-----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, V6iHf7+VpoxymEBOAgABgCQ4ZPVISH65VkdrnIYdCGg9y2Et6/OnrJmIYZcpOLE4 IzS3UVq8iSFq7hlEgsHO0A== 0000892917-01-500057.txt : 20020410 0000892917-01-500057.hdr.sgml : 20020410 ACCESSION NUMBER: 0000892917-01-500057 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTRAK CORP CENTRAL INDEX KEY: 0000800458 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 930780536 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15159 FILM NUMBER: 1784365 BUSINESS ADDRESS: STREET 1: ONE AIRPORT CTR STREET 2: 7700 N E AMBASSADOR PL CITY: PORTLAND STATE: OR ZIP: 97220 BUSINESS PHONE: 5032847581 MAIL ADDRESS: STREET 1: 7227 NE 55TH AVENUE CITY: PORTLAND STATE: OR ZIP: 97218 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VIDEO INC DATE OF NAME CHANGE: 19881004 10-Q 1 rc10-qbody.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number: 0-15159 RENTRAK CORPORATION (Exact name of registrant as specified in its charter) OREGON 93-0780536 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification no.) 7700 NE Ambassador Place, Portland, Oregon 97220 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 284-7581 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( ) As of October 31, 2001, the Registrant had 9,668,771 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2001 and March 31, 2001 Consolidated Statements of Income for the three-month periods ended September 30, 2001 and September 30, 2000 Consolidated Statements of Income for the six-month periods ended September 30, 2001 and September 30, 2000 Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2001 and September 30, 2000 Notes to Consolidated Financial Statements 2 RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS (UNAUDITED) September 30, March 31, 2001 2001 ---------------- --------------- CURRENT ASSETS: Cash and cash equivalents $4,280,043 $3,322,917 Accounts receivable, net of allowance for doubtful accounts of $4,083,276 and $2,090,075 10,603,127 11,151,817 Advances to program suppliers 2,151,613 1,328,165 Inventory 3,076,444 3,514,354 Income tax receivable 288,936 279,160 Deferred tax asset 2,241,757 7,319,266 Other current assets 3,793,281 3,291,915 ---------------- --------------- Total current assets 26,435,201 30,207,594 ---------------- --------------- PROPERTY AND EQUIPMENT, net 4,727,176 4,439,773 DEFERRED TAX ASSET 4,242,724 2,419,634 OTHER ASSETS 1,446,249 2,059,247 ---------------- --------------- TOTAL ASSETS $36,851,350 $39,126,248 ================ ===============
The accompanying notes are an integral part of these consolidated balance sheets. 3 RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) September 30, March 31, 2001 2001 ---------------- ---------------- CURRENT LIABILITIES: Line of credit $ - $1,917,705 Accounts payable 18,497,348 18,699,289 Accrued liabilities 3,114,285 3,418,043 Accrued compensation 1,421,089 1,127,785 Current portion of deferred revenue 439,352 1,245,643 Net current liabilities of discontinued 74,892 156,046 operations ---------------- ---------------- Total current liabilities 23,546,966 26,564,511 ---------------- ---------------- LONG-TERM LIABILITIES: Deferred Revenue 189,554 379,104 Other 604,323 795,875 ---------------- ---------------- Total long-term liabilities 793,877 1,174,979 ---------------- ---------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value; Authorized: 10,000,000 shares - - Common stock, $.001 par value; Authorized: 30,000,000 shares Issued and outstanding: 9,699,855 shares at September 30, 2001 and 12,235,621 at March 31, 2001 9,700 12,236 Capital in excess of par value 41,070,031 52,471,599 Notes receivable (377,565) (7,728,189) Cumulative other comprehensive income (loss) 4,629 (49,572) Accumulated deficit (27,811,288) (32,904,316) Less - Deferred charge - warrants (385,000) (415,000) ---------------- ---------------- 12,510,507 11,386,758 ---------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,851,350 $39,126,248 ================ ================
The accompanying notes are an integral part of these consolidated balance sheets. 4 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, 2001 2000 ------------------- ------------------- REVENUES: PPT $19,055,246 $17,521,934 Other 4,681,687 7,368,621 ------------------- ------------------- 23,736,933 24,890,555 ------------------- ------------------- OPERATING COSTS AND EXPENSES: Cost of sales 18,647,603 22,845,139 Selling, general, and administrative 4,549,556 17,294,174 ------------------- ------------------- 23,197,159 40,139,313 ------------------- ------------------- INCOME (LOSS) FROM OPERATIONS 539,774 (15,248,758) ------------------- ------------------- OTHER INCOME (EXPENSE): Interest income 112,872 99,640 Interest expense - (166,037) ------------------ ------------------- 112,872 (66,397) ------------------- ------------------- INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 652,646 (15,315,155) INCOME TAX PROVISION (BENEFIT) 254,532 (5,746,162) ------------------- ------------------- NET INCOME (LOSS) $398,114 $ (9,568,993) =================== =================== EARNINGS (LOSS) PER SHARE: ------------------- ------------------- Basic: $0.04 $ (0.77) ------------------- ------------------- Diluted: $0.04 $ (0.77) =================== ===================
The accompanying notes are an integral part of these consolidated statements. 5 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended September 30, 2001 2000 ---------------- ---------------- REVENUES: PPT $35,312,962 $39,871,309 Other 17,397,858 14,498,870 ---------------- ---------------- 52,710,820 54,370,179 ---------------- ---------------- OPERATING COSTS AND EXPENSES: Cost of sales 36,665,600 45,816,929 Selling, general, and administrative 13,227,720 23,619,213 Net (gain) expense from litigation settlement - (225,000) ---------------- ---------------- 49,893,320 69,211,142 ---------------- ---------------- INCOME (LOSS) FROM OPERATIONS 2,817,500 (14,840,963) ---------------- ---------------- OTHER INCOME (EXPENSE): Interest income 189,963 256,206 Interest expense (8,976) (349,521) Other 5,350,737 - ---------------- ---------------- 5,531,724 (93,315) ---------------- ---------------- INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 8,349,224 (14,934,278) INCOME TAX PROVISION (BENEFIT) 3,256,197 (5,615,284) ---------------- ---------------- NET INCOME (LOSS) $5,093,027 $ (9,318,994) ================ ================ EARNINGS (LOSS) PER SHARE: ---------------- ---------------- Basic: $0.46 $ (0.80) ---------------- ---------------- Diluted: $0.46 $ (0.80) ================ ================
The accompanying notes are an integral part of these consolidated statements. 6 RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended September 30, --------------------------------- 2001 2000 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $5,093,027 ($9,318,994) Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities Gain on investments (3,713,147) 567,986 Depreciation and amortization 618,316 639,577 Amortization of warrants 30,000 329,931 Provision for doubtful accounts and other 883,239 8,006,046 assets Reserves on advances to program suppliers 437,395 - Deferred income taxes 3,221,574 (5,705,280) Change in specific accounts: Accounts receivable (334,548) 5,005,870 Advances to program suppliers (1,260,843) 1,240,828 Inventory 437,910 (62,529) Income tax receivable (9,776) (491,410) Notes receivable - 4,061,618 Other current assets (501,366) (1,192,472) Accounts payable (209,483) (7,509,856) Accrued liabilities & compensation (10,454) 34,534 Deferred revenue and other liabilities (1,187,393) 1,670,331 Notes payable (500,000) Net current liabilities of discontinued (81,154) (157,787) operations --------------- --------------- Net cash provided by (used in) 3,413,297 (3,381,607) operations --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (938,433) (1,226,334) Proceeds form sale of investments 4,377 1,554,750 Reduction (addition) of other assets and 551,028 (679,073) investments --------------- --------------- Net cash used in investing activities (383,028) (350,657) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under line of (1,917,705) 39,284 credit Repurchase of common stock (469,545) - Issuance of common stock 177,547 412,659 Issuance of common stock to non-employees 136,560 - --------------- --------------- Net cash provided by (used in) (2,073,143) 451,943 financing activities --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 957,126 (3,280,321) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,322,917 4,028,271 --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,280,043 $747,950 =============== ===============
7 (UNAUDITED) Six Months Ended September 30, --------------------------------- 2001 2000 --------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for - Interest $28,929 $79,680 Income taxes paid, net of refunds received 58,025 336,530 NON-CASH TRANSACTIONS Change in unrealized gain (loss) on investment securities, net of tax 858 (39,098) Notes issued, net of cancellation for common stock (7,350,624) 9,441,379 Repurchase of common stock from sale of asset 3,890,500 -
