As filed with the Securities and Exchange Commission on November 30, 1998
Registration No. 333-65611
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
-------------------------
IMAGE ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
California 84-0685613
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification Number)
organization)
9333 Oso Avenue
Chatsworth, California 91311
(818) 407-9100
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------------
Cheryl Lee
Chief Administrative Officer, General Counsel & Secretary
Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, California 91311
(818) 407-9100
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Richard A. Boehmer, Esq. Aaron A. Grunfeld, Esq.
O'Melveny & Myers LLP Resch Polster Alpert & Berger LLP
400 S. Hope Street 10390 Santa Monica Boulevard
Los Angeles, California 90071 Los Angeles, California
(213) 430-6000 (310) 277-8300
--------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box: [ ]
If the registrant elects to deliver its latest annual report tosecurity
holders, or a complete and legible facsimile thereof pursuant toItem 11(a)(1) of
this Form, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule462(c) under
the Securities Act, check the following box and list theSecurities Act
registration statement number of the earlier effectiveregistration statement for
the same offering: [ ]
If this Form is a post-effective amendment filed pursuant toRule 462(d) under
the Securities Act, check the following box and listthe Securities Act
registration statement number of the earlier effectiveregistration statement for
the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule434,
check the following box: [ ]
-----------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement
filed with the Securities and Exchange commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 30, 1998
PROSPECTUS
[Image Entertainment Logo]
2,400,000 SHARES
IMAGE ENTERTAINMENT, INC.
COMMON STOCK
Image Entertainment, Inc. is offering for sale
2,400,000 shares of common stock. We will reserve up to
1,000,000 shares to sell directly to Image Investors Co.,
our largest shareholder, or its affiliates. If Image
Investors Co. or its affiliates desire to purchase shares,
we will make such sales on the same terms and conditions
available to the public, except that we will pay a lower
commission for such sales. Otherwise, we will make such
shares available to the public.
Our common stock is traded on the Nasdaq National
Market System under the symbol "DISK."
----------------------
These securities involve a high degree of risk.
See "Risk Factors" beginning on page 4.
----------------------
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of
these securities or passed upon the accuracy or adequacy of
this prospectus. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
==============================================================
Price to Placement Proceeds to
Public Agent's Company
Commission
- --------------------------------------------------------------
<S> <C> <C> <C>
Per Share............ $ $ $
- --------------------------------------------------------------
Total ............... $ $ $
==============================================================
</TABLE>
The table above assumes that we sell all 2,400,000 shares
and does not include estimated expenses of $____ payable by
us (including the placement agent's non-accountable expense
allowance of 2.0% of the gross proceeds from this offering).
------------------------
We are offering these shares of common stock on a best
efforts basis to a limited number of institutional and other
accredited investors. We have retained MDB Capital Group
LLC to act as the exclusive placement agent in connection
with the arrangement of this offering. This offering will
continue until we agree with the placement agent that it
shall terminate.
The placement agent is not required to sell a specific
number or dollar amount of shares but will use its best
efforts to sell all of the shares being offered. There will
not be any escrow, trust or similar account for the funds to
be received from the sale of these shares. If we do not
receive proceeds from this offering sufficient to complete
the transaction described in "Recent Developments-The
Acquisition" and we cannot obtain additional financing to
complete such transaction, we will apply the proceeds from
this offering to seek additional exclusive digital video
disc distribution rights, potentially to develop a new web
site for retail sales of digital video discs and laserdiscs
and for general corporate and working capital purposes.
MDB CAPITAL GROUP LLC
______________, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
=============================================================================
<S> <C> <C> <C>
Prospectus Summary.............1 LegalMatters...... .....................21
Risk Factors...................4 Experts.................................22
The Company...................12 Available Information...................22
Recent Developments...........13 Incorporation of Certain
Use of Proceeds...............17 Information by Reference;
Price Range of Common Stock...17 Deliveries.............................22
Selected Historical Financial Forward Looking Statements..............23
Information..................17 Company's 10-K for fiscal year
Certain Transactions..........19 ended March 31, 1998, as amended . App. A
Description of Capital Stock..19 Company's 10-Q for fiscal
Plan of Distribution..........21 quarter ended September 30,
1998, as amended...................App. B
Company's Proxy Statement
dated July 29, 1998................App. C
=============================================================================</T
ABLE>
<PAGE>
PROSPECTUS SUMMARY
This section is only a summary of the information
contained in this prospectus. You should read this summary
along with the more detailed information and the financial
statements and the notes thereto appearing in other sections
of this prospectus. In addition to historical information,
this prospectus contains certain forward-looking statements
which we believe are within the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on the beliefs of the
Company's management and information currently available to
the Company's management, but involve risks and
uncertainties. Our actual results or experience could
differ significantly from those discussed in the forward-
looking statements.
The Company
Image Entertainment, Inc. is the largest licensee and
wholesale distributor of laserdiscs (LDs) in North America
and has distributed a broad range of LD programming since
1983. With the March 1997 introduction of the digital video
disc (DVD) to the consumer market, we began distributing
DVD titles on a non-exclusive wholesale basis in March 1997
and began releasing exclusively licensed DVD programming in
June 1997. We distribute thousands of titles on LD and over
1,000 titles on DVD, ranging from feature films and music
videos to family, documentary and special interest
programming.
On August 20, 1998, we agreed to acquire certain assets
and liabilities of the DVD and LD retail sales business of
Ken Crane's Magnavox City, Inc, including the
"kencranes.com" site on the World Wide Web, a mail-order
catalog business and a lease of an approximately 8,000
square foot retail store located in Westminster, California.
The closing of the acquisition depends on the success of
this offering and on obtaining our lenders' consent. Upon
the closing of the acquisition, we will make cash payments
totaling $5,000,000 to the seller, Ken Crane, Jr., Pamela
Crane and Casey Crane, collectively, and will issue
$2,000,000 worth, or 258,370 shares (valued at the time of
signing the asset purchase agreement) of our common stock to
the seller. Ken Crane, Jr., who has over 13 years of
experience in the optical disc retail sales business, will
become the Vice President-General Manager of our subsidiary
and will oversee the day-to-day operations of the newly
acquired business.
Our principal executive offices are located at 9333
Oso Avenue, Chatsworth, California 91311 and our telephone
number is (818) 407-9100.
The Offering
- We are offering 2,400,000 shares of common stock.
- If we sell all 2,400,000 shares, we will have 15,951,038 shares
of common stock outstanding after the offering. This is based
on the number of shares outstanding at November 6, 1998 and
excludes certain outstanding options, warrants and other
rights to acquire our common stock.
- If we sell enough shares to generate sufficient proceeds to
consummate the acquisition of the DVD and LD retail sales
business of Ken Crane's Magnavox City, Inc., we will use
the proceeds to pay all amounts due upon the closing
of such acquisition and for general corporate and working
capital purposes. If we do not sell enough shares and
are unable to find alternative financing to generate
sufficient proceeds to consummate the acquisition, we will
use the proceeds to seek additional DVD distribution
rights, to potentially develop our own web site for
retail sales of DVDs and LDs and for general corporate
and working capital purposes.
- Our Nasdaq National Market Symbol is "DISK."
1
<PAGE>
Summary Financial Information
We have derived the following summary historical
consolidated financial data from our fiscal year-end audited
financial statements for the fiscal years ended March 31,
1994 through 1998 and our unaudited financial statements for
the six months ended September 30, 1997 and 1998. Operating
data for the six months ended September 30, 1998 is not
necessarily indicative of results for the entire year. You
should read this summary information along with the Selected
Historical Financial Information included later in this
prospectus and the financial information described above.
You should also consider the information in the
Management's Discussion and Analysis of Financial Condition
and Results of Operations section in the Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 and in
the Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998.
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================================
Statement of Operations Data
(in thousands, except per
share data) Six months ended
September 30, Fiscal year ended March 31,
--------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- ---------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,974 $33,314 $75,516 $85,650 $95,086 $85,591 $65,578
Income (loss) before
extraordinary item (483) (375) (9,581) 972 7,599 7,530 3,739
Extraordinary item, net of taxes - - - (127) - (1,219) (378)
Net income (loss) (483) (375) (9,581) 845 7,599 6,311 3,361
Net income (loss) per share
Basic (.04) (.03) (.71) .06 .56 .48 .27
Diluted (.04) (.03) (.71) .06 .51 .40 .23
<CAPTION>
Balance Sheet Data
(in thousands) As of September 30, As of March 31,
--------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $37,465 $42,553 $33,781 $46,448 $39,406 $33,491 $42,526
Total liabilities 29,093 24,518 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,372 18,035 8,665 18,051 20,526 16,673 11,114
=======================================================================================================================
</TABLE>
In the above statement of operations data, the loss
before extraordinary item for the fiscal year ended March 31, 1998 includes:
- Non-cash charge of $8,133,000 to reduce the carrying
value of the Company's LD inventory to its net
realizable value,
- Non-cash charge of $4,246,000 to provide for estimated
losses on LD license and exclusive distribution
agreements, and
- Non-recurring charge of $825,000 related to the
closure of the Company's subsidiary, U.S. Laser
Video Distributors, Inc., of which $202,000 is
composed primarily of fees and expenses associated
with facility lease termination and employee
severance payments and $623,000 (a non-cash charge)
is composed of the write-off of unamortized facility
leasehold improvements and goodwill.
In the above statement of operations data, the loss
before extraordinary item for the fiscal year ended March
31, 1997 includes:
- Non-cash charge of $1,964,000 to reduce the carrying
value of the Company's LD inventory to its estimated
net realizable value,
- Non-cash charge of $1,946,000 to provide for estimated
doubtful accounts receivable, and
2
<PAGE>
- A non-recurring charge composed primarily of legal and
accounting fees associated with the termination of
acquisition negotiations.
In addition, in the above statement of operations data,
the extraordinary item is composed of costs associated with
early retirement of debt, net of related taxes of $56,000
for 1997, $34,000 for 1995 and $10,000 for 1994.
3
<PAGE>
RISK FACTORS
The shares of common stock being offered involve a high
degree of risk. You should carefully consider the following
risk factors and all other information contained in this
prospectus before you buy shares of our common stock:
Risks Associated with the Company and this Offering
No Obligation to Sell Minimum Number of Shares;
Potential Inability to Complete the Acquisition. MDB
Capital Group LLC has agreed to use its best efforts to sell
up to a maximum of 2,400,000 shares on our behalf, but has
not committed to purchase or sell any minimum number of
shares. The placement agent is not required to sell any
specific number or dollar amount of shares. We cannot
assure you that the placement agent will be able to sell a
sufficient number of shares on our behalf to allow us to
complete the acquisition of the DVD and LD retail sales
business of Ken Crane's Magnavox City, Inc. If the
placement agent does not sell a sufficient number of shares
to allow us to complete the acquisition, we will be unable
to complete the acquisition unless we can raise additional
funds to finance the acquisition. We cannot assure you that
we will be able to raise additional funds other than those
generated by this offering.
Use of Proceeds if We Do Not Complete the Acquisition.
If we do not sell enough shares or otherwise raise
sufficient funds to complete the acquisition, we will use
the net proceeds from this offering to seek additional
exclusive DVD distribution rights and to potentially develop
our own web site for the retail sale of LDs and DVDs
directly to the public. We believe that it would take at
least six months to develop such a web site, and at least
one to two years to market such a web site, in order to
achieve the level of customer awareness that the
"kencranes.com" site on the World Wide Web (the "KC Web
Site") currently enjoys. The development of such a web site
would require an investment of approximately $1.6 to $2.0
million for set-up and operational costs through the first
year of operation. These costs would include, among other
things, the acquisition of suitable computer systems, the
acquisition or development of appropriate software,
marketing costs, personnel costs and other overhead and
related costs. We cannot assure you that we will be able to
establish a web site that would enjoy the same goodwill that
the KC Web Site currently enjoys or that would otherwise
successfully compete with existing or future competitors in
the LD and DVD retail sales business. See "-Risks
Associated with the KC Web Site and Retail Sales over the
Internet" below for a discussion of additional risks
involved with developing and maintaining a web site for
retail sales of LDs and DVDs. See "-Dependence on Certain
Program Suppliers and Vendors" and "-Competition for DVD
Rights and Distribution" below for a discussion of
additional risks associated with our program suppliers and
distribution rights.
Potential Inability to Obtain Lenders' Consents
Required to Complete the Acquisition. We cannot close the
acquisition unless our lenders consent to the acquisition.
We believe that our lenders will only consent to the
acquisition if we raise sufficient funds to provide us with
additional working capital to fund continued operations
after the acquisition is completed. However, our lenders
have not communicated to us the actual amount of additional
working capital that they would require us to have for their
consent, and have not given us any assurance that they will
consent to the acquisition. Therefore, we cannot assure you
that these lenders will, in fact, consent to the acquisition
regardless of the amount of funds that we raise.
We Must Close the Acquisition on or before January 15,
1999. We expect to complete this offering, obtain our
lenders' consent to the acquisition (assuming we raise
sufficient funds in this offering), and complete the
acquisition prior to January 15, 1999. However, if the
closing of the acquisition has not occurred before January
15, 1999, each of the parties has the right to terminate the
transaction.
Limited Liquidity and Capital Resources. Because of
certain developments during the second half of fiscal 1997
and the first quarter of fiscal 1998, we became concerned
that our then-current sources of working capital may have
been insufficient to fund working capital requirements in
fiscal 1998.
4
<PAGE>
These developments included the following:
- the February 1997 suspension of $2.7 million in
accounts receivable due from Musicland (the
Company's then-largest customer),
- the July 1997 Chapter 11 bankruptcy filing by Alliance
Entertainment Corp. (the Company's then-second
largest customer),
- the then-unsuccessful efforts to sell the front 8.8
acres of the Company's Nevada land,
- the ongoing adverse impact of DVD on LD sales, and
- the increased cash requirements to exclusively license
DVD programming.
In September 1997, we raised additional capital by
obtaining a $5 million convertible loan from Image Investors
Co., our largest shareholder, which we believe successfully
alleviated our short-term liquidity constraints. We believe
that the proceeds we will receive from this offering,
together with our existing resources and anticipated cash
flows from operations, will be sufficient to satisfy our
working capital requirements for at least 12 months
following this offering. However, we cannot assure you that
such proceeds, resources and anticipated cash flows will be
sufficient or that we will not require additional financing
within that time period. If we do not have working capital
sufficient to satisfy our requirements, we may seek to raise
additional funds through public or private financing or
other arrangements. Any additional equity financing may be
dilutive to shareholders. We cannot assure you that we
would be able to raise capital on terms to our satisfaction.
If we are unable to raise capital when needed, our business,
financial condition and results of operations could be
materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" in our Annual
Report on Form 10-K for the fiscal year ended March 31, 1998
for additional information about our liquidity and capital
resources.
Potential Inability to Integrate the New Business and
Employees. We expect to incur considerable expenses in the
near future in connection with the integration of the
business we have agreed to acquire in the acquisition (the
"Acquired Business") and cannot assure you that we will be
able to successfully integrate the systems, employees and
other resources of the Acquired Business. We will face
significant risks and challenges when we attempt to
integrate the operations of the Acquired Business with ours.
In addition to dealing with the challenges of integrating
computer systems, we will need to integrate approximately 50
employees, including five managerial employees, into our
work-force. We will also need to combine infrastructure and
services to efficiently support the newly combined
businesses.
Dependence on Certain Program Suppliers and Vendors.
We receive a significant amount of our revenues from the
distribution of those LDs and DVDs for which we have
exclusive agreements with program suppliers. For the fiscal
year ended March 31, 1998, approximately 75.3% of our net
sales were from titles covered by exclusive arrangements.
We cannot assure you that we will be able to renew these
exclusive rights as the existing agreements with each
program supplier expire. In addition, we cannot assure you
that our current program suppliers will continue to license
titles to us on the current terms or that we will be able to
establish new program supplier relationships to ensure
acquisition of titles in a timely and efficient manner or on
an exclusive basis. If we cannot maintain relationships
with our program suppliers, on an exclusive basis or
otherwise, we could suffer a material adverse effect on our
business, prospects, financial condition and results of
operations.
Potential Inability to Compete Successfully for LD
Rights and Distribution. We cannot assure you that we will
be able to continue to secure LD license and distribution
rights on terms acceptable to us. We compete directly with
Pioneer and other independent licensees for LD distribution
rights. Pioneer licenses and distributes LDs and has
exclusive LD output license agreements with Paramount and
Universal. We also compete with LD sub-distributors and
Columbia/TriStar, which sells its own programming directly
to retailers and to other distributors in addition to its
sales to us. We expect to
5
<PAGE>
continue to be able to purchase LD titles on a wholesale
basis from Columbia/TriStar but we cannot assure you that
we will continue to be able to do so if Columbia/TriStar
elects to sell direct, increase the number of entities
distributing its programming or limit our access to
programming.
Potential Inability to Compete Successfully for DVD
Rights and Distribution. We cannot assure you that we will
be able to continue to secure DVD license and distribution
rights on terms acceptable to us. Given the relative
newness of the DVD format and its uncertain position in the
home video software market, none of the major motion picture
studios has granted exclusive licenses for its new releases
and most popular catalogue titles. Instead, the major
motion picture studios sell this programming directly to
retailers, other distributors and us. Given that DVD is
positioned to become a replacement for VHS (although it
remains to be seen whether this will occur), we also compete
with independent licensing and distribution entities from
the VHS sector of the home video market. This is different
from the LD market (which is a confirmed niche market) in
which we face licensing and distribution competition from
significantly fewer sources. We expect to be able to
purchase DVD titles on a wholesale basis from all
participating program suppliers for sale to our customers
but we cannot assure you that we will be able to
continue to do so if DVD program suppliers elect to sell direct,
increase the number of entities distributing their
programming or limit our access to their programming.
Potential Inability to Compete Successfully with Other
Forms of Home Video Entertainment. Both the LD and DVD
formats compete with other forms of in-home entertainment,
such as VHS, network, syndicated, cable and pay-per-view
television and home satellite systems. The LD and DVD
formats also compete with new and emerging technologies in
the entertainment industry, such as entertainment
programming on the Internet, video-on-demand, high-
definition television, digital videotape and optical discs
with greater storage capacity. These alternate forms of
leisure-time entertainment and novel means of video delivery
could negatively impact the overall market for LD and DVD
sales and us. In addition, emerging technology may allow
consumers to download audio or video programming directly to
the consumer's home computer from the Internet and store
such products on a recordable disc. The development and
advancement of such technology into a viable alternative to
purchasing LDs or DVDs could have a material adverse effect
on our business, prospects, results of operation and
financial condition.
Dependence on Sales to Our Largest Customers. Our
aggregate sales to our three largest customers (Norwalk
Record Distributors, Ken Crane's Home Entertainment and
Musicland) accounted for approximately 31% of our net sales
for the fiscal year ended March 31, 1998. Any significant
delay or reduction in orders from these customers or any
nonpayment or late payment of amounts due by these customers
could have a material adverse effect on our business,
prospects, results of operations and financial condition.
We cannot assure you that these customers will continue
their current buying patterns or that we will be able to
maintain our current relationships with each of them.
Further, if we complete the acquisition, our other large
customers could consider us to be a more direct competitive
threat to their businesses. If so, our customers may reduce
the amount of product they purchase from us which may result
in a material adverse effect on our business, prospects,
results of operations and financial condition.
Significant Operating and Net Losses; Uncertainty of
Future Profitability. We incurred an operating loss of
$9,089,000 and a net loss of $9,581,000 for the fiscal year
ended March 31, 1998. We cannot assure you that we will
achieve or sustain profitability, and we may have
significant or increasing operating and net losses in the
future. Our losses during the 1998 fiscal year were
primarily a result of DVD's continued negative impact on LD
programming sales. In addition to decreased net sales due
to the decline in LD sales, we experienced a rapid decline
in the net realizable value of our LD-related assets due to
DVD's negative impact. Our decline in net sales was
partially offset by sales from our distribution of DVD
programming. Our ability to increase revenues and achieve
profitability and positive cash flow will depend upon our
ability to transition from LD sales to DVD sales and our
ability to increase DVD programming sales and procure DVD
license and distribution rights. See "-Potential Inability
to Compete Successfully for DVD Rights and Distribution"
above.
Rapid Decline of the LD Industry. Due to the growth of
the market for DVDs, LD programming sales decreased
significantly during the fiscal year ended March 31, 1998.
The decrease in LD programming sales has had a significant
adverse impact on our business operations and profitability,
and
6
<PAGE>
we incurred substantial losses during fiscal 1998 due
largely to this decrease. We cannot assure you that the LD
market will stabilize or improve at any time in the future
or that we will be able to distribute LDs profitably at any
time in the future. See "-Potential Inability to Sustain LD
Business During Transition Period Caused by DVD" below and
"-Significant Operating and Net Losses; Uncertainty of
Future Profitability" above.
