UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. 12)
Image Entertainment, Inc.
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(Name of Issuer)
Common Stock, No Par Value
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(Title of Class of Securities)
452439-10-2
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(CUSIP Number)
Susan M. Klebanoff, Esq.
Image Investers Co., 6th Floor, One Meadowlands Plaza, East
Rutherford, NJ 07073
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 29, 1997
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(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
CUSIP No. 452439-10-2
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1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Image Investors Co.
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2 Check the Appropriate Box If a Member of a Group
a. |_|
b. |_|
- --------------------------------------------------------------------------------
3 SEC Use Only
- --------------------------------------------------------------------------------
4 Source of Funds
WC, AF
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5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e) |_|
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6 Citizenship or Place of Organization
DE
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7 Sole Voting Power
Number of 6,430,629 shares of Common Stock (1)
Shares
Beneficially --------------------------------------------------------
Owned By 8 Shared Voting Power
Each
Reporting
Person --------------------------------------------------------
With 9 Sole Dispositive Power
6,430,629 shares of Common Stock (1)
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10 Shared Dispositive Power
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
6,430,629 shares of Common Stock (1)
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12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_|
- --------------------------------------------------------------------------------
13 Percent of Class Represented By Amount in Row (11)
43.66%
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14 Type of Reporting Person
CO
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(1) (includes (i) warrants to purchase 425,000 shares of common stock and
(ii); anti-dilution rights to acquire 348,019 shares of common stock and
(iii) 1,379,310 shares of common stock issuable upon conversion of a loan)
SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 452439-10-2
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1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
John W. Kluge - SS No. ###-##-####
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2 Check the Appropriate Box If a Member of a Group
a. |_|
b. |_|
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3 SEC Use Only
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4 Source of Funds
WC, AF
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5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 Citizenship or Place of Organization
USA
- --------------------------------------------------------------------------------
7 Sole Voting Power
Number of 6,930,629 shares of Common Stock (1)
Shares
Beneficially --------------------------------------------------------
Owned By 8 Shared Voting Power
Each
Reporting
Person --------------------------------------------------------
With 9 Sole Dispositive Power
6,930,629 shares of Common Stock (1)
--------------------------------------------------------
10 Shared Dispositive Power
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
6,930,629 shares of Common Stock (1)
- --------------------------------------------------------------------------------
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_|
- --------------------------------------------------------------------------------
13 Percent of Class Represented By Amount in Row (11)
43.66%
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14 Type of Reporting Person
IN
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(1) (includes (i) warrants to purchase 425,000 shares of common stock and
(ii); anti-dilution rights to acquire 348,019 shares of common stock and
(iii) 1,379,310 shares of common stock issuable upon conversion of a loan)
SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 452439-10-2
- --------------------------------------------------------------------------------
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Stuart Subotnick - SS No. ###-##-####
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2 Check the Appropriate Box If a Member of a Group
a. |_|
b. |_|
- --------------------------------------------------------------------------------
3 SEC Use Only
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4 Source of Funds
- --------------------------------------------------------------------------------
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 Citizenship or Place of Organization
USA
- --------------------------------------------------------------------------------
7 Sole Voting Power
Number of 6,930,629 shares of Common Stock (1)
Shares
Beneficially --------------------------------------------------------
Owned By 8 Shared Voting Power
Each
Reporting
Person --------------------------------------------------------
With 9 Sole Dispositive Power
6,930,629 shares of Common Stock (1)
--------------------------------------------------------
10 Shared Dispositive Power
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
6,930,629 shares of Common Stock (1)
- --------------------------------------------------------------------------------
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_|
- --------------------------------------------------------------------------------
13 Percent of Class Represented By Amount in Row (11)
43.66%
- --------------------------------------------------------------------------------
14 Type of Reporting Person
IN
- --------------------------------------------------------------------------------
(1) (includes (i) warrants to purchase 425,000 shares of common stock and
(ii); anti-dilution rights to acquire 348,019 shares of common stock and
(iii) 1,379,310 shares of common stock issuable upon conversion of a loan)
SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
This Amendment No. 12 is a composite copy of and supplements the Schedule
13D (as so amended, the "Schedule 13D") filed by Image Investors Co., a Delaware
corporation ("IIC"), on July 18, 1988, as amended by Amendment No. 1 thereto
filed on December 2, 1988, Amendment No. 2 thereto filed on January 12, 1989,
Amendment No. 3 thereto filed on January 18, 1989, Amendment No. 4 thereto filed
on February 4, 1989, Amendment No. 5 thereto filed on February 15, 1989,
Amendment No. 6 thereto filed on May 11, 1989, Amendment No. 7 thereto filed on
January 12, 1990 and Amendment No. 8 thereto filed on May 10, 1990, Amendment
No. 9 thereto filed on June 25, 1990, Amendment No. 10 thereto filed on June 28,
1990, Amendment No. 11 thereto filed on December 30, 1992 in the following
respect only (capitalized terms used herein shall have meanings ascribed to such
terms in the Schedule 13D).
Item 1. Security and Issuer.
The class of equity securities to which this statement relates is the common
stock, no par value (the "Common Stock"), of the Issuer. The Issuer's principal
executive offices are located at 9333 Oso Avenue, Chatsworth, California
91311-6089.
Item 2. Identity and Background.
IIC is a Delaware corporation whose principal business is to make investments.
The address of its principal business and the address of its principal office is
One Meadowlands Plaza, East Rutherford, New Jersey 07073. Attached hereto as
Exhibit A is a listing of the name, the residence or business address, the
citizenship, the present principal occupation or employment and the name,
principal business and address of any corporation or other organization in which
such employment is conducted of each person who is an executive officer or
director of IIC and each person who controls IIC. No corporation or other person
is ultimately in control of IIC. None of the persons named above or in Exhibit A
has, during the past five years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or has been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
<PAGE>
Item 3. Source and Amount of Funds or Other Consideration.
IIC used working capital to make its investments of Common Stock of the Issuer
and to finance the $5,000,000 convertible loan to the Issuer on October 29,
1997. Such amount was contributed by the stockholders of IIC. The source of such
funds was a distribution from Metromedia Company, a general partnership
beneficially owned by the stockholders of IIC.
Item 4. Purpose of Transaction.
Except as described below, IIC has no present plan or proposal to acquire
additional shares of Common Stock. Under the 1987 Stock Purchase Agreement (as
defined and described in Item 6), IIC has been granted certain anti-dilution
rights (the "Rights"), so long as IIC (or any affiliate of IIC) continues to own
at least 50% of the shares of Common Stock purchased by IIC pursuant to the 1987
Stock Purchase Agreement. IIC acquired 336,538 shares (on a post reverse
stock-split basis) pursuant to the 1987 Stock Purchase Agreement. If the Issuer
issues any additional shares of Common Stock (including the issuance of
additional shares of Common Stock pursuant to the exercise of options, as more
fully described below) ("Dilutive Shares"), IIC and the other parties to the
1987 Stock Purchase Agreement (other than the Directors, as such term is defined
in Item 6), have the right to acquire from the Issuer in whole or part that
number of additional shares of Common Stock which would result in such person
(including IIC) owning after such purchase (assuming such purchase took place
immediately after the issuance of the Dilutive Shares giving rise to the Right)
the same percentage of ownership of outstanding shares of Common Stock as such
person owned immediately prior to the issuance of Dilutive Shares (taking into
account all Dilutive Shares issued and assuming the issuance of all shares
issuable to all parties to the 1987 Stock Purchase Agreement (other than the
Directors) in connection with the exercise of the Rights). If any such party
then entitled to Rights does not exercise such Rights, each of the other parties
then entitled to Rights is permitted, for a period of 30 days after the
expiration of the exercise period, to exercise, in proportion to its respective
number of shares of Common Stock purchased pursuant to the 1987 Stock Purchase
Agreement, the non-exercising party's Rights to the extent not exercised by such
party.
The Issuer has granted certain options to purchase shares of Common Stock to
directors and other members of the management of the Issuer ("Management
Options"). Upon the exercise of a Management Option, each party to the 1987
Stock Purchase Agreement (other than the Directors) then entitled to Rights
shall have the Right to exercise such Rights at any time and from time to time
during the two year period following its receipt of notification of the exercise
of such Management Option. The per share exercise price of each such Right shall
be
<PAGE>
equal to the greater of $.05 per share and the price per share at which the
Management Option was exercised.
With respect to the issuance of Dilutive Shares other than in connection with
the exercise of Management Options, each party to the 1987 Stock Purchase
Agreement then entitled to Rights shall have the Right to exercise such Rights
within a ninety (90) day period following its receipt of notification of the
issuance of such Dilutive Shares. The purchase price to acquire such additional
shares of Common Stock shall be the price per share at which such Dilutive
Shares were issued.
Shares of Common Stock issuable by the Issuer upon conversion of the loan by IIC
to the Issuer on October 29, 1997 will, upon conversion, give rise to certain
rights to the other parties to the 1987 Stock Purchase Agreement, as described
above.
On April 8, 1989, IIC filed with the Federal Trade Commission and the Department
of Justice a Notification and Report Form pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("H-S-R Act") in which IIC filed for the 25%
notification threshold; that subject to the expiration of the H-S-R Act waiting
period, it had a good faith intention to exceed the 25% ownership threshold (as
calculated pursuant to the H-S-R Act) and that such a filing would permit IIC to
acquire up to 50% of Image's voting securities. Early termination was granted on
April 20, 1989.
Except for the possibility of acquiring Common Stock in connection with
exersising options or converting the loan (as hereinafter described), IIC does
not presently contemplate either the acquisition of additional Common Stock
(whether from the Issuer, open market purchases or otherwise) or the disposition
of Common Stock within the immediate future. However, IIC intends continually to
review and evaluate its investment in the Issuer. In light of future
developments (including but not limited to the economy generally, conditions in
the entertainment or video industry, market conditions and the financial
condition and business prospects of the Issuer), IIC may consider the
acquisition of additional stock or the disposition of some or all of the Common
Stock owned by it. Other than as stated above, IIC has no plans or proposals
which relate to or would result in any of the actions described in clauses (a)
through (j) of Item 4 of Schedule 13D.
<PAGE>
Item 5. Interest in Securities of the Issuer
(a) IIC currently owns 6,930,629 shares of Common Stock, which figure
includes (i) currently exercisable (at $6.00 per share) warrants to
acquire 425,000 shares of Common Stock; (ii) anti-dilution rights to
purchase (at $.817 per share) 347,508 shares of Common Stock
expiring June 16, 1999 and anti-dilution rights (at $.743 per share)
to purchase 511 shares of Common Stock expiring October 3, 1998; and
(iii) 1,379,310 shares issuable upon the conversion of the Loan.
Such 6,930,629 shares constitute approximately 43.6% of the
outstanding shares of Common Stock of the Issuer (assuming exercise
of the warrants, the anti-dilution rights and conversion of the Loan
by IIC).
(b) IIC has the sole power to vote and to dispose of such shares and
options.
(c) On October 14, 1997, pursuant to the Credit Agreement IIC loaned to
the Issuer $5 million. Such loan is convertible at any time into
1,379,310 shares of Common Stock. Therefore, IIC may be deemed to
beneficially own such 1,379,310 shares of Common Stock of the
Issuer.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer.
(a) As described in the 1987 Schedule 13D, IIC purchased 5,000,000
shares (336,538 shares on a post reverse stock-split basis) of
Common Stock and was granted Rights (as described in Item 4 above).
Pursuant to the Stock Purchase Agreement dated as of December 29,
1987 (the "1987 Stock Purchase Agreement") among Martin Greenwald,
Stuart Segall, Lee Kasper (such persons sometimes being referred to
as the "Directors"), the Issuer, IIC and each of the following
persons: Gerald B. Cohen, Dorothy Cohen, Kenneth Grossman, Steven
Fox, M.P. Sardo, Jr., Kenneth Trell, Carolyn Trell, Wayne Jacobs,
Anthony M. Midis, Peter Rentzis, Panos Midis, James E. Lindstrom,
David N. Levine, Mona Levine, John A. Budnick, Jay A. Disler, Joan
Disler, Jonathan Dodge, Vita Marino, John Jaust, William S.
Wheatley, Jr., Maria Cecilia Wheatley, Richard J. Sherwin, Russ
Harris, Kenneth Alan Horowitz, Bobby Murcer and Kay Murcer.
The 1987 Stock Purchase Agreement contains standard representations
and warranties made by the Issuer relating generally to its
corporate status and authority and its financial and
<PAGE>
business conditions, and representations and warranties made by each
of the purchasing parties with respect to their investment intent.
In addition, the Issuer and Directors agreed, so long as the
purchasers (including affiliates) under the 1987 Stock Purchase
Agreement continue to own in the aggregate at least 50% of the
shares of Common Stock sold to such persons pursuant to the 1987
Stock Purchase Agreement, that the Issuer shall not enter into any
transaction with any Director or any member of a Director's
immediate family or any entity in which the Issuer, any Director or
any member of a Director's immediate family has a direct or indirect
interest without the prior written consent of the Representatives.
The 1987 Stock Purchase Agreement also contained a non-competition
provision applicable to each of the Directors. Under the 1987 Stock
Purchase Agreement, each of the purchasers thereunder has certain
demand and piggy back registration rights with respect to shares of
Common Stock and certain anti-dilution protection described in Item
4, above.
(b) Concurrently with the execution and delivery of the 1987 Stock
Purchase Agreement, each of the purchasers thereunder entered into a
Shareholders Agreement, dated as of December 29, 1987 (the
"Shareholders Agreement"), a copy of which is attached hereto as
Exhibit C.
The Shareholders Agreements, among other matters, governs the manner
in which a party thereto (or any member of such party's immediate
family or any affiliate of any of them or trust for the benefit of
any of the foregoing persons; hereinafter referred to as
"Affiliates"), may sell (i) any shares of Common Stock purchased
pursuant to the 1987 Stock Purchase Agreement or pursuant to Rights
issued or to be issued thereunder, or (ii) any Rights issued or to
be issued under the 1987 Stock Purchase Agreement (hereinafter
referred to as "1987 Shares or Rights"). Each party thereto is
prohibited from selling or transferring 1987 Shares or Rights
without first giving to the other parties thereto the first right to
buy such 1987 Shares or Rights after a bona fide offer to purchase
such 1987 Shares or Rights has been obtained. Such restrictions on
the sale or transfer of 1987 Shares or Rights do not apply to (i)
the sale, assignment or transfer of 1987 Shares or Rights by a party
thereto to an Affiliate of such party, or (ii) any sale, assignment
or transfer of 1987 Shares or Rights by a party thereto in a
national or regional stock exchange transaction or in the
over-the-counter market, or (iii) any sale, assignment or transfer
of any shares of Common Stock of the Issuer which were not purchased
by a party thereto pursuant to the 1987 Stock Purchase
<PAGE>
Agreement or pursuant to rights issued pursuant thereto. The
Shareholders Agreement designated two parties as representatives
(the "Representatives") of all of such ministerial actions on their
behalf under the terms of the 1987 Stock Purchase Agreement and
Shareholders Agreement.