The accompanying notes are an integral part of these consolidated statements. 8 RENTRAK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A: Basis of Presentation The accompanying unaudited Consolidated Financial Statements of RENTRAK CORPORATION (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three-month six-month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2002. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in the Company's 2001 Annual Report to Shareholders. Certain prior year information has been reclassified to conform to current year presentation. The Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which, except as disclosed, include only normal and recurring adjustments) necessary to present fairly the Company's financial position and results of operations. The Consolidated Financial Statements include the accounts of the Company, its majority owned subsidiaries, and those subsidiaries in which the Company has a controlling interest after elimination of all inter-company accounts and transactions. Investments in affiliated companies owned 20 to 50 percent are accounted for by the equity method. During the six-month period ended September 30, 2001, the FASB issued Statement of Financial Accounting Standard No. 141 "Business Combinations" (SFAS 141), Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangibles" (SFAS 142), Statement of Financial Accounting Standard No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143) and Statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). The Company expects that adoption of SFAS 141, SFAS 142, SFAS 143 and SFAS 144 will not have a material impact on the Company's financial condition or results of operations. NOTE B: Net Income (Loss) Per Share Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings (loss) per common share is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from dilutive stock options and warrants. The weighted average number of shares of common stock and equivalents and net income (loss) used to compute basic and diluted earnings per share for the three and six-month periods ended September 30, 2001 and 2000 were as follows: 9 3-Months Ended 6-Months Ended 3-Months Ended 6-Months Ended September 30, September 30, September 30, September 30, 2001 2001 2000 2000 ---------------- --------------- --------------- --------------- Basic Diluted Basic Diluted Basic Diluted Basic Diluted Weighted average number of shares of common stock outstanding used to compute basic earnings (loss) per common share 11,005,323 11,005,323 11,110,515 11,110,515 12,373,606 12,373,606 11,596,261 11,596,261 Dilutive effect of exercise of stock options - 42,926 - 45,517 - - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares of common stock used to compute diluted earnings (loss) per common share outstanding and common stock equivalents 11,005,323 11,048,249 11,110,515 11,156,032 12,373,606 12,373,606 11,595,261 11,595,261 ========== ========== ========== ========== ========== ========== ========== ========== Net Income (loss) used in basic and diluted earnings (loss) per common share $ 398,114 $ 398,114 $5,093,027 $5,093,027 $(9,568,993)$(9,568,993) $(9,318,994) $(9,318,994) Earnings (loss) per common share $ 0.04 $ 0.04 $ 0.46 $ 0.46 $ (0.77)$ (0.77) $ (0.80) $ (0.80) ========== ========== ========== ========== =========== =========== =========== ===========
Options and warrants to purchase 2,980,175 and 3,288,509 shares of common stock for the quarters ended September 30, 2001 and 2000, respectively, and 2,832,363 and 3,086,703 for the six-month periods ended September 30, 2001 and 2000, respectively, were outstanding 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. NOTE C: Business Segments, Significant Suppliers and Major Customer The Company classifies its services in three segments, PPT, 3PF.COM, Inc. ("3PF") and Other. Under its Pay-Per-Transaction (PPT) revenue sharing program, the Company enters into contracts to lease videocassettes 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. 3PF is a subsidiary of the Company which provides order processing, fulfillment and inventory management services. Other includes the operations of BlowOut Video, a video retail subsidiary, ForMovies.Com, an internet service, and amounts received pursuant to royalty agreements, primarily from a previous agreement with Rentrak Japan. 10 Business Segments Following are the revenues, income (loss) from operations and identifiable assets of the Company's business segments for the periods indicated (unaudited): Six Months Six Months Three Months Three Months Ended Ended Ended Ended September 30, September 30, September 30, September 2001 2000 2001 30, 2000 --------------------------------------------------------- REVENUES: (1) PPT $35,531,166 $40,283,720 $19,125,223 $17,656,964 3PF.COM, Inc. (2) 7,276,327 8,963,619 2,503,845 4,658,519 OTHER 11,329,302 6,784,432 2,611,800 3,219,896 ---------------------------------------------------------- $54,136,795 $56,031,771 $24,240,868 $25,535,379 ========================================================== INCOME (LOSS) FROM OPERATIONS: (1) PPT $2,106,307 $(11,838,182) $1,712,836 $ (12,847,988) 3PF.COM, Inc. (4,420,029) (2,439,829) (1,271,633) (1,611,253) OTHER 5,131,223 (562,952) 98,572 (789,517) ---------------------------------------------------------- $2,817,501 $(14,840,963) $ 539,775 $(15,248,758) ========================================================== IDENTIFIABLE ASSETS: (1) PPT $38,941,472 $35,346,385 3PF.COM, Inc. 9,331,929 6,132,488 OTHER 5,299,878 5,845,530 ----------------------------- $53,573,279 $47,324,403 =============================
(1) Total amounts differ from those reported on the consolidated financial statements, as intercompany transactions are not eliminated for segment reporting purposes. 11 (2) 3PF's revenues related to the shipment of cassettes to PPT customers were $433,958 and $477,992 for the three-month periods ended September 30, 2001 and 2000, respectively, and $1,201,771 and $1,249,182 for the six-month periods ended September 30, 2001 and 2000, respectively. For the three-month period ended September 30, 2001, the Company had one program supplier whose product generated 24 percent, a second that generated 16 percent, and a third that generated 13 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the three-month period ended September 30, 2001. No customer accounted for more than 10 percent of the Company's revenue in the three-month period ended September 30, 2001. For the six-month period ended September 30, 2001, the Company had one program supplier whose product generated 18 percent and a second and third that each generated 13 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the six-month period ended September 30, 2001. No customer accounted for more than 10 percent of the Company's revenue in the six-month period ended September 30, 2001. For the three-month period ended September 30, 2000, the Company had one program supplier whose product generated 21 percent, a second that generated 15 percent, and a third that generated 11 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the three-month period ended September 30, 2000. No customer accounted for more than 10 percent of the Company's revenue in the three-month period ended September 30, 2000. For the six-month period ended September 30, 2000, the Company had one program supplier whose product generated 20 percent, a second that generated 19 percent, and a third that generated 11 percent of Rentrak revenue. No other program supplier provided product that generated more than 10 percent of revenue for the six-month period ended September 30, 2000. No customer accounted for more than 10 percent of the Company's revenue in the six-month period ended September 30, 2000. NOTE D: Discontinued Operations On November 26, 1996, the Company made a distribution to its shareholders of 1,457,343 shares of common stock of BlowOut Entertainment, Inc. ("BlowOut"). The operations of BlowOut were reflected as discontinued operations in the March 31, 1996 consolidated financial statements. 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. The sale to a third party video retailer was approved by the Bankruptcy Court on May 10, 1999, and closed on May 17, 1999. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut ("Guarantee"). Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As the proceeds from the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, agreed to a payment plan to fulfill BlowOut's obligation under its credit facility. 12 The amount remaining payable at September 30, 2001 is approximately $125,000. The funds remaining, if any, after payment of administrative and cost claims after dismissal of the bankruptcy case may further reduce the amount due under the credit facility. Net current liabilities of discontinued operations at September 30, 2001 and September 30, 2000, relate to amounts to be paid pursuant to the Guarantee, net of tax benefit. NOTE: E Customer Agreement In June 2000, the Company entered into an agreement with one of its customers, modifying an existing contract. Under terms of the agreement the customer made a payment to the Company in the amount of $2.5 million, subject to the resolution of certain issues. On March 31, 2001, the Company entered into a settlement agreement with the customer whereby $1.6 million of the $2.5 million payment was determined to be consideration for cancellation of certain rights of the Company under the existing contract, while the balance of $0.9 million was to be held by the Company as a deposit to be applied to future receivables generated by the customer. The $0.9 million deposit will 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 Company's balance sheet. NOTE F: Related Party Transactions On June 16, 2000, the Company loaned a total of $8,097,636 to two of its officers to purchase 1,663,526 shares of stock upon exercise of their employee stock options. During the three month period ended December 31, 2000, the Company and one of these officers terminated his stock exercise agreement for 301,518 shares of stock and corresponding loan in the amount of $1,468,250. At various times during the three-month period ended September 30, 2000, the Company loaned an additional $1,343,743 to some of its officers to purchase 283,277 shares of stock upon exercise of their employee stock options. During the three month period ended December 31, 2000, the Company and one of these officers terminated his stock exercise agreement for 50,535 shares of stock and corresponding loan in the amount of $244,940. The loans bear interest at the federal funds rate in effect on the date of the loan (6.5%) and interest is payable annually. The Company is not accruing interest on these loans. The principal amount of the loans 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 Rentrak, (2) one year after the borrower leaves Rentrak'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. 