Potential Delays in Opening the New Distribution
Facility. Although we currently expect to be shipping
product from the new automated distribution facility in Las
Vegas, Nevada by December 31, 1998, we cannot assure you
that it will actually become operational at that time or
that the automated systems will operate as planned without
delay. We have expended significant time, capital and other
resources to construct the new distribution facility and any
delay beyond December 31, 1998 in the opening of the
distribution facility and any inability to correct problems
that arise with the facility's automated systems could have
a material adverse effect on our business, prospects,
results of operations and financial condition.
Potential Inability to Sustain LD Business During
Transition Period Caused by DVD. We cannot assure you that
we will be able to sustain our core LD business until a
transition can be made to DVD, if ever, or that LD program
suppliers and LD hardware manufacturers will continue to
support the LD format during the transition period. If we
can successfully maintain our LD business during such a
transition period, we cannot assure you that we will be able
to license and distribute DVD programming with the same
success we have experienced in the LD market, either
generally or with the selection and pricing margins we
currently offer our customers.
Dependence on Growth of the DVD Market. Our business
is increasingly dependent on the growth of the market for
DVDs, which have not yet received mass market acceptance.
We believe that the lack of mass market acceptance of DVD is
principally due to the following factors:
- the lack of a consumer-priced recordable DVD player,
- the lack of an established rental market,
- consumer confusion regarding the features,
availability and potential of the format,
- the large number of titles currently available on LD,
and
- potential competition from the "DIVX" DVD format (see
"Management's Discussion and Analysis of Financial
Condition and Results of Operations-General-Potential
Competing Format to DVD" in our Annual Report on form
10-K for the fiscal year ended March 31, 1998 for a
discussion of the "DIVX" DVD format).
All of these factors could impede the growth and
acceptance of DVD. We cannot assure you that a rental
market will develop or that a consumer-priced recordable DVD
player (which could lead to greater mass-market appeal) will
be available in the future. In addition, we cannot assure
you that studios and program suppliers will release a wide
variety of release and catalogue DVD titles to increase
availability and therefore the appeal of the DVD format.
Reliance on Vendors for LD/DVD Production and
Replication. We expect to be able to continue using various
outside vendors to author, compress and replicate marketable
DVD titles for release under our exclusive DVD license
agreements. Despite LD's decline, we also believe that we
will be able to use several outside manufacturing facilities
to replicate our LD products. However, we cannot assure you
that our vendors will continue to provide such services at
the same or higher level of quality and quantity, or that we
will be able to access or afford alternative vendors for
such services.
Seasonality and Variability. We have generally
experienced higher sales of LDs and DVDs in the quarters
ended December 31 and March 31 due to increased consumer
spending associated with the year-
7
<PAGE>
end holidays and because most sales of a title occur
in the first few months after its release. Accordingly,
the Company's revenues and results of operations may vary
significantly from period to period, and the results of
any one period may not be indicative of the results of
any future periods. This seasonality also causes the
Company's revenues to be concentrated in the last two
quarters of the fiscal year. In addition to seasonality
issues, other factors have contributed to variability
in our LD and DVD net sales on a quarterly basis.
These factors include:
- DVD's negative impact on LD sales,
- the popularity of titles in release during the
quarter,
- our marketing and promotional activities,
- our rights and distribution activities,
- the extension, termination or non-renewal of existing
license and distribution rights, and
- general economic changes affecting the buying habits
of our customers, particularly those changes
affecting consumer demand for LD and DVD hardware
and software.
Volatility of Stock Price. The price of our common
stock has historically fluctuated based on many factors.
These factors include our operating results and financial
condition, the perception of the value of our LD and DVD
offerings, overall stock market conditions and the market
for similar securities. In recent months, the volatility of
our stock price has been even higher, as shown in the table
below:
<TABLE>
<CAPTION>
Percentage Change
Date Closing Price from Previous Date Listed
<S> <C> <C>
March 31, 1998 $3.063 N/A
July 17, 1998 $10.00 Increase 226%
October 14, 1998 $3.125 Decrease 69%
November 4, 1998 $5.50 Increase 76%
</TABLE>
See "Price Range of Common Stock" beginning on page 17
of this prospectus for additional information regarding the
price range of our common stock.
Dependence on Key Personnel. Our success greatly
depends on the efforts of our executive management,
including the President and Chief Executive Officer, Chief
Financial Officer, Chief Administrative Officer and General
Counsel, and Senior Vice President of Sales, Marketing and
Operations. In addition, our ability to operate the
Acquired Business successfully will significantly depend on
the services and contributions of Ken Crane, Jr., to whom we
will make a one-time payment of $1.5 million upon the
closing of the acquisition. Although we will enter into an
employment agreement with Ken Crane, Jr. upon the closing of
the acquisition, we cannot assure you that Ken Crane, Jr.
will continue his employment for any specified period of
time or that the success he enjoyed operating an independent
company can be matched. Our business and operations may be
adversely affected if one or more key executives or if Ken
Crane, Jr. were to leave.
Potential Adverse Effect of Shares Eligible for Future
Sale. Sales of substantial amounts of our common stock in
the public market after this offering or the anticipation of
such sales could have a material adverse effect on then-
prevailing market prices. As of November 6, 1998, there
were outstanding options, warrants and rights to purchase or
acquire 2,761,505 shares of our common stock, including
2,564,352 that are exercisable within 60 days after such
date. As of such date, Image Investors Co., our largest
shareholder, had demand registration rights and piggyback
registration rights (not applicable to this
8
<PAGE>
offering) relating to 4,696,378 shares of our common stock owned by
it. See "Security Ownership of Certain Beneficial Owners
and Management" in our Proxy Statement dated July 29, 1998
and "Description of Capital Stock" below for additional
information regarding registration rights.
Risks Associated with the KC Web Site and Retail Sales over the Internet
One of our principal business objectives is to increase
our direct-to-consumer sales. To that end, we have recently
agreed to acquire the Acquired Business, which includes the
KC Web Site. If the acquisition is not completed, we intend
to establish our own web site for the retail sale of DVDs
and LDs. In either case, we will face the risks described
below in operating a retail sales business over the
Internet. If we do not complete the acquisition and instead
develop a new web site for retail sales, we will also face
the risks described under the heading "Risks Associated with
the Company and this Offering - Use of Proceeds if We Do Not
Complete the Acquisition" on page 4 above.
Potential Inability to Compete Successfully in the
Internet Commerce Industry. We cannot assure you that the
KC Web Site will be able to compete successfully against
current or future competitors. The market for commerce over
the Internet is new, rapidly evolving and intensely
competitive. We expect this competition to intensify in the
future due in part to the minimal barriers to entry and the
relatively low cost to launch a new web site. We will
compete with a variety of other companies for sales of LDs
and DVDs over the Internet. Some of these competitors can
devote substantial resources to Internet commerce in the
near future. The KC Web Site will also compete with
traditional retailers of LDs and DVDs, including mail-order
houses and video clubs.
We believe that the principal competitive factors we
will face in selling LDs and DVDs through the KC Web Site
are brand recognition, selection, availability, price,
effectiveness of advertising, customer service, technical
expertise, convenience, accessibility, quality of search
tools, quality of editorial and other site content and
reliability and speed of fulfillment. Many of the current
and potential competitors of the Acquired Business have
large customer bases, greater brand recognition and
significantly greater financial, marketing and other
resources than we have. In addition, some competitors may
be able to obtain merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory
availability policies and devote more resources to web site
and systems development than we can. The KC Web Site could
suffer reduced operating margins and market share and brand
recognition based on increased competition.
Potential Inability to Keep Pace with Rapid
Technological Change. We cannot assure you that we will
successfully use new technologies effectively or adapt the
KC Web Site or the systems of the Acquired Business to
customer requirements or emerging industry standards. The
technology used in the Internet commerce industry changes
rapidly. This rapid change results in the availability of
many new products and services, new industry standards and
frequent changes in user and customer requirements and
preferences. The success of the KC Web Site will depend, in
part, on our ability to do the following:
- license leading technologies useful in the Internet
sales business,
- enhance the KC Web Site's existing services,
- develop new services and technology that address the
increasingly sophisticated and varied needs of our
customers, and
- respond to technological advances and emerging
industry standards and practices on a cost-effective
and timely basis.
Dependence on Continued Growth of Internet Commerce.
We cannot assure you that acceptance and use of the Internet
and World Wide Web will continue to develop or that a
sufficiently broad base of consumers will adopt and use the
Internet and World Wide Web as a medium of commerce.
Potential future revenues and profits from sales over the
Internet substantially depend on the widespread
9
<PAGE>
acceptance and use of the Internet as an effective medium of commerce
by consumers. Rapid growth in the use of and interest in the
World Wide Web, the Internet and other on-line services is a
recent phenomenon. For the KC Web Site to be successful,
consumers who have historically used traditional means of
commerce to purchase merchandise must accept and utilize
novel ways of conducting business and exchanging
information.
If the Internet and other on-line services continue to
experience significant growth in the number of users, the
frequency of use or bandwidth requirements, the
infrastructure for the Internet could be affected by
capacity constraints. In addition, the Internet could lose
its viability due to delays in the development or adoption
of new standards and protocols required to handle increased
levels of service activity. Changes in or insufficient
availability of telecommunications services to support the
Internet also could result in slower response times and
could adversely affect usage of the Internet. Our business,
prospects, financial condition and results of operations
could be materially adversely affected if use of the
Internet does not continue to grow or grows more slowly than
expected, if the infrastructure for the Internet does not
effectively support growth that may occur, or if the
Internet does not become a viable commercial marketplace.
Internet Commerce Security Risks. Secure transmission
of confidential information over public networks is a
significant barrier to Internet commerce. Advances in
computer capabilities, new discoveries in the field of
cryptography or other developments could compromise the
security measures we employ to protect customer transaction
data. In addition, concerns over the security of
transactions conducted on the Internet and the privacy of
users in general may inhibit the growth of Internet
commerce. To the extent that our activities or the
activities of third-party contractors involve the storage
and transmission of proprietary information, such as credit
card numbers, security breaches could damage our reputation
and expose us to a risk of loss or litigation and possible
liability. We may be required to expend significant capital
and other resources to protect against such security
breaches or to alleviate security-related problems and we
cannot assure you that our security measures will prevent
security breaches. Any compromise of our security systems
could have a material adverse effect on our reputation,
business, prospects, financial condition and results of
operations.
Capacity Constraints; Risks Associated with System
Development. A key element of our business strategy is to
generate a high level of use of the KC Web Site. We believe
that the satisfactory performance, reliability and
availability of the KC Web Site and the related transaction-
processing systems and network infrastructure will be
critical to our reputation and our ability to attract and
retain customers and to maintain adequate customer service
levels. Accordingly, if the acquisition is completed, we
plan to upgrade or replace all of the systems that currently
operate the KC Web Site and to integrate such systems with
the new distribution facility. The upgrade and/or
replacement of the systems may require substantial amounts
of capital investment. We cannot assure you that we will be
able to find sources for such capital on terms suitable to
us. Any inability on our part to work out any technical
problems in the upgrade or replacement of the KC Web Site's
transaction-processing systems or the distribution center
integration in a timely manner could have a material adverse
effect on our business, prospects, financial condition and
results of operations.
Even if we are able to develop adequate transaction-
processing systems and to integrate the KC Web Site with the
distribution center in a timely manner, periodic system
interruptions may occur on the KC Web Site. While we
believe that we will be able to upgrade or install new
hardware and software that will be sufficient to accommodate
the anticipated traffic on the KC Web Site, we cannot assure
you that periodic system interruptions will not occur even
after the upgrade or installation. Any substantial increase
in the volume of traffic on the KC Web Site or the number of
orders placed by customers will require us to further expand
and upgrade our technology, transaction-processing systems
and network infrastructure. In addition, we are dependent
upon web browser companies and Internet service providers
for access to our products and services. Viewers have
experienced and may in the future experience difficulties
due to system or software failures or incompatibilities not
within our control. Any system interruptions that result in
the unavailability of the KC Web Site or reduced order
fulfillment performance would reduce the volume of goods
sold and the attractiveness of our product and service
offerings and could have a material adverse effect on us.
10
<PAGE>
Legal Constraints in Operating on the Internet. We
could be materially adversely affected by any new
legislation or regulation or by the application or
interpretation of existing laws to the Internet. Federal,
state and foreign governmental organizations are currently
considering many legislative and regulatory proposals. If a
government authority were to adopt laws or regulations that
cover Internet-related issues such as user privacy, pricing
and characteristics and quality of products and services
provided, the growth of the Internet could be adversely
affected. This could lead to a decrease in demand for
products offered over the Internet, including those that the
KC Web Site offers, and could increase the cost of doing
business on the Internet. In addition, we do not know how
existing laws governing issues such as property ownership,
copyright, trade secret, libel and personal privacy will be
applied to the rapidly-changing Internet.
Year 2000 Compliance with Respect to the KC Web Site.
We are aware of the issues associated with the programming
code in existing computer systems as the year 2000
approaches. We intend to install year 2000 compliant systems
for the KC Web Site when we perform the hardware and
software upgrades or replacements described above. However,
we cannot assure you that we will be able to successfully
install the new systems before the time necessary to avoid
year 2000 related problems. In addition, we cannot assure
you that the new systems will actually perform adequately
when the year 2000 arrives. Because the KC Web Site's
systems will depend on other systems that we do not control,
any year 2000 compliance problems in such other systems
could materially adversely affect the KC Web Site. Any
system interruption in the KC Web Site resulting from year
2000 compliance problems could materially adversely affect
our business, results of operations, financial condition and
prospects.
11
<PAGE>
THE COMPANY
Image Entertainment, Inc. (the "Company") is the
largest licensee and wholesale distributor of laserdiscs
(LDs) in North America and has distributed a broad range of
LD programming since 1983. With the March 1997 introduction
of the digital video disc (DVD), a new optical disc format,
to the consumer market, the Company began distributing DVD
titles on a non-exclusive wholesale basis and shortly
thereafter began releasing exclusively licensed DVD
programming in June 1997. The Company's DVD sales are a
rapidly growing part of its business. For the six months
ended September 30, 1998, DVD sales represented
approximately 42% of the Company's net sales compared to
approximately 13% during the same period in 1997. This is
also a percentage increase compared to the Company's fiscal
year ended March 31, 1998, during which DVD sales
represented approximately 21% of the Company's net sales.
The Company distributes thousands of titles on LD and
over 1,000 titles on DVD. These titles range from feature
films and music videos to family, documentary and special
interest programming. The Company has exclusive agreements
with Disney's Buena Vista Home Video, Playboy Home Video,
Twentieth Century Fox Home Entertainment, Warner Home Video,
New Line Home Video, Orion Home Video, The Criterion
Collection and numerous other program suppliers. These
agreements provide the Company exclusive distribution rights
to certain LD titles. In addition, the Company has
exclusive agreements with Universal (50 titles), Orion (12
titles), Playboy (all output) and numerous other program
suppliers granting the Company exclusive distribution rights
to certain DVD titles. The Company also distributes LDs and
DVDs on a non-exclusive basis. The Company is actively
pursuing additional DVD license and distribution rights.
Where the Company is unable to secure such rights, it will
attempt to purchase and distribute DVD programming on a non-
exclusive wholesale basis.
On August 20, 1998, the Company's wholly-owned
subsidiary ("Image/KC") agreed to acquire certain assets and
liabilities of the Acquired Business from Ken Crane's
Magnavox City, Inc. (the "Seller"). The Acquired Business
consists of the KC Web Site, a mail-order catalog business
and a lease of an approximately 8,000 square foot retail
store located in Westminster, California. The Acquired
Business had net sales of approximately $16.9 million for
its fiscal year ended July 31, 1998. The Company believes
that the acquisition will enable it to increase its public
presence by reaching its customers directly through the KC
Web Site. The closing of the acquisition, currently
expected to be completed late in the Company's third fiscal
quarter or early in its fourth fiscal quarter, is contingent
on the Company raising sufficient funds to make all payments
required in connection with the acquisition. See "Recent
Developments-The Acquisition" and "Use of Proceeds." The
Acquired Business has historically been one of the Company's
largest customers. During the fiscal year ended March 31,
1998, the Company had net sales to the Acquired Business of
approximately $8.1 million, representing approximately 10.7%
of the Company's net sales during such period. During the
six months ended September 30, 1998, the Company had net
sales to the Acquired Business of approximately $3.2
million, representing approximately 10.2% of the Company's
net sales during such period.
The Company has not paid any cash dividends on its
common stock in recent years and does not anticipate that it
will pay dividends in the foreseeable future. The Company
was incorporated in the State of Colorado in April 1975 as
Key International Film Distributors, Inc., adopted its
present name in June 1983 and reincorporated into California
in November 1989. The Company maintains its executive
offices at 9333 Oso Avenue, Chatsworth, California 91311 and
its telephone number is (818) 407-9100.
For additional information concerning the Company, see
the Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, filed with the Securities and Exchange
Commission (the "Commission") on June 25, 1998, as amended
by Amendment No. 1 thereto, filed with the Commission on
November 30, 1998 (the "Annual Report"); the Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, filed with the Commission on
November 12, 1998, as amended by Amendment No. 1 thereto,
filed with the Commission on November 30, 1998 (the
"Quarterly Report"); and the Proxy Statement dated July 29,
1998 (the "Proxy Statement") delivered concurrently with
this prospectus.
12
<PAGE>
RECENT DEVELOPMENTS
The Acquisition
On August 20, 1998, our subsidiary Image/KC agreed to
acquire certain assets and liabilities (as described more
fully below) of the DVD and LD retail sales business of the
Seller. The Acquired Business, which sells LDs and DVDs
through the KC Web Site, a mail-order catalog and an
approximately 8,000 square foot retail store located in
Westminster, California, had net sales of approximately
$16.9 million for its fiscal year ended July 31, 1998. The
Acquired Business has historically been, and currently is,
one of the Company's largest customers. During the fiscal
year ended March 31, 1998, the Company had net sales to the
Acquired Business of approximately $8.1 million,
representing approximately 10.7% of the Company's net sales
during such period. During the six months ended June 30,
1998, the Company had net sales to the Acquired Business of
approximately $3.2 million, representing approximately 10.2%
of the Company's net sales during such period. Accordingly,
the Company will eliminate all significant intercompany
balances and transactions when it consolidates the financial
position and results of operations of the Acquired Business
with those of the Company.
<TABLE>
<CAPTION>
Selected unaudited financial information regarding the
Acquired Business for the year ended July 31, 1998 is as
follows (in thousands)<1>:
<S> <C>
Net sales $16,900
Cost of goods sold $16,428<2>
-------
Net Income $ 472
=======
-----------------
<FN>
<1> The financial information is unaudited; however,
the information for the Acquired Business gives
effect to all adjustments (which include normal
recurring accruals) necessary, in the opinion of
management of the Acquired Business, to present
fairly the selected financial information for the
year ended July 31, 1998.
<2> Includes purchases from the Company aggregating
$8,069, which are marked-up by various percentages
and then sold to consumers by the Acquired Business.
</FN>
</TABLE>
The Company believes that the Acquired Business will
generate future operating benefits by providing a wider
distribution channel for the Company's products in the form
of increased access to Internet, mail order and retail.
The net assets of the Acquired Business are expected
to be minimal. Accordingly, a significant portion
of the purchase price will be allocated to intangible assets
including goodwill and covenants not to compete. The
allocation of the purchase price, including the intangible
assets, will be based upon the estimated fair values of the
respective assets. The goodwill will be amortized over a 15
year period and the covenants not to compete will be
amortized over 5 years, except that the value assigned to
the consulting agreements described below for Pamela Crane
and Casey Crane will be amortized over the one-year life of
those agreements.
The Company believes that the Acquired Business will be
able to take advantage of the growing level of commerce
conducted over the Internet. Aggregate product sales made
over the World Wide Web in 1997 reached approximately $3.4
billion, representing an increase of approximately 216% from
1996. In addition, the Company expects that by March 1999,
the KC Web Site will be integrated with the Company's new
automated distribution facility in Las Vegas, Nevada
(currently expected to be shipping product by December 31,
1998), which the Company believes will provide increased
efficiency in general, including the ability to fulfill and
ship orders quickly. The Company believes this will be a
key feature in ensuring customer satisfaction and customer
loyalty and that it will ultimately result in increased
traffic volume on the KC Web Site and an increased volume of
orders.
13
<PAGE>
The KC Web Site differs from the Company's current web
site at www.Image-Entertainment.com because visitors to the
KC Web Site can purchase LDs and DVDs directly from the KC
Web Site. The KC Web Site lists retail prices, has
"shopping cart" and "check out" features, allows for
consumer interaction via e-mail, lists over 10,000 items
that can be purchased directly from the site and provides
synopses of each such item. The Company's existing web site
does not sell product, but rather simply provides
information regarding the Company, its new releases (and
suggested retail prices of same) and other general Company
and industry news.
The Asset Purchase Agreement dated as of August 20,
1998 between the Seller and Image/KC, as amended (the
"Purchase Agreement"), contains the following material
provisions:
- Image/KC will acquire certain assets of the Seller,
including, among other things:
- all rights to the KC Web Site and the Seller's mail-
order business,
- all leasehold interests (and fixtures and
improvements) of the Acquired Business (including
the Westminster store),
- all of the Acquired Business's inventory (other
than adult entertainment titles),
- all of Seller's rights under certain license and
distribution agreements, and
- all of Seller's intangible property rights relating
to the Acquired Business.
