to be brought by a stockholder before any meeting of stockholders and (ii) establishing procedures to be followed by stockholders in nominating persons for election to the Board of Directors. Generally, such advance notice provisions provide that written notice must be given to the Secretary of Rentrak Corporation by a stockholder, with respect to director nominations or stockholder proposals, not less than 60 nor more than 90 days prior to the first anniversary of the preceding year's annual meeting (except that if the date of the annual meeting is changed by more than 30 days from such anniversary date, then notice by the stockholder, to be timely, must be received within 10 days of the date on which notice of the date of the meeting was mailed or public disclosure of the date was made, whichever first occurs). -7- Such notice must set forth specific information regarding such stockholder and such business or director nominee, as described in the bylaws. -8- -----END PRIVACY-ENHANCED MESSAGE-----