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. In accordance with SEC regulations, the notes receivable arising from these transactions are presented as deductions from stockholders' equity. During the three-month period ended September 30, 2001, a former officer of the Company, who was loaned, on June 16, 2000, $6,629,386 to purchase 1,362,008 shares of stock upon exercise of his employee stock options and, during the quarter ended September 30, 2000, was also loaned 13 $721,238 to purchase 133,742 shares of stock upon exercise of his employee stock options, terminated his agreements with the Company. Accordingly, the common stock and related notes receivable totaling $7,350,624 were reversed in a non-cash transaction in the accompanying consolidated balance sheet as of September 30, 2001. NOTE G: Line of Credit In May 2000 the Company obtained a new 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 line is payable monthly at the bank's prime rate plus 1/4 percent (6.25 percent at September 30, 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. This agreement expires in May 2005. Based upon the financial results reported as of September 30, 2001 and for the three-month period then ended, the Company has determined it is out of compliance with two of the financial covenants as of September 30, 2001. The Company is in process of obtaining waivers of non-compliance for the two financial covenants as of September 30, 2001 and for the three-month period then ended. The Company previously obtained waivers of non-compliance with these financial covenants for the preceding four-quarters. The Company has initiated discussions of these covenants with its lender and is seeking covenant modifications, as necessary. Based upon discussions between the Company and its lender, the Company believes it will successfully receive current and future waivers and/or covenant modifications and will have sufficient cash resources to repay any outstanding borrowings as due. At September 30, 2001 and November 13, 2001, the Company had no outstanding borrowings under this agreement. NOTE H: Rentrak Japan Agreement Effective April 2, 2001, the Company and Rentrak Japan entered into a restructuring of their business relationship as evidenced by execution of an Agreement Concerning Changes to the Business Cooperation Agreement. Pursuant to this agreement, the Company transferred exclusive rights to implement its Pay-Per-Transaction (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 cash payment of $5.65 million to the Company and released certain of the Company's payment obligations totaling $2.1 million in April 2001. As part of the transaction, Rentrak Japan's obligation to pay annual royalties to Rentrak in connection with use of its PPT system was terminated. $6.4 million of the above amounts was recorded as revenue consistent with the historical treatment of royalty payments. The remaining balance of $5.6 million was recorded as a gain and is included in other income. 14 The Company concurrently sold to So-Tsu Co. Ltd. ("So-Tsu"), which owns a controlling interest in Rentrak Japan, 300,000 shares of its Rentrak Japan stock, or approximately 5.6 percent of the outstanding Rentrak Japan shares, for a price of $4.0 million in April 2001. The Company also repurchased from Rentrak Japan 614,000 shares of the Company's common stock for a price 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., also under the control of So-Tsu. The Company received the right, which was exercised in October 2001, 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 (currently approximately $2.4 million in total). During fiscal year 2000, Rentrak Japan loaned 120 million yen (approximately $200,000) to Rentrak UK. The loan was non-interest bearing and was forgiven in connection with the April 2001 restructuring. During the term of the loan, Rentrak Japan was entitled to 10 percent of the Company's share in Rentrak UK royalties. No such share of royalties was earned by or paid to Rentrak Japan during fiscal year 2001. The Company sold to So-Tsu 1 percent of the Company's equity interest in 3PF for a cash payment of $1.0 million received in May 2001. The Company received a total of $6.7 million in net cash payments in April and May 2001 in connection with the restructuring and it received the remaining $2.4 million in net cash payments in October 2001, as a result of the sale of its remaining Rentrak Japan stock. NOTE I: Stockholders' Equity At September 30, 2001, total stockholders' equity was $12.5 million, an increase of $1.1 million from the $11.4 million at March 31, 2001. Common stock and capital in excess of par value decreased, on a combined basis, $11.4 million from $52.5 million at March 31, 2001 to $41.1 million at September 30, 2001 primarily due to: (i) the repurchase of stock from Rentrak Japan (See Note H.); (ii) the repurchase of additional stock under the Company's stock repurchase program; and (iii) the termination of loan agreements by a former officer of the Company for purchase of shares in conjunction with the exercise of employee stock options (See Note F.). Notes receivable decreased from ($7.7) million at March 31, 2001 to ($0.4) million at September 30, 2001 in conjunction with the termination of the loan agreements noted above. Accumulated deficit decreased $5.1 million from $32.9 million at March 31, 2001 to $27.8 million at September 30, 2001 due to the net income from the six-month period. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements 15 Certain information included in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements that involve a number of risks and uncertainties. Forward looking statements are identified by the use of forward-looking words such as "may", "will", "expects", "intends", "anticipates", "estimates", or "continues" or the negative thereof or variations thereon or comparable terminology. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: the Company's ability to continue to market the Pay Per Transaction ("PPT") System successfully, the financial stability of participating retailers and their performance of their obligations under the PPT System, non-renewal of the Company's line of credit, business conditions 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 prerecorded videocassettes ("Cassettes") from program suppliers. Such factors are discussed in more detail in the Company's 2001 Annual Report to Shareholders. Results of Operations Continuing Operations - Domestic PPT Operations and Other Continuing Subsidiaries For the three-month period ended September 30, 2001, total revenue decreased $1.2 million, or 5 percent, to $23.7 million from $24.9 million for the three-month period ended September 30, 2000. For the six-month period ended September 30, 2001, total revenue decreased $1.7 million, or 3 percent, to $52.7 million from $54.4 million for the six-month period ended September 30, 2000. Total revenue includes the following PPT Program 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 generated when retailers purchase Cassettes at the end of the lease term. In addition, total revenue includes the following: (i) charges to customers of the Company's subsidiary 3PF, which provides order processing, fulfillment and inventory management services, (ii) sales of Cassettes through the Company's retail subsidiary BlowOut Video, (iii) charges for internet services provided by ForMovies.Com, and (iv) royalty payments primarily from Rentrak Japan (See Note H.). The decrease in total revenues for the three-month period ended September 30, 2001 is primarily due to: (i) a decrease in revenue related to 3PF's services, resulting primarily from the loss of a key customer; (ii) the discontinuance of royalty revenues from Rentrak Japan (See Note H.) in the three-month period ended June 30, 2001; and (iii) a decrease in business activity and revenue from the Company's subsidiary BlowOut Video. However, PPT revenues for the three-month period ended September 30, 2001 increased to $19.1 million from $17.5 million for the three-month period ended September 30, 2000, an increase of $1.6 million, or 9 percent, primarily due to an increase in the number of Cassettes shipped. This increase in PPT revenues resulting from the increased number 16 of Cassettes shipped was partially offset by the number of Cassettes leased under output programs offered by the studios as well as the timing of titles released during the three-month period ended September 30, 2001. The decrease in total revenues for the six-month period ended September 30, 2001 is primarily due to: (i) the reduction in the total number of Cassettes leased under the PPT System, such reduction occurring in the three-month period ended June 30, 2001; (ii) program suppliers engaging in direct revenue sharing with the larger chains; and (iii) the number, timing and quality of titles released to the PPT System in the initial months of the six-month period ended September 30, 2001. PPT revenues for the six-month period ended September 30, 2001 decreased to $35.3 million from $39.9 million for the six-month period ended September 30, 2000, a decrease of $4.6 million, or 12 percent. 