- Image/KC will receive an exclusive, irrevocable,
royalty-free license to use the "Ken Crane's" name
and its derivatives in connection with the Acquired
Business and no other person (including the Seller)
may use the name in a similar context.
- Image/KC will pay the Seller $3 million in cash, of
which $500,000 will be held in escrow for 90 days
and will be paid to the Seller in full only if no
claims for indemnity arise prior to the expiration
of the 90-day period.
- The Company will issue to the Seller $2,000,000 worth
of its common stock, or 258,370 shares, based on the
average closing price of the common stock for the 10
trading days prior to the signing of the Purchase
Agreement.
- Image/KC will assume: (1) certain trade payables of
the Seller (the amount of which will be offset by
the value of a portion of the assets acquired), (2)
the Seller's obligations under the Westminster store
lease, and (3) the Seller's obligations with respect
to certain of its LD and DVD suppliers.
In addition, the Purchase Agreement requires that Ken
Crane, Jr. execute an employment agreement with Image/KC
upon the closing of the acquisition. Upon doing so, Ken
Crane, Jr. will become the Vice President - General Manager
of Image/KC and will receive a one-time signing bonus of
$1.5 million (which the Company will record as a component
of the purchase price). Ken Crane, Jr. has over 13 years of
experience in the optical disc retail sales business and has
been primarily responsible for building the Acquired
Business. Ken Crane, Jr.'s employment agreement will also
include the following material terms:
- A five-year term, renewable by Image/KC for up to two
additional one-year terms,
- Ken Crane, Jr. will receive a salary of $150,000 per
year (with 5.0% cumulative annual increases),
14
<PAGE>
- Ken Crane, Jr. will receive a bonus equal to the sum
of (1) 0.40% of annual net revenues of Image/KC plus
(2) 5.0% of Image/KC's pre-tax profits (which will
be determined by adjusting the operating income of
Image/KC (after any extraordinary items, as defined)
to reflect particular income and/or expense items,
including, without limitation, inter-company
allocations of corporate overhead, as defined), and
- Standard non-compete terms preventing Ken Crane, Jr.
from competing with Image/KC during the term of his
employment.
The total purchase price for the Acquired Business is
as follows (in thousands):
<TABLE>
<S> <C>
Cash payments to seller $3,000
Common Stock of the Company
issued to the Seller $2,000
Signing bonus paid to Ken
Crane, Jr. $1,500
Consulting payments to
Pamela $ 500
and Casey Crane
Costs and expenses $ 300
------
$7,300
======
</TABLE>
Ken Crane, Jr. will oversee day-to-day management of
the retail sales business of Image/KC. Pursuant to
consulting agreements to be executed with Image/KC, which
will include standard confidentiality and non-compete terms
during the term of the agreements, Pamela Crane and Casey
Crane, the sister and brother of Ken Crane, Jr., will also
each receive payments totaling $250,000 (which will be paid
half at closing and half in January 1999 and will be
recorded as a component of the purchase price) for their
consulting services pursuant to consulting agreements that
include confidentiality and non-compete provisions.
The Purchase Agreement grants the Seller an exchange
right with respect to the common stock being issued to the
Seller in the event that the Company, through a subsidiary,
undertakes an underwritten, registered public offering of
the stock of a company that owns the assets of the Acquired
Business within one year after the closing of the
acquisition. In that event, the Seller would have the
right, subject to applicable legal limits and conditioned
upon the closing of such offering, to exchange up to 50% of
the shares of common stock acquired by the Seller upon the
closing of the acquisition, for shares of such company based
on a pricing formula established in the Purchase Agreement.
The Purchase Agreement includes standard
representations and warranties by the Seller regarding the
Acquired Business and mutual indemnification obligations of
the parties, as well as standard closing conditions
(including obtaining the consent of certain of the Company's
lenders and the Company's raising sufficient funds to make
all required payments in connection with the acquisition).
In addition, the Seller has agreed not to compete with the
Company for a period of five years after the date of the
closing of the acquisition in certain locations.
The Seller, d/b/a Ken Crane's Home Entertainment, is a
family run business which was founded by Charles K. Crane.
Charles K. Crane, the father of Ken Crane, Jr., has managed
the business, either directly or through a family trust,
since its inception. The Seller's primary business has
traditionally consisted of retail sales of home video and
audio equipment through its hardware division. Ken Crane,
Jr. has been involved in the family business since 1972, and
in 1985 began selling LDs to the public and established the
Acquired Business. Since that time, Ken Crane, Jr. has been
primarily responsible for the management of the Acquired
Business, overseeing its growth into its current status as a
retail seller of LDs and DVDs through the various channels
described above.
15
<PAGE>
New Board Member
On September 11, 1998, the Company's shareholders
elected M. Trevenen Huxley, 46, to serve as a director of
the Company. Mr. Huxley's election filled the vacancy
created when Mr. Russ Harris passed away on July 31, 1998.
In 1990, Mr. Huxley co-founded Muze, Inc., a provider of
digital information about music, books and movies. From
1992 to March 1998, Mr. Huxley served as the President and
Chief Executive Officer of Muze, Inc. and is currently its
Executive Vice President for Business Development. Mr.
Huxley is also a member of Muze, Inc.'s Board of Directors.
Muze, Inc. is a closely-held corporation which is controlled
by John W. Kluge. Stuart Subotnick also owns a minority
interest in Muze, Inc. Messrs. Kluge and Subotnick, through
Image Investors Co., are also the largest shareholders of
the Company.
Adoption of 1998 Incentive Plan
The Company's shareholders approved the Image
Entertainment, Inc. 1998 Incentive Plan at the Annual
Meeting of Shareholders held on September 11, 1998. For a
description of the material provisions of the 1998 Incentive
Plan, see "Proposal 2-Approval of 1998 Incentive Plan"
beginning at page 16 of the Company's Proxy Statement
delivered with this prospectus. The complete text of the
1998 Incentive Plan has been filed as an exhibit to the
electronic version of the Proxy Statement and can be
reviewed on the Commission's web site at http://www.sec.gov.
New Employment Agreements for Management
The Company confirmed new employment agreements during
November 1998 with each of Martin Greenwald, Cheryl Lee,
Jeff Framer and David Borshell, which agreements would be
effective from July 1, 1998 and would remain effective for a
term of two years (subject to evergreen annual extensions
thereafter absent at least six months advance notice of
termination by either the Company or the executive). In
addition to the salary, bonus, allowance and stock award
amounts described in the Proxy Statement, the new employment
agreements provide for different benefits upon a termination
of employment. Such benefits vary depending upon the reason
for the termination and when it occurs. (Capitalized terms
used but not defined below have the meanings assigned to
them in the employment agreements.)
If an employment agreement is terminated prior to the
expiration of the Term and prior to a Change in Control
"Without Cause" (which generally means for any reason other
than (a) death or disability, (b) for Cause or (c) a
voluntary termination), the executive will continue to
receive base salary (and, for Mr. Greenwald, allowances) and
bonus compensation earned, certain fringe benefits
(including medical, dental, short and long-term disability
and life insurance), and any options and other stock-based
awards consistent with the terms of the awards
(collectively, the "Aggregate Compensation"), through the
remainder of the Term. The executive will also receive
severance benefits consisting of an additional six months
continuation of salary and insurance and a pro rata portion
of any bonus payable for six months or for any partial
fiscal year that has occurred prior to the expiration of the
Term, whichever is greater (the "Severance Benefits"). If
the employment agreement is terminated prior to the
expiration of the Term but upon or after a Change in Control
(1) for any reason other than (a) death or disability, (b)
for Cause or (c) a voluntary termination (other than a
termination for "Good Reason"), or (2) by the executive for
"Good Reason" (which generally includes a material reduction
in duties, status, compensation or benefits, a material
breach by the Company, or a forced relocation), the
executive will be entitled to the Aggregate Compensation for
the longer of one year after the termination or through the
expiration of the Term, plus the Severance Benefits.
In addition, all unvested existing options granted to
the executive will immediately vest if the agreement is
terminated by the Company "Without Cause", or by the
executive for "Good Reason" after a Change in Control. Any
unvested portion of the executive's Restricted Stock Unit
Award that has not expired will vest immediately if the
agreement is terminated by the Company "Without Cause"
within one year after a Change in Control, or less than
three months prior to and in express anticipation of an
announced Change in Control, but not earlier than December
6, 1998.
16
<PAGE>
USE OF PROCEEDS
If the Company sells all 2,400,000 shares of its common
stock being offered, the net proceeds to the Company from
such sale are estimated to be approximately $9.8 million
(assuming an offering price to the public equal to $4.75 per
share, the closing price of the Company's common stock on
November 24, 1998). The Company intends to use $5 million
of the net proceeds to make the payments required to be made
upon the closing of the acquisition, including $3 million to
the Seller, $1.5 million to Ken Crane, Jr. upon the
execution of his employment agreement and $250,000 to each
of Pamela Crane and Casey Crane for consulting services to
be rendered to Image/KC. Additional net proceeds will be
used for general corporate and working capital purposes.
If the Company does not receive net proceeds from this
offering and from alternative financing sources to raise
funds in an amount sufficient to close the acquisition, the
Company intends to use approximately $1.6 to $2.0 million of
the proceeds to develop and operate a new web site for
retail sales of LDs and DVDs. The Company intends to use
the balance of the proceeds for the acquisition of
additional exclusive DVD rights and for general corporate
and working capital purposes.
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq
National Market System under the symbol "DISK" and has been
included on the Nasdaq National Market System since
February 19, 1991. The following table sets forth the high
and low closing prices for the Company's common stock as
reported on the Nasdaq National Market System since the
beginning of the Company's 1997 fiscal year.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ------
<S> <C> <C>
December 31, 1998 (through November 24, 1998) $ 5.50 $3.125
September 30, 1998 10.00 3.25
June 30, 1998 7.50 3.313
March 31, 1998 4.375 3.00
December 31, 1997 4.875 3.1875
September 30, 1997 4.125 3.00
June 30, 1997 4.375 3.3125
March 31, 1997 5.125 3.375
December 31, 1996 5.125 3.00
September 30, 1996 6.00 4.75
June 30, 1996 7.9375 5.875
</TABLE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data of the Company
presented below as of and for the years ended March 31, 1994
through 1998 are derived from the consolidated financial
statements of the Company, which have been audited by KPMG
Peat Marwick LLP, independent certified public accountants.
The summary historical financial data of the Company
presented below as of September 30, 1998 and 1997 and for
the six months ended September 30, 1998 and 1997 are derived
from unaudited consolidated financial statements of the
Company that, in the opinion of management, contain all
necessary adjustments of a normal recurring nature to
present the financial statements in conformity with
generally accepted accounting principles. The consolidated
financial statements of the Company as of March 31, 1998 and
1997 and for each of the years in the three-year period
ended March 31, 1998 and the independent auditors' report
thereon are contained in the Company's Annual Report. The
consolidated financial statements of the Company as of
September 30, 1998 and for the six months ended September
30, 1998 and 1997 are contained in the Company's Quarterly
Report. Operating data for the six months ended September
30, 1998 is not necessarily indicative of results for the
entire year. The historical consolidated financial
statements and related notes and "Management's Discussion
and Analysis of Financial Condition
17
<PAGE>
and Results of Operations" included in the Annual Report and
the Quarterly Report should be read along with this Selected
Historical Financial Information.
<TABLE>
<CAPTION>
================================================================================================================
Statement of Operations Data
(in thousands, except per Six months ended
share data) September 30, Fiscal year ended March 31,
--------------------- -------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,974 $33,314 $75,516 $85,650 $95,086 $85,591 $65,578
Operating costs and expenses 31,140 33,416 84,605<1> 83,399<2> 86,926 77,851 60,576
Operating income (loss) (166) (102) (9,089) 2,251 8,160 7,740 5,002
Interest expense (354) (332) (662) (415) (155) (1,184) (2,336)
Interest income 48 53 118 231 337 518 487
Other expense - - - (662)<3> - - -
Amortization of deferred
financing costs - - - - - (111) (270)
Net gain on insurance settlement - - - - - 742 960
Income (loss) before income taxes
and extraordinary item (472) (381) (9,633) 1,405 8,342 7,705 3,843
Income tax (expense) benefit (11) 6 52 (433) (743) (175) (104)
Income (loss) before
extraordinary item (483) (375) (9,581) 972 7,599 7,530 3,739
Extraordinary item, net of taxes - - - (127)<4> - (1,219)<4> (378)<4>
Net income (loss) $ (483) (375) (9,581) 845 7,599 6,311 3,361
Income (loss) per
share:
Income (loss) before
extraordinary item
Basic (.04) (.03) (.71) .07 .56 .57 .30
Diluted (.04) (.03) (.71) .07 .51 .48 .26
Net income (loss)
Basic (.04) (.03) (.71) .06 .56 .48 .27
Diluted (.04) (.03) (.71) .06 .51 .40 .23
Weighted average number
of shares outstanding
Basic 13,526 13,457 13,471 13,504 13,569 13,255 12,347
Diluted 13,526 13,457 13,471 13,836 14,802 15,641 14,392
<CAPTION>
Balance Sheet Data(in thousands)
As of September 30, As of March 31,
--------------------- --------------------------------------------------------
1998 1997 1988 1997 1996 1995 1994
---------- --------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 37,465 $ 42,553 $ 33,781 $ 46,448 $ 39,406 $ 33,491 $ 42,526
Total liabilities 29,093 24,518 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,372 18,035 8,665 18,051 20,526 16,673 11,114
================================================================================================================
<FN>
<1> Includes non-cash charges of $8,133,000 and $4,246,000
to reduce the carrying value of the Company's LD inventory
to its net realizable value and to provide for estimated
losses on LD license and exclusive distribution agreements,
respectively. Also includes a non-recurring charge of
$825,000 related to the closure of the Company's subsidiary,
U.S. Laser Video Distributors, Inc., of which $202,000 is
composed primarily of fees and expenses associated with
facility lease termination and employee severance payments,
and $623,000 (a non-cash charge) is composed of the write-
off of unamortized facility leasehold improvements and
goodwill.
<2> Includes non-cash charges of $1,964,000 and $1,946,000
to reduce the carrying value of the Company's LD inventory
to its estimated net realizable value and to provide for
estimated doubtful accounts receivable, respectively.
<3> Other expense represents a non-recurring charge composed
primarily of legal and accounting fees associated with the
termination of acquisition negotiations.
<4> Extraordinary item is composed of costs associated with
early retirement of debt, net of related taxes of $56,000,
$34,000, and $10,000 for fiscal 1997, 1995 and 1994,
respectively.
</FN>
</TABLE>
18
<PAGE>
CERTAIN TRANSACTIONS
Upon consummation of the acquisition, Image/KC will pay
$3 million in cash to the Seller and will cause the Company
to issue 258,370 shares of its common stock to the Seller,
of which the Crane Family Trust, dated December 22, 1984
(the "Trust"), a revocable trust, is the sole shareholder.
Charles K. Crane, the father of Ken Crane, Jr., is the sole
trustee of the Trust. Ken Crane, Jr., Pamela Crane (the
sister of Ken Crane, Jr.) and Casey Crane (the brother of
Ken Crane, Jr.) are the sole beneficiaries of the Trust.
Upon the closing of the acquisition, Ken Crane, Jr. will
execute an employment agreement with Image/KC, will become
the Vice President - General Manager of Image/KC and will
receive a signing bonus, an annual salary and a bonus based
on Image/KC's performance. In addition, Pamela Crane and
Casey Crane will each receive payments of $250,000 (half
upon the closing of the acquisition and half in January
1999) for consulting services. See "Recent Developments -
The Acquisition" and "Use of Proceeds."
See "Certain Transactions" in the Company's Proxy
Statement for additional information with respect to related
party transactions.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
25,000,000 shares of common stock, no par value per share,
and 3,365,385 shares of preferred stock, $1 par value per
share. As of November 6, 1998, 13,551,038 shares of common
stock were outstanding and held of record by approximately
1,665 holders. No shares of preferred stock are issued and
outstanding as of the date hereof.
The following description of the Company's capital
stock is a summary of its material terms. It is not
complete and is subject in all respects to applicable
California law and to the provisions of the Company's
Restated Articles of Incorporation ("Restated Articles") and
Bylaws, copies of which have been incorporated by reference
as exhibits to the Registration Statement of which this
prospectus is a part.
Common Stock
Subject to the rights of the holders of any preferred
stock which may be outstanding, each holder of common stock
on the applicable record date is entitled to receive such
dividends as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of
liquidation, to share pro rata in any distribution of the
Company's assets after the payment or providing for the
payment of liabilities and the liquidation preference of any
outstanding preferred stock. Each holder of common stock is
entitled to one vote for each share held of record on the
applicable record date on all matters presented to a vote of
shareholders. The holders of common stock have cumulative
voting rights with respect to the election of directors to
the extent provided in Section 708 of the California General
Corporation Law. Except as described below, there are no
preemptive, subscription, conversion or redemption rights
pertaining to the shares of common stock.
As of November 6, 1998, there were 2,564,352 shares of
common stock underlying options, warrants and other
conversion rights exercisable within 60 days of such date.
Included in such options, warrants and conversion rights are
1,379,310 shares of common stock, subject to anti-dilution
adjustments, issuable upon conversion of a $5 million loan
made by Image Investors Co. ("IIC") to the Company pursuant
to a Credit Agreement (the "Credit Agreement") dated as of
September 29, 1997 between the Company and IIC. The Credit
Agreement provides IIC with demand and piggyback
registration rights with respect to all of such shares of
common stock. IIC also has demand and piggyback
registration rights with respect to: (1) 3,293,680 shares
of common stock beneficially owned by it, and (2) an
additional 23,388 shares of common stock that IIC may
acquire upon exercise of certain anti-dilution rights
granted to it pursuant to a Stock Purchase Agreement dated
as of December 29, 1987, as amended (the "12-29-87
Agreement"). IIC's piggyback registration rights are
applicable only when the Company offers shares in a
registered offering on behalf of another shareholder of the
Company. The 12-29-87 Agreement also provides IIC and
certain other investors with anti-dilution protection
allowing them to acquire additional shares of common stock
of the Company in an amount necessary to maintain their
respective percentage ownership interest in the Company.
These rights are triggered if, among other things, shares of
common
19
<PAGE>
stock of the Company are sold for less than 80% of
fair market value or rights to purchase common stock for
less than 80% of fair market value are sold. According to
the Company's records, as of September 25, 1998, these
rights apply to shares of common stock amounting to up to
approximately 13.3% of the total shares of outstanding
common stock. Investors who have anti-dilution rights under
the 12-29-87 Agreement also have registration rights with
respect to shares issued pursuant to such anti-dilution
rights. Such registration rights apply to 32,746 shares
issuable upon outstanding anti-dilution rights (including
the 23,388 shares issuable to IIC as described above). The
anti-dilution rights under the 12-29-87 Agreement expire on
July 7, 2002. See Note 12 of the Notes to the financial
statements in the Company's Annual Report.
The Company has not paid dividends on its common stock
in recent years and does not anticipate that it will pay
dividends in the foreseeable future. In addition, the terms
of certain of the Company's loan agreements impose
restrictions on its ability to pay dividends on its common
stock. All of the outstanding shares of common stock are
fully paid and non-assessable, and these shares of common
stock will be fully paid and non-assessable when issued.
Preferred Stock
The Company is authorized to issue 3,365,385 shares of
preferred stock, $1 par value per share. The Board of
Directors has the authority to issue preferred stock in one
or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and
the number of shares constituting any series, or the
designation of such series, without further vote or action
by the shareholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a
change in control of the Company without further action by
the shareholders and may adversely affect the voting and
other rights of the holders of common stock. The issuance
of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. At
present, the Company has no outstanding preferred stock and
does not plan to issue any preferred stock.
Anti-Takeover Provisions
Certain provisions of the Company's Restated Articles
and Bylaws may be deemed to have anti-takeover effects and
may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider to be in such
shareholder's best interest, including those attempts that
might result in a premium over the market price for the
shares held by shareholders. The following is a brief
summary of these anti-takeover provisions:
- The Restated Articles authorize the Board of Directors to
issue and to establish the series, rights, preferences and
limitations of up to 3,365,385 shares of preferred stock
without shareholder approval.
- The Bylaws limit the ability of persons other than the
Board of Directors to call special meetings of the
shareholders.
- The Bylaws require that the Board of Directors consist of a
minimum of four (4) and a maximum of seven (7) directors.
The provision establishing the minimum number of directors
may not be amended if the votes cast against such an
amendment are equal to or greater than 16-2/3 % of the
outstanding shares entitled to vote. No amendment may
change the maximum number of authorized directors to a
number greater than two times the stated minimum number of
directors minus one. No reduction of the authorized number
of directors has the effect of removing any director before
the expiration of such director's term of office.
- The Bylaws require advance notice of nominations, other
than by the Board of Directors, for elections of directors.