(c) Subsequent to the 1987 Stock Purchase Agreement, IIC and the Issuer
entered into a number of stock purchase agreements pursuant to which
IIC acquired additional shares of Common Stock of the Issuer. In
addition, IIC has periodically exercised Rights. These transactions
are described below. On February 8, 1991, the Issuer declared that
it would effect a 1 for 14 6/7 reverse stock split. Therefore, the
transactions referenced herein reflect such split despite the fact
that the split did not occur until after many of the transactions
were completed.
(i) On July 14, 1988, IIC acquired 85,125 shares at an aggregate
purchase price of $215,000. On July 8, 1988, IIC had loaned to the
Issuer $215,000 and received in exchange therefor a demand
promissory note pursuant to an agreement which contemplated that,
subject to the preparation of definitive documentation, such note
would be converted into equity of the Issuer. The funds for repaying
the note were applied to the purchase price of the 85,125 shares of
Common Stock as contemplated by a stock purchase agreement (the
"July 1988 Stock Purchase Agreement") among the Directors, the
Issuer and IIC. The July 1988 Stock Purchase Agreement contains
standard representations and warranties made by of the Issuer
relating generally to its corporate status and authority, its
financial and business conditions and the use of proceeds from such
sale and representations and warranties made by IIC with respect to
its investment intent. The July 1988 Stock Purchase Agreement also
contains certain demand and piggyback registration rights with
respect to the shares of Common Stock purchased thereunder.
(ii) On October 24, 1988, IIC exercised options to purchase 33,475
shares of Common Stock at an exercise price of $39,202.43; the
options were granted pursuant to the 1987 Stock Purchase
Agreement as a result of issuances of Common Stock of the
Issuer.
(iii) On November 30, 1988, IIC acquired 118,779 shares of Common
Stock from the Issuer at a price of $2.53 per share. On
October 3, 1988, IIC had loaned to the Issuer $300,000 and
received in exchange therefor a demand promissory note
pursuant to an agreement which contemplated that, subject to
the negotiation and preparation of definitive documentation,
such note would be converted to equity of the Issuer. The
funds for repaying the note were applied to the purchase price
of the shares of Common Stock as contemplated by the November
30, 1998 Stock Purchase Agreement executed in connection
therewith.
(iv) On December 27, 1988, IIC exercised options to purchase 28,507
shares of Common Stock at an exercise price of $48,377.90; the
options were granted pursuant to the 1987 Stock Purchase
Agreement as a result of issuances of Common Stock of the
Issuer.
<PAGE>
(v) On January 11, 1989, IIC acquired an additional 297,977 shares
of Common Stock at a price of $2.53 per share pursuant to a
Stock Purchase Agreement dated as of such date among the
Directors, the Issuer and IIC (the "January 1989 Stock
Purchase Agreement"). The January 1989 Stock Purchase
Agreement contains standard representations and warranties
made by the Issuer relating generally to its corporate status
and authority, its financial and business conditions and the
use of the proceeds from such sale and representations and
warranties made by IIC with respect to its investment intent.
The agreement also contains certain demand and piggy back
registration rights with respect to the shares of Common Stock
purchased thereunder.
(vi) On February 2, 1989, IIC loaned to the Issuer $3,000,000
evidenced by a demand promissory note (the "Note") pursuant to
an agreement (the "Agreement") dated as of such date between
IIC and the Issuer. The Agreement contemplated that, subject
to the negotiation and preparation of definitive
documentation, the Note would be converted into 1,187,783
shares of Common Stock of the Issuer.
(vii) On February 14, 1989, IIC acquired an additional 1,187,783
shares of Common Stock at an exercise price of $2.53 per share
pursuant to a Stock Purchase Agreement dated as of such date
among the Directors, the Issuer and IIC (the "February 1989
Stock Purchase Agreement"). The February 1989 Stock Purchase
Agreement contains standard representations and warranties
made by the Issuer relating generally to its corporate status
and authority, its financial and business conditions and the
use of the proceeds from such sale and representations and
warranties made by IIC with respect to its investment intent.
The agreement also contains certain demand and piggy back
registration rights with respect to the shares of Common Stock
purchase thereunder.
(viii) On May 10, 1989, IIC exercised options to purchase 113,565
shares of Common Stock at an exercise price of $286,833.92;
the options were granted pursuant to the 1987 Stock Purchase
Agreement as a result of issuances of Common Stock of the
Issuer.
<PAGE>
(ix) On May 10, 1989, IIC acquired an additional 593,892 shares of
Common Stock pursuant to a Stock Purchase Agreement dated as
of such date among the Directors, the Issuer and IIC (the "May
1989 Stock Purchase Agreement") at an aggregate purchase price
of $1,500,000. The May 1989 Stock Purchase Agreement contains
standard representations and warranties made by the Issuer
relating generally to its corporate status and authority, its
financial and business conditions and the use of the proceeds
from such sale and representations and warranties made by IIC
with respect to its investment intent. The agreement also
contains certain demand and piggy back registration rights
with respect to the shares of Common Stock purchased
thereunder.
(x) In November 1989, IIC exercised options to purchase 56,712
shares of Common Stock of the Issuer at an aggregate exercise
price of $142,100.75. These options were granted pursuant to
the 1987 Stock Purchase Agreement as a result of issuances of
Common Stock of the Issuer.
(xi) On December 20, 1989, IIC exercised options to purchase 38,400
shares of Common Stock at an exercise price of $31,377.72. On
January 14, 1990, IIC exercised options to purchase 227 shares
of Common Stock at an exercise price of $493.43. The options
were granted pursuant to the 1987 Stock Purchase Agreement.
The options were granted pursuant to the 1987 Stock Purchase
Agreement as a result of issuances of Common Stock of the
Issuer.
(xii) On October 16, 1989, IIC loaned $1,500,000 to the Issuer,
evidenced by a Convertible Promissory Note dated as of such
date. On January 10, 1990, IIC notified the Issuer of its
intent to convert, on January 14, 1990, $600,000 of the
principal amount of the Loan into 237,557 shares of Common
Stock at an exercise price of $2.53 per share. Such
transaction was completed on January 14, 1990. On January 14,
1990, pursuant to a promissory note, IIC memorialized the
portion ($900,000) of the $1,500,000 loan that was not
converted on January 14, 1990, and; on January 25, 1990, IIC
loaned the Issuer $275,000. As of May 9, 1990, the two
outstanding Notes had not been paid pursuant to the terms
thereof. On May 9, 1990, IIC and the Issuer agreed in
principle that IIC would acquire an
<PAGE>
additional 673,077 shares of Common Stock at an aggregate
price (the "Purchase Price") of $2,800,000 pursuant to an
agreement dated as of such date between the Issuer and IIC
(the "Agreement"). Pursuant to the Agreement, IIC loaned the
Issuer an additional $1,536,137.50 and received in exchange
therefor a demand promissory note, the proceeds of which were
to be converted into equity of the Issuer upon the execution
of definitive documentation. IIC also agreed to apply the
unpaid principal amount of the two outstanding Notes plus
accrued interest thereon in the aggregate amount of
$1,263,862.50 to the Purchase Price.
(xiii) On June 6, 1990, IIC exercised options to acquire 2,602 shares
of Common Stock at an aggregate purchase price of $1,933.23
and 18,962 shares of Common Stock at an aggregate purchase
price of $47,621.90. These options were granted pursuant to
the 1987 Stock Purchase Agreement as a result of issuances of
Common Stock of the Issuer.
(xiv) On June 27, 1990, IIC acquired an additional 336,539 shares of
Common Stock pursuant to a Stock Purchase Agreement (the "June
27, 1990 Stock Purchase Agreement") for an aggregate purchase
price of $1,400,000. The June 27, 1990 Stock Purchase
Agreement contains standard representations and warranties
made by the Issuer relating generally to its corporate status
and authority, its financial proceeds from such sale and
representations made by IIC with respect to its investment
intent. The agreement also contains certain demand and piggy
back registration rights with respect to the shares purchased
thereunder.
(xv) On April 12, 1992, IIC exercised options to acquire (i) 21,339
shares of Common Stock at an exercise price of $17,497.98 and
(ii) 5,205 shares of Common Stock at an exercise price of
$3,851.70. These options were granted pursuant to the 1987
Stock Purchase Agreement as a result of issuances of Common
Stock of the Issuer.
(xvi) On July 14, 1992, IIC exercised options to acquire 4,029
shares of Common Stock at an exercise price of $17,848.47 and
1,027 shares of Common Stock at an exercise price of $763.06.
On July 30, 1992, IIC exercised options to acquire 280 shares
of Common Stock at an exercise price of
<PAGE>
$208.04. On November 25, 1992, IIC exercised options to
acquire 2,764 shares of Common Stock. The foregoing options
were granted pursuant to the 1987 Stock Purchase Agreement as
a result of issuances of Common Stock of the Issuer.
(xvii) On December 30, 1992, IIC acquired an additional 425,000
shares of Common Stock and a warrant to purchase (at $6.00 per
share expiring December 27, 1997), 425,000 shares of Common
Stock pursuant to a Stock Purchase Agreement (the "December
1992 Stock Purchase Agreement") for an aggregate purchase
price of $2,550,000. The December 1992 Stock Purchase
Agreement contains standard representations and warranties
made by the Issuer relating generally to its corporate status
and authority and representations made by IIC with respect to
its investment intent. The Stock Purchase Agreement and the
Warrant also contain certain demand and piggy back
registration rights with respect to the shares purchased
therewith.
(xviii) On August 9, 1993, IIC exercised options to purchase 511
shares at an aggregate exercise price of $379.67 and options
to purchase 10,265 shares at an aggregate exercise price of
$8,930.55. On November 11, 1993, IIC exercised options to
purchase 2,762 shares at an aggregate exercise price of
$2,052.17 and options to purchase 9,843 shares at an aggregate
exercise price of 8,041.73. In January 1995, IIC exercised
options to acquire 38,531 shares at an aggregate purchase
price of $109,873. In July 1995, IIC exercised options to
acquire 129 shares at an aggregate exercise price of $322.50.
On January 3, 1997, IIC exercised options to acquire 193
shares at an aggregate exercise price of $482.50. On April 21,
1997, IIC exercised options to acquire 84,802 shares at an
aggregate exercise price of $63,507.89 and 11,893 shares at an
aggregate exercise price of $2,725.51. The foregoing options
were issued pursuant to the 1987 Stock Purchase Agreement as a
result of issuances of Common Stock of the Issuer.
(d) Pursuant to a Credit Agreement, dated as of September 29, 1997,
between IIC and the Issuer, on October 29, 1997 IIC loaned to the
Issuer $5,000,000, the principal amount of which is convertible into
1,379,310 shares of Common Stock. A copy of the Credit Agreement is
attached hereto as Exhibit D.
The Credit Agreement contains standard representations and
warranties made by the Issuer relating generally to its corporate
status and authority, its financial and business conditions and the
use of the proceeds from such loan. The Agreement also contains
certain demand registration rights with respect to the shares of
<PAGE>
Common Stock issuable upon conversion of the principal amount of the
loan thereunder.
Item 7. Material To Be Filed As Exhibits.
The following exhibits are annexed hereto:
Exhibit A - Executive Officers of IIC
Exhibit B - 1987 Stock Purchase Agreement
Exhibit C - Shareholders Agreement
Exhibit D - Credit Agreement
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
hereby certify that the information set forth in this statement is true,
complete and correct.
Dated: October 29, 1997
/s/ Stuart Subotnick
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Stuart Subotnick
Executive Vice President
Image Investors Co.
EXHIBIT A
IMAGE INVESTORS CO.
C/O METROMEDIA COMPANY
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
OFFICERS
Position with Principal Occupation
Name Image Investors Co. or Employment
- ---- ------------------- -------------
John W. Kluge President; Director Chairman and President,
Metromedia Company
(Telecommunications,
Hospitality and Food
Services and other
Investments)
Stuart Subotnick Executive Vice President; Executive Vice President,
Director Metromedia Company
Arnold L. Wadler Senior Vice President, Senior Vice President,
Secretary Secretary and General
Counsel, Metromedia
Company
Robert A. Maresca Senior Vice President Senior Vice President,
and Treasurer Metromedia Company
Seymour Wigod Senior Vice President Senior Vice President,
Metromedia Company
Mario P. Catuogno Vice President Vice President,
Metromedia Company
David Gassler Vice President and Vice President,
Controller Metromedia Company
Steven J. Joffe Vice President - Tax Vice President,
Metromedia Company
Kenneth Wolk Vice President Vice President,
Metromedia Company
Susan M. Klebanoff Assistant Secretary Assistant Secretary,
Metromedia Company
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 29, 1987, by and
among those persons listed on Schedule I hereto which execute this Agreement on
or before January 15, 1988 (such persons are sometimes hereinafter referred to
individually as a "Buyer" and collectively as "Buyers"), Image Entertainment,
Inc., a Colorado corporation ("Seller"), and Martin Greenwald residing at 132
South Spalding Drive, #102, Beverly Hills, California 90212, Stuart C. Segall
residing at 5111 Peesdale Avenue, North Hollywood, California 91607, and Lee H.
Kasper residing at 4843 Collett, Encino, California 91436 (Messrs. Greenwald,
Segall and Kasper are hereinafter individually referred to as a "Director" and
collectively referred to as the "Directors").
WHEREAS, upon the terms and conditions hereinafter set forth, each
Buyer desires to purchase from Seller and Seller desires to issue and sell to
each Buyer the number of shares of Seller's common stock set forth on Schedule I
hereto opposite the name of such Buyer for a purchase price equal to $.05 per
share (such shares of common stock are hereinafter collectively referred to as
the "Shares"); and
WHEREAS, the parties desire to provide for certain rights and
obligations of the parties hereto with respect to, among other things, the
manner in which the proceeds from the
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sale of the Shares may be expended by Seller and certain rights of Buyers in
respect of their ownership of the Shares.
NOW, THEREFORE, for and in consideration of the premises and the
covenants, agreements, representations and warranties herein contained and other
good and valuable consideration, the parties hereto agree as follows:
1. Purchase and Sale of Stock; Payment and Delivery of Shares; Use
of Proceeds.
(a) The Shares. Upon the terms and conditions herein set
forth, Seller hereby issues, sells, and delivers to each Buyer, and each Buyer
hereby purchases from Seller, that number of Shares determined by dividing the
purchase price set forth opposite such Buyer's name on Schedule I hereto, which
purchase price includes interest on the loans referred to in subsection 1(b)
below through the date hereof, by $.05 (the aggregate amount of such purchase
prices is sometimes hereinafter referred to as the "Purchase Price"); provided,
however, that no fractional Shares shall be issued -- the exact number of Shares
to be issued to each Buyer has been rounded to the nearest whole Share and is
listed on Schedule I hereto. Concurrently with the execution of this Agreement,
each Buyer shall deliver to Seller the Purchase Price for the Shares being
purchased by such Buyer, in United States currency (subject to the provisions of
subsection 1(b) below), and Seller shall cause to be delivered to
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each Buyer duly issued stock certificate(s) evidencing such Buyer's Shares.
(b) The Note. The parties hereto acknowledge and agree that
the Buyers have collectively loaned to Seller the principal amount of $590,000
(the "Loan Proceeds"), repayment of which is evidenced by a demand promissory
note of Seller a copy of which is attached hereto as Exhibit A (the "Note").