3PF revenues for the six-month period ended September 30, 2001 decreased to $7.3 million from $9.0 million for the six-month period ended September 30, 2000, a decrease of $1.7 million, or 19 percent. The discontinuance of royalty revenues from Rentrak Japan (See Note H.) in the three-month period ended June 30, 2001, as well as a decrease in business activity and revenue from the Company's subsidiary BlowOut Video also contributed to the decrease in revenues during the six-month period ended September 30, 2001. These reductions in revenue were partially offset by the recognition of $6.4 million in revenue during the three-month period ended June 30, 2001 related to an agreement between the Company and Rentrak Japan (See Note H.). Cost of sales for the three-month period ended September 30, 2001 decreased to $18.6 million from $22.8 million for the three-month period ended September 30, 2000, a decrease of $4.2 million, or 18 percent. This decrease is primarily attributable to the following: (i) additional costs which were recorded in the three-month period ended September 30, 2000 related to the guaranteed minimum payments due to program suppliers on certain movie titles and (ii) increased costs of sales of 3PF as the result of the addition of more labor intensive customers, the cost of new warehousing with no additional revenues, and lease cost adjustments and increases all occurring during the three-month period ended September 30, 2000. Cost of sales as a percent of total revenues was 79% for the three-month period ended September 30, 2001 compared to 92% for the three-month period ended September 30, 2000. Cost of sales for the six-month period ended September 30, 2001 decreased to $36.7 million from $45.8 million for the six-month period ended September 30, 2000, a decrease of $9.2 million, or 20 percent. Cost of sales as a percent of total revenues, excluding the $6.4 million in revenue related to the business restructuring noted above, was 70% for the six-month period ended September 30, 2001 compared to 84% for the six-month period ended September 30, 2000. As a result, the gross profit margin increased to 21 percent in the three-month period ended September 30, 2001 from 8 percent in the three-month period ended September 30, 2000. Excluding the $6.4 million in revenue related to the business restructuring with Rentrak Japan noted above, the gross profit margin increased to 21 percent in the six-month period ended September 30, 2001 from 16 percent in the six month period ended September 30, 2000. 17 Selling, general and administrative expenses were $4.5 million for the three-month period ended September 30, 2001, compared to $17.3 million for the three-month period ended September 30, 2000, a decrease of $12.8 million, or 74 percent. The decrease in selling, general and administrative expenses is primarily due to various transactions occurring during the three-month period ended September 30, 2000, including: (1) a $1.3 million severance payment to the Company's former chairman and chief executive officer; (2) $0.6 million in legal costs and proxy solicitation costs incurred by the Company related to the proxy contest in 2000; (3) $0.4 million in costs to reimburse the dissident shareholder group for their legal and other costs associated with the proxy contest; (4) $6.1 million of costs associated with the reserve or write-off of assets related to the Company's Retailer Financing Program; (5) $1.0 million in write-offs of investments and other assets deemed by the Company to be non-realizable; (6) $1.4 million in write-offs of accounts receivable 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; and (7) 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 prior customer. Selling, general and administrative expenses were $13.2 million for the six-month period ended September 30, 2001, compared to $23.6 million for the six-month period ended September 30, 2000, a decrease of $10.4 million, or 44 percent. The decrease in selling, general and administrative expenses is primarily due to various transactions occurring during the three-month period ended September 30, 2000, as noted above, offset by the following transactions occurring during the three-month period ended June 30, 2001: (1) a $0.9 million reserve established for a 3PF customer trade account deemed uncollectible due to a Chapter 11 bankruptcy filing by the customer in May 2001; (2) recognition of $0.8 million in expense related to the closure of the 3PF administrative offices in Skokie, Illinois in April 2001; and (3) the recognition of $0.5 million in expense for a bonus accrual related to the pre-tax financial results for the three-month period. Operating Income for the three-month period ended September 30, 2001, was approximately $0.5 million. This compares to an operating loss of approximately $15.2 million for the three-month period ended September 30, 2000, primarily attributable to the cost of sales and selling, general and administrative expenses noted above during this time period. Operating Income for the six-month period ended September 30, 2001, excluding the effect of the $6.4 million in revenue noted above and the selling, general and administrative expenses associated with this agreement during the three-month period ended June 30, 2001, was a loss of approximately $2.7 million, primarily due to lower gross profit margins as a result of an approximate $4.6 million decline in PPT revenues from the six-month period ended September 30, 2000 and increased selling, general and administrative expenses at 3PF totaling $1.7 million, as noted above. This compares to an operating loss of approximately $14.8 million for the six-month period ended September 30, 2000. Other Income (Expense) increased from an expense of approximately $66,000 for the three-month period ended September 30, 2000 to income of approximately $113,000 for the three-month period ended September 30, 2001, primarily due to zero interest expense for the three-month period ended September 30, 2001 as the Company has had no outstanding balance to date on its line of credit during the fiscal year ending March 31, 18 2002. Other Income (Expense) increased from an expense of approximately $93,000 for the six-month period ended September 30, 2000 to income of approximately $5.5 million for the six-month period ended September 30, 2001, primarily due to the recognition of $5.6 million in other income related to an agreement between the Company and Rentrak Japan (See Note H.) and zero interest expense as the Company has had no outstanding balance on its line of credit during the six-month period ended September 30, 2001. The effective tax rate during the three and six month periods ended September 30, 2001 was 39% compared to 38% during the three and six-month periods ended September 30, 2000. As a result, for the three-month period ended September 30, 2001, the Company recorded net income from continuing operations of $0.4 million, or 2 percent of total revenue, compared to a loss from continuing operations of $9.6 million, or 38 percent of total revenue, in the three-month period ended September 30, 2000. For the six-month period ended September 30, 2001, the Company recorded net income from continuing operations of $5.1 million, or 10 percent of total revenue, compared to a loss from continuing operations of $9.3 million, or 17 percent of total revenue, in the six-month period ended September 30, 2000. A significant amount of this increase in net income from continuing operations during the six-month period ended September 30, 2001 is attributable to the financial impact from the business restructuring between the Company and Rentrak Japan (See Note H.). Discontinued Operations On March 22, 1999, BlowOut Entertainment, Inc. ("BlowOut"), a former subsidiary of the Company, 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 its assets. The sale was approved by the Bankruptcy Court on May 10, 1999, and closed on May 17, 1999. In 1996, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. The amount remaining payable at September 30, 2001 was approximately $125,000. Net current liabilities of discontinued operations at September 30, 2001 and September 30, 2000, relate to amounts to be paid pursuant to the Guarantee, net of tax benefit. Financial Condition At September 30, 2001, total assets were $36.9 million, a decrease of $2.2 million from $39.1 million at March 31, 2001. As of September 30, 2001, cash increased $1.0 million to $4.3 million from $3.3 million at March 31, 2001. Accounts receivable decreased $0.6 million from $11.2 million at March 31, 2001 to $10.6 million at September 30, 2001, primarily due to: (i) collections from customer accounts; (ii) a $0.9 million reserve established for a 3PF customer trade account deemed uncollectible due to a Chapter 11 bankruptcy filing by the customer in May 2001; and (iii) an increase provided in the general allowance for doubtful accounts based upon management's assessment of its accounts receivable. Deferred tax assets decreased $3.2 million from $9.7 million at March 31, 2001 to $6.5 million at September 30, 2001, primarily due to the application of 19 this tax benefit to the $3.3 million tax provision relating to the pre-tax income for the six-month period ended September 30, 2001. At September 30, 2001, total liabilities were $24.3 million, a decrease of $3.4 million from $27.7 million at March 31, 2001. Outstanding borrowings under the line of credit decreased $1.9 million from $1.9 million at March 31, 2001 to $0 million at September 30, 2001 primarily due to additional working capital available to the Company from trade receivable collections in April 2001 and the $6.7 million in cash payments received from Rentrak Japan during April 2001 (See Note H.). Accounts payable decreased $0.2 million from $18.7 million at March 31, 2001 to $18.5 million at September 30, 2001 primarily due to the timing of studio and other vendor payments. Accrued compensation increased $0.3 million from $1.1 million at March 31, 2001 to $1.4 million at September 30, 2001 primarily due to a bonus accrual related to the pre-tax financial results for the six-month period offset by bonuses awarded and paid for the prior fiscal year during the three-month period ended September 30, 2001. Deferred revenue decreased $1.0 million from $1.6 million at March 31, 2001 to $0.6 million at September 30, 2001 primarily due to the forgiveness of the remaining unearned prepaid royalty income credit by Rentrak Japan (See Note H.). Accordingly, at September 30, 2001, total stockholders' equity was $12.5 million, an increase of $1.1 million from the $11.4 million at March 31, 2001. Common stock and capital in excess of par value decreased, on a combined basis, $11.4 million from $52.5 million at March 31, 2001 to $41.1 million at September 30, 2001 primarily due to: (i) the repurchase of stock from Rentrak Japan (See Note H.); (ii) the repurchase of additional stock under the Company's stock repurchase program; and (iii) the termination of loan agreements by a former officer of the Company for purchase of shares in conjunction with the exercise of employee stock options (See Note F.). Notes receivable decreased from ($7.7) million at March 31, 2001 to ($0.4) million at September 30, 2001 in conjunction with the termination of the loan agreements noted above. Accumulated deficit decreased $5.1 million from $32.9 million at March 31, 2001 to $27.8 million at September 30, 2001 due to the net income from the six-month period. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company had cash of $4.3 million compared to $3.3 million at March 31, 2001. At September 30, 2001, the Company's current ratio (current assets/current liabilities) decreased to 1.12 from 1.14 at March 31, 2001. As discussed in Note G of the accompanying financial statements, in May 2000 the Company obtained a new 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. 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. This agreement expires in May 2005. Based upon the 20 financial results reported as of September 30, 2001 and for the three-month period then ended, the Company has determined it is out of compliance with two of the financial covenants as of September 30, 2001. The Company is in process of obtaining waivers of non-compliance for the two financial covenants as of September 30, 2001 and for the three-month period then ended. The Company previously obtained waivers of non-compliance with these financial covenants for the preceding four-quarters. The Company has initiated discussions of these covenants with its lender and is seeking covenant modifications, as necessary. Based upon discussions between the Company and its lender, the Company believes it will successfully receive current and future waivers and/or covenant modifications and will have sufficient cash resources to repay all outstanding borrowings as due. At September 30, 2001 and November 13, 2001, the Company had no outstanding borrowings under this agreement. In 1992, the Company established a Retailer Loan 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 1992 the video industry was experiencing rapid growth. The underlying rationale for this program was the belief that the Company could expand its business and at the same time participate in the rapid growth experienced by the video retailers in which it invested. During fiscal year 2001, the Company discontinued new financings under this program and provided reserves of $6.6 million representing the entire outstanding balance of the program loans. The Company continues to seek to enforce agreements entered into in connection with this program in accordance with their terms to the extent practicable. On March 22, 1999, BlowOut Entertainment, Inc. ("BlowOut"), a former subsidiary of the Company, filed a petition under Chapter 11 of the Federal Bankruptcy Code in March 1999. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut (the "Guarantee"). In 1996, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As of September 30, 2001, the balance remaining payable under this obligation was approximately $125,000. 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 available credit resources. Based on the Company's current budgets and projected cash needs, the Company believes that its available sources of liquidity will be sufficient to fund the Company's operations for the fiscal year ending March 31, 2002. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK None. 21 PART II - OTHER INFORMATION ITEM 1. 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 alleged various violations of the antitrust laws, including that the Company had 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 alleged that the Company's negotiation and execution of an exclusive, long-term revenue sharing agreement with Video Update violated Section 1 of the Sherman Act and Section 3 of the Clayton Act. Video Update sought 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 has answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also filed a countercomplaint against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, intentional interference with business advantage, trade secret misappropriation, and a claim for recovery of personal property, seeking damages and equitable relief. 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. The Company filed a proof of claim in the bankruptcy case asserting the claims that the Company asserted in its countercomplaint in the District Court action. Video Update and the Company have reached an agreement in principle whereby the litigation between them would be dismissed and each party would release all claims against the other. The settlement is subject to execution of a definitive agreement by the parties and approval of the agreement by the Bankruptcy Court. 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 excess of $3.3 million, together with prejudgment interest and attorney fees. Hollywood and Reel.com, Inc., have filed a counterclaim for attorney fees. The arbitration is scheduled to commence January 14, 2002. 22 On August 6, 2001, Hollywood filed a proceeding with the American Arbitration Association against the Company for the alleged breach of a settlement agreement among the Company, Hollywood, and two individuals dated January 23, 2000, relating to the Company's obligation to provide Hollywood with documents and data with regard to Hollywood's obligation to indemnify the Company against claims by a movie studio. Hollywood is seeking damages in the amount of $2,000,000. The arbitration is scheduled to commence June 3, 2002. 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 and intends to contest the case vigorously. 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. In his answer to the amended complaint, Mr. Berger has denied these new allegations and renewed his primary counterclaims against the Company and 3PF.COM, Inc., which have been denied by the Company. The case is presently in the discovery phase. Trial is scheduled for April 15, 2002. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 10, 2001, the Company issued 8,000 shares of its common stock to a financial consultant as partial payment for professional services rendered by the consultant to the Company's subsidiary 3PF. On September 7, 2001, the Company issued 30,000 shares of its common stock to an investor relations firm as partial payment for investor relations services provided to the Company. The Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 with respect to the share issuances in transactions not involving a public offering. 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 10.1 - Employment Agreement with Amir Yazdani dated July 1, 2001. (b) Reports on Form 8-K - None filed during the quarter ended September 30, 2001. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 13th day of November, 2001 RENTRAK CORPORATION By /s/ Mark L. Thoenes --------------------------------------- Mark L. Thoenes Vice President and Chief Financial Officer Signing on behalf of the registrant EX-10 3 rcex10.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is entered into effective as of July 1, 2001, by and between RENTRAK CORPORATION, an Oregon corporation ("Company"), and AMIR YAZDANI ("Executive"). RECITALS Company and Executive desire to enter into an Employment Agreement setting forth the terms and conditions of Executive's employment with Company. AGREEMENT In consideration of the mutual covenants and agreements set forth in this Agreement, Company and Executive agree as follows: 1. Employment 1.1 Term. Company agrees to employ Executive to serve as Chief Information Officer and to serve in such additional or different position or positions as Company may determine in its sole discretion. The term of employment will be for a period (the "Employment Period") commencing on the effective date of this Agreement and expiring June 30, 2006, unless earlier terminated as set forth in this Agreement. However, the Employment Period will automatically be extended for an additional 12 calendar-month period unless, on or before December 31, 2004, or December 31 of any year of the extended Employment Period, either Company or Executive gives written notice that the Employment Period will not be extended. This Agreement entirely supersedes Executive's previous employment agreement (the "Prior Agreement") with Company's subsidiary 3PF.com dated effective January 1, 2000. 1 1.2 Duties and Responsibilities. Executive will be reporting directly to Company's President. Within the limitations established by the Bylaws of Company, the Executive will have each and all of the duties and responsibilities of the position of Chief Information Officer and such other or different duties on behalf of Company as may be assigned from time to time by Company's President or Chief Executive Officer ("CEO") or the Board of Directors of Company (the "Board"). 1.3 Location. The principal location at which Executive will perform services for Company will be Portland, Oregon. Executive will do such traveling as may be required from time to time in the performance of his duties under this Agreement. 1.4 Outside Activities. During his employment under this Agreement, Executive will devote his full business time, energies, and attention to the business and affairs of Company, and to the promotion and advancement of its interests. Executive will perform his services faithfully, competently, and to the best of his abilities and will not engage in professional or personal business activities that may require an appreciable portion of Executive's time or effort to the detriment of Company's business. 