20
<PAGE>
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's
common stock is American Securities Transfer & Trust, 938 Quail
Street, Suite 101, Lakewood, Colorado 80215.
PLAN OF DISTRIBUTION
The common stock is being offered for sale by the
Company on a best efforts basis to a limited number of
accredited investors. MDB Capital Group LLC, the placement
agent, has been retained pursuant to a Placement Agent
Agreement to act as the exclusive agent for the Company in
connection with the arrangement of offers and sales of the
common stock on a best efforts basis.
The placement agent is not obligated to, and does not
intend itself to, take (or purchase) any of the shares of
common stock being offered. The placement agent intends to
obtain indications of interest from potential investors for
the purchase of the shares being offered. The Company
intends to request effectiveness of the Registration
Statement either (1) when the placement agent has received
indications of interest for all 2,400,000 shares, or (2) if
the placement agent does not receive indications of interest
for all 2,400,000 shares, at such time prior to the
termination of this offering as the placement agent and the
Company deem appropriate. Investors' funds will not be
accepted prior to effectiveness of the Registration
Statement. Notifications of intentions to purchase and
definitive prospectuses will be distributed to all investors
at the time of pricing, informing investors of the
settlement date, which will be scheduled for three business
days after pricing. Once the shares to be sold have been
allocated by the placement agent and the Company, investors
will receive confirmation of the acceptance or rejection of
their indication of interest and trades will be settled on
the scheduled settlement date, on a delivery versus payment
basis for institutional accredited investors through the
placement agent's clearing firm. Accredited investors other
than institutional accredited investors will be required to
establish securities accounts with the placement agent and
to settle the transaction on the scheduled settlement date.
This offering will continue until such time as the Company
and the placement agent agree that enough indications of
interest have been received. The placement agent reserves
the right to withdraw, cancel, modify or reject an order for
the purchase of shares in whole or in part for any reason
and the Company reserves the right to terminate this
offering at any time.
The offering price for the common stock offered hereby
was determined by the Company and the placement agent based
primarily on the closing price of $____ for the Company's
common stock on __________, 1998. In determining the
offering price, the Company and the placement agent also
considered general market conditions, trading volume of the
Company's common stock and overall demand for this offering.
The placement agent will receive a commission equal to
8.0% of the gross proceeds received by the Company upon the
sale of these securities, except that the commission will be
reduced to 4.0% for the sale of shares to Image Investors
Co., the Company's largest shareholder, or its affiliates.
The placement agent may allow to certain dealers who are
members of the National Association of Securities Dealers
concessions of not in excess of 4.0%. The Company has
agreed to pay to the placement agent, on a non-accountable
basis, 2.0% of the gross proceeds ($228,000 assuming the
sale of 2,400,000 shares at $4.75 per share, the closing
price of the Company's common stock on November 24, 1998)
from the sale of the shares to cover the placement agent's
out-of-pocket expenses, including, without limitation,
counsel fees. The Company has also agreed to indemnify the
placement agent against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of common stock being
offered will be passed upon for the Company by O'Melveny &
Myers LLP, Los Angeles, California. Certain legal matters
will be passed upon for the placement agent by Resch
Polster Alpert & Berger LLP, Los Angeles, California.
21
<PAGE>
EXPERTS
The financial statements of Image Entertainment, Inc.,
as of March 31, 1998, and for each of the years in the three-
year period ended March 31, 1998, have been incorporated
herein by this reference and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated
herein by this reference, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith
files periodic reports and other information with the
Commission relating to its business, financial statements
and other matters. Such periodic reports may be inspected
at the Commission's principal offices at 450 Fifth Street,
NW, Washington, D.C. 20549. Information on the operation of
the Commission's reference room may be obtained by calling
the Commission at (800) SEC-0330. Copies of such material
may be obtained from such offices at prescribed rates set by
the Commission. Certain of the Company's reports and
registration, proxy and information statements that have
been filed with the Commission through the Electronic Data
Gathering, Analysis and Retrieval System are publicly
available through the Commission's web site
(http://www.sec.gov). The Company's common stock is traded
on the Nasdaq National Market System under the symbol
"DISK." Certain information, reports and proxy statements
of the Company are also available for inspection at the
offices of the Nasdaq Market Reports Section, 1735 K Street,
Washington, D.C. 20006.
We have not authorized any dealer, salesperson or other
individual to give any information or to make any
representations in connection with this offering except for
those contained in or incorporated into this prospectus.
You should not rely on any information provided to you or
representations made to you except as contained in or
incorporated into this prospectus. There may have been
changes in the affairs of the Company since the date of this
prospectus. You should not imply that the information
contained in or incorporated into this prospectus has been
updated even though it is delivered to you, or your purchase
of shares occurs, after the date of this prospectus. We are
not offering shares or soliciting offers to buy shares to or
from anyone in any State in which such offer or solicitation
is not authorized or in which we are not qualified to do so.
We are not offering shares or soliciting offers to buy
shares to or from anyone to whom it is unlawful to make such
offer or solicitation.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE;
DELIVERIES
The Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1998, filed with the Commission on
June 25, 1998, as amended by Amendment No. 1 thereto, filed
with the Commission on November 30, 1998; the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, filed with the Commission on November
12, 1998, as amended by Amendment No. 1 thereto, filed with
the Commission on November 30, 1998; and all other reports
filed with the Commission by the Company (File No. 0-11071)
pursuant to Sections 13(a) or 15(d) of the Exchange Act
since March 31, 1998 are incorporated herein by this
reference.
Concurrently with the delivery of this prospectus, the
Company is delivering to each person to whom a copy of this
prospectus is delivered copies of the Annual Report, the
Quarterly Report and the Company's Proxy Statement dated
July 29, 1998. Upon oral or written request therefor, the
Company will provide free of charge to any person, including
any beneficial owner, to whom a copy of this prospectus is
delivered, any or all of the documents incorporated herein
by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference
into the information that this prospectus incorporates by
reference). Requests for any such documents should be made
to Image Entertainment, Inc., 9333 Oso Avenue, Chatsworth,
California 91311, Telephone (818) 407-9100, Attention:
Corporate Secretary.
22
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus contains certain forward-looking
statements which we believe are within the meaning of the
"safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking
statements are based on the beliefs of the Company's
management as well as assumptions made by and information
currently available to the Company's management. When used
in this document, the words "anticipate," "believe," "may,"
"estimate," "expect" and similar expressions, variations of
such terms or the negative of such terms as they relate to
the Company or its management are intended to identify such
forward-looking statements. Such statements are based on
management's current expectations and are subject to certain
risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual
results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-
looking statements. Important factors that could cause or
contribute to such difference include those discussed under
"Risk Factors" in this prospectus and in the Annual Report.
Prospective investors are cautioned not to place undue
reliance on such forward-looking statements, which speak
only as of their dates. The Company undertakes no
obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise. Prospective investors should carefully
consider the information set forth under "Risk Factors" in
this prospectus.
23
<PAGE>
[Image Entertainment Logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION<1>
<S> <C>
SEC registration fee $2,500
NASD filing fee $1,500
Nasdaq listing application $17,500
Printing and engraving expenses $10,000
Accounting fees and expenses $75,000
Legal fees and expenses $125,000
Miscellaneous expenses $43,500
Total $275,000
- -------------------------
<FN><1> Expenses are estimated for the registration fee.</FN>
</TABLE>
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has adopted provisions in its Restated
Articles that eliminate liability of the directors of the
Company for monetary damages to the fullest extent
permissible under California law and that authorize the
Company to provide for the indemnification of agents (as
defined in Section 317 of the California General Corporation
Law) of the Company to the fullest extent permissible under
California law. Article VI, Section 1 of the Company's
Bylaws provides for indemnification of agents of the Company
to the fullest extent permissible under California law. The
Company's Bylaws establish that, for purposes of Article VI
of the Bylaws, an agent is any person who is or was a
director, officer employee or other agent of the Company, or
is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a predecessor
corporation of the Company or of another enterprise at the
request of such predecessor corporation.
Under California law, indemnification for expenses,
including amounts paid on settling or otherwise disposing of
a threatened or pending action or defending against the same
can be made in certain circumstances by action of the
Company through: (1) a majority vote of a quorum of the
Company's Board of Directors consisting of directors who are
not party to the proceedings; (2) approval of the
shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon; or (3) such
court in which the proceeding is or was pending upon
application by designated parties. Under certain
circumstances, an agent can be indemnified even when found
liable. Indemnification is mandatory where the agent's
defense is successful on the merits. California law allows
the Company to make advances of expenses for certain actions
upon the receipt of an undertaking that the agent will
reimburse the corporation if the agent is found liable.
The Company maintains a directors' and officers'
insurance and company reimbursement policy. With certain
exceptions, the policy insures directors and officers
against losses arising from certain wrongful acts in their
capacities as directors and officers and reimburses the
Company for such loss for which the Company has lawfully
indemnified the directors and officers.
The Company has entered into Indemnity Agreements with
its directors and officers. The Indemnity Agreements
provide for the indemnification of each of the Company's
officers and directors in certain third-party proceedings
and in certain proceedings by or in the name of the Company.
In addition, the Indemnity Agreements provide for the
advance payment by the Company of expenses incurred by an
indemnitee in such proceedings.
The Company has also entered into employment agreements
with certain of its officers that include indemnification
provisions. The employment agreements provide for
indemnification of such
II-1
<PAGE>
officers to the maximum extent permitted by law and require
the Company to maintain directors' and officers' liability
insurance for the benefit of such officers under certain
circumstances.
The Placement Agent Agreement between the Company and
MDB Capital Group LLC provides for indemnification of
certain persons related to the Company (including directors
and officers) in certain limited circumstances.
See Item 17 below for information regarding the
position of the Commission with respect to the effect of any
indemnification for liabilities arising under the Securities
Act.
Item 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
1<1> Form of Placement Agent Agreement.
2.1<2> Asset Purchase Agreement dated as of August 20, 1998 by
and between Image Newco, Inc. and Ken Crane's
Magnavox City, Inc.
2.2<2> First Amendment to Asset Purchase Agreement dated as of
October 3, 1998 by and between Image Newco, Inc.
and Ken Crane's Magnavox City, Inc.
3.1 Restated Articles of Incorporation. Filed as Exhibit 3.1
of the Company's Form 10-K for the year ended
March 31, 1995 and incorporated herein by this
reference.
3.2 Bylaws. Filed as Exhibit 3.2 of the Company's Form 10-K
for the year ended March 31, 1995 and incorporated
herein by this reference.
4<2> Specimen Common Stock certificate.
5<1> Opinion of O'Melveny & Myers LLP, counsel to the Company,
as to the legality of the common stock offered
hereby (including consent).
10.1 The Company's Restated 1989 Incentive Stock Option Plan,
as amended. Filed as Exhibit 10.1 of the
Company's Form 10-K for the year ended March 31,
1992 and incorporated herein by this reference.
10.2 The Company's 1998 Incentive Plan. Filed as Exhibit A
of the Company's Proxy Statement dated July 29,
1998 and incorporated herein by this reference.
10.3 The Company's 1990 Stock Option Plan. Filed as Exhibit
A of the Company's Proxy Statement dated December
27, 1990 and incorporated herein by this
reference.
10.4 The Company's Restated 1992 Stock Option Plan. Filed as
Exhibit A of the Company's Proxy Statement dated
September 9, 1994 and incorporated herein by this
reference.
10.5 The Company's 1994 Eligible Directors Stock Option Plan
and Form of Eligible Director Non-Qualified Stock
Option Agreement. Filed as Exhibit 10.4 of the
Company's Form 10-K for the year ended March 31,
1995 and incorporated herein by this reference.
10.6 Form of Option Agreement dated October 15, 1991 between
the Company and Martin W. Greenwald. Filed as
Exhibit 10.3 of the Company's 10-Q for the quarter
ended September 30, 1991 and incorporated herein
by this reference.
II-2
<PAGE>
10.7 Option granted August 13, 1992 by the Company to Cheryl
Lee. Filed as Exhibit 10.12 of the Company's Form
10-K for the year ended March 31, 1994 and
incorporated herein by this reference.
10.8 Form of Option granted May 19, 1994 to Jeff Framer,
Cheryl Lee and David Borshell. Filed as Exhibit
10.24 to the Company's Form 10-K for the year
ended March 31, 1994 and incorporated herein by
this reference.
10.9<2> Eligible Director Non-Qualified Stock Option Agreement
dated as of July 22, 1998 between the Company and
Stuart Segall.
10.10<2> Eligible Director Non-Qualified Stock Option
Agreement dated as of September 17, 1998 between
the Company and Mark Trevenen Huxley.
10.11 Form of Termination Agreement between the Company and
each of Martin W. Greenwald, Cheryl Lee, Jeff
Framer and David Borshell (relating to the
termination of their former employment
agreements).
10.12 Employment Agreement dated as of July 1, 1998 between
the Company and Martin W. Greenwald.
10.13 Employment Agreement dated as of July 1, 1998 between
the Company and Cheryl Lee.
10.14 Employment Agreement dated as of July 1, 1998 between
the Company and Jeff Framer.
10.15 Employment Agreement dated as of July 1, 1998 between
the Company and David Borshell.
10.16 Form of Performance Restricted Stock Unit Award
Agreement (and related General Provisions) between
the Company and each of Martin W. Greenwald,
Cheryl Lee, Jeff Framer and David Borshell
(appended as Exhibit A to Exhibits 10.12 through
10.15).
10.17 Form of Indemnity Agreement between the Company and its
directors and officers. Filed as Exhibit F of the
Company's Proxy Statement dated September 5, 1989
and incorporated herein by this reference.
10.18 Stock Purchase Agreement among the Company, Directors
of the Company and various Buyers dated December
29, 1987. Filed as Exhibit 4.3 of the Company's
Form 8-K dated December 29, 1987 and incorporated
herein by this reference.
10.18.a Form of First Amendment dated July 7, 1992 to the
Stock Purchase Agreement referenced in Exhibit
10.18 above. Filed as Exhibit 10.5 of the
Company's Form 10-Q for the quarter ended
September 30, 1992 and incorporated herein by this
reference.
10.19 Stock Purchase Agreement among the Company, Directors
of the Company and Image Investors Co. dated June
27, 1990. Filed as Exhibit 10.53 of the Company's
Form 10-K for the year ended March 31, 1990, and
incorporated herein by this reference. The
Company and Image Investors Co. are also parties
to the Stock Purchase Agreements dated July 14,
1988, November 30, 1988, January 11, 1989,
February 14, 1989, May 10, 1989 and June 20, 1990,
which are virtually identical to this Exhibit
(except for the number of shares of common stock
purchased), and which were incorporated by reference
therein. The number of shares purchased
under the prior agreements were 85,124, 118,778,
297,977, 1,187,783, 593,891 and 673,077,
respectively.
II-3
<PAGE>
10.20 Stock Purchase Agreement between the Company and Image
Investors Co. dated December 30, 1992, including
Warrant. Filed as Exhibit 10.6 of the Company's
Form 10-Q for the quarter ended December 31, 1992
and incorporated herein by this reference.
10.21 Stock Purchase Agreement between the Company and Stuart
Segall dated as of July 12, 1995. Filed as
Exhibit 10.1 of the Company's Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by this reference.
10.22 Stock Purchase Agreement between the Company and Martin
W. Greenwald dated as of June 27, 1996. Filed as
Exhibit 10.2 of the Company's Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by this reference.
10.23 Purchase and Sale Agreement between the Company and LEI
Partners, L.P. dated December 31, 1990. Filed as
Exhibit 10.1 of the Company's Form 10-Q for the
quarter ended December 31, 1990 and incorporated
herein by this reference.
10.24 Standard Industrial Lease for 9333 Oso Avenue,
Chatsworth, California, dated December 1, 1993 and
effective April 1, 1994, between the Company and
P&R Investment Company. Filed as Exhibit 10.1 of
the Company's Form 10-Q for the quarter ended
December 31, 1993 and incorporated herein by this
reference.
10.25 Standard Industrial Lease for 20350 Prairie Street,
Chatsworth, California, dated December 1, 1993 and
effective April 1, 1994, between the Company and
P&R Investment Company. Filed as Exhibit 10.2 of
the Company's Form 10-Q for the quarter ended
December 31, 1993 and incorporated herein by this
reference.
10.25.a Surrender of Lease and Termination Agreement for
20350 Prairie Street, Chatsworth, California,
dated and effective February 2, 1998, between the
Company and P&R Investment Company. Filed as
Exhibit 10.20.c of the Company's Form 10-K for the
year ended March 31, 1998 and incorporated herein
by this reference.
10.26 Agreement for Purchase and Sale dated June 5, 1996
between Airport Center Partnership and the
Company. Filed as Exhibit 10.19 of the Company's
Form 10-K for the year ended March 31, 1996 and
incorporated herein by this reference.
10.27 Construction Agreement between the Company and Carson
Construction Management, Inc. dated as of November
25, 1996. Filed as Exhibit 10.23 of the Company's
Form 10-K for the year ended March 31, 1997 and
incorporated herein by this reference.
10.28 Business Loan Agreement between the Company and Bank of
America National Trust and Savings Association
dated March 10, 1997. Filed as Exhibit 10.26 of
the Company's Form 10-K for the year ended March
31, 1998 and incorporated herein by this
reference.
10.28.a Amendment No. 1 dated as of February 4, 1998 to
Business Loan Agreement between the Company and
Bank of America National Trust and Savings
Association dated March 10, 1997. Filed as
Exhibit 10.23.a of the Company's Form 10-K for the
year ended March 31, 1998 and incorporated herein
by this reference.
10.28.b Amendment No. 2 dated as of June 29, 1998 to Business
Loan Agreement between the Company and Bank of
America National Trust and Savings Association
dated March 10, 1997. Filed as Exhibit 10.3 of
the Company's Form 10-Q for the quarter ended June
30, 1998 and incorporated herein by this
reference.
10.29 Lease Intended as Security between the Company and BA
Leasing & Capital Corporation dated March 19,
1997. Filed as Exhibit 10.24 of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
II-4
<PAGE>
10.29.a (First) Amendment dated March 19, 1997 to Lease
Intended as Security between the Company and BA
Leasing & Capital Corporation dated March 19,
1997. Filed as Exhibit 10.24.a of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
10.29.b Second Amendment dated February 8, 1998 to Lease
Intended as Security between the Company and BA
Leasing & Capital Corporation dated March 19,
1997. Filed as Exhibit 10.24.b of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
10.29.c Third Amendment dated September 25, 1998 to Lease
Intended as Security between the Company and BA
Leasing & Capital Corporation dated March 19,
1997. Filed as Exhibit 10.1 of the Company's Form
10-Q for the quarter ended September 30, 1998 and
incorporated herein by this reference.
10.30 Agreement for Purchase and Sale dated May 13, 1998
between the Company and Jackson-Shaw Company.
Filed as Exhibit 10.25 of the Company's Form 10-K
for the year ended March 31, 1998 and incorporated
herein by this reference.
10.31 Loan Agreement between the Company and Union Bank of
California, N.A. dated as of December 17, 1996.
Filed as Exhibit 10.20 of the Company's Form 10-K
for the year ended March 31, 1997 and incorporated
herein by this reference.
10.31.a Amendment No. 1 dated as of February 5, 1997 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.20.A of the Company's
Form 10-K for the year ended March 31, 1997 and
incorporated herein by this reference.
10.31.b Amendment No. 2 dated as of February 25, 1997 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.20.B of the Company's
Form 10-K for the year ended March 31, 1997 and
incorporated herein by this reference.
10.31.c Amendment No. 3 dated as of September 27, 1997 to
Loan Agreement dated as of December 17, 1996 by
and between the Company and Union Bank of
California, N.A. Filed as Exhibit 10.26.c of the
Company's Form 10-K for the year ended March 31,
1998 and incorporated herein by this reference.
10.31.d Amendment No. 4 dated as of October 31, 1997 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.26.d of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
10.31.e Amendment No. 5 dated as of January 28, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.26.e of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
10.31.f Amendment No. 6 dated as of June 18, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.26.f of the Company's
Form 10-K for the year ended March 31, 1998 and
incorporated herein by this reference.
10.31.g Amendment No. 7 dated as of July 13, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as
II-5
<PAGE>
Exhibit 10.2 of the Company's Form
10-Q for the quarter ended June 30, 1998 and
incorporated herein by this reference.
10.31.h Amendment No. 8 dated as of October 23, 1998 to Loan
Agreement dated as of December 17, 1996 by and
between the Company and Union Bank of California,
N.A. Filed as Exhibit 10.2 of the Company's Form
10-Q for the quarter ended September 30, 1998 and
incorporated herein by this reference.
10.32 Credit Agreement dated as of September 29, 1997 by and
between the Company and Image Investors Co. Filed
as Exhibit 10.27 of the Company's Form 10-K for
the year ended March 31, 1998 and incorporated
herein by this reference.
15 Letter re: Unaudited Interim Financial Information.
23.1 Consent Letter of KPMG Peat Marwick LLP, Independent
Certified Public Accountants.