Seller and each of the Directors jointly and severally represent and warrant to
each Buyer that the Loan Proceeds have at all times been and currently are
deposited in a separate account of Seller and such Loan Proceeds have not been
used for any purposes other than the purposes permitted for the use of the
Proceeds as provided in Sections 4 and 6 of the Memorandum of Understanding,
dated October 15, 1987, by and among certain of the parties hereto (a copy of
which is attached hereto as Exhibit B; the "Memorandum of Understanding").
Seller acknowledges and agrees that the Loan Proceeds and all accrued interest
to date pursuant to the Note shall be applied towards the Purchase Price. Upon
issuance of the Shares to Buyers, the Note will be marked "paid in full" and
returned to Seller.
(c) Use of Proceeds. Until expended as provided herein, Seller
and each of the Directors jointly and severally agree that the proceeds from the
sale of the Shares
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(the "Proceeds") will be held in an interest bearing account of Seller (into
which no other deposits shall be made) separate from other accounts of Seller
and requiring dual signatures, one of which will be that of either of the
Buyers' Representatives (as hereinafter defined). Seller and each of the
Directors jointly and severally agree that Seller shall use the Proceeds only
for the purposes of (i) obtaining the exclusive long-term rights to the
production and distribution of marketable laser disc products, including,
without limitation, motion pictures, instructional videos and interactive
programming, or (ii) payment by Seller of past due royalties owed by Seller to
motion picture distributors up to a maximum payment of $100,000 (provided,
however, that any Loan Proceeds that have been used by Seller to pay such past
due royalties shall be included for the purpose of computing said $100,000
amount). Until the Proceeds have been completely expended as provided herein,
Seller and each of the Directors jointly and severally agree that Seller shall
provide Buyers' Representatives with a copy of each contract it proposes to
enter into with respect to obtaining the above-mentioned exclusive rights, and
Seller shall not execute any such contract without Buyers' Representatives'
prior written approval, which shall not be unreasonably withheld; provided,
however, that Buyers' Representatives shall use reasonable efforts to notify
Seller of their approval or disapproval of
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any such contract within five business days after receipt by Buyers'
Representatives of such contract; provided, further, however, that Buyers'
Representatives shall have no liability whatsoever for any failure to grant such
approval or disapproval within such five (5) business days. Whenever the term
"Buyers' Representatives" is used in this Agreement it shall refer to those two
persons designated by the Buyer pursuant to the Shareholders Agreement referred
to in Section 6 hereof. Unless and until Seller is notified of whom the Buyers'
Representatives are, they shall be James E. Lindstrom and Russ Harris.
2. Representations, Warranties and Covenants of Buyers. In order to
induce Seller to issue and sell the shares to Buyers, each Buyer, severally and
not jointly, hereby represents, warrants and covenants to Seller, for himself,
herself or itself and for no other Buyer, which representations and warranties
shall survive the execution of this Agreement and the consummation of the
transactions contemplated hereby, as follows:
(a) Each Buyer has the financial ability to bear the economic
risk of its investment in the Shares (i.e., each Buyer can afford a complete
loss of its investment).
(b) Each Buyer has adequate means of providing for its current
needs and possible contingencies, and has no
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need for liquidity in the investment in the Shares and has no reason to
anticipate any change in circumstances, financial or otherwise, which may cause
or require any sale or distribution of the Shares.
(c) Each Buyer's overall commitment to investments which are
not readily marketable is not disproportionate to its net worth and its
investment in the Shares will not cause such overall commitment to become
excessive. Each Buyer has determined that the purchase of the Shares is
consistent with its investment objectives and income prospects.
(d) Each Buyer has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of an investment in the Shares.
(e) Each Buyer understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws.
(f) Each Buyer is acquiring the Shares solely for its own
account, for investment purposes only and not with the intention of, or a view
toward, the subdivision, resale, transfer or further distribution thereof.
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(g) Each Buyer shall not sell or otherwise dispose of the
Shares unless and until a registration statement covering such proposed
disposition shall be in effect under the Act, and under applicable state
securities laws, or Seller shall have received a written opinion of counsel to
such Buyer to the effect that such proposed disposition would be exempt from the
registration requirements of the Act and of applicable state securities laws.
(h) Each Buyer understands that the foregoing representations,
warranties and covenants are being relied upon by Seller in connection with
Seller's entering into this Agreement.
(i) No Buyer has engaged or dealt with any person or entity
who would be entitled to any broker's or finder's fee or commission with respect
to the execution of this Agreement or any of the transactions described herein
and contemplated hereby.
(j) Each Buyer has been given an opportunity to speak to
management of Seller regarding the business and financial condition of Seller.
3. Restrictive Legend. The stock certificates evidencing the Shares
will each bear the following restrictive legend:
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"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE SOLD UNLESS THERE IS A CURRENT REGISTRATION STATEMENT IN
EFFECT COVERING SUCH SHARES OR AN OPINION OF COUNSEL TO THE HOLDER
OF THE SHARES IS OBTAINED TO THE EFFECT THAT THE TRANSFER OF THE
SHARES SATISFIES THE CONDITIONS FOR AN EXEMPTION FROM THE SECURITIES
ACT OF 1933, AS AMENDED. THE SHARES EVIDENCED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS IMPOSED BY A SHAREHOLDERS
AGREEMENT, DATED DECEMBER 29, 1987 WHICH IS ON FILE WITH THE RECORDS
OF THE CORPORATION."
Each Buyer agrees and acknowledges that stop transfer orders will be placed in
Seller's records with respect to the Shares.
4. Representations and Warranties of Seller. Seller and each of the
Directors jointly and severally hereby represent and warrant to each Buyer,
which representations and warranties shall survive the execution of this
Agreement and the consummation of the transactions contemplated hereby, as
follows:
(a) Organization. Seller is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Colorado
and is qualified to do business in every jurisdiction where such qualification
is necessary, except where the failure so to qualify would not have a materially
adverse effect on the business or condition, financial or otherwise, of Seller.
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(b) Corporate Power and Authority. Seller has the corporate
power and authority to execute, deliver and perform this Agreement and all of
the transactions described herein and contemplated hereby. The execution,
delivery and performance of this Agreement and all of the transactions described
herein and contemplated hereby have been duly authorized by all requisite action
on the part of Seller, including any requisite approval of the shareholders and
the Board of Directors of Seller.
(c) Capitalization; Shares and Options Issued or Reserved. The
authorized and outstanding capital stock of Seller is set forth on Schedule II
hereto. Each of the outstanding shares of the capital stock of Seller has been
duly authorized and validly issued and is fully paid and non-assessable. There
are currently issued and outstanding, reserved for issuance or subject to
agreements to be issued or reserved for issuance 104,310,541 shares of common
stock of Seller (the "Common Stock") (which number includes, without limitation,
the Shares being sold to Buyers and the Rights being granted to Buyers
hereunder). Such number includes shares which (i) are issued and outstanding,
(ii) have been reserved for issuance pursuant to options granted by Seller, or
(iii) have been reserved for issuance pursuant to options which Seller has
agreed to grant. All such options and agreements to grant options (the
"Options") are separately
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listed on Schedule II hereto. Certain of the Options have been granted to
directors and other members of the management of Seller and those are designated
on Schedule II, and sometimes referred to herein, as the "Management Options".
Seller hereby represents and warrants the accuracy of all information set forth
in such Schedule. At the date hereof there are issued and outstanding, reserved
for issuance or subject to agreements to be issued or reserved for issuance
4,310,541 (plus any shares issuable upon the exercise of Rights, as hereinafter
defined) Shares of Common Stock in excess of the number of authorized Shares of
Common Stock of Seller (collectively the "Excess Shares"). The fact that the
number of shares issued, reserved for issuance or subject to agreements to be
issued or reserved for issuance exceeds the authorized number of Shares of
Seller's Common Stock does not adversely affect in any manner whatsoever the due
and valid issuance of the Shares to Buyers. Seller and each of the Directors
jointly and severally agree to cause to be submitted to the shareholders of
Seller at a meeting to be held not later than March 1, 1988, for approval an
amendment to the Certificate of Incorporation of Seller to increase the number
of authorized shares of Common Stock so that the number of authorized shares
shall exceed the total number of shares issued and outstanding, reserved for
issuance or subject to agreements to be issued or reserved for issuance
(including,
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without limitation, shares to be issued pursuant to Rights, as hereinafter
defined). Each of the Directors jointly and severally agrees to vote his shares
of Common Stock in favor of the adoption of such amendment to Seller's
Certificate of Incorporation. Pending the effective date of such amendment, each
of the Directors jointly and severally agrees that each shall not exercise (and
Seller shall not permit any Director to so exercise) any Management Option (and
each of the agreements pursuant to which such Management Options were granted
have been so amended) held by him, which exercise would cause the number of
shares of Common Stock, which are issued and outstanding, or reserved for
issuance, or subject to agreements to be issued or reserved for issuance
(including, without limitation, shares to be issued pursuant to Rights) to
exceed 100,000,000 shares. Except for the Options, there are no outstanding
subscriptions, rights, options, warrants, calls, commitments, conversion rights,
contracts or agreements of any kind or nature to which Seller is a party or by
which it is bound or with respect to which any Director has any knowledge,
calling for the issuance, transfer, sale, disposition or voting of any shares of
any class of capital stock or securities convertible or exchangeable for any
shares of any class of the capital stock of Seller. Except as reflected on
Schedule II attached hereto, since October 15, 1987, the date of the Memorandum
of Understanding, to and including the date
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hereof, Seller has not issued any shares of Common Stock (other than pursuant to
the Options), subscriptions, rights, options, warrants, calls or conversion
rights, nor entered into any contract, agreement or commitment of any kind or
nature (x) calling for the issuance, transfer, sale, disposition, or voting of
any shares of any class of capital stock or securities convertible or
exchangeable for shares of any class of capital stock of Seller, or (y) with
regard to a sale of all or substantially all of its assets or for any merger,
reorganization, recapitalization, or consolidation of Seller.
(d) Shares Free from Encumbrances. The Shares issuable
hereunder will, when issued, be duly authorized, validly issued, fully paid and
nonassessable, and will be free and clear of all liens, encumbrances, mortgages,
pledges, claims and restrictions of any kind or nature except for restrictions
on transferability imposed by the Act.
(e) Subsidiaries. Seller has no subsidiaries and does not own,
of record or beneficially, in excess of five percent (5%) of the capital stock
of any corporation, except for those wholly-owned subsidiaries listed on
Schedule III hereto.
(f) No Conflicts, Etc. The execution, delivery and performance
of this Agreement and the consummation of
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the transactions described herein and contemplated hereby do not and will not
(i) violate (A) any law, ordinance or regulation of any governmental authority
or the terms and provisions of the Certificate of Incorporation or the By-laws
of Seller, (B) any applicable order, judgment, decree, rule or regulation of any
court or other governmental agency, or (C) the terms or provisions of any
indenture, any agreement for borrowed money, any bond, note or other similar
instrument or any other material agreement or document to which Seller or any
Director is a party or by which Seller or any Director or any of their
respective property is bound, (ii) be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement, bond, note, instrument or other material agreement or
document to which Seller or any Director is a party or by which Seller or any
Director or any of their respective property is bound, or (iii) result in the
creation of any lien, charge, or encumbrance of any nature whatsoever. This
Agreement and the transactions described herein and contemplated hereby will,
when delivered, constitute legal, valid, and binding obligations of Seller and
each of the Directors, enforceable against Seller and each of the Directors in
accordance with their respective terms.
(g) Taxes and Tax Returns. Seller has accurately prepared, or
caused to be prepared, and has duly and
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timely filed with federal, state, local and foreign authorities, all tax returns
and other reports required by law, regulation or otherwise required to be filed
or reported by Seller on or prior to the date of this Agreement, and Seller has
paid or made adequate provision for the payment of all taxes, penalties or
interest shown to be due thereon including those taxes for which Seller is a
collection agent (e.g., withholding taxes, excise taxes, social security and
similar taxes). All such returns and other reports accurately and properly
report or state all information required to be reported or stated therein. The
charges, accruals and reserves shown in Seller's financial statements in respect
of federal, state, local or foreign taxes for all fiscal periods to date are
adequate, there are no material unpaid assessments or proposals for additional
federal, state, local or foreign taxes for which Seller does not have adequate
reserves, nor does Seller know of any basis therefor for any such year. Seller
has not executed or filed with the Internal Revenue Service or any other taxing
authority any agreement which is still in effect including any agreement
extending the period for assessment or collection of any income taxes or other
taxes for which Seller may be liable. Seller is not a party to any pending
action or proceeding by any governmental authority for assessment or collection
of taxes for which Seller may be liable, and no claim for assessment or
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collection of taxes for which Seller may be liable has been asserted or
threatened against it.
(h) Governmental Approval and Compliance With Applicable Laws.
Seller has all requisite power and authority including all necessary or
appropriate licenses, permits, certificates, approvals and other authorizations
required to carry on and conduct its business in the manner in which the
business has been, is and will be conducted, and to own, lease, use and operate
its assets at the places and in the manner in which its assets have been and are
being owned, leased, used and operated. All assets of Seller are used and
maintained, and the business of Seller is and has been since the Seller's date
of incorporation conducted, in conformity with all applicable laws, ordinances,
regulations, orders, judgments and decrees of all federal, state, local or
foreign authorities. No action, consent or approval of, or registration or
filing with, or any other action or license by any governmental agency, bureau,
commission, court or other authority is required in connection with the
execution, delivery and performance of this Agreement or any of the transactions
described herein or contemplated hereby and all of the actions, consents,
approvals, registrations and filings described in the immediately preceding
sentence have been duly obtained and are in full force and effect. Neither
Seller, any Director nor any officer of Seller has received any notice
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from any person or governmental agency relating to any violation or alleged
violation by Seller of any law, ordinance, regulation, order, judgment or decree
of any court or governmental authority.
(i) Litigation. No litigation or proceeding of any kind
whatsoever (including, without limitation, unfair labor practice complaints or
union representation elections or actions concerning intangible property) is
pending or, to the best knowledge of Seller or any Director, threatened against
Seller, its assets or business, nor does Seller or any Director know of any
basis for same. Neither Seller nor any Director has any knowledge of any action
or of any audit or investigation relative to Seller or any Director, their
respective assets or businesses by any governmental agency or entity, whether
federal, state, local or foreign, which is now pending or has been undertaken at
any time since the date of incorporation of Seller.
(j) No Defaults. Seller is not in default (i) with respect to
any order, judgment, writ, injunction, decree, rule or regulation of any
governmental instrumentality or other agency which could have a materially
adverse effect on its financial condition or (ii) in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any indenture, any agreement for
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borrowed money, any bond, note or other similar instrument or any other material
agreement or document to which Seller is a party or by which Seller or its
property is otherwise bound.
(k) Contract Rights. Seller has complied with the terms of
every material agreement, contract or instrument (including, without limitation,
license or distribution agreements of any kind) of any nature to which it is a
party. No rights of Seller under any such contract, agreement, lease, license,
commitments, oral commitments or understandings, or distribution agreements have
been assigned or transferred by Seller to any person or, except as disclosed in
Seller's Annual Report on Form 10-K for the fiscal year ended March 31, 1987,
pledged, hypothecated, sublicensed, subleased or otherwise encumbered. All
contracts, agreements, leases, licenses, commitments, oral agreements,
understandings and distribution agreements of Seller have been lawfully entered
into and are in full force and effect in accordance with their respective terms
and there have been no cancellations thereof or threatened disputes thereunder.