1.5 Application of Corporate Policies. Executive will, except as otherwise provided in this Agreement, be subject to Company's rules, practices, and policies applicable generally to Company's senior executive employees, as such rules, practices, and policies may be revised from time to time by the Board. 2. Compensation 2.1 Base Salary. Executive will be paid a base salary ("Base Salary") at the annual rate of $206,636. The annual Base Salary will be reviewed by the President or CEO on or before April 1 of each year (commencing in 2002), unless Executive's employment has been terminated 2 earlier pursuant to this Agreement, to determine if such Base Salary should be increased for the following year in recognition of services to Company. 2.2 Payment. Payment of all compensation to Executive will be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and will be subject to all applicable employment and withholding taxes. 2.3 Bonuses. 2.3.1 Initial Bonus. In lieu of any bonus otherwise due to Executive under the terms of the Prior Agreement, Company has paid Executive a bonus of $25,000. 2.3.2 Annual Bonus. Executive will participate, together with Company's other senior executives, in Company's discretionary annual bonus program and will be eligible to receive an annual bonus in such amounts, if any, as are determined by the Board in its discretion. 2.3.3 Other Discretionary Bonuses. Company will, from time to time, in its sole discretion, consider giving additional discretionary bonuses to Executive for such reasons as successful completion of significant projects undertaken by Executive, successful sales or licenses of software developed by Executive such as the 3PF Essentials package, or other reasons as determined by Company. 3. Other Employment Benefits 3.1 Business Expenses. Upon submission of itemized expense statements in the manner specified by Company, Executive will be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of his duties under this Agreement. 3.2 Benefit Plans. Executive will be entitled to participate in Company's medical and dental plans, life and disability insurance plans, retirement plans, and other benefit plans offered 3 by Company to its senior executives during the term of this Agreement (collectively the "Benefit Plans") pursuant to the respective terms and conditions of such Benefit Plans. Nothing in this Agreement will preclude Company or any affiliate of Company from terminating or amending any Benefit Plan or benefit program from time to time. 3.3 Personal Time Off. Executive will receive an annual grant of 208 hours of credit (or such higher number of hours as are credited to Company's other senior executives) under Company's Personal Time Off (PTO) program. 3.4 Stock Options. Company agrees to grant Executive an option (the "Option") to purchase 120,000 shares of Company's common stock pursuant to the terms of Company's 1997 Equity Participation Plan (the "Plan"). The Option will be evidenced by a stock option agreement (the "Option Agreement") subject to the following terms and conditions: (a) The option purchase price will be the fair market value (as defined in the Plan) of a share of Company's common stock on the date the option is granted (the "Grant Date"); (b) The Option will become exercisable as to 40,000 shares on each of the first three anniversaries of the Grant Date; (c) The Option will not continue to vest after Executive's death, disability, or termination of employment with Company for any reason; (d) The Option will be an incentive stock option (within the meaning of Internal Revenue Code ("IRC") ss. 422) to the extent possible within the $100,000 limitation of IRC ss. 422(d)(1), and will be a nonqualified stock option as to the balance of the Option; 4 (e) The Option will become fully and immediately exercisable upon (1) a change in control of Company (as that term is defined in the Plan or in Executive's Option Agreement), (2) any sale of a substantial portion of Company's business operations, (3) a sale by Company of its Video-On-Demand business, or (4) a termination of Executive's employment by Company without Cause (as that term is defined in Section 4.3.2); and (f) The Option will be subject to such other terms and conditions as determined by the Committee (as defined in the Plan) and set forth in the Option Agreement. 3.5 No Other Benefits. Executive understands and acknowledges that the compensation specified in Sections 2, 3, 4, and 5 of this Agreement will be in lieu of any and all other compensation, benefits and plans. 4. Termination of Employment Prior to a Change in Control 4.1 Death. Upon the death of the Executive during the Employment Period, this Agreement will automatically terminate and all rights of the Executive and his heirs, executors and administrators to compensation and other benefits under this Agreement will cease, except that the Executive's heirs, executors and administrators, as the case may be, will be entitled to: (a) Accrued Base Salary through the Executive's date of death; (b) Other benefits under Benefit Plans to which the Executive was entitled on the Executive's date of death in accordance with the terms of such Benefit Plans; and (c) The accrued but unpaid annual bonus, if any, for any fiscal year of Company ended prior to the date of death. 5 4.2 Disability. Company may, at its option, terminate the Executive's employment under this Agreement upon written notice to the Executive if the Executive, because of physical or mental incapacity or disability, fails to perform the essential functions of his position, with reasonable accommodation, required of him under this Agreement for a continuous period of 120 days or any 180 days within any 12-month period. Upon such termination during the Employment Period, all obligations of the Company under this Agreement will cease, except that the Executive will be entitled to: (a) Accrued Base Salary through the date of the Executive's termination of employment; (b) Other benefits under Benefit Plans to which the Executive was entitled upon such termination of employment in accordance with the terms of such Benefit Plans; and (c) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination. In the event of any dispute regarding the existence of the Executive's incapacity or disability, the matter will be resolved by the determination of an independent physician to be selected by the Board. The Executive agrees to submit to appropriate medical examinations for purposes of such determination. 6 4.3 Cause. 4.3.1 Termination for Cause. The Company may, at its option, terminate the Executive's employment under this Agreement for Cause (as defined in Section 4.3.2). Any such termination for Cause must be authorized by the Board. At least 60 days prior to such Board authorization, the Executive must be given written notice by the Board of the claimed bases for the termination of his employment for Cause and must be given the opportunity to appear before the Board, with legal representation, to present arguments and evidence on his own behalf. 4.3.2 Definition. As used in this Agreement, the term "Cause" means: (a) Commission of an act of fraud, embezzlement, or theft constituting a felony; or (b) Willful commission of an act (or failure to take an action) that is intentionally against the interest of Company and that causes Company material injury. For purposes of this Agreement, Executive will not be deemed to be terminated for Cause unless and until Company delivers to Executive a copy of a formal resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for this purpose (after reasonable notice to Executive and an opportunity for Executive, together with his legal counsel, to attend and be heard before the Board) expressly finding that in the good faith opinion of the Board Executive was guilty of conduct constituting Cause as defined in this Section and specifying in detail the particulars of such conduct. 4.3.3 Effect on Other Remedies. The exercise of the right of the Company to terminate this Agreement pursuant to this Section 4.3.3 will not abrogate the rights or remedies of the Company in respect of the actions giving rise to such termination. 4.3.4 Effect of Termination for Cause. If the Company terminates the Executive's employment for Cause, all obligations of the Company under this Agreement will cease, except that the Executive will be entitled to the payments and benefits specified in Sections 4.2(a) and 4.2(b). 7 4.4 Termination Without Cause. If during the Employment Period and prior to a Change in Control or more than two years following a Change in Control, the Board terminates the employment of the Executive for any reason other than a reason set forth in Sections 4.1, 4.2, or 4.3, all obligations of the Company under this Agreement will cease, except that the Executive will be entitled to: (a) The payments and benefits specified in Sections 4.2(a) and 4.2(b); and (b) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination; and, in addition (c) Severance payments (the "Severance Payments") equal to a continuation of Executive's Base Salary, payable in accordance with Company's regular payroll practices, through the later of (1) the expiration of one year following the date of termination, or (2) June 30, 2004; provided, however, that Executive's right to receive Severance Payments is expressly conditioned on execution by Executive of a valid and comprehensive release (in a form satisfactory to Company and its legal counsel) of any and all claims that Executive may have against Company or any of its subsidiaries or affiliates. 4.5 Good Reason. 