23.2<1> Consent Letter of O'Melveny & Myers LLP, counsel to the
Company (included with Exhibit 5).
24<2> Power of Attorney (included on page II-8).
- --------------------------
<FN><1> To be filed by amendment.<2> Previously filed.</FN>
</TABLE>
II-6
<PAGE>
Item 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that,
for purposes of determining any liability under the
Securities Act of 1933:
(1) the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed
by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective; and
(2) each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors,
officers or controlling persons of the registrant pursuant
to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, the Registrant has duly caused this
Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized,
in the City of Los Angeles, State of California, on November
30, 1998.
IMAGE ENTERTAINMENT, INC.,
a California corporation
By: /s/ Martin W. Greenwald
---------------------------------------
MARTIN W. GREENWALD,
Chairman of the Board,
Chief Executive Officer, President and Treasurer
Pursuant to the requirements of the Securities Act of
1933, this Amendment No. 2 to the Registration Statement has
been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Martin W. Greenwald
- ----------------------- Chairman of the November 30, 1998
Martin W. Greenwald Board, Chief
Executive Officer,
President and
Treasurer
/s/ Jeff M. Framer
- ------------------------ Chief Financial November 30, 1998
Jeff M. Framer Officer (Principal
Financial and
Accounting Officer)
<1>
- ------------------------ Director November 30, 1998
Stuart Segall
<1>
- ------------------------ Director November 30, 1998
Ira Epstein
<1>
- ------------------------ Director November 30, 1998
M. Trevenen Huxley
- -------------------------
<FN>
<1> By /s/ Martin w. Greenwald
---------------------------------
Martin W. Greenwald
Attorney-in-Fact
</FN>
</TABLE>
II-8
<PAGE>
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT ("Agreement") is made and
entered into as of this ___ day of November, 1998, by and between
IMAGE ENTERTAINMENT, INC., a California Corporation ("Image"),
and ___________________________, an individual ("Executive").
WHEREAS, Executive acknowledges that Image has given
Executive an opportunity, which he/she has had adequate time to
consider, to terminate Executive's arrangement now or as of June
30, 1999 with Image free and clear of any obligations and without
affecting adversely or affirmatively any rights of Executive or
duties of Image under the existing Employment Agreement between
Image and Executive dated July 1, 1994, as amended through July
1, 1997 (the "Existing Employment Agreement"); and
WHEREAS, Executive has rejected the opportunity and
elected to remain in the employ of Image; and
WHEREAS, upon this Agreement becoming effective,
Executive will have an opportunity but will not be required to
enter into a new Employment Agreement as of July 1, 1998 on
substantially the terms reflected in a form reviewed by
Executive, if he/she elects to terminate the Existing Employment
Agreement; and
WHEREAS, Executive anticipates continuing in the employ
of Image on the terms and conditions to be set forth in the new
Employment Agreement which shall supersede and replace in its
entirety the Existing Employment Agreement.
NOW, THEREFORE, for valid consideration receipt of
which is hereby acknowledged, the parties hereto agree to
terminate all rights and obligations under the Existing
Employment Agreement, effective as of June 30, 1998.
IMAGE ENTERTAINMENT, INC. EXECUTIVE
By:
------------------------------ --------------------------------
-------------------, an individual
Its:
-----------------------------
--------------------------------
--------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 1st day of July, 1998 (the "Effective Date"), by
and between IMAGE ENTERTAINMENT INC., a California corporation
("Image"), and MARTIN W. GREENWALD, an individual ("Executive").
RECITALS
WHEREAS, the Board of Directors of Image has determined
that because of Executive's substantial experience with respect
to sales and marketing, management and other aspects of the
business of Image, business relationships in connection with the
business of Image, and Executive's past leadership of and
familiarity with the clientele served by Image, it is in the best
interests of Image to secure the services of Executive and to
provide Executive with the compensation and benefits set forth
herein; and
WHEREAS, Executive desires to render to Image, on an
exclusive basis, Executive's professional services with respect
to Executive's experience and abilities, and Image desires to
secure, on an exclusive basis, Executive's services, on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
Except as otherwise expressly set forth herein, this
Agreement shall remain in full force and effect for the
period commencing as of the date hereof and ending on June
30, 2000 (the "Term"); provided, however, that unless Image
or Executive gives written notice of its or his intention
not to extend the Term by January 1, 2000 or any subsequent
anniversary thereof, then the Term of this Agreement shall
automatically be extended for an additional one (1) year
commencing on the July 1 immediately thereafter, but shall
not in any case be extended beyond June 30, 2005. The
capitalized word "Term" as used in other paragraphs of this
Agreement (except Paragraph 3(a)) shall include any
extensions pursuant to the preceding sentence.
2. ENGAGEMENT.
Subject to the terms and conditions contained herein, Image
hereby engages the services of Executive (the "Services")
and Executive hereby accepts such engagement and agrees to
render Executive's Services to Image for the Term.
Executive shall report directly to the Image Board of
Directors and initially shall have the title of "CHIEF
EXECUTIVE OFFICER and PRESIDENT."
(a) Extent of Services and Duties. Executive shall perform
such duties, compatible with Executive's position as an
"Executive Officer" (as defined below) and as the Board
of Directors of Image may reasonably require. In
rendering Services to Image, Executive shall use
Executive's best efforts and ability to maintain,
further and promote the interests and welfare of Image.
At the request of Image, Executive shall serve as an
officer or director of Image or any entity controlled
by Image or in which it has a substantial direct or
indirect interest (any such entity or entities together
with Image, the "Company"), without additional
compensation; provided that Executive is included on
any such entity's directors and officers insurance
policy (if any). For purposes of this Agreement
"Executive Officer" shall include any person similarly
designated as an "Executive Officer" in that person's
Employment Agreement with Image.
(b) Exclusive Engagement. Executive hereby acknowledges
and agrees that the engagement of Executive by Image
under this Agreement is exclusive and that during the
Term hereof Executive shall not, directly or
indirectly, whether for compensation or otherwise,
engage in any business that is competitive with the
business of the Company or that otherwise interferes in
any significant respect with the Executive's exclusive
commitment and duties under this Agreement, or render
any services of a business, commercial or professional
nature to any other person or organization that is a
competitor of Image or in a business similar to that of
Image, without the prior written consent of Image.
Notwithstanding the foregoing, Executive may make and
manage personal business investments of his choice and
serve in any capacity with any civic, educational or
charitable organization without seeking or obtaining
approval by the Board, provided that such activities
and services do not substantially interfere or conflict
with the performance of duties hereunder or create any
conflict of interest with such duties.
3. COMPENSATION.
(a) Base Salary. During the Term of this Agreement, Image
hereby agrees to pay Executive for all Services to be
rendered hereunder a base salary ("Base Salary") at the
following rates:
<TABLE>
<CAPTION>
Period Annual Rate
<S> <C>
Year ending on the first anniversary of the date hereof $400,000 per year
Year ending on the second anniversary of the date hereof $420,000 per year
</TABLE>
In the event the Term is extended pursuant to Paragraph
1, the Base Salary for each such extension shall be (i)
the Base Salary for the year ending on the expiration
date of the Term prior to the extension plus (ii) an
amount equal to five percent (5%) of the Base Salary.
The Base Salary will be payable in equal biweekly
installments or as otherwise provided in accordance
with the regular executive officer compensation pay
schedules and procedures in effect from time to time
for Image, subject to Paragraph 7
(Withholding/Deductions).
(b) Bonus Compensation. Executive shall be entitled to
participate in a bonus plan available generally to, on
terms not substantially less favorable than, and with
bonus opportunities not materially disproportionate in
the aggregate to the distinctions made for fiscal year
1999 in respect of similarly situated Executive
Officers of the Company (other than plans available
only to the Chief Executive Officer or President). The
level of bonus opportunity and form of payment shall be
determined annually by the Board or its Compensation
Committee and may be expressed as a multiple of base
salary based on performance of the Company relative to
a specified target.
For fiscal year 1999, the cash bonus shall be
determined based on a formula utilizing earnings before
interest, taxes, depreciation and amortization
("EBITDA") as the applicable performance criterion.
The specific performance targets for fiscal 1999 are
(and for future years will be) confidential business
information and provided to Executive on that basis by
the Chief Executive Officer upon request. The specific
cash bonus payable to Executive for fiscal year 1999
shall be determined by multiplying (i) the percentage
determined by dividing Image's actual EBITDA by the
target EBITDA (the "Performance Factor") by (ii) the
amount equal to 75% of Executive's Base Salary. In
order for a bonus award to be paid under the bonus
program in fiscal year 1999, the Performance Factor
must reach a minimum of 40%. The amount of bonus shall
be capped by a Performance Factor of 125%.
In years following fiscal 1999, annual cash bonuses
under this program may be based on different business
criteria or models and Performance Factors and Base
Salary multiples may change (in the individual case or
for all similarly situated officers) as determined
annually by the Board of Directors or the Compensation
Committee of Image. Image anitcipates that bonus
entitlements will be determined on or before the end of
the first quarter of the applicable fiscal year and
that any bonuses payable shall be paid, provided the
Executive is then employed by the Company, no later
than the end of the quarter following each fiscal year.
4. OPTIONS AND OTHER STOCK-BASED AWARDS.
In addition to Base Salary and Bonus Compensation, Image may
grant stock options and other stock-based awards to
Executive, in such form and amounts, and at such time or
times, as Image's Board of Directors (or, if applicable, the
administrators of Image's stock option plans and (subject to
shareholder approval) the 1998 Incentive Plan (the "1998
Plan")) shall determine. If this Agreement is terminated
early "Without Cause" under Subparagraph 12(b) or upon or
following a "Change in Control" under Paragraph 13(d), all
unvested options granted to Executive will immediately vest.
The vesting of other stock-based awards will depend upon the
provisions of the Executive's award agreement and the plan
(if any) under which the Awards are granted. Unless this
Agreement is terminated early for Cause under Subparagraph
12(a), all options granted to Executive prior to July 1,
1998 shall be exercisable after employment ceases for the
longest period permissible under the applicable stock option
plan, to the extent the option was vested as of the date of
termination, and all options or rights granted on or after
July 1, 1998 shall be exercisable as provided in the
applicable award or grant.
Image recognizes hereby that Executive is entitled, subject
to shareholder approval of the 1998 Plan, to a grant of
41,791 Restricted Stock Units, in substantially the Form of
Performance Restricted Stock Unit Award attached hereto as
Exhibit A.
5. FRINGE BENEFITS.
(a) Image agrees to provide Executive with fringe benefits
including but not limited to the medical, dental, life
and short and long-term disability insurance, expense
allowance and vacation time described below:
(i) Medical, Dental, Life & Short and Long-Term
Disability Insurance. Image shall purchase
(or, if applicable, maintain) during the Term
medical, dental, life and short and long-term
disability insurance for Executive, and
provide coverage under the medical and dental
policies for Executive's direct dependent
beneficiaries (e.g., spouse and minor
children), on terms no less favorable than
the terms and conditions in effect as of the
date hereof and at all times at least equal
to that received by any other Executive
Officer (collectively, "Insurance").
(ii) Business/Travel Expenses. Executive shall be
reimbursed in full for all reasonable and
actual out-of-pocket business and travel
expenses incurred in the performance of
Executive's Services, on terms and at all
times at least equal to that received by any
other Executive Officer, provided Executive
shall first present an itemized account of
such expenditures together with supporting
vouchers.
(iii) Vacation Time. Executive is entitled to
4 weeks of paid vacation time per year of the
Term, but may accrue no more than 8 weeks
vacation during the Term. Any unused
vacation time as of June 30, 1998 will
continue to be available through the Term and
will not be subject to any offset, reduction
or deduction until such time as the then
accrued vacation time available under the
foregoing sentence has been used.
(b) CEO Fringe Benefits. Notwithstanding the foregoing,
Image agrees to also provide Executive with the
following fringe benefits:
(i) Personal Life and Disability Insurance.
Image shall purchase (or, if applicable,
maintain) during the Term personal life and
disability insurance for Executive on terms
no less favorable than the terms and
conditions in effect as of the date hereof;
provided, however, that the aggregate annual
premium payment for such coverage together
with payment for any non-reimbursable medical
expenses (i.e., medical expenses not covered
by the policy) shall not exceed $30,000 per
annum. Executive shall have the exclusive
right to name the beneficiaries of such
coverage.
(ii) Personal Expenses. Executive shall receive
an unaccountable, personal expense allowance
annualized at $65,637.31 per year for the
first year of the current Term, payable in
equal monthly installments of $ 5469.78. For
each year of the Term commencing on the first
anniversary of the date hereof, Executive
will receive a 5% increase to Executive's
then personal expense allocation.
(iii) Company Car. Executive shall be
entitled to the use of a company car and to
reimbursement for all reasonable expenses
incurred in connection with the use of such
car, including but not limited to the costs
of gasoline, maintenance/service and car
insurance.
6. SEVERANCE.
Upon expiration of the Term, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for the period contemplated by
Subparagraph 3(b); plus a prorated portion of Bonus
Compensation, if any, otherwise payable pursuant to
Subparagraph 3(b) for 6 months or any partial fiscal
year that has occurred prior to the expiration of the
Term, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
7. WITHHOLDING/DEDUCTIONS.
There shall be deducted from all compensation payable to
Executive hereunder such sums, including without limitation,
social security, income tax withholding and unemployment
insurance, as Image is by law obligated to deduct and
additionally as the Executive may duly authorize.
8. CONFIDENTIALITY.
In consideration of the payments to be received hereunder,
Executive agrees as follows:
(a) That during the Term of this Agreement he will have
access to and become acquainted with various "Trade
Secrets" (as defined below) and proprietary information
of Image. Except as Executive's duties may require or
as Image may otherwise consent to in writing, Executive
will not at any time disclose or use to the detriment
of Image or the sole benefit of Executive, either
directly or indirectly, and either during or subsequent
to the Term hereof, any information, knowledge or data
he receives in confidence or acquires from Image or
which relates to the Trade Secrets of Image. For
purposes of this Agreement "Trade Secrets" shall
include, but not be limited to:
(i) Financial information, such as Image's
earnings, assets, debts, prices, pricing
structure, volumes of purchases or sales or
other financial data, whether relating to
Image generally, or to particular products,
services, geographic areas, or time periods;
(ii) Supply and service information, such as goods
and services, suppliers' names or addresses,
terms of supply or service contracts, or of
particular transactions, or related
information about potential suppliers, to the
extent that such information is not generally
known to the public, and to the extent that
the combination of suppliers or use of a
particular supplier, though generally known
or available, yields advantages to Image, the
details of which are not generally known:
(iii) Marketing information, such as details
about ongoing or proposed marketing programs
or agreements by or on behalf of Image, sales
forecasts or results of marketing efforts or
information about impending transactions;
(iv) Licensing or Distribution information, such
as details about ongoing or proposed
negotiations or agreements by or on behalf of
Image, terms and details of such negotiations
or agreements or results of licensing or
distribution efforts or information about
impending transactions; or,
(v) Customer information, such as any compilation
of past, existing or prospective customers,
customers' proposals or agreements between
customers and status of customers accounts or
credit, or related information about actual
or prospective customers.
(b) That all files, records, documents, data information
and customer lists are special, valuable and unique
assets of Image and are essential to its continued
business success, and that under no circumstance during
the Term hereof or subsequent thereto will he influence
or attempt to influence any employee of Image to
terminate his or her employment with Image to work for
any competitor of Image, nor shall the Executive
solicit, directly or indirectly, any customers of Image
or disclose or use for the purpose of such
solicitation. without the prior written consent of
Image, any files, records, document, data, information,
customer lists or any other proprietary information of
Image.
(c) Executive acknowledges that any violation of the terms
of this Paragraph 8 will constitute a material breach
of this Agreement and will cause Image immediate and
irreparable harm and that the damages which Image will
suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of
this Paragraph 8, Image shall be entitled to the
issuance of a restraining order, preliminary and
permanent injunction, without bond, restraining or
enjoining such violation by Executive or any entity or
person acting in concert with Executive. Such remedy
shall be additional to and not in limitation of any
other remedy which may otherwise be available to Image.
9. INDEMNIFICATION OF EXECUTIVE.
Image will, to the maximum extent permitted by law,
indemnify and hold Executive harmless against expenses,
including reasonable attorney's fees, judgments, fines,
settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason
of Executive's employment by Image. Image shall advance to
Executive any expenses incurred in defending any proceeding
to the maximum extent permitted by law. Image will at all
times maintain directors' and officers' liability insurance
("D&O Insurance"), or have sufficient funds to self-insure,
in amounts and on terms at least as favorable as the D&O
Insurance policy in effect on the date hereof.
10. DEATH.
In the event of Executive's death, this Agreement will
terminate on the last day of the calendar month of
Executive's death. In such event, Executive's personal
representative, heirs or beneficiaries entitled by will or
the laws of descent and distribution shall be entitled to
receive only:
(a) Base Salary continuation for a period of 6 months or
the expiration of the Term, whichever occurs first; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for the period contemplated by
Subparagraph 3(b); plus a prorated portion of Bonus
Compensation, if any, otherwise payable pursuant to
Subparagraph 3(b) for 6 months or any partial fiscal
year that has occurred prior to the expiration of the
Term, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) dependent Insurance continuation for a period of 6
months or the expiration of the Term, whichever occurs
first.
11. PERMANENT DISABILITY/SUSPENSION.
If Executive fails, because of physical or mental illness,
incapacity or injury ("disability"), and other than in
connection with an authorized leave of absence, to perform a
majority of Executive's usual duties for a period of longer
than 120 consecutive days or an aggregate 150 days in a 12-
month period, but subject to compliance with applicable law,
Image's obligation to pay Base Salary will be suspended. If
the suspension because of disability is reasonably
anticipated to exceed 180 consecutive days, or an aggregate
210 days in a 12-month period, Image may terminate this
Agreement effective upon 30 days prior written notice to
Executive. In such event, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to the
suspension of Executive's duties due to disability,
whichever is greater, payable only if and when the
amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
Disagreement as to the severity, characterization or
anticipated duration of a disability or suspension and/or
the date such disability/suspension commenced shall be
settled by the majority decision of three neutral
arbitrators (or licensed physicians, if the parties so
agree) - one to be selected by each party to the dispute,
the two thus appointed shall choose the third, and the three
thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after
choosing the third arbitrator, shall resolve such
disagreement and their decision shall be final and binding
on Executive, Image and any other person with an interest in
the matter.
12. TERMINATION.
(a) "Cause." In the event of "Cause" (as defined below),
Image may terminate this Agreement at any time
effective upon delivery of written notice to Executive.
In such event, all of Image's obligations hereunder
will immediately terminate without further liability.
Moreover, Executive shall not be entitled to receive
any severance, fringe benefits, compensation or other
such rights hereunder, nor shall Executive be entitled
to receive any Bonus Compensation otherwise payable
pursuant to Subparagraph 3(b). For purposes of this
Agreement "Cause" shall include, but is not limited to:
(i) Executive's (a) fraud, dishonesty or
felonious conduct or breach of fiduciary
duty; (b) willful misconduct or gross
negligence in the performance of Executive's
duties hereunder; (c) knowing and willful or
negligent violation (including conduct in
respect of Executive's supervisory
responsibilities) of any law, rule or
regulation or other wrongful act that causes
or is likely to cause harm or loss to the
Company; or (d) conviction of a felony or
misdemeanor (other than minor traffic
violations or similar offenses that do not
affect the business or reputation of the
Company); or
(ii) Executive's breach of any material provision
of this Agreement or any other material
agreement between Image and Executive,
whenever executed, provided, however, that
bona fide disagreements or disputes as to
expense reimbursement shall not be deemed
fraud or felonious conduct or Executive's
breach of any material provision of this
Agreement.
(b) "Without Cause." Notwithstanding anything contained
herein to the contrary, if this Agreement is terminated
prior to expiration of the Term for any reason other
than (i) pursuant to Paragraph 10 or 11, (ii) for Cause
or (iii) because of voluntary termination (whether or
not in breach of this Agreement), this Agreement shall
be deemed to have been terminated "Without Cause", and
if such termination occurs prior to a Change in
Control, Executive shall be entitled to receive all of
the compensation, rights and benefits described in
Paragraphs 3, 4 and 5 through the expiration of the
Term and the severance described in Paragraph 6, as if
this Agreement were in full force.
13. CHANGE IN CONTROL.
Notwithstanding anything contained herein to the contrary,
the terms and conditions of this Paragraph 13 shall control
upon or following a "Change in Control" (as defined below).
(a) Termination. If (1) this Agreement is terminated prior
to expiration of the Term for any reason other than (a)
pursuant to Paragraph 10 (Death) or 11 (Permanent
Disability/Suspension), (b) for Cause or (c) because of
a voluntary termination (other than for Good Reason)
and whether or not in breach of this Agreement, or (2)
Executive terminates this Agreement for Good Reason
under Paragraph 13(d), Executive shall be entitled to
receive all of the compensation, rights and benefits
described in Paragraphs 3, 4 and 5 for a period of
one year following the effective date of termination or
through the expiration of the Term, whichever is
longer, and the severance described in Paragraph 6, as
if this Agreement were in full force. If any other
Executive Officer's options are acquired pursuant to a
Change in Control, Executive's options will be acquired
on the same terms as any other Executive Officer.