Seller hereby advises Buyers that payments to certain licensors and vendors of
Seller are in arrears under the terms of Sellers' agreements with such licensors
and vendors. In each such case, Seller has an oral agreement with such licensor
or vendor with regard to the delinquent payments and has received assurance that
no right as a result of such delinquency will be asserted by such
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licensor or vendor. Seller owns or possesses the right to use all patents,
patent applications, trademarks, service marks, trade names, brands, copyrights
and licenses, and rights with respect to each of the foregoing, necessary or
appropriate for the conduct of its business as presently conducted, without any
conflict with the rights of others.
(l) Financial Statements; Condition of Seller. Attached hereto
as Schedule IV are (i) the audited financial statements (including any notes
thereto) of Seller for the year ended March 31, 1987 and (ii) the unaudited
financial statements (including any notes thereto) of Seller for each of the
first two quarters of fiscal 1988, in each case duly certified by the president
and chief executive officer of Seller. Such financial statements were prepared
in accordance with generally accepted accounting principles consistently applied
and fairly present the financial condition of Seller as of the dates thereof and
the results of operations of Seller for the periods then ended. There has been
no material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of Seller taken as a whole since the date of
the most recent financial statements provided pursuant hereto.
(m) Employee Benefit Plans. Seller is in compliance in all
material respects with the applicable provi-
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sions of the Employee Retirement Income Security Act of 1974, as the same may be
amended ("ERISA"), and the regulations and published interpretations thereunder.
No reportable event (as defined in section 4043(b) of ERISA) has occurred with
respect to any employee plan subject to the provisions of ERISA administered by
Seller or any administrator designated by Seller.
(n) Annual Report on Form 10-K; Filings with Securities and
Exchange Commission. Attached hereto as Schedule V are true and correct copies
of Seller's Annual Report on Form 10-K for the year ended March 31, 1987 (the
"Annual Report") and of its Quarterly Reports on Form 10-Q for the first two
fiscal quarters of fiscal 1988 (the "Quarterly Reports"). All information
contained in the Annual Report and the Quarterly Reports is accurate and the
Annual Report and the Quarterly Reports do not contain any material misstatement
of fact or omit to state any material fact which would make any statement
contained therein misleading. Seller has duly filed with the Securities and
Exchange Commission all reports and documents required to be filed by it under
the Act and the Securities Exchange Act of 1934, as amended. All information
contained in such reports and documents is accurate and no such report or
document contains any material misstatement of fact or omits to state any
material fact which would make any statement contained therein misleading.
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(o) No Material Misstatements. No report, financial statement,
exhibit or schedule furnished by or on behalf of Seller in connection with the
negotiation of this Agreement and the transactions described herein and
contemplated hereby, or to be included herein, nor any other information
required to be furnished hereby, contains any material misstatement of fact or
omitted or omits to state any material fact which would make the statements
contained herein or therein materially misleading.
(p) Brokers. Neither Seller nor any Director has engaged or
dealt with any person or entity who would be entitled to any broker's or
finder's fee or commission with respect to the execution of this Agreement or
any of the transactions described herein and contemplated hereby.
5. Anti-Dilutive Rights.
(a) Each Buyer shall have the following anti-dilutive rights
("Rights") in accordance with the following provisions, terms and conditions of
this Section 5, so long as such Buyer (including any affiliate (as such term is
defined in the Act) or member of the immediate family of such Buyer; hereinafter
an "Affiliate"; for purposes of this Section 5 only, the term Buyer shall
include any such Affiliate) continues to own at least fifty percent (50%) of the
Shares sold to such Buyer pursuant hereto. The loss of Rights by a
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Buyer shall not cause any other Buyer to lose his Rights hereunder, it being
understood that,, except as expressly set forth in subsection (d) below, each
Buyer shall hold his, her or its Rights independently and not as part of a
group. If Seller shall issue any additional shares of Common Stock (including,
without limitation, the issuance of additional shares of Common Stock pursuant
to the exercise of a Management Option, other option or exercise of any
conversion rights) ("Dilutive Shares"), Seller and each of the Directors jointly
and severally agree that Seller shall afford to each Buyer the right to acquire
in whole or in part that number of additional shares of Common Stock which would
result in such Buyer owning after such purchase (assuming such purchase took
place immediately after the issuance of the Dilutive Shares giving rise to the
Right) the same percentage ownership of outstanding shares of Common Stock as
such Buyer owned immediately prior to the issuance of such Dilutive Shares
(taking into account all Dilutive Shares issued and assuming the issuance of all
shares issuable to all Buyers in connection with the exercise of the Rights).
Such Rights shall be afforded to each Buyer by Seller delivering to Buyers'
Representatives a Rights Certificate in accordance with subsection (e) below.
(b) Each time that a Management Option is exercised, each
Buyer then entitled to Rights shall have the
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right to exercise such Rights at any time and from time to time during the
two-year period following receipt by the Buyers' Representatives of the Rights
Certificate relating to the exercise of such Management Option. [The purchase
price to acquire such additional shares of Common Stock shall be equal to the
higher of (A) $.05 per share and (B) the price per share at which such Dilutive
Shares were issued.] Seller and each of the Directors jointly and severally
represent, warrant and covenant that Management Options for 6,973,858 shares
have been exercised on or prior to the date hereof and that Rights with respect
thereto are hereby granted to each of the Buyers in accordance with this Section
5, the number of shares issuable upon the exercise of such Rights being set
forth on Schedule I hereto. The per share exercise price of each such Right is
$.055, which was the exercise price of the Management Option heretofore
exercised.
(c) In all cases of the issuance of Dilutive Shares other than
in connection with the exercise of Management Options, each time that Seller
issues Dilutive Shares each Buyer then entitled to Rights shall have the right
to exercise such Rights at any time within a 90 day period after receipt by the
Buyers' Representatives of the Rights Certificate relating to the issuance of
such Dilutive Shares. The purchase price to acquire such additional shares of
Common Stock shall be the price per share at which such
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Dilutive Shares were issued.
(d) With respect to each issuance by Seller of Dilutive
Shares, if any Buyer then entitled to Rights either (x) does not exercise such
Rights in full in accordance with subsection (b) or subsection (c), as
applicable, or (y) gives earlier written notice to Seller and to the other
Buyers that he will not exercise his Rights with respect to such issuance (it
being understood that any such notice shall be irrevocable), each of the other
Buyers then entitled to Rights shall be permitted on or before the thirtieth day
after the expiration of the period during which the Rights were exercisable by
the non-exercising Buyer thereof, to exercise the non-exercising Buyer's
Rights to the extent not exercised by such Buyer (the number of shares not being
purchased by such non-exercising Buyer being hereinafter referred to as
"Available Shares"). If two (2) or more other Buyers notify the Seller of their
desire to acquire all or portions of the Available Shares which in the aggregate
equal or exceed the number of Available Shares, each exercising Buyer shall
acquire that number of Available Shares determined by multiplying the number of
Available Shares by a fraction, the numerator of which is the number of Shares
owned by such exercising Buyer and purchased by him pursuant to this Agreement,
and the denominator of which is the total number of Shares owned by all
exercising Buyers and purchased by them
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pursuant to this Agreement, unless any exercising Buyer desires to purchase less
than its full portion as determined above, in which case, the other exercising
Buyers shall purchase the balance of such Available Shares in proportion to
their ownership of Shares in series as each remaining exercising Buyer refuses
to purchase its proportionate share of the balance of the Available Shares. Any
notice given by a Buyer pursuant to subclause (y) above shall not be construed
as a waiver of such Buyer's Rights with respect to prior or subsequent issuances
of Dilutive Shares.
(e) Within the first fifteen (15) days of each fiscal quarter
of Seller, Seller and each of the Directors jointly and severally agree that
Seller shall deliver to Buyers' Representatives a Rights Certificate ("Rights
Certificate") setting forth the following with respect to all issuances of
Dilutive Shares by Seller during the immediately preceding fiscal quarter: (i)
the manner in which such Dilutive Shares were issued; (ii) the consideration
received by Seller for such Dilutive Shares; (iii) the number of shares of
Common Stock outstanding immediately before and immediately after the issuance
of such Dilutive Shares; (iv) the name and address of the purchaser(s) of such
Dilutive Shares; (v) the date on which such Dilutive Shares were issued to such
purchaser(s); (vi) the number of Dilutive Shares which were issued; (vii)
whether such Dilutive Shares were issued
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pursuant to a Management Option; (viii) the number of shares of Common Stock
each Buyer is entitled to purchase as a result of the issuance of such Dilutive
Shares; (ix) if Dilutive Shares were issued pursuant to a Management Option,
that such Buyer may exercise his Rights, in whole or in part, up to two years
after receipt of the Rights Certificate relating to such Rights by Buyers'
Representatives; (x) if Dilutive Shares were issued other than pursuant to a
Management Option, that such Buyer may exercise his Rights, in whole or in part,
up to 90 days after receipt of the Rights Certificate relating to such Rights by
the Buyers' Representatives; and (xi) the per share consideration to be paid by
Buyer in order to exercise such Rights. The failure by Seller to timely deliver
a Rights Certificate with respect to the issuance of Dilutive Shares shall not
adversely affect or impair any Buyer's Rights, but the Rights shall be
exercisable at any time during the period in which they would have been
exercisable had the Rights Certificate been timely given and such period shall
not terminate until the expiration of the applicable period after a Rights
Certificate relating to such Dilutive Shares is actually delivered by Seller to
Buyers' Representatives.
(f) Any Buyer desiring to exercise all or any portion of its
Rights (or any rights with respect to Available Shares) shall do so by giving
notice of its intention to exercise such Rights (or any rights with respect to
Available
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<PAGE>
Shares), or portion thereof, within the applicable time periods heretofore set
forth, to Seller and each of the other Buyers, and setting a closing date within
twenty (20) days of such notice.
(g) In the event that any Dilutive Shares are issued for a
consideration other than cash or notes, or any combination thereof, then in such
event the exercise price to be paid by any Buyer in connection with the exercise
of any such Right shall be the cash equivalent to the fair market value of the
other consideration received by Seller in connection with the issuance of such
Dilutive Shares. The determination of fair market value of such other
consideration shall be determined by the Board of Directors of Seller in the
exercise of good faith; provided, however, that if one or more Buyers object to
the fair market value so determined, such Buyer(s) and Seller will attempt to
agree on such fair market value. If no agreement can be reached within twenty
(20) days after the date on which one or more such Buyers object to the fair
market value determination, such Buyer(s), on the one hand, and Seller, on the
other hand, shall select a third party appraiser (whose fees and expenses will
be paid by Seller), which appraiser will determine the fair market value. The
third party appraiser's decision shall be final and binding and neither party
shall appeal or otherwise contest the same. If such Buyer and Seller cannot
agree on a
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<PAGE>
third party appraiser the third party appraiser shall be selected by the then
President of the American Arbitration Association.
(h) Subject to the provisions of paragraph 4(c) hereof, Seller
hereby represents, warrants and covenants that it will, at all times, reserve
for issuance a sufficient number of shares of Common Stock to meet its
obligations with respect to the Rights granted to Buyers hereunder.
(i) In case of any reorganization of Seller (or any other
corporation, the stock or other securities of which are at the time receivable
on the exercise of any Rights) after the date hereof, or in case, after such
date, Seller (or any such other corporation) shall consolidate with or merge
into another corporation or convey all or substantially all of its assets to
another corporation, then and in each such case the holder of any Right, upon
the exercise thereof as provided herein, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property receivable upon
the exercise of such Right prior to such consummation, the stock or other
securities or property to which such holder would have been entitled upon such
consummation if such holder had exercised such Right immediately prior to such
consummation.
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(j) If in connection with a merger, consolidation,
recapitalization, reorganization or other similar transaction, Seller or any
other person purchases or redeems any options, warrants or conversion rights of
any nature whatsoever with respect to the Common Stock (or the holder of any
such option, warrant or conversion right receives any consideration therefor),
the exercise of which option, warrant or conversion right would have given rise
to Rights to Buyers hereunder, Seller and each of the Directors jointly and
severally agree that as a precondition to any such transaction Seller or such
other person shall be required to acquire from each Buyer at the same per share
price and on the same terms as such option, warrant or conversion right was
purchased, the Right which would have been granted to Buyer had such option,
warrant or conversion right been exercised immediately prior to such
transaction.
6. Shareholder's Agreement. Concurrently herewith, each of the
Buyers and Seller shall enter into the Shareholder's Agreement attached hereto
as Exhibit C.
7. Covenants.
(a) Seller and each of the Directors jointly and severally
agree that Seller shall use its best efforts to ensure that each Buyer's Shares
may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended.
In this
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regard Seller and each of the Directors jointly and severally agree that after
the date hereof Seller shall timely file all reports and statements by Seller
required to be filed with or reported to the Securities and Exchange Commission.
(b) So long as the Buyers (including any Affiliates) continue
to own in the aggregate at least fifty (50%) percent of the Shares sold to
Buyers pursuant hereto, Seller and each of the Directors jointly and severally
agree that Seller shall not enter into any transaction with any Director, any
member of a Director's immediate family or any trust, corporation, partnership
or other entity in which Seller, any Director or any member of a Director's
immediate family has a direct or indirect interest without the prior written
consent of the Buyers' Representatives.
(c) Each of the Directors jointly and severally agree that
during the time of his employment with the Seller or while he serves as a
Director of the Seller and for a period of two (2) years thereafter, each
Director will not, directly or indirectly, anywhere in Canada or in the United
States own, manage, operate or control, or participate in the ownership,
management, operation or control of, or be connected with or have any interest
in, as a stockholder, investor, director, officer, employee, agent, consultant,
partner, lender or otherwise, whether as a distributor,
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<PAGE>
manufacturer, retailer or otherwise, any business or entity of any nature which
is competitive with the business conducted by Seller; provided, however, that
nothing contained in this Section 7(c) shall prohibit or restrict a Director
from owning, for investment purposes only, less than one (1%) percent of the
outstanding capital stock of any company whose shares are traded on a national
stock exchange or in the national over-the-counter market.
(d) In view of the fact that the Directors have been and will
be brought into close contact with many confidential affairs of Seller not
readily available to the public, each Director jointly and severally agrees
during his affiliation with Seller and thereafter to keep secret and retain in
the strictest confidence all information about business and financial matters
(such as costs, profits and plans for future expansion or development, plans for
marketing additional products, methods of operation and marketing concepts) of
Seller, its employment policies and plans, and any other proprietary information
relating to Seller, its operations, business and financial affairs (collectively
the "confidential matters") and for such time as Seller is operating not to
disclose those confidential matters to anyone outside of Seller, either during
or after the term of this Agreement, except in the course of performing his
duties with Seller or with Buyers' Representatives' express written
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<PAGE>
consent.
(e) If any Director commits a breach or threatens to commit a
breach of any of the provisions of Section 7(c) or 7(d), Buyers shall have the
right and remedy to have the provisions of such Section specifically enforced by
any Court having equity jurisdiction, it being acknowledged and agreed that any
such breach or threatened breach will cause irreparable injury to Buyers and
that money damages will not provide an adequate remedy to Buyers. Such right and
remedy shall be in addition to, and not in lieu of, any other rights and
remedies available to Buyers under law or equity.