4.5.1 Termination for Good Reason. The Executive may terminate his employment with the Company prior to the end of the Employment Period for Good Reason (as defined in Section 4.5.2) upon 60 days prior written notice to the Company (or such shorter period as may be permitted by the Board). If the Executive terminates his employment under this Agreement for Good Reason during the Employment Period and prior to a Change in 8 Control or more than two years following a Change in Control, all obligations of the Company under this Agreement will cease, except that the Executive will be entitled to: (a) The payments and benefits specified in Sections 4.2(a) and 4.2(b); (b) The accrued but unpaid annual bonus, if any, for any fiscal year ended prior to the date of such termination; and (c) The Severance Payments described in Section 4.4(c), subject to the release condition set forth in that Section. 4.5.2 Definition. As used in this Agreement, the term "Good Reason" means the occurrence, without the Executive's written consent, of any one or more of the following, to the extent not cured within a reasonable period of time (not to exceed 30 days) after written notice specifying the basis for the Executive's termination of employment pursuant to this Section 5(e) is given to Company by the Executive: (a) Any reduction in the Base Salary of the Executive; (b) Any reduction in the benefits, taken as a whole, provided to the Executive pursuant to the Benefit Plans; (c) Any reduction in the Severance Payments or in the events upon which such payments are to be made to Executive under this Agreement; (d) Any reduction or elimination of Executive's right to participate in Company's annual bonus program or the 1997 Equity Participation Plan (or any successor or similar annual bonus program or stock-based compensation plan); (e) Any diminution in the title or position or reporting level of Executive; (f) Any significant diminution in the responsibilities of Executive, as set forth in this Agreement; or 9 (g) Any relocation of the principal office of Executive to a location outside of the greater Portland metropolitan area. 4.6 Voluntary Termination Other Than For Good Reason. Executive may voluntarily terminate his employment with Company prior to the end of the Employment Period for any reason other than a reason set forth in Section 4.5 upon 60 days prior written notice to the Company (or such shorter period as may be permitted by the Board). If Executive voluntarily terminates his employment pursuant to this Section 4.6, all obligations of the Company under this Agreement will cease, except that the Executive will be entitled to the payments and benefits specified in Sections 4.2(a) and 4.2(b). 4.7 Cooperation. After notice of termination, Executive will cooperate with Company, as reasonably requested by Company, to effect a transition of Executive's responsibilities and to ensure that Company is aware of all matters being handled by Executive. 5. Effect Of Change In Control 5.1 Definitions. "Change in Control". For purposes of this Agreement, a "Change in Control" will be deemed to have occurred upon the first fulfillment of the conditions set forth in any one of the following three paragraphs unless the events leading to such condition have been approved by two-thirds of the directors of Company then in office: (a) Any "person" (as that term is defined in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of Company, is or becomes a beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Company representing 10 25 percent or more of the combined voting power of Company's then outstanding securities; (b) A majority of the directors elected at any annual or special meeting of shareholders are not individuals nominated by Company's then incumbent Board; or (c) The shareholders of Company approve a merger or consolidation of Company with any other corporation, other than a merger or consolidation which would result in the voting securities of Company outstanding immediately prior to such transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75 percent of the combined voting power of the voting securities of Company or of such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of Company approve a plan of complete liquidation of Company or an agreement for the sale or disposition by Company of all or substantially all of its assets. "Excise Tax" means a tax imposed by IRCss. 4999(a), or any successor provision, with respect to "excess parachute payments" as described in IRCss. 280G(b). "Other Agreement" means a plan, arrangement, or agreement pursuant to which an Other Payment is made. "Other Payment" means any payment or benefit payable to Executive in connection with a Change in Control of Company pursuant to any plan, arrangement, or agreement (other than this Agreement) with Company, a person whose actions result in such Change in Control, or any person affiliated with Company or such person. "Total Payments" means all payments or benefits payable to Executive in connection with a Change in Control, including Change in Control Payments pursuant to this Agreement and 11 any other payments or benefits pursuant to any other plan, agreement, or arrangement with Company, a person whose actions result in the Change in Control, or any person affiliated with Company or such person. 5.2 Compensation Upon Termination Following a Change in Control. In the event of Company's termination of Executive without Cause, or Executive's termination of employment with Company for Good Reason, at any time within two years following a Change in Control during the Employment Period (as extended pursuant to Section 1.1), Executive will be entitled to the payments described in Section 4.4. The payments and benefits payable to Executive pursuant to this Section 5.2 in connection with a Change in Control of Company are referred to as the "Change in Control Payments." 5.3 Reduction in Change in Control Payments to Avoid Excess Parachute Tax Payments. 5.3.1 Reduction. In the event that any portion of the Total Payments payable to Executive in connection with a Change in Control of Company would constitute an "excess parachute payment" within the meaning of IRC ss. 280G(b) that is subject to an Excise Tax, the Change in Control Payments otherwise payable under this Agreement will be reduced to the extent necessary to avoid such excise tax if, and only if, such reduction would result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income and excise taxes, until either (i) no portion of the Total Payments are subject to such Excise Tax or (ii) the Change in Control Payments are reduced to zero. 5.3.2 Application. For purposes of this limitation: 12 (a) No portion of the Total Payments, the receipts or enjoyment of which Executive has effectively waived in writing prior to the date of payment of any Change in Control Payments, will be taken into account; (b) No portion of the Total Payments will be taken into account which, in the opinion of tax counsel selected by Company and reasonably acceptable to Executive ("Tax Counsel"), does not constitute a "parachute payment" within the meaning of IRC ss. 280G; (c) If Executive and Company disagree whether any payment of Change in Control Payments will result in an Excise Tax or whether a reduction in any Change in Control Payments will result in a larger after-tax benefit to Executive, the matter will be conclusively resolved by an opinion of Tax Counsel; (d) Executive agrees to provide Tax Counsel with all financial information necessary to determine the after-tax consequences of payments of Change in Control Payments for purposes of determining whether, or to what extent, Change in Control Payments are to be reduced pursuant to this Section 5.3; and (e) The value of any noncash benefit or any deferred payment or benefit included in the Total Payments, and whether or not all or a portion of any payment or benefit is a "parachute payment" for purposes of this Section 5.3, will be determined by Company's independent accountants in accordance with the principles of IRC ss. 280(G)(d)(3) and (4). 5.3.3 Effect on Other Agreements. In the event that any Other Agreement has a provision that requires a reduction in the Other Payment governed by such Other Agreement to avoid or eliminate an "excess parachute payment" for purposes of IRC ss. 280G, the reduction in Change in Control Payments pursuant to this Section 5.3 will be given effect before any reduction in 13 the Other Payment pursuant to the Other Agreement. To the extent possible, Company and Executive agree that reductions in benefits under any plan, program, or arrangement of Company will be reduced (only to the extent described in Section 5.3.1) in the following order of priority: (a) Change in Control Payments under this Agreement; (b) Benefit Plan benefit continuation; and (c) The acceleration in the exercisability of any stock option or other stock related award granted by Company. 6. Confidential Information 6.1 Definition. "Confidential Information" is all nonpublic information relating to Company or its business that is disclosed to Executive, that Executive produces, or that Executive otherwise obtains during employment. Confidential Information also includes information received from third parties that Company has agreed to treat as confidential. Examples of Confidential Information include, without limitation, marketing plans, customer lists or other customer information, product design and manufacturing information, and financial information. Confidential Information does not include any information that (i) is within the public domain other than as a result of disclosure by Executive in violation of this Agreement, (ii) was, on or before the date of disclosure to Executive, already known by Executive, or (iii) Executive is required to disclose in any governmental, administrative, judicial, or quasi-judicial proceeding, but only to the extent that Executive is so required to disclose and provided that Executive takes reasonable steps to request confidential treatment of such information in such proceeding. 14 6.2 Access to Information. Executive acknowledges that in the course of his employment he will have access to Confidential Information, that such information is a valuable asset of Company, and that its disclosure or unauthorized use will cause Company substantial harm. 6.3 Ownership. Executive acknowledges that all Confidential Information will continue to be the exclusive property of Company (or the third party that disclosed it to Company), whether or not prepared in whole or in part by Executive and whether or not disclosed to Executive or entrusted to his custody in connection with his employment by Company. 