Executive must receive 30 days prior written notice of
termination regardless of the reason for termination.
(b) "Change in Control Prior to Effective Date." With
respect to options granted prior to the Effective Date,
"Change in Control" shall mean and be deemed to have
occurred on the earliest of the following dates:
(i) the date, pursuant to Section 13(d) of the
Act and the rules promulgated thereunder, a
person shall have acquired beneficial
ownership of more than 45% of the Voting
Stock;
(ii) the date the persons who were members of the
Board at the beginning of any 24-month period
shall cease to constitute a majority of the
Board, unless the election, or the nomination
for election by Image's shareholders, of each
new director was approved by two-thirds of
the members of the Board then in office who
were in office at the beginning of the
24-month period; or
(iii) the date Image's shareholders shall
approve a definitive agreement (a) to merge
or consolidate Image with or into another
corporation, unless the holders of Image's
capital stock immediately before such merger
or consolidation will, immediately following
such merger or consolidation, hold as a group
on a fully-diluted basis the ability to elect
at least a majority of the directors of the
surviving corporation (assuming cumulative
voting, if applicable), or (b) to sell or
otherwise dispose of all or substantially all
the assets of Image.
(c) "Change in Control After Effective Date." For purposes
of this Agreement and of options and other stock-based
awards granted after the Effective Date, "Change in
Control" shall mean and be deemed to have occurred on
the earliest of the following dates or events:
(i) the date of an acquisition by any Person of
beneficial ownership (within the meaning of
Rule 13d-3 under Exchange Act) or a pecuniary
interest in more than 45% of the Common Stock
or voting securities then entitled to vote
generally in the election of directors of
Image ("Voting Stock"), other than an
acquisition by one or more Excluded Persons
(Image, Image Investors Co., or Messrs. John
Kluge, Stuart Subotnick or Executive) in
connection with a new issuance of Voting
Stock (or rights to acquire Voting Stock)
after the effective date of the 1998 Plan by
Image to the Excluded Person in a transaction
that the Committee determines (in advance of
the issuance) does not constitute a Change in
Control event;
(ii) approval by the shareholders of Image of a
plan of merger, consolidation, or
reorganization of Image or sale or other
disposition of all or substantially all of
Image's assets involving a more than 50%
change in ownership (collectively, a
"Business Combination"), other than a
Business Combination: (1) (a) in which
substantially all of the holders of Image's
Voting Stock hold or receive directly or
indirectly 50% or more of the voting stock of
the resulting entity or a parent company
thereof, and (b) after which no Person (other
than any one or more of the Excluded Persons,
as defined above) owns more than 50% of the
voting stock of the resulting entity (or a
parent company) who did not own directly or
indirectly at least that amount of Voting
Stock immediately before the Business
Combination; or (2) in which the holders of
Image's capital stock immediately before such
Business Combination will, immediately after
such Business Combination, hold as a group on
a fully diluted basis the ability to elect at
least a majority of the directors of the
surviving corporation (or a parent company);
(iii) approval by the Board of Directors and
(if required by law) by shareholders of Image
of a plan to consummate the dissolution or
complete liquidation of Image; or
(iv) the date the persons who were members of the
Board of Directors at the beginning of any 24-
month period shall cease to constitute a
majority of the Board, unless the election,
or the nomination for election by Image's
shareholders, of each new director was
approved by two-thirds of the members of the
Board of Directors then in office who were in
office at the beginning of the 24-month
period.
For purposes of determining whether a Change in Control
has occurred, a transaction includes all transactions
in a series of related transactions, and terms used in
this definition but not defined are used as defined in
the 1998 Plan.
(d) Executive's Right to Terminate For Good Reason. During
the Term, Executive shall be entitled to terminate
Executive's employment with Image for "Good Reason" (as
defined below) following a Change in Control. For
purposes of this Agreement "Good Reason" shall mean any
of the following events which occurs without
Executive's express written consent following a Change
in Control:
(i) the assignment of any duties materially
inconsistent with Executive's status as an
Executive Officer or a substantial reduction
in the nature or status of Executive's
responsibilities from those in effect
immediately prior to a Change in Control
other than any such alteration primarily
attributable to the fact that Image may no
longer be a public company;
(ii) a reduction by Image in Base Salary;
(iii) the relocation of Image's principal
executive offices to a location more than
35 miles from the current locale or Image's
requiring Executive to be based anywhere
other than Image's principal executive
offices except for required travel on Image's
business to an extent substantially
consistent with Executive's present travel
obligations;
(iv) the failure by Image to continue in effect
without material change any compensation or
benefit plan in which Executive is entitled
to participate, or the failure by Image to
continue Executive's participation therein,
or the taking of any action by Image which
would directly or indirectly materially
reduce any of the benefits of such plans
enjoyed by Executive immediately prior to the
Change in Control, or the taking of any other
action by Image which materially adversely
changes the conditions or perquisites of
Executive's employment;
(v) the failure of Image to obtain a successor's
assumption and agreement to perform this
Agreement, unless the assumption occurs by
operation of law;
(vi) any purported termination of employment which
is not effected pursuant to
Subparagraph 13(a), any such purported
termination shall not be effective for
purposes of this Agreement;
(vii) the failure of Image to maintain
adequate D&O insurance coverage pursuant to
the terms of this Agreement, unless such
insurance is not available on commercially
reasonable terms; or
(viii) the breach by Image of any material term
of this Agreement.
The rights provided under this Paragraph 13(d) to
terminate for Good Reason shall not adversely affect
any rights of Executive whether before or after a
Change in Control in respect of a breach of this
Agreement by Image.
(e) Legal Fees and Expenses. If Executive is terminated
following a Change in Control and Executive shall incur
any legal fees or expenses as a result of (i) seeking
to obtain or enforce any right or benefit provided by
this Agreement or (ii) a claim of wrongful discharge or
breach of this Agreement, Image agrees to pay or
reimburse Executive for such fees and expenses;
provided, however, that any claims giving rise to such
fees or expenses must be made in good faith and for
good cause. In the event there is a dispute regarding
Executive's good faith or the merits of Executive's
claim, and it is determined by the court that the claim
lacked merit or was made in bad faith, Executive shall
be limited to recovering only such fees and expenses,
if any, as the court shall determine.
14. GENERAL PROVISIONS.
(a) Successors and Assigns. This Agreement is binding upon
and shall inure to the benefit of the parties hereto,
and any of their heirs, legatees, devisees, personal
representatives, assigns and successors in interest of
every kind and nature whatsoever. The parties hereto
agree that Executive's services are personal and that
this Agreement is executed with respect thereto.
Executive shall have no right to sell, transfer or
assign this Agreement in any manner whatsoever.
(b) Entire Understanding; Amendment. This Agreement and
the Exhibit hereto constitute the entire understanding
and agreement between the parties with respect to the
subject matter hereof and supersede (i) any and all
prior and preliminary discussions, (ii) any and all
prior written or oral and any and all contemporaneous
written or oral agreements, understandings and
negotiations between the parties; including but not
limited to prior written or oral employment agreements
and severance agreements, and (iii) the Employment
Agreement between Image and Executive dated July 1,
1994, as amended through July 1, 1997. There are no
warranties, representations or other agreements between
the parties in connection with the subject matter
hereof except as set forth or referred to herein. This
Agreement shall not be modified, amended or altered
except by an instrument in writing executed by the
parties hereto.
(c) Severability. In case one or more of the provisions
contained in this Agreement (or any portion of any such
provision) shall for any reason be held invalid,
illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement (or any
portion of any such provision), but this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision (or portion thereof) had never
been contained herein.
(d) Waiver. The failure by Image, at any time, to require
performance by Executive of any of the provisions
hereof, shall not be deemed a waiver of any kind nor
shall it in any way affect Image's rights thereafter to
enforce the same.
(e) Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be
in writing and shall be deemed to have been given
24 hours after deposit thereof for mailing at any
general or branch United States Post Office, enclosed
in a registered or certified postpaid envelope and
addressed as follows:
To Image: IMAGE ENTERTAINMENT, INC
9333 Oso Avenue
Chatsworth, CA 91311
Attn: General Counsel
To Executive: MARTIN GREENWALD
605 N. Alpine Drive
Beverly Hills, CA 90210
The parties hereto may designate a different place at
which notice shall be given; provided, however, that
any such notice of change of address shall be effective
only upon receipt.
(f) Good Faith. The parties hereto shall perform, fulfill
and discharge their duties and obligations hereunder in
a reasonable manner in good faith.
(g) Governing Law. This Agreement and all rights,
obligations and liabilities arising hereunder shall be
construed and enforced in accordance with the laws of
the State of California.
(h) Attorneys' Fees. Subject to Paragraph 13(e), in the
event it becomes necessary to commence any proceeding
or action to enforce the provisions of this Agreement,
the court before whom the same shall be tried may award
the prevailing party all costs and expenses thereof,
including without limitation, reasonable attorney's
fees, the usual, customary and lawfully recoverable
court costs, and all other expenses in connection
therewith.
(i) Advice of Counsel. The parties represent and warrant
that in executing this Agreement, they have each had
the opportunity to obtain independent financial, legal,
tax and other appropriate advice, and are not relying
upon any other party or the attorneys or other agents
of such other party) for any such advice.
(j) Subject Headings and Defined Terms. Subject headings
and choice of defined terms are included for
convenience only and shall not be deemed part of this
Agreement.
(k) Cumulative Rights and Remedies. The rights and
remedies provided for in this Agreement shall be
cumulative; resort to one right or remedy shall not
preclude resort to another or to any other right or
remedy provided for by law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first above written.
IMAGE ENTERTAINMENT, INC. EXECUTIVE
By: /s/ Cheryl Lee /s/ Martin W. Greenwald
------------------------------ ----------------------------------
Cheryl Lee Martin W. Greenwald, an individual
Its: Chief Adminstrative Officer
605 N. Alpine Dr.
Beverly Hills, CA 90210
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 1st day of July, 1998 (the "Effective Date"), by
and between IMAGE ENTERTAINMENT INC., a California corporation
("Image"), and CHERYL LEE, an individual ("Executive").
RECITALS
WHEREAS, the Board of Directors of Image has determined
that because of Executive's substantial experience with respect
to sales and marketing, management and other aspects of the
business of Image, business relationships in connection with the
business of Image, and Executive's familiarity with the clientele
served by Image, it is in the best interests of Image to secure
the services of Executive and to provide Executive with the
compensation and benefits set forth herein; and
WHEREAS, Executive desires to render to Image, on an
exclusive basis, Executive's professional services with respect
to Executive's experience and abilities, and Image desires to
secure, on an exclusive basis, Executive's services, on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
Except as otherwise expressly set forth herein, this
Agreement shall remain in full force and effect for the
period commencing as of the date hereof and ending on
June 30, 2000 (the "Term"); provided, however, that unless
Image or Executive gives written notice of its or her
intention not to extend the Term by January 1, 2000 or any
subsequent anniversary thereof, then the Term of this
Agreement shall automatically be extended for an additional
one (1) year commencing on the July 1 immediately
thereafter, but shall not in any case be extended beyond
June 30, 2005. The capitalized word "Term" as used in other
paragraphs of this Agreement (except Paragraph 3(a)) shall
include any extensions pursuant to the preceding sentence.
2. ENGAGEMENT.
Subject to the terms and conditions contained herein, Image
hereby engages the services of Executive (the "Services")
and Executive hereby accepts such engagement and agrees to
render Executive's Services to Image for the Term.
Executive shall report directly to the President, or, if
none, to the Chief Executive Officer of Image and initially
shall have the title of "CHIEF ADMINISTRATIVE OFFICER AND
GENERAL COUNSEL."
(a) Extent of Services and Duties. Executive shall perform
such duties, compatible with Executive's position as an
"Executive Officer" (as defined below) and as the
Executive's senior officer or the Board of Directors of
Image may reasonably direct. In rendering Services to
Image, Executive shall use Executive's best efforts and
ability to maintain, further and promote the interests
and welfare of Image. At the request of Image,
Executive shall serve as an officer or director of
Image or any entity controlled by Image or in which it
has a substantial direct or indirect interest (any such
entity or entities together with Image, the "Company"),
without additional compensation; provided that
Executive is included on any such entity's directors
and officers insurance policy (if any). For purposes
of this Agreement "Executive Officer" shall include any
person similarly designated as an "Executive Officer"
in that person's Employment Agreement with Image.
(b) Exclusive Engagement. Executive hereby acknowledges
and agrees that the engagement of Executive by Image
under this Agreement is exclusive and that during the
Term hereof Executive shall not, directly or
indirectly, whether for compensation or otherwise,
engage in any business that is competitive with the
business of the Company or that otherwise interferes in
any significant respect with the Executive's exclusive
commitment and duties under this Agreement, or render
any services of a business, commercial or professional
nature to any other person or organization that is a
competitor of Image or in a business similar to that of
Image, without the prior written consent of Image.
Notwithstanding the foregoing, Executive may make and
manage personal business investments of her choice and
serve in any capacity with any civic, educational or
charitable organization without seeking or obtaining
approval by the Board, provided that such activities
and services do not substantially interfere or conflict
with the performance of duties hereunder or create any
conflict of interest with such duties.
3. COMPENSATION.
(a) Base Salary. During the Term of this Agreement, Image
hereby agrees to pay Executive for all Services to be
rendered hereunder a base salary ("Base Salary") at the
following rates.
<TABLE>
<CAPTION>
Period Annual Rate
<S> <C>
Year ending on the first anniversary of the date hereof $190,000 per year
Year ending on the second anniversary of the date hereof $199,500 per year
</TABLE>
In the event the Term is extended pursuant to Paragraph
1, the Base Salary for each such extension shall be (i)
the Base Salary for the year ending on the expiration
date of the Term prior to the extension plus (ii) an
amount equal to five percent (5%) of the Base Salary.
The Base Salary will be payable in equal biweekly
installments or as otherwise provided in accordance
with the regular executive officer compensation pay
schedule and procedures in effect from time to time for
Image, subject to Paragraph 7 (Withholding/Deductions).
(b) Bonus Compensation. Executive shall be entitled to
participate in a bonus plan available generally to, on
terms not substantially less favorable than, and with
bonus opportunities not materially disproportionate in
the aggregate to the distinctions made for fiscal year
1999 in respect of similarly situated Executive
Officers of the Company (other than plans, terms or
opportunities available only to the Chief Executive
Officer or President). The level of bonus opportunity
and form of payment shall be determined annually by the
Board or its Compensation Committee and may be
expressed as a multiple of base salary based on
performance of the Company relative to a specified
target.
For fiscal year 1999, the cash bonus shall be
determined based on a formula utilizing earnings before
interest, taxes, depreciation and amortization
("EBITDA") as the applicable performance criterion.
The specific performance targets for fiscal 1999 are
(and for future years will be) confidential business
information and provided to Executive on that basis by
the Chief Executive Officer upon request. The specific
cash bonus payable to Executive for fiscal year 1999
shall be determined by multiplying (i) the percentage
determined by dividing Image's actual EBITDA by the
target EBITDA (the "Performance Factor") by (ii) the
amount equal to 30% of Executive's Base Salary. In
order for a bonus award to be paid under the bonus
program in fiscal year 1999, the Performance Factor
must reach a minimum of 40%. The amount of bonus shall
be capped by a Performance Factor of 125%.
In years following fiscal 1999, annual cash bonuses
under this program may be based on different business
criteria or models and Performance Factors and Base
Salary multiples may change (in the individual case or
for all similarly situated officers) as determined
annually by the Board of Directors or the Compensation
Committee of Image. Image anticipates that bonus
entitlements will be determined on or before the end of
the first quarter of the applicable fiscal year and
that any bonuses payable shall be paid, provided the
Executive is then employed by the Company, no later
than the end of the quarter following each fiscal year.
4. OPTIONS AND OTHER STOCK-BASED AWARDS.
In addition to Base Salary and Bonus Compensation, Image may
grant stock options and other stock-based awards to
Executive, in such form and amounts, and at such time or
times, as Image's Board of Directors (or, if applicable, the
administrators of Image's stock option plans and (subject to
shareholder approval) the 1998 Incentive Plan (the "1998
Plan")) shall determine. If this Agreement is terminated
early "Without Cause" under Subparagraph 12(b) or upon or
following a "Change in Control" under Paragraph 13(d), all
unvested options granted to Executive will immediately vest.
The vesting of other stock-based awards will depend upon the
provisions of the Executive's award agreement and the plan
(if any) under which the Awards are granted. Unless this
Agreement is terminated early for Cause under Subparagraph
12(a), all options granted to Executive prior to July 1,
1998 shall be exercisable after employment ceases for the
longest period permissible under the applicable stock option
plan, to the extent the option was vested as of the date of
termination, and all options or rights granted on or after
July 1, 1998 shall be exercisable as provided in the
applicable award or grant.
Image recognizes hereby that Executive is entitled, subject
to shareholder approval of the 1998 Plan, to a grant of
12,761 Restricted Stock Units, in substantially the Form of
Performance Restricted Stock Unit Award attached hereto as
Exhibit A.
5. FRINGE BENEFITS.
Image agrees to provide Executive with fringe benefits
including but not limited to the medical, dental, life and
short and long-term disability insurance, expense allowance
and vacation time described below:
(a) Medical, Dental, Life & Short and Long-Term
Disability Insurance. Image shall purchase (or,
if applicable, maintain) during the Term medical,
dental, life and short and long-term disability
insurance for Executive, and provide coverage
under the medical and dental policies for
Executive's direct dependent beneficiaries (e.g.,
spouse and minor children), on terms no less
favorable than the terms and conditions in effect
as of the date hereof and at all times at least
equal to that received by any other Executive
Officer (collectively, "Insurance").
(b) Business/Travel Expenses. Executive shall be
reimbursed in full for all reasonable and actual
out-of-pocket business and travel expenses
incurred in the performance of Executive's
Services, on terms and at all times at least equal
to that received by any other Executive Officer,
provided Executive shall first present an itemized
account of such expenditures together with
supporting vouchers.
(c) Vacation Time. Executive is entitled to 4 weeks
of paid vacation time per year of the Term, but
may accrue no more than 8 weeks vacation during
the Term. Any unused vacation time as of June 30,
1998 will continue to be available throughout the
Term and will not be subject to any offset,
reduction or deduction until such time as the then
accrued vacation time available under the
foregoing sentence has been used.
6. SEVERANCE.
Upon expiration of the Term, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for the period contemplated by
Subparagraph 3(b); plus a prorated portion of Bonus
Compensation, if any, otherwise payable pursuant to
Subparagraph 3(b) for 6 months or any partial fiscal
year that has occurred prior to the expiration of the
Term, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
7. WITHHOLDING/DEDUCTIONS
There shall be deducted from all compensation payable to
Executive hereunder such sums, including without limitation,
social security, income tax withholding and unemployment
insurance, as Image is by law obligated to deduct and
additionally as the Executive may duly authorize.
8. CONFIDENTIALITY.
In consideration of the payments to be received hereunder,
Executive agrees as follows:
(a) That during the Term of this Agreement he will have
access to and become acquainted with various "Trade
Secrets" (as defined below) and proprietary information
of Image. Except as Executive's duties may require or
as Image may otherwise consent to in writing, Executive
will not at any time disclose or use to the detriment
of Image or the sole benefit of Executive, either
directly or indirectly, and either during or subsequent
to the Term hereof, any information, knowledge or data
he receives in confidence or acquires from Image or
which relates to the Trade Secrets of Image. For
purposes of this Agreement "Trade Secrets" shall
include, but not be limited to:
(i) Financial information, such as Image's
earnings, assets, debts, prices, pricing
structure, volumes of purchases or sales or
other financial data, whether relating to
Image generally, or to particular products,
services, geographic areas, or time periods;
(ii) Supply and service information, such as goods
and services, suppliers' names or addresses,
terms of supply or service contracts, or of
particular transactions, or related
information about potential suppliers, to the
extent that such information is not generally
known to the public, and to the extent that
the combination of suppliers or use of a
particular supplier, though generally known
or available, yields advantages to Image, the
details of which are not generally known:
(iii) Marketing information, such as details
about ongoing or proposed marketing programs
or agreements by or on behalf of Image, sales
forecasts or results of marketing efforts or
information about impending transactions;
(iv) Licensing or Distribution information, such
as details about ongoing or proposed
negotiations or agreements by or on behalf of
Image, terms and details of such negotiations
or agreements or results of licensing or
distribution efforts or information about
impending transactions; or,
(v) Customer information, such as any compilation
of past, existing or prospective customers,
customers' proposals or agreements between
customers and status of customers accounts or
credit, or related information about actual
or prospective customers.