(f) If any of the covenants contained in Section 7(c) or 7(d)
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the covenant or covenants or the
enforceability in any other jurisdiction, which shall be given full effect,
without regard to the invalid portions or the unenforceability in such other
jurisdiction. If any of the covenants contained in Section 7(c) are held to be
unenforceable because of the scope thereof, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall be
enforceable; provided, however, that such court's determination shall not affect
the enforceability of Section 7(c) in any other
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<PAGE>
jurisdiction.
8. Demand and Piggy-back Rights.
(a) At any time after the second anniversary of the date
hereof, Seller and each of the Directors jointly and severally agree that Seller
shall, subject to all of the provisions of this Section 8, if requested in
writing to do so by one or more Buyers owning an aggregate of at least 2,000,000
Shares, file with the Securities and Exchange Commission under the Act, a
registration statement on an appropriate form covering the Shares then owned by
such Buyer(s) which such Buyer(s) requests to be registered. Seller and each of
the Directors jointly and severally agree that Seller shall keep effective the
registration statement filed pursuant to this subsection 8(a) during the period
commencing on the initial effective date of such registration statement and
ending on the earlier of (i) eighteen (18) months thereafter or (ii) the
completion of the sale of the Shares owned by the Buyer(s) which are covered
thereby.
(b) If at any time or times within a period of three (3) years
from the date hereof, Seller shall propose to file a registration statement
under the Act covering Common Stock being sold by Seller or any stockholder of
Seller, Seller and each of the Directors jointly and severally agree that Seller
shall, each such time, give written notice to
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<PAGE>
Buyers' Representatives of such proposal not later than twenty (20) business
days prior to the date such registration statement is proposed to be filed and
such notice shall offer each Buyer the opportunity to register its Shares
therein. Upon the written request of a Buyer, which request must be received by
Seller no fewer than seven (7) business days prior to the date of such proposed
filing and must specify the number of Shares it is requesting to be included in
such registration statement, Seller shall include therein, or shall cause the
managing underwriter or underwriters, if any, of a proposed underwritten
offering to include therein, the Shares on the same terms and conditions as the
other Common Stock included in such registration statement. Seller and each of
the Directors jointly and severally agree that Seller shall keep effective any
registration statement which pursuant to this subsection 8(b) includes any of
the Shares during the period commencing on the initial effective date of such
registration statement and ending on the earlier of (x) eighteen (18) months
thereafter and (y) the completion of the sale of the Shares which are covered
thereby.
(c) If the managing underwriter or underwriters of an
underwritten public offering made pursuant to any registration statement
pursuant to subsection 8(b) above delivers a written opinion to any Buyer(s)
seeking to include its (their) Shares pursuant to subsection 8(b) above
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<PAGE>
that the total number or kind of securities which such Buyer(s), Seller, Messrs.
Greenwald, Segall and any other person or entities intend to include in such
offering would materially and adversely affect the success of such offering
(including, without limitation, the marketing of the shares of Common Stock to
be sold thereunder), then the number of shares of Common Stock of each such
Buyer, Seller, Messrs. Greenwald, Segall and such other persons or entities to
be included in such offering may be reduced to the extent necessary to reduce
the total number of shares of Common Stock to be included in such offering to
the number recommended by such managing underwriter. Any such reduction shall be
a proportionate reduction to all such persons based upon the number of shares
proposed to be registered by each such person.
(d) Seller's obligations under this Section 8 with respect to
any Buyer shall be conditioned upon such Buyer's furnishing to Seller such
information and material as may be reasonably requested by Seller or its counsel
in connection with such registration statement and any public offering
thereunder including information and material concerning such Buyer as may be
required to be included in such registration statement under the Act and the
applicable rules and regulations of the Securities and Exchange Commission, and
upon the further condition that such Buyer shall undertake to take all
reasonable steps to comply with the Act and the applicable
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<PAGE>
rules and regulations thereunder and with the securities laws of the states in
which any such public offering is made. Seller agrees to take all reasonable
steps to comply in all respects with the Act and all applicable rules and
regulations thereunder and with the securities laws of the states in which any
such public offering is made.
(e) Seller shall bear all costs and expenses in connection
with the first registration statement demanded by any Buyer(s) pursuant to
Section 8(a) hereof, and of each registration statement filed pursuant to
Section 8(b) hereof, including the fees and expenses for the audited and other
financial statements of Seller included in such registration statements, and the
expenses of printing, filing, legal and Blue Sky and other similar expenses. In
connection with any registration statement pursuant to Section 8 including any
Shares owned by any Buyer(s), Seller agrees to take all reasonable steps to
comply with such Blue Sky or state securities laws as may be reasonably
requested by the Buyer(s) (except that it shall in no event be required to
qualify as a foreign corporation or give a general consent to the service of
process), and to furnish to the Buyer(s) such number of prospectuses or other
documents incident to such registration as they may from time to time reasonably
request.
(f) In connection with any registration statement which
pursuant to this Section 8 includes any of the
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Shares, Seller will indemnify and hold harmless each Buyer whose Shares are
included therein against and in respect of any losses, claims, damages or
liabilities, joint or several (including legal or other expenses reasonably
incurred by each such Buyer in connection with investigating or defending any
such loss, claim, damage, liability or action) to which any such Buyer may
become subject under the Act or otherwise insofar as such losses, claims,
damages or liabilities (or actions with respect thereto) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(g) In connection with any registration statement which
pursuant to this Section 8 includes any of the Shares, each of the Buyers whose
Shares are included therein will indemnify and hold harmless Seller, its
officers and its directors and any controlling persons of Seller against and in
respect of any losses, claims, damages or liabilities, joint or several
(including legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action) to which Seller or any such persons may become subject
under the Act or otherwise insofar as such losses, claims, damages or
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liabilities (or actions with respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent that any such untrue statement or omission is based upon information
furnished in writing to Seller by any such Buyer or any of its authorized
representatives for inclusion in such registration statement. It is expressly
agreed and understood that no Buyer shall be liable hereunder for the
independent acts or omissions of any other Buyer.
(h) Any party(ies) seeking indemnification (the "Indemnitee")
shall give prompt written notice to the party(ies) from whom it is seeking
indemnification (the "Indemnitor") of any claim by the Indemnitee against the
Indemnitor based on the indemnities contained in Sections 8(f) and 8(g) hereof,
or any claim against the Indemnitee, which might give rise to a claim based on
the aforesaid indemnities, stating the nature and basis of such claim and the
amount there of. Failure by the Indemnitee to give the Indemnitor prompt written
notice of any such claim shall not release the Indemnitor from liability with
respect thereto unless such failure to give notice has a materially adverse
effect on the Indemnitor's ability to defend such claim. Prompt written notice
shall mean within thirty (30) days after the Indemnitee re-
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ceives notice of the claim from the person asserting such claim. The Indemnitee
shall permit the Indemnitor a reasonable opportunity to assume the defense,
settlement or compromise (herein called "defense" or "defend"), of any such
claim. Failure by the Indemnitor to notify the Indemnitee of its election to
defend within thirty (30) days after such notice thereof shall have been given
shall be deemed a waiver by the Indemnitor of its right to defend any such
claim. If the Indemnitor elects to defend such claim, it shall do so at its
expense through counsel or other representatives of its own choosing. Any Buyer
involved in such action, suit or proceeding shall make available to Seller, its
attorneys and accountants all books and records relating to any such action,
suit or proceeding and Seller shall make available to any such Buyer, its
attorneys and accountants, all books and records of Seller relating to any such
action, suit or proceeding, as the case may be. Such Buyer(s) and Seller agree
to render to each other such assistance as may reasonably be required in order
to insure the proper and adequate defense of any such action, suit or
proceeding.
(i) No Buyer shall make any settlement of any claims which
might give rise to liability of Seller under the indemnities contained in
Section 8(f) hereof, without the prior written consent of Seller, which consent
shall not be unreasonably withheld. Seller shall not make any settlement of any
claims which might give rise to liability of any Buyer under the indemnities
contained in Section 8(g) hereof, without the
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prior written consent of the relevant Buyer(s), which consent shall not be
unreasonably witheld.
9. Certificate and Opinion of Counsel for Seller.
(a) On the date of execution and delivery of this Agreement,
Buyers shall have received a certificate, signed by the President or Chief
Executive Officer of Seller, in the form attached hereto as Exhibit D, to the
effect that each of Seller's representations and warranties set forth herein is
true and correct as of the date hereof.
(b) On the date of execution and delivery of this Agreement,
Buyers shall have received the favorable written opinion, in the form attached
as Exhibit E hereto, of Cooper, Epstein & Hurewitz, counsel for Seller, dated
such date, addressed to Buyers. It is expressly understood and agreed that
receipt by Buyers of such favorable written opinion is an express condition to
all of each Buyer's obligations under this Agreement.
10. Governing Law. Notwithstanding the place where this Agreement
may be executed by any of the parties hereto, the parties expressly agree that
this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York, applicable to contracts made and to be
performed entirely therein.
11. Entire Agreement; Amendments. This Agreement contains the
entire agreement among the parties hereto with
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respect to the subject matter hereof. The provisions of this Agreement may not
be modified or waived except in writing and signed by the party to be charged.
12. Paragraph Headings. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13. Successors and Assigns. This Agreement and the rights, powers
and duties set forth herein shall, except as otherwise set forth herein, bind
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto.
14. Assignability. Seller may not assign any of its rights or
obligations under this Agreement without the prior written consent of the Buyer
or Buyers who would be affected by such assignment and any attempted assignment
without such consent shall be void and without effect.
15. Counterparts. This agreement may be signed in counterpart
copies, each of which shall be deemed an original, but which together shall
constitute one and the same instrument.
16. Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties to this
Agreement shall be deemed to have been given or made when delivered by hand,
deposited in the mail, first class postage prepaid, return receipt requested, or
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by telegraphic notice, when delivered to the telegraph company, or by telex or
facsimile transmission notice, when received, addressed as follows or to such
other address as may be hereinafter designated in writing by the respective
parties hereto:
If to Seller or the Directors:
Image Entertainment, Inc.
6311 Romaine Street
Hollywood, California 90038
Attention: Martin Greenwald
With a copy (which, alone,
shall not constitute notice) to:
Cooper, Epstein & Hurewitz
345 North Maple Drive
Suite 200
Beverly Hills, California 90210
Attention: Brian Kay, Esq.
If to a Buyer:
To the address of such Buyer
set forth on Schedule I
hereto, with a copy (which,
alone, shall not constitute
notice) to:
Rubin Baum Levin Constant
& Friedman
30 Rockefeller Plaza, 29th Fl.
New York, New York 10112
Attention: Barry A. Adelman, Esq.
If to Buyers' Representatives:
To the address of each such person
given to Seller by notice pursuant
to this section 16, with a copy (which,
alone, shall not constitute notice) to:
Rubin Baum Levin Constant
& Friedman
30 Rockefeller Plaza, 29th Fl.
New York, New York 10112
Attention: Barry A. Adelman, Esq.
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If to Greenwald, Segall or Kasper:
To their addresses set forth at the beginning of this Agreement.
17. Further Assurances Each of the parties hereto shall, at the
request of any of the other parties hereto, do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments or documents as such requesting
party hereto may reasonably request in order to carry out the provisions and
purpose of this Agreement.
18. Expenses. Each of Seller and each of the Directors, on the one
hand, and Buyers, on the other hand, shall bear all of its or their own expenses
(including, without limitation, attorneys fees) incurred in connection with the
preparation, negotiation and execution of this Agreement.
19. Execution by Buyers. Even though this Agreement has not been
executed on or before December 29, 1987 by each of the persons listed as a Buyer
on Schedule I hereto, this Agreement is binding and effective as of such date
against all persons who have executed it on or before such date. In addition,
any person listed as a Buyer on Schedule I hereto who executes this Agreement on
or before January 15, 1988, shall be deemed to have executed this Agreement as
of December 29, 1987, and shall be a Buyer hereunder for all purposes from that
date as if it had executed this Agreement on or before such date. Any person
listed as a Buyer on Schedule I hereto who does not execute this Agreement on or
before January 15, 1988, shall not
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be deemed a Buyer hereunder or a party hereto for any purpose whatsoever. In
this regard the entire purchase price due from all persons listed as Buyers on
Schedule I hereto (whether or not all such persons have executed this Agreement
on or before December 23, 1987) has been paid to Seller and Seller is obligated
to issue the number of shares listed on Schedule I hereto; provided, however, if
any person listed as a Buyer on Schedule I hereto has not executed this
Agreement on or before January 15, 1988, the Buyers' Representatives shall
notify Seller as to the distribution of the shares which the non-executing
person was to have purchased among those persons who have executed this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first written.
IMAGE ENTERTAINMENT, INC.
By:_________________________________
Title:
____________________________________
Martin W. Greenwald
____________________________________
Stuart C. Segall
____________________________________
Lee H. Kasper
____________________________________
Richard J. Sherwin
____________________________________
Jay A. Disler
____________________________________
Joan Disler
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____________________________________
Gerald B. Cohen
____________________________________
Dorothy Cohen
____________________________________
Bobby Murcer
____________________________________
Kay Murcer
____________________________________
James E. Lindstrom
____________________________________
Russ Harris
____________________________________
Kenneth Grossman
____________________________________
Steven Fox
____________________________________
M. P. Sardo, Jr.
____________________________________
Kenneth Trell
____________________________________
Carolyn Trell
____________________________________
Wayne Jacobs
____________________________________
Anthony M. Midis
____________________________________
Peter Rentzis
____________________________________
Panos Midis
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____________________________________
David N. Levine
____________________________________
Mona Levine
____________________________________
John A. Budnick
____________________________________
Jonathan Dodge
____________________________________
Vita Marino
____________________________________
John Jaust
____________________________________
William S. Wheatley, Jr.
____________________________________
Maria Cecilia Wheatley
____________________________________
Kenneth Alan Horowitz
Image Investors Co.
By:_____________________________
Title:_______________________
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SHAREHOLDERS AGREEMENT
AGREEMENT, made as of this 29th day of December, 1987, by and among the
persons listed on Schedule I hereto (hereinafter referred to collectively as the
"Investors" and individually as an "Investor").
WHEREAS, Image Entertainment, Inc., a Colorado corporation (the
"Corporation"), is authorized to issue 100,000,000 shares of Common Stock, par
value of $.05 per share (the "Common Stock");
WHEREAS, each of the Investors owns the number of shares of Common Stock
or rights to acquire shares of Common Stock set forth opposite such Investor's
name on Schedule I hereto; and
WHEREAS, the Investors desire to provide for certain restrictions on the
transfer of the shares of Common Stock owned by the Investors.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
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<PAGE>
1. Representations and Warranties. A. Each Investor severally represents
and warrants that it has full power and authority to execute and deliver this
Agreement, and that the execution and delivery of this Agreement will not result
in the breach of or default under, with or without the giving of notice and/or
passage of time, any other agreement, arrangement or indenture to which such
Investor is a party or by which it may be bound, or the violation of any law,
statute, rule, decree, order, judgment or regulation binding upon such Investor
or the shares of Common Stock owned by such Investor.