6.4 Nondisclosure and Nonuse. Unless authorized or instructed in advance in writing by Company, or required by law (as determined by licensed legal counsel), Executive will not, except as required in the course of Company's business, during or after his employment, disclose to others or use any Confidential Information, unless and until, and then only to the extent that, such items become available to the public through no fault of Executive. 6.5 Return of Confidential Information. Upon request by Company during or after his employment, and without request upon termination of employment pursuant to this Agreement, Executive will deliver immediately to Company all written, stored, saved, or otherwise tangible materials containing Confidential Information without retaining any excerpts or copies. 6.6 Duration. The obligations set forth in this Section 5 will continue beyond the term of employment of Executive by Company and for so long as Executive possesses Confidential Information. 15 7. Noncompetition 7.1 Covenant. During the term of Executive's employment with Company under this Agreement, and for six months after termination of such employment for any reason, Executive Agrees that he will not, without Company's prior written consent, own or have any interest directly in, or act as an officer, director, agent, employee, or consultant of, or assist in any way or any capacity, any person, firm, association, partnership, limited liability company, corporation, or other entity (a "Competitive Entity") that is engaged in the business of the following: (a) The fulfillment, warehouse, or distributing business; (b) The wholesale distribution of home video cassettes or related media (including without limitation DVDs); or (c) Any business directly competitive with the core business then engaged in by Company within fifty miles of any geographic area where Company has engaged or planned to engage in any such business activities. The restrictions of this Section 7.1 prohibiting ownership in a Competitive Entity will not apply to Executive's ownership of less than 10 percent of the publicly traded securities of any Competitive Entity. Because Company conducts business in a number of jurisdictions with a wide geographic scope, Company and Executive agree that the foregoing covenant not to compete will apply anywhere in the United States or in any other geographic area in which Company conducts its business, plans to conduct its business, or sells or distributes its products or services. For purposes of this Section 7.1, making a sale or delivering a product or services constitutes doing business. 16 7.2 Continuation of Prior Agreement. Executive acknowledges that the covenant not to compete set forth in this Section 7 is a continuation (on substantially identical terms) of the covenant not to compete included in Executive's Prior Agreement that was entered into at the commencement of Executive's employment with 3PF.com, a subsidiary of Company. 7.3 Severability; Reform of Covenant. If, in any arbitration or judicial proceeding, an arbitrator or court refuses to enforce the covenant not to compete set forth in this Section 7 because it covers too extensive a geographical area or is too long in its duration, the parties intend that the covenant be reformed and enforced to the maximum extent allowed under applicable law. 8. Exclusive Employment During employment with Company, Executive will not do anything to compete with Company's present or contemplated business, nor will he plan or organize any competitive business activity. Executive will not enter into any agreement which conflicts with his duties or obligations to Company. Executive will not during his employment or within one year after it ends, without Company's express written consent, directly or indirectly, solicit or encourage any employee, agent, independent contractor, supplier, customer, consultant or any other person or company to terminate or alter a relationship with Company. 9. Assignment and Transfer Executive's rights and obligations under this Agreement are not transferable by assignment or otherwise, and any purported assignment, transfer or delegation of such rights or obligations will be void. This Agreement will inure to the benefit of, and be binding upon and enforceable by, any purchaser of substantially all of Company's assets, any corporate successor to Company or any assignee from Company, such purchaser, or such successor. 17 10. No Inconsistent Obligations Executive is aware of no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with Company. Executive will not disclose to Company, or use, or induce Company to use, any proprietary information or trade secrets of others. Executive represents and warrants that he or she has returned all property and confidential information belonging to all prior employers. 11. Miscellaneous 11.1 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Oregon without regard to conflict of law principles. 11.2 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties and supersedes any prior or contemporaneous written or oral agreements, representations and warranties between them respecting the subject matter of this Agreement. 11.3 Amendment. This Agreement may be amended only by a writing signed by Executive and by a duly authorized representative of Company. 11.4 Severability. If any term, provision, covenant or condition of this Agreement, or the application of any such term, provision, covenant, or condition to any person, place or circumstance, is held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances will remain in full force and effect. 11.5 Construction. The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. 18 The language in all parts of this Agreement will be in all cases construed according to its fair meaning and not strictly for or against Company or Executive. 11.6 Rights Cumulative. The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party (or by his or its successor), whether pursuant to this Agreement, to any other agreement, or to law, will not preclude or waive its right to exercise any or all other rights and remedies. 11.7 Nonwaiver. No failure or neglect of either party in any instance to exercise any right, power or privilege under this Agreement or under law will constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party must be contained in a written instrument signed by the party to be charged and, in the case of Company, by an officer of Company (other than Executive) or other person duly authorized by Company. 11.8 Equitable Remedies for Breach. The parties agree that, in the event of breach or threatened breach of any covenants of Executive, the damage or imminent damage to the value and the goodwill of Company's business will be inestimable, and that therefore any remedy at law or in damages will be inadequate. Accordingly, the parties agree that Company will be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any of such provisions by Executive, in addition to any other relief (including damages) available to Company under this Agreement or under law. 11.9 Notices. Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law will be sufficient if in writing, and if and when sent by certified or registered mail, with postage prepaid, to Executive's residence (as noted in Company's records), or to Company's principal office, as the case may be. 19 11.10 Assistance in Litigation. Executive will, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to Company as may reasonably be required by Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become a party; provided, however, that such assistance following termination will be furnished at mutually agreeable times and for mutually agreeable compensation. 11.11 Arbitration. Any dispute or claim that arises out of or that relates to this Agreement or to the interpretation, breach, or enforcement of this Agreement, must be resolved by mandatory arbitration in accordance with the then effective arbitration rules of Arbitration Service of Portland, Inc., and any judgment upon the award rendered pursuant to such arbitration may be entered in any court having jurisdiction thereof. 11.12 Attorneys' Fees. In the event of any suit or action or arbitration proceeding to enforce or interpret any provision of this Agreement (or which is based on this Agreement), Executive (if he is the prevailing party) will be entitled to recover, in addition to other costs, reasonable attorneys' fees in connection with such suit, action, arbitration, and in any appeal. The determination of who is the prevailing party and the amount of reasonable attorneys' fees to be paid to the prevailing party will be decided by the arbitrator or arbitrators (with respect to attorneys' fees incurred prior to and during the arbitration proceedings) and by the court or courts, including any appellate courts, in which the matter is tried, heard, or decided, including the court which hears any exceptions made to an arbitration award submitted to it for confirmation as a judgment (with respect to attorneys' fees incurred in such confirmation proceedings). Notwithstanding the provisions of ORS 20.096 , the parties intend that in the event 20 Company is the prevailing party in any such suit or action or arbitration, Company will not be entitled to recover its attorneys' fees from Executive. The parties have duly executed this Agreement as of the date set forth below. RENTRAK CORPORATION EXECUTIVE: By /s/ F. Kim Cox /s/ Amir Yazdani ---------------------------------- ------------------------------------ Name: F. Kim Cox Amir Yazdani ------------------------------ Title: President ----------------------------- Date: August , 2001 ----------- 21 -----END PRIVACY-ENHANCED MESSAGE-----