(b) That all files, records, documents, data information
and customer lists are special, valuable and unique
assets of Image and are essential to its continued
business success, and that under no circumstance during
the Term hereof or subsequent thereto will he influence
or attempt to influence any employee of Image to
terminate his or her employment with Image to work for
any competitor of Image, nor shall the Executive
solicit, directly or indirectly, any customers of Image
or disclose or use for the purpose of such
solicitation. without the prior written consent of
Image, any files, records, document, data, information,
customer lists or any other proprietary information of
Image.
(c) Executive acknowledges that any violation of the terms
of this Paragraph 8 will constitute a material breach
of this Agreement and will cause Image immediate and
irreparable harm and that the damages which Image will
suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of
this Paragraph 8, Image shall be entitled to the
issuance of a restraining order, preliminary and
permanent injunction, without bond, restraining or
enjoining such violation by Executive or any entity or
person acting in concert with Executive. Such remedy
shall be additional to and not in limitation of any
other remedy which may otherwise be available to Image.
9. INDEMNIFICATION OF EXECUTIVE.
Image will, to the maximum extent permitted by law,
indemnify and hold Executive harmless against expenses,
including reasonable attorney's fees, judgments, fines,
settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason
of Executive's employment by Image. Image shall advance to
Executive any expenses incurred in defending any proceeding
to the maximum extent permitted by law. Image will at all
times maintain directors' and officers' liability insurance
("D&O Insurance"), or have sufficient funds to self-insure,
in amounts and on terms at least as favorable as the D&O
Insurance policy in effect on the date hereof.
10. DEATH.
In the event of Executive's death, this Agreement will
terminate on the last day of the calendar month of
Executive's death. In such event, Executive's personal
representative, heirs or beneficiaries entitled by will or
the laws of descent and distribution shall be entitled to
receive only:
(a) Base Salary continuation for a period of 6 months or
the expiration of the Term, whichever occurs first; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to
death, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) dependent Insurance continuation for a period of 6
months or the expiration of the Term, whichever occurs
first.
11. PERMANENT DISABILITY/SUSPENSION.
If Executive fails, because of physical or mental illness,
incapacity or injury ("disability"), and other than in
connection with an authorized leave of absence, to perform a
majority of Executive's usual duties for a period of longer
than 120 consecutive days or an aggregate 150 days in a 12-
month period, but subject to compliance with applicable law,
Image's obligation to pay Base Salary will be suspended. If
the suspension because of disability is reasonably
anticipated to exceed 180 consecutive days, or an aggregate
210 days in a 12-month period, Image may terminate this
Agreement effective upon 30 days prior written notice to
Executive. In such event, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to the
suspension of Executive's duties due to disability,
whichever is greater, payable only if and when the
amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
Disagreement as to the severity, characterization or
anticipated duration of a disability or suspension and/or
the date such disability/suspension commenced shall be
settled by the majority decision of three neutral
arbitrators (or licensed physicians, if the parties so
agree) - one to be selected by each party to the dispute,
the two thus appointed shall choose the third, and the three
thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after
choosing the third arbitrator, shall resolve such
disagreement and their decision shall be final and binding
on Executive, Image and any other person with an interest in
the matter.
12. TERMINATION.
(a) "Cause." In the event of "Cause" (as defined below),
Image may terminate this Agreement at any time
effective upon delivery of written notice to Executive.
In such event, all of Image's obligations hereunder
will immediately terminate without further liability.
Moreover, Executive shall not be entitled to receive
any severance, fringe benefits, compensation or other
such rights hereunder, nor shall Executive be entitled
to receive any Bonus Compensation otherwise payable
pursuant to Subparagraph 3(b). For purposes of this
Agreement "Cause" shall include, but is not limited to:
(i) Executive's (a) fraud, dishonesty or
felonious conduct or breach of fiduciary
duty; (b) willful misconduct or gross
negligence in the performance of Executive's
duties hereunder; (c) knowing and willful or
negligent violation (including conduct in
respect of Executive's supervisory
responsibilities) of any law, rule or
regulation or other wrongful act, that causes
or is likely to cause harm or loss to the
Company; or (d) conviction of a felony or
misdemeanor (other than minor traffic
violations or similar offenses that do not
affect the business or reputation of the
Company); or
(ii) Executive's breach of any material provision
of this Agreement or any other material
agreement between Image and Executive,
whenever executed, provided, however, that
bona fide disagreements or disputes as to
expense reimbursement shall not be deemed
fraud or felonious conduct or Executive's
breach of any material provision of this
Agreement.
(b) "Without Cause." Notwithstanding anything contained
herein to the contrary, if this Agreement is terminated
prior to expiration of the Term for any reason other
than (i) pursuant to Paragraph 10 or 11, (ii) for Cause
or (iii) because of voluntary termination (whether or
not in breach of this Agreement), this Agreement shall
be deemed to have been terminated "Without Cause", and
if such termination occurs prior to a Change in
Control, Executive shall be entitled to receive all of
the compensation, rights and benefits described in
Paragraphs 3, 4 and 5 through the expiration of the
Term and the severance described in Paragraph 6, as if
this Agreement were in full force.
13. CHANGE IN CONTROL.
Notwithstanding anything contained herein to the contrary,
the terms and conditions of this Paragraph 13 shall control
upon or following a "Change in Control" (as defined below).
(a) Termination. If (1) this Agreement is terminated prior
to expiration of the Term for any reason other than (a)
pursuant to Paragraph 10 (Death) or 11 (Permanent
Disability/Suspension), (b) for Cause or (c) because of
a voluntary termination (other than for Good Reason)
and whether or not in breach of this Agreement, or (2)
Executive terminates this Agreement for Good Reason
under Paragraph 13(d), Executive shall be entitled to
receive all of the compensation, rights and benefits
described in Paragraphs 3, 4 and 5 for a period of
one year following the effective date of termination or
through the expiration of the Term, whichever is
longer, and the severance described in Paragraph 6, as
if this Agreement were in full force. If any other
Executive Officer's options are acquired pursuant to a
Change in Control, Executive's options will be acquired
on the same terms as any other Executive Officer.
Executive must receive 30 days prior written notice of
termination regardless of the reason for termination.
(b) "Change in Control Prior to Effective Date." With
respect to options granted prior to the Effective Date,
"Change in Control" shall mean and be deemed to have
occurred on the earliest of the following dates:
(i) the date, pursuant to Section 13(d) of the
Act and the rules promulgated thereunder, a
person shall have acquired beneficial
ownership of more than 45% of the Voting
Stock;
(ii) the date the persons who were members of the
Board at the beginning of any 24-month period
shall cease to constitute a majority of the
Board, unless the election, or the nomination
for election by Image's shareholders, of each
new director was approved by two-thirds of
the members of the Board then in office who
were in office at the beginning of the
24-month period; or
(iii) the date Image's shareholders shall
approve a definitive agreement (a) to merge
or consolidate Image with or into another
corporation, unless the holders of Image's
capital stock immediately before such merger
or consolidation will, immediately following
such merger or consolidation, hold as a group
on a fully-diluted basis the ability to elect
at least a majority of the directors of the
surviving corporation (assuming cumulative
voting, if applicable), or (b) to sell or
otherwise dispose of all or substantially all
the assets of Image.
(c) "Change in Control After Effective Date." For purposes
of this Agreement and of options and other stock-based
awards granted after the Effective Date, "Change in
Control" shall mean and be deemed to have occurred on
the earliest of the following dates or events:
(i) the date of an acquisition by any Person of
beneficial ownership (within the meaning of
Rule 13d-3 under Exchange Act) or a pecuniary
interest in more than 45% of the Common Stock
or voting securities then entitled to vote
generally in the election of directors of
Image ("Voting Stock"), other than an
acquisition by one or more Excluded Persons
(Image, Image Investors Co., or Messrs. John
Kluge, Stuart Subotnick or Martin Greenwald)
in connection with a new issuance of Voting
Stock (or rights to acquire Voting Stock)
after the effective date of the 1998 Plan by
Image to the Excluded Person in a transaction
that the Committee determines (in advance of
the issuance) does not constitute a Change in
Control event;
(ii) approval by the shareholders of Image of a
plan of merger, consolidation, or
reorganization of Image or sale or other
disposition of all or substantially all of
Image's assets involving a more than 50%
change in ownership (collectively, a
"Business Combination"), other than a
Business Combination: (1) (a) in which
substantially all of the holders of Image's
Voting Stock hold or receive directly or
indirectly 50% or more of the voting stock of
the resulting entity or a parent company
thereof, and (b) after which no Person (other
than any one or more of the Excluded Persons,
as defined above) owns more than 50% of the
voting stock of the resulting entity (or a
parent company) who did not own directly or
indirectly at least that amount of Voting
Stock immediately before the Business
Combination; or (2) in which the holders of
Image's capital stock immediately before such
Business Combination will, immediately after
such Business Combination, hold as a group on
a fully diluted basis the ability to elect at
least a majority of the directors of the
surviving corporation (or a parent company);
(iii) approval by the Board of Directors and
(if required by law) by shareholders of Image
of a plan to consummate the dissolution or
complete liquidation of Image; or
(iv) the date the persons who were members of the
Board of Directors at the beginning of any 24-
month period shall cease to constitute a
majority of the Board, unless the election,
or the nomination for election by Image's
shareholders, of each new director was
approved by two-thirds of the members of the
Board of Directors then in office who were in
office at the beginning of the 24-month
period.
For purposes of determining whether a Change in Control
has occurred, a transaction includes all transactions
in a series of related transactions, and terms used in
this definition but not defined are used as defined in
the 1998 Plan.
(d) Executive's Right to Terminate For Good Reason. During
the Term, Executive shall be entitled to terminate
Executive's employment with Image for "Good Reason" (as
defined below) following a Change in Control. For
purposes of this Agreement "Good Reason" shall mean any
of the following events which occurs without
Executive's express written consent following a Change
in Control:
(i) the assignment of any duties materially
inconsistent with Executive's status as an
Executive Officer or a substantial reduction
in the nature or status of Executive's
responsibilities from those in effect
immediately prior to a Change in Control
other than any such alteration primarily
attributable to the fact that Image may no
longer be a public company;
(ii) a reduction by Image in Base Salary;
(iii) the relocation of Image's principal
executive offices to a location more than
35 miles from the current locale or Image's
requiring Executive to be based anywhere
other than Image's principal executive
offices except for required travel on Image's
business to an extent substantially
consistent with Executive's present travel
obligations;
(iv) the failure by Image to continue in effect
without material change any compensation or
benefit plan in which Executive is entitled
to participate, or the failure by Image to
continue Executive's participation therein,
or the taking of any action by Image which
would directly or indirectly materially
reduce any of the benefits of such plans
enjoyed by Executive immediately before the
Change in Control, or the taking of any other
action by Image which materially adversely
changes the conditions or perquisites of
Executive's employment;
(v) the failure of Image to obtain a successor's
assumption and agreement to perform this
Agreement, unless the assumption occurs by
operation of law;
(vi) any purported termination of employment which
is not effected pursuant to
Subparagraph 13(a), any such purported
termination shall not be effective for
purposes of this Agreement;
(vii) the failure of Image to maintain
adequate D&O insurance coverage pursuant to
the terms of this Agreement, unless such
insurance is not available on commercially
reasonable terms; or
(viii) the breach by Image of any material term
of this Agreement.
The rights provided under this Paragraph 13(d) to terminate
for Good Reason shall not adversely affect any rights of
Executive whether before or after a Change in Control in
respect of a breach of this Agreement by Image.
(e) Legal Fees and Expenses. If Executive is terminated
following a Change in Control and Executive shall incur
any legal fees or expenses as a result of (i) seeking
to obtain or enforce any right or benefit provided by
this Agreement or (ii) a claim of wrongful discharge or
breach of this Agreement, Image agrees to pay or
reimburse Executive for such fees and expenses;
provided, however, that any claims giving rise to such
fees or expenses must be made in good faith and for
good cause. In the event there is a dispute regarding
Executive's good faith or the merits of Executive's
claim, and it is determined by the court that the claim
lacked merit or was made in bad faith, Executive shall
be limited to recovering only such fees and expenses,
if any, as the court shall determine.
14. GENERAL PROVISIONS.
(a) Successors and Assigns. This Agreement is binding upon
and shall inure to the benefit of the parties hereto,
and any of their heirs, legatees, devisees, personal
representatives, assigns and successors in interest of
every kind and nature whatsoever. The parties hereto
agree that Executive's services are personal and that
this Agreement is executed with respect thereto.
Executive shall have no right to sell, transfer or
assign this Agreement in any manner whatsoever.
(b) Entire Understanding; Amendment. This Agreement and
the Exhibit hereto constitute the entire understanding
and agreement between the parties with respect to the
subject matter hereof and supersede (i) any and all
prior and preliminary discussions, (ii) any and all
prior written or oral and any and all contemporaneous
written or oral agreements, understandings and
negotiations between the parties, including but not
limited to prior written or oral employment agreements
and severance agreements, and (iii) the Employment
Agreement between Image and Executive dated July 1,
1994, as amended through July 1, 1997. There are no
warranties, representations or other agreements between
the parties in connection with the subject matter
hereof except as set forth or referred to herein. This
Agreement shall not be modified, amended or altered
except by an instrument in writing executed by the
parties hereto.
(c) Severability. In case one or more of the provisions
contained in this Agreement (or any portion of any such
provision) shall for any reason be held invalid,
illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement (or any
portion of any such provision), but this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision (or portion thereof) had never
been contained herein.
(d) Waiver. The failure by Image, at any time, to require
performance by Executive of any of the provisions
hereof, shall not be deemed a waiver of any kind nor
shall it in any way affect Image's rights thereafter to
enforce the same.
(e) Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be
in writing and shall be deemed to have been given
24 hours after deposit thereof for mailing at any
general or branch United States Post Office, enclosed
in a registered or certified postpaid envelope and
addressed as follows:
To Image: IMAGE ENTERTAINMENT, INC
9333 Oso Avenue
Chatsworth, CA 91311
Attn: General Counsel
To Executive: CHERYL LEE
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
The parties hereto may designate a different place at
which notice shall be given; provided, however, that
any such notice of change of address shall be effective
only upon receipt.
(f) Good Faith. The parties hereto shall perform, fulfill
and discharge their duties and obligations hereunder in
a reasonable manner in good faith.
(g) Governing Law. This Agreement and all rights,
obligations and liabilities arising hereunder shall be
construed and enforced in accordance with the laws of
the State of California.
(h) Attorneys' Fees. Subject to Paragraph 13(e), in the
event it becomes necessary to commence any proceeding
or action to enforce the provisions of this Agreement,
the court before whom the same shall be tried may award
the prevailing party all costs and expenses thereof,
including without limitation, reasonable attorney's
fees, the usual, customary and lawfully recoverable
court costs, and all other expenses in connection
therewith.
(i) Advice of Counsel. The parties represent and warrant
that in executing this Agreement, they have each had
the opportunity to obtain independent financial, legal,
tax and other appropriate advice, and are not relying
upon any other party or the attorneys or other agents
of such other party) for any such advice.
(j) Subject Headings and Defined Terms. Subject headings
and choice of defined terms are included for
convenience only and shall not be deemed part of this
Agreement.
(k) Cumulative Rights and Remedies. The rights and
remedies provided for in this Agreement shall be
cumulative; resort to one right or remedy shall not
preclude resort to another or to any other right or
remedy provided for by law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first above written.
IMAGE ENTERTAINMENT, INC. EXECUTIVE
By: /s/ Martin W. Greenwald /s/ Cheryl Lee
--------------------------- ---------------------------------
Martin W. Greenwald Cheryl Lee, an individual
Its: President
--------------------------
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 1st day of July, 1998 (the "Effective Date"), by
and between IMAGE ENTERTAINMENT INC., a California corporation
("Image"), and JEFF FRAMER, an individual ("Executive").
RECITALS
WHEREAS, the Board of Directors of Image has determined
that because of Executive's substantial experience with respect
to sales and marketing, management and other aspects of the
business of Image, business relationships in connection with the
business of Image, and Executive's familiarity with the clientele
served by Image, it is in the best interests of Image to secure
the services of Executive and to provide Executive with the
compensation and benefits set forth herein; and
WHEREAS, Executive desires to render to Image, on an
exclusive basis, Executive's professional services with respect
to Executive's experience and abilities, and Image desires to
secure, on an exclusive basis, Executive's services, on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
Except as otherwise expressly set forth herein, this
Agreement shall remain in full force and effect for the
period commencing as of the date hereof and ending on
June 30, 2000 (the "Term"); provided, however, that unless
Image or Executive gives written notice of its or his
intention not to extend the Term by January 1, 2000 or any
subsequent anniversary thereof, then the Term of this
Agreement shall automatically be extended for an additional
one (1) year commencing on the July 1 immediately
thereafter, but shall not in any case be extended beyond
June 30, 2005. The capitalized word "Term" as used in other
paragraphs of this Agreement (except Paragraph 3(a)) shall
include any extensions pursuant to the preceding sentence.
2. ENGAGEMENT.
Subject to the terms and conditions contained herein, Image
hereby engages the services of Executive (the "Services")
and Executive hereby accepts such engagement and agrees to
render Executive's Services to Image for the Term.
Executive shall report directly to the President, or, if
none, to the Chief Executive Officer of Image and initially
shall have the title of "CHIEF FINANCIAL OFFICER."
(a) Extent of Services and Duties. Executive shall perform
such duties, compatible with Executive's position as an
"Executive Officer" (as defined below) and as the
Executive's senior officer or the Board of Directors of
Image may reasonably direct. In rendering Services to
Image, Executive shall use Executive's best efforts and
ability to maintain, further and promote the interests
and welfare of Image. At the request of Image,
Executive shall serve as an officer or director of
Image or any entity controlled by Image or in which it
has a substantial direct or indirect interest (any such
entity or entities together with Image, the "Company"),
without additional compensation; provided that
Executive is included on any such entity's directors
and officers insurance policy (if any). For purposes
of this Agreement "Executive Officer" shall include any
person similarly designated as an "Executive Officer"
in that person's Employment Agreement with Image.
(b) Exclusive Engagement. Executive hereby acknowledges
and agrees that the engagement of Executive by Image
under this Agreement is exclusive and that during the
Term hereof Executive shall not, directly or
indirectly, whether for compensation or otherwise,
engage in any business that is competitive with the
business of the Company or that otherwise interferes in
any significant respect with the Executive's exclusive
commitment and duties under this Agreement, or render
any services of a business, commercial or professional
nature to any other person or organization that is a
competitor of Image or in a business similar to that of
Image, without the prior written consent of Image.
Notwithstanding the foregoing, Executive may make and
manage personal business investments of his choice and
serve in any capacity with any civic, educational or
charitable organization without seeking or obtaining
approval by the Board, provided that such activities
and services do not substantially interfere or conflict
with the performance of duties hereunder or create any
conflict of interest with such duties.
3. COMPENSATION.
(a) Base Salary. During the Term of this Agreement, Image
hereby agrees to pay Executive for all Services to be
rendered hereunder a base salary ("Base Salary") at the
following rates.
<TABLE>
<CAPTION>
Period Annual Rate
<S> <C>
Year ending on the first anniversary of the date hereof $190,000 per year
Year ending on the second anniversary of the date hereof $199,500 per year
</TABLE>
In the event the Term is extended pursuant to Paragraph
1, the Base Salary for each such extension shall be (i)
the Base Salary for the year ending on the expiration
date of the Term prior to the extension plus (ii) an
amount equal to five percent (5%) of the Base Salary.
The Base Salary will be payable in equal biweekly
installments or as otherwise provided in accordance
with the regular executive officer compensation pay
schedule and procedures in effect from time to time for
Image, subject to Paragraph 7 (Withholding/Deductions).
(b) Bonus Compensation. Executive shall be entitled to
participate in a bonus plan available generally to, on
terms not substantially less favorable than, and with
bonus opportunities not materially disproportionate in
the aggregate to the distinctions made for fiscal year
1999 in respect of similarly situated Executive
Officers of the Company (other than plans, terms or
opportunities available only to the Chief Executive
Officer or President). The level of bonus opportunity
and form of payment shall be determined annually by the
Board or its Compensation Committee and may be
expressed as a multiple of base salary based on
performance of the Company relative to a specified
target.
For fiscal year 1999, the cash bonus shall be
determined based on a formula utilizing earnings before
interest, taxes, depreciation and amortization
("EBITDA") as the applicable performance criterion.
The specific performance targets for fiscal 1999 are
(and for future years will be) confidential business
information and provided to Executive on that basis by
the Chief Executive Officer upon request. The specific
cash bonus payable to Executive for fiscal year 1999
shall be determined by multiplying (i) the percentage
determined by dividing Image's actual EBITDA by the
target EBITDA (the "Performance Factor") by (ii) the
amount equal to 30% of Executive's Base Salary. In
order for a bonus award to be paid under the bonus
program in fiscal year 1999, the Performance Factor
must reach a minimum of 40%. The amount of bonus shall
be capped by a Performance Factor of 125%.