B. Each Investor severally represents, warrants and covenants to
each other Investor that in connection with its purchase of shares of Common
Stock of the Corporation pursuant to the Stock Purchase Agreement, of even date
herewith, among the Investors, the Corporation and certain other persons (the
"Stock Purchase Agreement") it has not relied upon any investigation,
representation, warranty, covenant or statement of any kind whatsoever of any
other Investor or such other Investor's representatives, attorneys, accountants
or other agents of any kind.
2. Right of First Refusal. Upon the following terms and conditions, each
of the Investors and its Affiliates, as hereinafter defined, shall have the
first right
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<PAGE>
to buy (a) any shares of Common Stock purchased by an Investor pursuant to the
Stock Purchase Agreement, or pursuant to Rights (as defined in the Stock
Purchase Agreement) issued or to be issued pursuant to the Stock Purchase
Agreement, or (b) any Rights issued or to be issued pursuant to the Stock
Purchase Agreement (collectively the "Shares or Rights"), which Shares or Rights
are proposed to be sold by any Investor. The term "Affiliate" shall mean a
person or entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
an Investor or any person who is a member of the immediate family of an
Investor, or any trust for the benefit of any of the foregoing persons. For
purposes of this Section 2 only, the term Investor shall include any Affiliate
of such Investor. No Investor shall sell, transfer, assign or deliver
(hereinafter defined as "sell" or when used in such tense "sold") any Shares or
Rights owned by such Investor except for cash and unless such Investor complies
with the provisions of this Section 2. If an Investor ("Selling Investor")
desires to sell all or any part of its Shares or Rights to any person or entity,
such Selling Investor shall first obtain a bona fide written offer ("Offer")
therefor and shall give notice in writing to each of the other Investors (the
"Purchasing Investors") that it desires to accept the Offer. Said notice shall
contain a statement setting forth
-3-
<PAGE>
the name and address of the maker of the Offer and a true and correct copy
thereof. Any Purchasing Investor which desires to purchase part or all of such
Shares or Rights shall give notice in writing of such desire to the Selling
Investor, with a copy to each other Purchasing Investor, within 30 days after
the date of the giving of notice by the Selling Investor, which notice shall set
forth how much of such Shares or Rights such Purchasing Investor desires to
purchase. If two or more Purchasing Investors notify the Selling Investor of
their desire to acquire all or portions of the Shares or Rights proposed to be
sold, which in the aggregate equal or exceed the Shares or Rights to be sold,
then each Purchasing Investor shall acquire a pro rata share of such Shares or
Rights, and each such Purchasing Investor shall be required to pay to the
Selling Investor its pro rata share of the purchase price unless any Purchasing
Investor desires to purchase less than its full pro rata share of such Shares or
Rights as determined above, in which case the other Purchasing Investors shall
purchase the balance of such pro rata share in series as each remaining
Purchasing Investor refuses to purchase its pro rata share of the Selling
Investor's Shares or Rights. A Purchasing Investor's pro rata share shall be a
fraction, the numerator of which is the number of Shares owned by such
Purchasing Investor and purchased by him pursuant to the Stock Purchase
Agreement, and the denominator of which is the total
-4-
<PAGE>
number of Shares owned by all Purchasing Investors exercising any right and
purchased by such Purchasing Investors pursuant to the Stock Purchase Agreement.
The closing of the purchase by the Purchasing Investor(s) shall take place 60
days after the expiration of said 30-day period at 10:00 A.M., at the offices of
the Corporation or at such other time and place as may be agreed upon by the
Selling Investor and the Purchasing Investor(s). If any one or more of the
Purchasing Investors does not give notice as aforesaid of its (or their)
intention to purchase all of the Shares or Rights to be sold by the Selling
Investor, then any notices given shall be deemed null and void and the Selling
Investor may sell within 90 days after the expiration of the said 30-day period
such Shares or Rights to the person making the Offer on the exact terms set
forth in the Offer. Notwithstanding anything to the contrary contained in this
Agreement, the provisions of this Section 2 shall not apply to (a) the sale,
assignment or transfer of Shares or Rights by an Investor to an Affiliate of
such Investor, (b) any sale, assignment or transfer of Shares or Rights by an
Investor on a national or regional stock exchange transaction or in the
over-the-counter market, or (c) any sale, assignment or transfer of any shares
of Common Stock of the Corporation, or rights to acquire shares of Common Stock
of the Corporation which were not purchased by an Investor pursuant to the Stock
Purchase Agreement or pursuant to Rights
-5-
<PAGE>
issued pursuant to the Stock Purchase Agreement.
3. Recapitalization. If at any time this Agreement is in effect, there is
a stock dividend, split-up, recapitalization, combination or exchange of shares,
merger, consolidation, acquisition of property or stock, reorganization or
liquidation as the result of which securities of any kind shall be issued in
respect of the Shares or Rights, or the Shares or Rights shall be changed into
the same or a different number of Shares or Rights of the same or another class
or classes, this Agreement shall apply to the aggregate number and class of such
securities which any Investor or any transferee shall receive or be entitled to
receive on account of, with respect to, or in lieu of such Shares or Rights, as
a result of any such stock dividend, split-up, recapitalization or liquidation.
4. Buyers' Representatives. A. Under the terms of the Stock Purchase
Agreement the Investors are required to designate two persons as the Buyers'
Representatives for the purpose of taking certain actions on behalf of the
Investors under the terms of the Stock Purchase Agreement. The Buyers'
Representatives shall initially be James E. Lindstrom and Russ Harris. At any
time any person serving as a Buyers' Representative may be replaced by the
holders of a majority of the Shares issued pursuant to the Stock Purchase
Agreement and still owned of record by an Investor or any Affiliate of an
-6-
<PAGE>
Investor. Such replacement shall be evidenced by a written consent signed by
holders holding the required number of Shares, and shall be effective
immediately upon the sending of such notice to all Investors in accordance with
paragraph 5 hereof.
B. The persons designated as Buyers' Representatives by the acceptance of
their appointment agree to promptly deliver to each of the Investors or any
Affiliate, copies of all notices, requests and demands received by the Buyers'
Representatives pursuant to the Stock Purchase Agreement.
5. Notices. Except as otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties to this Agreement shall
be deemed to have been given or made when delivered by hand, deposited in the
mail, first class postage prepaid, return receipt requested, or by telegraphic
notice, when delivered to the telegraph company, or by telex or facsimile
transmission notice, when received, addressed as follows or to such other
address as may be hereinafter designated in writing by the respective parties
hereto:
-7-
<PAGE>
If to an Investor:
To the address of such Investor set forth on Schedule I
hereto, with a copy (which, alone, shall not constitute
notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
Attention: Barry A. Adelman, Esq.
If to Buyers' Representatives:
To the address of each such person given to the parties
to this Agreement by notice pursuant to this Section,
with a copy (which, alone, shall not constitute notice)
to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
Attention: Barry A. Adelman, Esq.
6. Amendments and Waivers. The provisions of this Agreement may from time
to time be amended, supplemented or otherwise modified or waived only by a
written agreement signed by the parties hereto.
7. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, legal representatives,
successors and assigns.
8. Governing Law. This Agreement shall be deemed
-8-
<PAGE>
a contract made under the laws of, executed, and delivered in the State of New
York and for all purposes shall be construed and interpreted in accordance with
the laws of such State without reference to conflicts of laws principles.
9. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforcability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10. Gender and Number. When the context so requires in this Agreement, any
gender includes the masculine, feminine and neuter, and the singular number
includes the plural.
11. Counterparts. This Agreement may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
12. Headings. The headings used in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
13. Specific Performance. The parties hereto
-9-
<PAGE>
acknowledge that monetary damages may not adequately compensate any party hereto
for the failure of any other party to observe its respective covenants
hereunder. Upon application to any court of equity having jurisdiction in the
premises to enforce any provision of this Agreement by any party hereto, such
party shall be entitled to a decree against each such other party hereto (and
any transferee of Shares or Rights) requiring specific performance hereof by
such other party. Each party hereto hereby waives the claim or defense in any
such action that the party making such application has an adequate remedy at
law.
14. Filing of Agreement. By its execution of this Agreement, the
Corporation agrees to cause a copy of this Agreement and each and every
supplement and amendment hereto to be filed in the principal office of the
Corporation.
15. Further Assurances. Each party agrees to execute and deliver such
other instruments as the other party may reasonably request in order to
effectuate the intent of this Agreement and the transactions provided for
herein.
16. Termination. The term of this Agreement shall commence on the date
hereof and shall continue until the occurrence of any one of the following
events:
a. the effective date of a registration state-
-10-
<PAGE>
ment covering all of the Shares of the Investors under the Securities Act of
1933, as amended;
b. the ownership by the Investors as a group of less than 50% of the
number of Shares acquired by them as a group pursuant to the Stock Purchase
Agreement;
c. if the Corporation shall be adjudicated bankrupt or insolvent, or
an order shall be entered, remaining unstayed or discharged for sixty days,
appointing a receiver or trustee for the Corporation, or for substantially all
of its property, or approving a petition seeking reorganization or other similar
relief under the bankruptcy or other similar laws of the United States or of any
state, or the Corporation shall file a petition seeking any of the foregoing or
shall consent thereto, or file a petition to take advantage of any debtors' act,
or make a general assignment for the benefit of creditors, or admit in writing
its inability to pay its debts as they mature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/ Richard J. Sherwin
----------------------------------
Richard J. Sherwin
/s/ Jay A. Disler
----------------------------------
Jay A. Disler
-11-
<PAGE>
ment covering all of the Shares of the Investors under the Securities Act of
1933, as amended;
b. the ownership by the Investors as a group of less than 50% of the
number of Shares acquired by them as a group pursuant to the Stock Purchase
Agreement;
c. if the Corporation shall be adjudicated bankrupt or insolvent, or
an order shall be entered, remaining unstayed or discharged for sixty days,
appointing a receiver or trustee for the Corporation, or for substantially all
of its property, or approving a petition seeking reorganization or other similar
relief under the bankruptcy or other similar laws of the United States or of any
state, or the Corporation shall file a petition seeking any of the foregoing or
shall consent thereto, or file a petition to take advantage of any debtors' act,
or make a general assignment for the benefit of creditors, or admit in writing
its inability to pay its debts as they mature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
----------------------------------
Richard J. Sherwin
----------------------------------
Jay A. Disler
-11-
<PAGE>
/s/Joan Disler
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
/s/James E. Lindstrom
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
/s/Gerald B. Cohen
----------------------------------
Gerald B. Cohen
/s/Dorothy Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
/s/Bobby Murcer
----------------------------------
Bobby Murcer
/s/Kay Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
-44-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
/s/Russ Harris
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
/s/Kenneth Grossman
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
/s/Steven Fox
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
/s/M. P. Sardo, Jr.
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
/s/Kenneth Trell
----------------------------------
Kenneth Trell
/s/Carolyn Trell
----------------------------------
Carolyn Trell
----------------------------------
Wayne Jacobs
-12-
<PAGE>
----------------------------------
Joan Disler
----------------------------------
Gerald B. Cohen
----------------------------------
Dorothy Cohen
----------------------------------
Bobby Murcer
----------------------------------
Kay Murcer
----------------------------------
James E. Lindstrom
----------------------------------
Russ Harris
----------------------------------
Kenneth Grossman
----------------------------------
Steven Fox
----------------------------------
M. P. Sardo, Jr.
----------------------------------
Kenneth Trell
----------------------------------
Carolyn Trell
/s/Wayne Jacobs
----------------------------------
Wayne Jacobs
-12-
<PAGE>
/s/Anthony M. Midis
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
/s/Peter Rentzis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
/s/Panos Midis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
/s/David N. Levine
----------------------------------
David N. Levine
/s/Mona Levine
----------------------------------
Mona Levine
/s/John A. Budnick
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
/s/Jonathan K. Dodge
----------------------------------
Jonathan Dodge
/s/Vita M. Marino
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
/s/John Jaust
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
/s/ W. S. Wheatley, Jr.
----------------------------------
William S. Wheatley, Jr.
/s/Maria Cecilia Wheatley
----------------------------------
Maria Cecilia Wheatley
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
----------------------------------
Anthony M. Midis
----------------------------------
Peter Rentzis
----------------------------------
Panos Midis
----------------------------------
David N. Levine
----------------------------------
Mona Levine
----------------------------------
John A. Budnick
----------------------------------
Jonathan Dodge
----------------------------------
Vita Marino
----------------------------------
John Jaust
----------------------------------
William S. Wheatley, Jr.
----------------------------------
Maria Cecilia Wheatley
/s/Kenneth Alan Horowitz
----------------------------------
Kenneth Alan Horowitz
-13-
<PAGE>
Image Investors Co.
By: /s/ Stuart Subotnick
----------------------------
Title: Executive Vice President
--------------------------
By the execution of this Agreement, Image Entertainment, Inc.
agrees to be bound by the provisions of Paragraph 14 hereof.
Image Entertainment, Inc.
By: /s/ Martin W. Greenwald
-----------------------------
Title: President
------------------------
-14-
<PAGE>
Image Investors Co.
By: /s/ Stuart Subotnick
-----------------------------
Title: Executive Vice President
------------------------
By the execution of this Agreement, Image Entertainment, Inc.
agrees to be bound by the provisions of Paragraph 14 hereof.
Image Entertainment, Inc.
By:
-----------------------------
Title:
------------------------
-14-
<PAGE>
INVESTORS
<TABLE>
<CAPTION>
Options
Currently
Amount Shares Options Exercisable
------ ------ ------- -----------
<S> <C> <C> <C> <C>
Gerald B. & Dorothy Cohen $ 65,000 1,300,000 859,863 148,330
(JTWROS)
181 East 73rd Street - Apt. 20A
New York, NY 10021
Kenneth Grossman 50,000 1,000,000 661,433 114,100
Box 1502 (Sumter)
Long Grove, IL 60047
Steve Fox 20,000 400,000 264,574 45,641
500 East 77th Street - Suite 3416
New York, NY 10162
M. P. Sardo Jr. 15,000 300,000 198,430 34,230
232 Saddle Ridge Road
Pound Ridge, NY 10576
Kenneth & Carolyn Trell 20,000 400,000 264,574 45,641
(JTWROS)
214-11 27th Avenue
Bayside, NY 11360
Wayne Jacobs 5,000 100,000 66,143 11,410
Joseph Francis Blvd.
Sag Harbor, NY 11963
Anthony M. Midis 10,000 200,000 132,287 22,820
8 Birchwood Road
N. Caldwell, NJ 07006
Peter Rentzis 5,000 100,000 66,143 11,410
80 Oak Lane
Essex Falls, NJ 07021
Dr. Panos Midis 5,000 100,000 66,143 11,410
9903 Kingsbridge Road
Richmond, VA 23233
James E. Lindstrom 10,000 200,000 132,287 22,820
47 Pike Drive, Apt. 2B
Wayne, NJ 07470
David N. & Mona Levine 5,000 100,000 66,143 11,410
(JTWROS)
12 Overbrook Drive
Monsey, NY 10952
John A. Budnick 5,000 100,000 66,143 11,410
36 Juniper Place
Aberdeen, NJ 07747
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options
Currently
Amount Shares Options Exercisable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Jay A. and Joan Disler 20,000 400,000 264,574 45,641
(JTWROS)
496 Teal Plaza
Secaucus, NJ 07094
Jonathan Dodge and Vita Marino 15,000 300,000 198,430 34,230
(JTWROS)
100 West 89th Street. Apt. 2B
New York, NY 10024
John Jaust 10,000 200,000 132,287 22,820
14 Cindy Lane
Oak Ridge, NJ 07438
William S. Wheatley, Jr. 5,000 100,000 66,143 11,410
and Maria Cecilia Wheatley
(JTWROS)
243 Lynn Drive
Franklin Lakes, NJ 07417
Image Investors Co. 250,000 5,000,000 3,307,167 570,504
1 Harmon Plaza
Secaucus, NJ 07094
Richard J. Sherwin 25,000 500,000 330,717 57,051
46 Westwood Circle
Irvington, NY 10533
Russell Harris 25,000 500,000 330,717 57,051
755 Via Lido Soud
Newport Beach, CA 92663
Kenneth Alan Horowitz 20,000 400,000 264,574 45,641
P.O. Box 603
Ithaca, NY 14851
Bobby & Kay Murcer 15,000 300,000 198,430 34,230
(JTWROS) ----------- ----------- ----------- -----------
3244 Whippoorwill Road
Oklahoma City, OK 73120
$ 600,000 12,000,000 7,937,202 1,369,210
=========== ========== ========= =========
</TABLE>
CREDIT AGREEMENT, dated as of September 29, 1997, between Image Investors
Co., a Delaware corporation (the "Lender"), and Image Entertainment, Inc., a
California corporation and its subsidiary ("Borrower").
The parties hereto hereby agree as follows:
SECTION A DEFINITIONS
Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:
"Agreement": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close.
"Closing Date": the date on which the conditions precedent set forth in
Section 3 shall be satisfied or waived by Lender.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Commitment": the obligation of the Lender to loan to the Borrower
hereunder the principal amount of Five Million Dollars ($5,000,000).
"Commitment Period": the period from and including the Closing Date to but
not including the Termination Date or such earlier date on which the Commitment
shall terminate as provided herein.
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any material agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 5, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
<PAGE>
"Equity Interest": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation),
including, without limitation, all partnership interests in any Person, and any
and all warrants or options to purchase any of the foregoing.
"Event of Default": any of the events specified in Section 5, provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"GAAP": generally accepted accounting principles in the United States of
America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Interest Payment Date": the first day of each December, March, June,
September during the Commitment Period, beginning December 1, 1997.
"Loan": as defined in subsection 1.1.
"Loan Documents": this Agreement, the Note and the acknowledgment by
Borrower concerning the Registration Statement.
"Material Adverse Effect": a material adverse effect on (a) the business,
operations, property, financial condition of the Borrower or (b) the validity or
enforceability of this Agreement, the Note or any of the other Loan Documents or
the rights or remedies of the Lender hereunder or thereunder.
"Note": as defined in subsection 1.2.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Registration Statement": as defined in Subsection 1.10.
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any
2
<PAGE>
of its property or to which such Person or any of its property is subject.
"Responsible Officer": the President and Chief Executive Officer of the
Borrower.
"Termination Date": October 1, 2002.
Other Definitional Provisions. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Section, subsection, Exhibit references are to this Agreement
unless otherwise specified.
The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
SECTION 1 AMOUNT AND TERMS OF COMMITMENT
1.1 Commitment. Subject to the terms and conditions hereof, the Lender
agrees to loan ("the Loan") to the Borrower on the Closing Date and for the
Commitment Period an aggregate principal amount of the Lender's Commitment. Such
commitment will be sent to Borrower by wire transfer on the Closing Date.
1.2 Note. The Loan made by the Lender shall be evidenced by a convertible
promissory note of the Borrower, substantially in the form of Exhibit A (the
"Note"), payable to the order of the Lender and in a principal amount equal to
$5,000,000.
1.3 Optional Prepayments. The Borrower may at any time and from time to
time upon three (3) days advance notice to the Lender, prepay the Loan, in whole
or in part, without premium or penalty. Upon receipt of such notice, Lender may
no longer convert the principal amount of the Loan in accordance with Subsection
1.7. Such prepayment shall be applied first to interest and then to principal.
1.4 Interest Rates and Payment Dates.
1.4.1 The Loan shall bear interest (the "Interest Rate") at a rate
equal to eight percent (8%) per annum.
1.4.2 If (i) the principal amount of the Loan, or (ii) any interest
payable thereon shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is 8% plus 2% in each case from the date of such non-payment
until such amount is paid in full.
3
<PAGE>
1.4.3 Interest shall be payable in arrears on each Interest Payment
Date.
1.5 Computation of Interest. Interest shall be calculated on the
basis of a 365-day year for the actual days elapsed.
1.6 Payments. All payments (including prepayments) to be made by the
Borrower hereunder and under the Note, whether on account of principal,
interest, or otherwise, shall be made without set off or counterclaim and shall
be made prior to 12:00 Noon, New York City time, on the due date thereof to the
Lender by wire transfer in immediately available funds. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension.
1.7 Conversion.
1.7.1 The Lender may, at its option, at any time and in accordance
with the terms and conditions of the Note, convert all or any portion of the
outstanding principal amount of such Note into the number of shares of common
stock of Borrower equal to the dollar amount converted divided by $3.625, the
closing price of the Borrower's stock on September 29, 1997.
1.7.2 In the event of any reorganization or recapitalization of
Borrower or in the event Borrower consolidates with or merges with or into
another corporation or transfers all or substantially all its assets to another
entity, then and in each such event, the Lender, upon conversion of the Note at
any time after the consummation of such reorganization, recapitalization,
consolidation, merger or transfer, shall be entitled to receive the stock or
other securities or property to which the Lender would have been entitled if the
Lender had converted the Note immediately prior thereto. In such case, the terms
of the Note shall survive the consummation of any such reorganization,
recapitalization, consolidation, merger or transfer and shall be applicable to
such shares of stock or other securities or property receivable on the
conversion of the Note after such consummation.
1.8 Payment Date. Unless otherwise prepaid in accordance with Subsection
1.3, the principal amount and any unpaid interest outstanding hereunder shall be
due and payable in full on the Termination Date.
1.9 North Option. At the Closing, the Borrower will execute the Assignment
Agreement attached hereto as Exhibit B pursuant to which Borrower will assign to
Lender its option to purchase 2% of the stock of North Communications, Inc. In
consideration for such agreement, Lender will pay to the Borrower $50,000 by
wire transfer upon the execution of the Assignment Agreement.
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1.10 Registration Rights.
1.10.1 At any time after the execution of this Agreement, Lender
shall, subject to all of the provisions of this Section 1.10, if requested in
writing to do so by Borrower, file with the Securities and Exchange Commission
under the Securities and Exchange Act of 1933, as amended (the "Act"), a
registration statement on an appropriate form covering the 1,379,310 Shares (the
"Shares") of Common Stock issuable upon conversion of the Loan which Lender
requests to be registered. Borrower shall keep effective the registration
statement filed pursuant to this subsection 1.10.1 during the period commencing
on the initial effective date of such registration statement and ending on the
earlier of (i) eighteen (18) months thereafter or (ii) the completion of the
sale of the Shares owned by Lender which are covered thereby.
1.10.2 If at any time or times Borrower shall propose to file a
registration statement under the Act covering any of its Common Stock being sold
by any stockholder of Borrower, Borrower agrees that it shall, each such time,
give written notice to Lender of such proposal not later than twenty (20)
business days prior to the date such registration statement is proposed to be
filed and such notice shall offer Lender the opportunity to register its Shares
therein. Upon the written request of Lender, which request must be received by
Borrower no fewer than seven (7) business days prior to the date of such
proposed filing and must specify the number of Shares it is requesting to be
included in such registration statement, Borrower shall include therein, or
shall cause the managing underwriter or underwriters, if any, of a proposed
underwritten offering to include therein, the Shares on the same terms and
conditions as the other common stock included in such registration statement.
Borrower agrees that it shall keep effective any registration statement which
pursuant to this subsection 1.10.2 includes any of the Shares during the period
commencing on the initial effective date of such registration statement and
ending on the earlier of (i) eighteen (18) months thereafter and (ii) the
completion of the sale of the Shares which are covered thereby.
1.10.3 If the managing underwriter or underwriters of an
underwritten public offering made pursuant to any registration statement
pursuant to Section 1.10 above delivers a written opinion to Lender that the
total number or kind of securities which Lender and any other person or entities
intend to include in such offering would materially and adversely affect the
success of such offering (including, without limitation, the marketing of the
shares of Common Stock to be sold thereunder), then the number of Shares of
Lender and such other persons or entities to be included in such offering may be
reduced to the extent necessary to reduce the total number of shares of common
stock to be included in such offering to the number recommended by such managing
underwriter. Any such reduction shall be a proportionate reduction to all such
persons based upon the number of shares proposed to be registered by each such
person.
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1.10.4 Borrower's obligations under this Section 1.10 with respect
to Lender shall be conditioned upon such Lender's furnishing to Borrower such
information and material as may be reasonably requested by Borrower or its
counsel in connection with such registration statement and any public offering
thereunder, including information and material concerning Lender as may be
required to be included in such registration statement under the Act and the
applicable rules and regulations of the Securities and Exchange Commission, and
upon the further condition that Lender shall undertake to take all reasonable
steps to comply with the Act and the applicable rules and regulations thereunder
and with the securities laws of the states in which any such public offering is
made. Borrower agrees to take all reasonable steps to comply in all respects
with the Act and all applicable rules and regulations thereunder and with the
securities laws of the states in which any such public offering is made.
1.10.5 Borrower shall bear all costs and expenses in connection with
any registration statement demanded by Lender pursuant to Section 1.10.1 hereof,
and of each registration statement filed pursuant to Section 1.10.2 hereof,
including the fees and expenses for the audited and other financial statements
of Borrower included in such registration statements, and the expenses of
printing, filing, legal and Blue Sky and other similar expenses. In connection
with any registration statement pursuant to Section 1.10 including any Shares
owned by Lender, Borrower agrees to take all reasonable steps to comply with
such Blue Sky or state securities laws as may be reasonably requested by Lender
(except that it shall in no event be required to qualify as a foreign
corporation or give a general consent to the service of process), and to furnish
to Buyer such number of prospectuses or other documents incident to such
registration as it may from time to time reasonably request.
1.10.6 In connection with any registration statement which pursuant
to this Section 1.10 includes any of the Shares, Borrower will indemnify and
hold harmless Lender against and in respect of any losses, claims, damages or
liabilities (including legal or other expenses reasonably incurred by Lender in
connection with investigating or defending any such loss, claim, damage,
liability or action), to which Lender may become subject under the Act or
otherwise insofar as such losses, claims, damages or liabilities (or actions
with respect thereto) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading.
1.10.7 In connection with any registration statement which pursuant
to this Section 1.10 includes any of the Shares, Lender will indemnify and hold
harmless Borrower, its officers and its directors and any controlling persons of
Borrower against and in respect of any losses, claims, damages or liabilities
(including legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action) to which Borrower or any such persons may become subject
under the Act or otherwise insofar as such losses,
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claims, damages or liabilities (or actions with respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement therein no
misleading, but only to the extent that any such untrue statement or omission is
based upon information furnished in writing to Borrower by Lender or any of its
authorized representatives for inclusion in such registration statement.
1.10.8 Any party(ies) seeking indemnification (the "Indemnitee")
shall give prompt written notice to the party(ies) from whom it is seeking
indemnification (the "Indemnitor") of any claim by the Indemnitee against the
Indemnitor based on the indemnities contained in Sections 1.10.6 and 1.10.7
hereof, or any claim against the Indemnitee, which might give rise to a claim
based on the aforesaid indemnitees, stating the nature and basis of such claim
and the amount thereof. Failure by the Indemnitee to give the Indemnitor prompt
written notice of any such claim shall not release the Indemnitor from liability
with respect thereto unless such failure to give notice has a materially adverse
effect on the Indemnitor's ability to defend such claim. Prompt written notice
shall mean within thirty (30) days after the Indemnitee receives notice of the
claim from the person asserting the claim. The Indemnitee shall permit the
Indemnitor a reasonable opportunity to assume the defense, settlement or
compromise (herein called "defense" or "defend"), of any such claim. Failure by
the Indemnitor to notify the Indemnitee of its election to defend within thirty
(30) days after such notice thereof shall have been given shall be deemed a
waiver by the Indemnitor of its right to defend any such claim. If the
Indemnitor elects to defend such claim, it shall do so at its expense through
counsel or other representatives of its own choosing. If Lender is involved in
such action, suit or proceeding it shall make available to Borrower, its
attorneys and accountants all books and records relating to any such action,
suit or proceeding, and Borrower shall make available to Lender, its attorneys
and accountants, all books and records of Borrower relating to any such action,
suit or proceeding, as the case may be. Lender and Borrower agree to render to
each other such assistance as may reasonably be required in order to insure the
proper and adequate defense of any such action, suit or proceeding.
1.10.9 Lender shall not make any settlement of any claims which
might give rise to liability of Borrower under the indemnities contained in
Section 10.1.6 hereof, without the prior written consent of Borrower, which
consent shall not be unreasonably withheld. Borrower shall not make any
settlement of any claims which might give rise to liability of Lender under the
indemnities contained in Section 10.1.7 hereof, without the prior written
consent of the Lender, which consent shall not be unreasonably withheld.
1.11 Subordination. The Loan shall be subordinated to "Senior
Indebtedness", as defined a set forth in the Note.
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SECTION 2 REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan,
the Borrower hereby represents and warrants to the Lender that:
2.1 Existence; Compliance with Law. The Borrower:
2.1.1 is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization,
2.1.2 has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, and
2.1.3 is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
2.2 Power; Authorization; Enforceable Obligations. The Borrower has the
corporate power and authority, and the legal right, to make, deliver and perform
the Loan Documents and to borrow hereunder and the Borrower has taken all
necessary action to authorize the borrowings on the terms and conditions of this
Agreement and the Note and to authorize the execution, delivery and performance
of the Loan Documents. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan Documents. This
Agreement and each other Loan Document has been duly executed and delivered on
behalf of the Borrower. This Agreement and each other Loan Document constitutes
a legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
2.3 No Legal Bar. The execution, delivery and performance of the Loan
Documents, the borrowings hereunder and the use of the proceeds thereof will not
eviolate any Requirement of Law or Contractual Obligation of the Borrower and
will not result in, or require, the creation or imposition of any Lien on any of
its properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation, except to the extent such violations could not, in the
aggregate, be reasonably expected to have a Material Adverse Effect.
2.4 No Material Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or threatened in
writing by or
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against the Borrower or against any of its properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) which could reasonably be expected to have a Material
Adverse Effect.
2.5 No Default. Except as set forth on Schedule 2.5, the Borrower is not
in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
2.6 Taxes. The Borrower has filed or caused to be filed all tax returns
which are required to be filed or applied for extensions and have paid all taxes
that are due and payable as set forth in such returns, and have paid any
assessments made against Borrower or its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any taxes, assessments, fees or other charges the amount of which
are currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower).
2.7 No Untrue Statement. No statement contained in this Agreement, nor in
any certificate or other document delivered to the Lender by the Borrower (or
its representatives) in connection with this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
to state a material fact necessary in order to make the statements contained
therein or herein not misleading.
2.8 Federal Regulations. No part of the proceeds of the Loan will be used
for "purchasing" or "carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation G or Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations of
such Board of Governors.
2.9 Investment Company Act. The Borrower is not an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
2.10 Financial Statements. The financial statements of the Borrower on
Form 10-K for the year ended March 31, 1997 and all Forms 10-Q filed subsequent
thereto have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved and fairly
present the financial position of the Borrower as of the dates thereof and the
results of their operations for the periods then ended (subject, in the case of
any unaudited interim financial statements, to normal year-end adjustments and
to the lack of complete footnotes).
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2.11 Absence of Certain Changes or Events. Since the date of the most
recent financial statements, there has not been: (i) any material adverse change
in the business, assets, financial condition or the results of operations of the
Borrower; (ii) any declaration, payment or setting aside for payment of any
dividend or any redemption, purchase or other acquisition of any shares of
capital stock or securities of the Borrower; (iii) any return of any capital or
other distribution of assets to stockholders of the Borrower; (iv) any material
investment of a capital nature by the Borrower either by the purchase or any
property or assets or by any acquisition (by merger, consolidation or
acquisition of stock or assets) of any corporation partnership or other business
organization or division thereof except in the ordinary course of business; (v)
any agreement to take, whether in writing or otherwise, any action which, if
taken prior to the date hereof, would have made any representation or warranty
in this Section 2 untrue or incorrect in any material respect; and (vi) any
failure by the Borrower to conduct its business only in the ordinary course
consistent with past practice.
2.12 Compliance with Laws. The business of the Borrower has been operated
in compliance with all laws, ordinances, regulations and orders of all
governmental entities, except for any instances of non-compliance which do not
and will not reasonably be expected to have a Material Adverse Effect.
2.13 Liabilities. Except as set forth on its most recent financial
statements or as does not and will not reasonably be expected to have a Material
Adverse Effect, the Borrower does not have any direct or indirect liabilities,
whether or not of a kind required by generally accepted accounting principles to
be set forth in its financial statements. Except as set forth in the most recent
financial statements, the Borrower does not have material (i) obligations in
respect of borrowed money, (ii) obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) obligations which would be required by
generally accepted accounting principles to be classified as "capital leases",
(iv) obligations to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of business and
payable not more than twelve (12) months from the date of incurrence, and (v)
any guaranties of any obligations of any other person.
2.14 Intellectual Property. (i) The Borrower owns, or is licensed to, or
otherwise has, the right to use all patents, trademarks, service marks, trade
names, copyrights and franchises it uses and (ii) the Borrower's rights in the
property in such patents, service marks, trademarks, trade names, copyrights and
franchises are free and clear of any liens or other encumbrances and the
Borrower has not received written notice of any adversely-held patent,
invention, trademark, service mark or trade name of any other person, or notice
of any charge or claim of any person relating to such intellectual property or
any process or confidential information of the Borrower and the Borrower does
not know of any basis for any such charge or claim, and (iii) the Borrower, and
its predecessors, if any, have not conducted business at any time during the
period beginning five years prior to the date hereof under any corporate or
partnership, trade or fictitious names, except in the case of clauses (i) and
(ii) above,
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any of the foregoing which do not and will not have a Material Adverse Effect.
2.15 Real Estate.
(a) All of the real property the Borrower owns is free and clear of
any liens or other encumbrances except for the liens on the Borrower's Las Vegas
property.
(b) The Borrower holds the leasehold estate under and interest in
each lease, sublease, license or other agreement under which it uses or occupies
any real property or improvements thereon (the "Real Property Leases") free and
clear of all material liens, encumbrances and other rights of occupancy. All
Real Property Leases are valid and binding on the lessors thereunder in
accordance with their respective terms and there is not under any such Real
Property Leases any existing default, or any condition, event or act which with
notice or lapse of time or both would constitute such a default, which in either
case, considered individually or in the aggregate with all such other Real
Property Leases under which there is such a default, condition, event or act,
would reasonably be expected to have a Material Adverse Effect.
2.16 Title to and Condition of Personal Property. The Borrower has good
and marketable title to the material personal property reflected in its
financial statements or that it currently uses in the operation of its business
(other than leased property or personal property which is not material to the
business of the Borrower and such equipment is the sole security for any
financing associated therewith), and such property is free and clear of all
liens, claims, charges, security interests, options, or other title defects or
encumbrances. All such personal property is in good operating condition and
repair, is suitable for the use to which the same is customarily put, is free
from defects and is merchantable and is of a quality and quantity presently
usable in the ordinary course of the operation of the business of the Borrower,
other than such matters as would not have a Material Adverse Effect.
2.17 No Adverse Actions. There is no existing, pending or threatened in
writing termination, cancellation, limitation, modification or change in the
business relationship of the Borrower with any supplier, customer or other
person or entity except those which do not and will not reasonably be expected
to have a Material Adverse Effect. Neither the Borrower, nor any director,
officer or employee of Borrower has used any corporate funds for unlawful
contributions, payments, gifts, entertainment or other unlawful expenses
relating to political activity, or governmental or regulatory officials.
2.18 Insurance. The Borrower has not received notice of default under, or
intended cancellation or nonrenewal of, any material policies of insurance which
insure the properties, business or liability of the Borrower.
The Lender represents and warrants to the Borrower as follows:
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2.19 Lender hereby represents, warrants and covenants to Borrower, which
representations and warranties shall survive the execution of this Credit
Agreement and the consummation of the transactions contemplated hereby, as
follows:
2.19.1 Lender has the financial ability to bear the economic risk of
its investment in the Note and in the Shares (i.e., Lender can afford a complete
loss of its investment).
2.19.2 Lender has adequate means of providing for its current needs
and possible contingencies, and has no need for liquidity in the investment in
the Note and in the Shares and has no reason to anticipate any change in
circumstances, financial or otherwise, which may cause or require any sale or
distribution of the Shares.
2.19.3 Lender's overall commitment to investments which are not
readily marketable is not disproportionate to its net worth and its investment
in the Note and in the Shares will not cause such overall commitment to become
excessive. Lender has determined that the purchase of the Shares is consistent
with its investment objectives and income prospects.
2.19.4 Lender has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of an investment in the Note and in the Shares.
2.19.5 Lender understands that the Note and the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws.
2.19.6 Lender is acquiring the Note and the Shares solely for its
own account, for investment purposes only and not with the intention of, or a
view toward, the subdivision, resale, transfer or further distribution thereof
or for sale in connection with any distribution.
2.19.7 Lender shall not sell or otherwise dispose of the Shares
unless and until a registration statement covering such proposed disposition
shall be in effect under the Act, and under applicable state securities laws, or
the disposition of such shares is made pursuant to the requirements of Rule 144
promulgated by the Securities and Exchange Commission or Borrower shall have
received a written opinion of counsel to Lender to the effect that such proposed
disposition would be exempt from the registration requirements of the Act and of
applicable state securities laws.
2.19.8 Lender understands that the foregoing representations,
warranties and covenants are being relied upon by Borrower in connection with
Borrower's entering into this Credit Agreement.
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2.19.9 Lender has not engaged or dealt with any person or entity who
would be entitled to any broker's or finder's fee or commission with respect to
the execution of this Credit Agreement or any of the transactions described
herein and contemplated hereby.
2.19.10 Lender has been given an opportunity to speak to management
of Borrower regarding the business and financial condition of Borrower.
2.19.11 Lender agrees and acknowledges that the stock certificates
evidencing the Shares will each bear a restrictive legend in substantially the
following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD UNLESS THERE
IS A REGISTRATION STATEMENT IN EFFECT COVERING SUCH SHARES OR THE DISPOSITION OF
SUCH SHARES IS MADE PURSUANT TO THE REQUIREMENTS OF RULE 144 PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO THE HOLDER OF
THE SHARES IS OBTAINED TO THE EFFECT THAT THE TRANSFER OF THE SHARES SATISFIES
THE CONDITIONS FOR AN EXEMPTION FROM THE SECURITIES ACT OF 1933, AS AMENDED."
2.19.12 Lender agrees and acknowledges that stop transfer orders
will be placed in Borrower's records with respect to the Shares.
SECTION 3 CONDITIONS PRECEDENT
3.1 Conditions to Loan. The agreement of the Lender to make the Loan is
subject to the satisfaction, immediately prior to or concurrently with the
making of such Loan on the Closing Date, of the following conditions precedent:
3.1.1 Loan Documents. The Lender shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the Borrower,
(ii) the Note, executed and delivered by a duly authorized officer of the
Borrower, and (iii) the North Option Assignment, executed by the Borrower.
3.1.2 Corporate Proceedings of the Borrower. The Lender shall have
received a copy of the resolutions, in form and substance satisfactory to the
Lender, of the Borrower authorizing (i) the execution, delivery and performance
of this Agreement, the Note and the other Loan Documents and (ii) the borrowing
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contemplated hereunder and certified by the Secretary or an Assistant Secretary
of the Borrower as of the Closing Date, which certificate shall be in form and
substance satisfactory to the Lender and shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded.
3.1.3 Borrower Incumbency Certificate. The Lender shall have
received a Certificate of the Borrower dated the Closing Date, as to the
incumbency and signature of the officers of the Borrower executing any Loan
Document satisfactory in form and substance to the Lender, executed by the
President or any senior officer and the Secretary or any Assistant Secretary of
the Borrower.
3.1.4 Opinions. The Lender shall have received opinion of counsel to
the Borrower, in the form of Exhibit C of this Agreement.
3.1.5 Representations and Warranties. Each of the representations
and warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if made
on and as of such date.
3.1.6 No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loan.
SECTION 4 COVENANTS
The Borrower hereby agrees that, so long as the Note remains outstanding
and unpaid or any other amount is owing to the Lender hereunder, the Borrower
shall:
4.1 Use of Proceeds. The proceeds of the Loan shall be used by the
Borrower for general working capital purposes.
4.2 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all of its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower.
4.3 Compliance of Laws. Comply with all applicable laws regulations, and
orders of Governmental Authorities and obtain and comply with and maintain any
and all material licenses, approvals, notifications, registrations or permits
required by applicable laws, regulations or orders, except in each such case to
the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect.
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4.4 Maintenance of Existence. Preserve, renew and keep in full force and
effect its existence and take all reasonable action to maintain all its
respective rights, privileges and franchises in the normal conduct of its
business.
4.5 Maintenance of Property; Insurance. Keep all property necessary to its
business in good working order and condition; maintain with financially sound
and reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and furnish to the Lender, upon written request, full information as
to the insurance carried.
4.6 Notices. Promptly give notice to the Lender of:
4.6.1 the occurrence of any Default or Event of Default; and
4.6.2 the occurrence of any event which causes any representation or
warranty of the Borrower to be cease to be true or a breach of any covenant of
the Borrower set forth in this Agreement; and
4.6.3 any material adverse change in the business, operations,
property, financial condition of the Borrower or any development or event which
could reasonably be expected to have a Material Adverse Effect.
4.7 Maintenance of Assets. Except in the ordinary course of business, not
pledge, sell or transfer any of its assets without the express written consent
of Lender; provided however, that the Borrower may pledge, sell or transfer its
assets if the Lender expressly agrees that the proceeds of any such pledge, sale
or transfer will be used by the Borrower to pay to Lender the payments set forth
in section 1 hereof.
SECTION 5 EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
5.1 The Borrower shall fail to pay any principal of the Note when due in
accordance with the terms hereof; or the Borrower shall fail to pay any interest
on the Note, or any other amount payable hereunder, within three (3) Business
Days after written notice thereof is delivered to Borrower; or
5.2 Any representation or warranty made or deemed made by the Borrower
herein or in any other Loan Document or which is contained in any certificate,
document or financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document shall prove to
have been incorrect in any material respect on or as of the date made or deemed
made and
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the same is not cured within thirty (30) Business Days after written notice
thereof is delivered to Borrower; or
5.3 The Borrower shall default in the observance or performance of any
other agreement contained in this Agreement or any other Loan Document, and such
default shall continue unremedied for a period of five thirty (30) Business Days
after written notice thereof is delivered to Borrower; or
5.4 (i) The Borrower shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or substantially all of
its assets, or the Borrower shall make a general assignment for the benefit of
its creditors or (ii) there shall be commenced against the Borrower any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; or (iii) there shall be commenced against the Borrower any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or substantially all of its
assets which results in the entry of an order for any such relief which shall
not have been vacated, discharged, or stayed or bonded pending appeal within 60
days from the entry thereof; or (iv) the Borrower shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in clause (i), (ii), or (iii) above; or
5.5 One or more judgments or decrees shall be entered against the Borrower
involving in the aggregate liability (not paid or fully covered by insurance) of
$250,000 or more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or
5.6 Any warrant of attachment, levy or execution involving an amount in
excess of $250,000 shall be issued or levied against the Borrower and such
warrant of attachment, levy or execution shall not be released, vacated, stayed
or bonded within 60 days of its issue or levy; or
5.7 A material adverse change in the business, operations, property,
financial condition of the Borrower shall have occurred since the date of this
Agreement;
then, and in any such event, the Loan (with accrued interest thereon) and
all other amounts owing under this Agreement and the Note shall immediately
become due and payable. Except as expressly provided above in this Section,
demand, protest
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upon the giving of notice to Borrower and all other notices of any kind are
hereby expressly waived.
SECTION 6 MISCELLANEOUS
6.1 Amendments and Waivers. Neither this Agreement, the Note or any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in an instrument executed by the Lender and the Borrower in
accordance with the provisions of this subsection. The Lender may, from time to
time, waive, on such terms and conditions as the Lender may specify in such
instrument, any of the requirements of this Agreement, the Note or the other
Loan Documents or any Default or Event of Default and its consequences. Any such
wavier and any such amendment, supplement or modification shall be binding upon
the Borrower and the Lender. In the case of any waiver, the Borrower and the
Lender shall be restored to their former position and rights hereunder and under
the Note and any other Loan Documents, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
6.2 Costs and Expenses. The Borrower agrees to pay or reimburse the Lender
for all of its costs and expenses incurred in connection with the enforcement of
any rights under this Agreement, the Note or any other Loan Documents,
including, without limitation, the reasonable fees and disbursements of outside
counsel to the Lender.
6.3 Further Assurances. From and after the date hereof, upon the
reasonable request of any party to this Agreement, the other party shall
execute, acknowledge and deliver, all such further agreements, instruments and
assurances as may be necessary and appropriate to carry out the transactions
contemplated by this Agreement and the other Loan Documents.
6.4 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or three days after being deposited in the mail,
postage prepaid, or, in the case of telecopy notice, when received, addressed as
follows, or to such other address as may be hereafter notified by the respective
parties hereto and any future holders of the Note:
The Lender: Image Investors Co.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
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The Borrower: Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
Attention: General Counsel
6.5 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
6.6 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the Note and the
making of the Loan hereunder.
6.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Lender and its successors and assigns; the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Lender.
6.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
6.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
6.10 Integration. This Agreement and the other Loan Documents represent
the agreement of the Borrower and the Lender with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Lender relative to the subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
6.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers this
29th day of October, 1997.
LENDER:
Image Investors Co.
By:
------------------------------------
Name: Stuart Subotnick
Title: Executive Vice President
BORROWER:
Image Entertainment, Inc.
By:
------------------------------------
Name: Martin W. Greenwald
Title: President
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