In years following fiscal 1999, annual cash bonuses
under this program may be based on different business
criteria or models and Performance Factors and Base
Salary multiples may change (in the individual case or
for all similarly situated officers) as determined
annually by the Board of Directors or the Compensation
Committee of Image. Image anticipates that bonus
entitlements will be determined on or before the end of
the first quarter of the applicable fiscal year and
that any bonuses payable shall be paid, provided the
Executive is then employed by the Company, no later
than the end of the quarter following each fiscal year.
4. OPTIONS AND OTHER STOCK-BASED AWARDS.
In addition to Base Salary and Bonus Compensation, Image may
grant stock options and other stock-based awards to
Executive, in such form and amounts, and at such time or
times, as Image's Board of Directors (or, if applicable, the
administrators of Image's stock option plans and (subject to
shareholder approval) the 1998 Incentive Plan (the "1998
Plan")) shall determine. If this Agreement is terminated
early "Without Cause" under Subparagraph 12(b) or upon or
following a "Change in Control" under Paragraph 13(d), all
unvested options granted to Executive will immediately vest.
The vesting of other stock-based awards will depend upon the
provisions of the Executive's award agreement and the plan
(if any) under which the Awards are granted. Unless this
Agreement is terminated early for Cause under Subparagraph
12(a), all options granted to Executive prior to July 1,
1998 shall be exercisable after employment ceases for the
longest period permissible under the applicable stock option
plan, to the extent the option was vested as of the date of
termination, and all options or rights granted on or after
July 1, 1998 shall be exercisable as provided in the
applicable award or grant.
Image recognizes hereby that Executive is entitled, subject
to shareholder approval of the 1998 Plan, to a grant of
12,761 Restricted Stock Units, in substantially the Form of
Performance Restricted Stock Unit Award attached hereto as
Exhibit A.
5. FRINGE BENEFITS.
Image agrees to provide Executive with fringe benefits
including but not limited to the medical, dental, life and
short and long-term disability insurance, expense allowance
and vacation time described below:
(a) Medical, Dental, Life & Short and Long-Term
Disability Insurance. Image shall purchase (or,
if applicable, maintain) during the Term medical,
dental, life and short and long-term disability
insurance for Executive, and provide coverage
under the medical and dental policies for
Executive's direct dependent beneficiaries (e.g.,
spouse and minor children), on terms no less
favorable than the terms and conditions in effect
as of the date hereof and at all times at least
equal to that received by any other Executive
Officer (collectively, "Insurance").
(b) Business/Travel Expenses. Executive shall be
reimbursed in full for all reasonable and actual
out-of-pocket business and travel expenses
incurred in the performance of Executive's
Services, on terms and at all times at least equal
to that received by any other Executive Officer,
provided Executive shall first present an itemized
account of such expenditures together with
supporting vouchers.
(c) Vacation Time. Executive is entitled to 4 weeks
of paid vacation time per year of the Term, but
may accrue no more than 8 weeks vacation during
the Term. Any unused vacation time as of June 30,
1998 will continue to be available throughout the
Term and will not be subject to any offset,
reduction or deduction until such time as the then
accrued vacation time available under the
foregoing sentence has been used.
6. SEVERANCE.
Upon expiration of the Term, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for the period contemplated by
Subparagraph 3(b); plus a prorated portion of Bonus
Compensation, if any, otherwise payable pursuant to
Subparagraph 3(b) for 6 months or any partial fiscal
year that has occurred prior to the expiration of the
Term, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
7. WITHHOLDING/DEDUCTIONS
There shall be deducted from all compensation payable to
Executive hereunder such sums, including without limitation,
social security, income tax withholding and unemployment
insurance, as Image is by law obligated to deduct and
additionally as the Executive may duly authorize.
8. CONFIDENTIALITY.
In consideration of the payments to be received hereunder,
Executive agrees as follows:
(a) That during the Term of this Agreement he will have
access to and become acquainted with various "Trade
Secrets" (as defined below) and proprietary information
of Image. Except as Executive's duties may require or
as Image may otherwise consent to in writing, Executive
will not at any time disclose or use to the detriment
of Image or the sole benefit of Executive, either
directly or indirectly, and either during or subsequent
to the Term hereof, any information, knowledge or data
he receives in confidence or acquires from Image or
which relates to the Trade Secrets of Image. For
purposes of this Agreement "Trade Secrets" shall
include, but not be limited to:
(i) Financial information, such as Image's
earnings, assets, debts, prices, pricing
structure, volumes of purchases or sales or
other financial data, whether relating to
Image generally, or to particular products,
services, geographic areas, or time periods;
(ii) Supply and service information, such as goods
and services, suppliers' names or addresses,
terms of supply or service contracts, or of
particular transactions, or related
information about potential suppliers, to the
extent that such information is not generally
known to the public, and to the extent that
the combination of suppliers or use of a
particular supplier, though generally known
or available, yields advantages to Image, the
details of which are not generally known:
(iii) Marketing information, such as details
about ongoing or proposed marketing programs
or agreements by or on behalf of Image, sales
forecasts or results of marketing efforts or
information about impending transactions;
(iv) Licensing or Distribution information, such
as details about ongoing or proposed
negotiations or agreements by or on behalf of
Image, terms and details of such negotiations
or agreements or results of licensing or
distribution efforts or information about
impending transactions; or,
(v) Customer information, such as any compilation
of past, existing or prospective customers,
customers' proposals or agreements between
customers and status of customers accounts or
credit, or related information about actual
or prospective customers.
(b) That all files, records, documents, data information
and customer lists are special, valuable and unique
assets of Image and are essential to its continued
business success, and that under no circumstance during
the Term hereof or subsequent thereto will he influence
or attempt to influence any employee of Image to
terminate his or her employment with Image to work for
any competitor of Image, nor shall the Executive
solicit, directly or indirectly, any customers of Image
or disclose or use for the purpose of such
solicitation. Without the prior written consent of
Image, any files, records, document, data, information,
customer lists or any other proprietary information of
Image.
(c) Executive acknowledges that any violation of the terms
of this Paragraph 8 will constitute a material breach
of this Agreement and will cause Image immediate and
irreparable harm and that the damages which Image will
suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of
this Paragraph 8, Image shall be entitled to the
issuance of a restraining order, preliminary and
permanent injunction, without bond, restraining or
enjoining such violation by Executive or any entity or
person acting in concert with Executive. Such remedy
shall be additional to and not in limitation of any
other remedy which may otherwise be available to Image.
9. INDEMNIFICATION OF EXECUTIVE.
Image will, to the maximum extent permitted by law,
indemnify and hold Executive harmless against expenses,
including reasonable attorney's fees, judgments, fines,
settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason
of Executive's employment by Image. Image shall advance to
Executive any expenses incurred in defending any proceeding
to the maximum extent permitted by law. Image will at all
times maintain directors' and officers' liability insurance
("D&O Insurance"), or have sufficient funds to self-insure,
in amounts and on terms at least as favorable as the D&O
Insurance policy in effect on the date hereof.
10. DEATH.
In the event of Executive's death, this Agreement will
terminate on the last day of the calendar month of
Executive's death. In such event, Executive's personal
representative, heirs or beneficiaries entitled by will or
the laws of descent and distribution shall be entitled to
receive only:
(a) Base Salary continuation for a period of 6 months or
the expiration of the Term, whichever occurs first; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to
death, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) dependent Insurance continuation for a period of 6
months or the expiration of the Term, whichever occurs
first.
11. PERMANENT DISABILITY/SUSPENSION.
If Executive fails, because of physical or mental illness,
incapacity or injury ("disability"), and other than in
connection with an authorized leave of absence, to perform a
majority of Executive's usual duties for a period of longer
than 120 consecutive days or an aggregate 150 days in a 12-
month period, but subject to compliance with applicable law,
Image's obligation to pay Base Salary will be suspended. If
the suspension because of disability is reasonably
anticipated to exceed 180 consecutive days, or an aggregate
210 days in a 12-month period, Image may terminate this
Agreement effective upon 30 days prior written notice to
Executive. In such event, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to the
suspension of Executive's duties due to disability,
whichever is greater, payable only if and when the
amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
Disagreement as to the severity, characterization or
anticipated duration of a disability or suspension and/or
the date such disability/suspension commenced shall be
settled by the majority decision of three neutral
arbitrators (or licensed physicians, if the parties so
agree) - one to be selected by each party to the dispute,
the two thus appointed shall choose the third, and the three
thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after
choosing the third arbitrator, shall resolve such
disagreement and their decision shall be final and binding
on Executive, Image and any other person with an interest in
the matter.
12. TERMINATION.
(a) "Cause." In the event of "Cause" (as defined below),
Image may terminate this Agreement at any time
effective upon delivery of written notice to Executive.
In such event, all of Image's obligations hereunder
will immediately terminate without further liability.
Moreover, Executive shall not be entitled to receive
any severance, fringe benefits, compensation or other
such rights hereunder, nor shall Executive be entitled
to receive any Bonus Compensation otherwise payable
pursuant to Subparagraph 3(b). For purposes of this
Agreement "Cause" shall include, but is not limited to:
(i) Executive's (a) fraud, dishonesty or
felonious conduct or breach of fiduciary
duty; (b) willful misconduct or gross
negligence in the performance of Executive's
duties hereunder; (c) knowing and willful or
negligent violation (including conduct in
respect of Executive's supervisory
responsibilities) of any law, rule or
regulation or other wrongful act, that causes
or is likely to cause harm or loss to the
Company; or (d) conviction of a felony or
misdemeanor (other than minor traffic
violations or similar offenses that do not
affect the business or reputation of the
Company); or
(ii) Executive's breach of any material provision
of this Agreement or any other material
agreement between Image and Executive,
whenever executed, provided, however, that
bona fide disagreements or disputes as to
expense reimbursement shall not be deemed
fraud or felonious conduct or Executive's
breach of any material provision of this
Agreement.
(b) "Without Cause." Notwithstanding anything contained
herein to the contrary, if this Agreement is terminated
prior to expiration of the Term for any reason other
than (i) pursuant to Paragraph 10 or 11, (ii) for Cause
or (iii) because of voluntary termination (whether or
not in breach of this Agreement), this Agreement shall
be deemed to have been terminated "Without Cause", and
if such termination occurs prior to a Change in
Control, Executive shall be entitled to receive all of
the compensation, rights and benefits described in
Paragraphs 3, 4 and 5 through the expiration of the
Term and the severance described in Paragraph 6, as if
this Agreement were in full force.
13. CHANGE IN CONTROL.
Notwithstanding anything contained herein to the contrary,
the terms and conditions of this Paragraph 13 shall control
upon or following a "Change in Control" (as defined below).
(a) Termination. If (1) this Agreement is terminated prior
to expiration of the Term for any reason other than (a)
pursuant to Paragraph 10 (Death) or 11 (Permanent
Disability/Suspension), (b) for Cause or (c) because of
a voluntary termination (other than for Good Reason)
and whether or not in breach of this Agreement, or (2)
Executive terminates this Agreement for Good Reason
under Paragraph 13(d), Executive shall be entitled to
receive all of the compensation, rights and benefits
described in Paragraphs 3, 4 and 5 for a period of
one year following the effective date of termination or
through the expiration of the Term, whichever is
longer, and the severance described in Paragraph 6, as
if this Agreement were in full force. If any other
Executive Officer's options are acquired pursuant to a
Change in Control, Executive's options will be acquired
on the same terms as any other Executive Officer.
Executive must receive 30 days prior written notice of
termination regardless of the reason for termination.
(b) "Change in Control Prior to Effective Date." With
respect to options granted prior to the Effective Date,
"Change in Control" shall mean and be deemed to have
occurred on the earliest of the following dates:
(i) the date, pursuant to Section 13(d) of the
Act and the rules promulgated thereunder, a
person shall have acquired beneficial
ownership of more than 45% of the Voting
Stock;
(ii) the date the persons who were members of the
Board at the beginning of any 24-month period
shall cease to constitute a majority of the
Board, unless the election, or the nomination
for election by Image's shareholders, of each
new director was approved by two-thirds of
the members of the Board then in office who
were in office at the beginning of the
24-month period; or
(iii) the date Image's shareholders shall
approve a definitive agreement (a) to merge
or consolidate Image with or into another
corporation, unless the holders of Image's
capital stock immediately before such merger
or consolidation will, immediately following
such merger or consolidation, hold as a group
on a fully-diluted basis the ability to elect
at least a majority of the directors of the
surviving corporation (assuming cumulative
voting, if applicable), or (b) to sell or
otherwise dispose of all or substantially all
the assets of Image.
(c) "Change in Control After Effective Date." For purposes
of this Agreement and of options and other stock-based
awards granted after the Effective Date, "Change in
Control" shall mean and be deemed to have occurred on
the earliest of the following dates or events:
(i) the date of an acquisition by any Person of
beneficial ownership (within the meaning of
Rule 13d-3 under Exchange Act) or a pecuniary
interest in more than 45% of the Common Stock
or voting securities then entitled to vote
generally in the election of directors of
Image ("Voting Stock"), other than an
acquisition by one or more Excluded Persons
(Image, Image Investors Co., or Messrs. John
Kluge, Stuart Subotnick or Martin Greenwald)
in connection with a new issuance of Voting
Stock (or rights to acquire Voting Stock)
after the effective date of the 1998 Plan by
Image to the Excluded Person in a transaction
that the Committee determines (in advance of
the issuance) does not constitute a Change in
Control event;
(ii) approval by the shareholders of Image of a
plan of merger, consolidation, or
reorganization of Image or sale or other
disposition of all or substantially all of
Image's assets involving a more than 50%
change in ownership (collectively, a
"Business Combination"), other than a
Business Combination: (1) (a) in which
substantially all of the holders of Image's
Voting Stock hold or receive directly or
indirectly 50% or more of the voting stock of
the resulting entity or a parent company
thereof, and (b) after which no Person (other
than any one or more of the Excluded Persons,
as defined above) owns more than 50% of the
voting stock of the resulting entity (or a
parent company) who did not own directly or
indirectly at least that amount of Voting
Stock immediately before the Business
Combination; or (2) in which the holders of
Image's capital stock immediately before such
Business Combination will, immediately after
such Business Combination, hold as a group on
a fully diluted basis the ability to elect at
least a majority of the directors of the
surviving corporation (or a parent company);
(iii) approval by the Board of Directors and
(if required by law) by shareholders of Image
of a plan to consummate the dissolution or
complete liquidation of Image; or
(iv) the date the persons who were members of the
Board of Directors at the beginning of any 24-
month period shall cease to constitute a
majority of the Board, unless the election,
or the nomination for election by Image's
shareholders, of each new director was
approved by two-thirds of the members of the
Board of Directors then in office who were in
office at the beginning of the 24-month
period.
For purposes of determining whether a Change in Control
has occurred, a transaction includes all transactions
in a series of related transactions, and terms used in
this definition but not defined are used as defined in
the 1998 Plan.
(d) Executive's Right to Terminate For Good Reason. During
the Term, Executive shall be entitled to terminate
Executive's employment with Image for "Good Reason" (as
defined below) following a Change in Control. For
purposes of this Agreement "Good Reason" shall mean any
of the following events which occurs without
Executive's express written consent following a Change
in Control:
(i) the assignment of any duties materially
inconsistent with Executive's status as an
Executive Officer or a substantial reduction
in the nature or status of Executive's
responsibilities from those in effect
immediately prior to a Change in Control
other than any such alteration primarily
attributable to the fact that Image may no
longer be a public company;
(ii) a reduction by Image in Base Salary;
(iii) the relocation of Image's principal
executive offices to a location more than
35 miles from the current locale or Image's
requiring Executive to be based anywhere
other than Image's principal executive
offices except for required travel on Image's
business to an extent substantially
consistent with Executive's present travel
obligations;
(iv) the failure by Image to continue in effect
without material change any compensation or
benefit plan in which Executive is entitled
to participate, or the failure by Image to
continue Executive's participation therein,
or the taking of any action by Image which
would directly or indirectly materially
reduce any of the benefits of such plans
enjoyed by Executive immediately before the
Change in Control, or the taking of any other
action by Image which materially adversely
changes the conditions or perquisites of
Executive's employment;
(v) the failure of Image to obtain a successor's
assumption and agreement to perform this
Agreement, unless the assumption occurs by
operation of law;
(vi) any purported termination of employment which
is not effected pursuant to
Subparagraph 13(a), any such purported
termination shall not be effective for
purposes of this Agreement;
(vii) the failure of Image to maintain
adequate D&O insurance coverage pursuant to
the terms of this Agreement, unless such
insurance is not available on commercially
reasonable terms; or
(viii) the breach by Image of any material term
of this Agreement.
The rights provided under this Paragraph 13(d) to terminate
for Good Reason shall not adversely affect any rights of
Executive whether before or after a Change in Control in
respect of a breach of this Agreement by Image.
(e) Legal Fees and Expenses. If Executive is terminated
following a Change in Control and Executive shall incur
any legal fees or expenses as a result of (i) seeking
to obtain or enforce any right or benefit provided by
this Agreement or (ii) a claim of wrongful discharge or
breach of this Agreement, Image agrees to pay or
reimburse Executive for such fees and expenses;
provided, however, that any claims giving rise to such
fees or expenses must be made in good faith and for
good cause. In the event there is a dispute regarding
Executive's good faith or the merits of Executive's
claim, and it is determined by the court that the claim
lacked merit or was made in bad faith, Executive shall
be limited to recovering only such fees and expenses,
if any, as the court shall determine.
14. GENERAL PROVISIONS.
(a) Successors and Assigns. This Agreement is binding upon
and shall inure to the benefit of the parties hereto,
and any of their heirs, legatees, devisees, personal
representatives, assigns and successors in interest of
every kind and nature whatsoever. The parties hereto
agree that Executive's services are personal and that
this Agreement is executed with respect thereto.
Executive shall have no right to sell, transfer or
assign this Agreement in any manner whatsoever.
(b) Entire Understanding; Amendment. This Agreement and
the Exhibit hereto constitute the entire understanding
and agreement between the parties with respect to the
subject matter hereof and supersede (i) any and all
prior and preliminary discussions, (ii) any and all
prior written or oral and any and all contemporaneous
written or oral agreements, understandings and
negotiations between the parties, including but not
limited to prior written or oral employment agreements
and severance agreements, and (iii) the Employment
Agreement between Image and Executive dated July 1,
1994, as amended through July 1, 1997. There are no
warranties, representations or other agreements between
the parties in connection with the subject matter
hereof except as set forth or referred to herein. This
Agreement shall not be modified, amended or altered
except by an instrument in writing executed by the
parties hereto.
(c) Severability. In case one or more of the provisions
contained in this Agreement (or any portion of any such
provision) shall for any reason be held invalid,
illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement (or any
portion of any such provision), but this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision (or portion thereof) had never
been contained herein.
(d) Waiver. The failure by Image, at any time, to require
performance by Executive of any of the provisions
hereof, shall not be deemed a waiver of any kind nor
shall it in any way affect Image's rights thereafter to
enforce the same.
(e) Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be
in writing and shall be deemed to have been given
24 hours after deposit thereof for mailing at any
general or branch United States Post Office, enclosed
in a registered or certified postpaid envelope and
addressed as follows:
To Image: IMAGE ENTERTAINMENT, INC
9333 Oso Avenue
Chatsworth, CA 91311
Attn: General Counsel
To Executive:JEFF FRAMER
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
The parties hereto may designate a different place at
which notice shall be given; provided, however, that
any such notice of change of address shall be effective
only upon receipt.
(f) Good Faith. The parties hereto shall perform, fulfill
and discharge their duties and obligations hereunder in
a reasonable manner in good faith.
(g) Governing Law. This Agreement and all rights,
obligations and liabilities arising hereunder shall be
construed and enforced in accordance with the laws of
the State of California.
(h) Attorneys' Fees. Subject to Paragraph 13(e), in the
event it becomes necessary to commence any proceeding
or action to enforce the provisions of this Agreement,
the court before whom the same shall be tried may award
the prevailing party all costs and expenses thereof,
including without limitation, reasonable attorney's
fees, the usual, customary and lawfully recoverable
court costs, and all other expenses in connection
therewith.
(i) Advice of Counsel. The parties represent and warrant
that in executing this Agreement, they have each had
the opportunity to obtain independent financial, legal,
tax and other appropriate advice, and are not relying
upon any other party or the attorneys or other agents
of such other party) for any such advice.
(j) Subject Headings and Defined Terms. Subject headings
and choice of defined terms are included for
convenience only and shall not be deemed part of this
Agreement.
(k) Cumulative Rights and Remedies. The rights and
remedies provided for in this Agreement shall be
cumulative; resort to one right or remedy shall not
preclude resort to another or to any other right or
remedy provided for by law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first above written.
IMAGE ENTERTAINMENT, INC. EXECUTIVE
By: /s/ Martin W. Greenwald /s/ Jeff Framer
-------------------------- ------------------------------
Martin W. Greenwald Jeff Framer, an individual
Its: Pres.
-------------------------
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 1st day of July, 1998 (the "Effective Date"), by
and between IMAGE ENTERTAINMENT INC., a California corporation
("Image"), and DAVID BORSHELL, an individual ("Executive").
RECITALS
WHEREAS, the Board of Directors of Image has determined
that because of Executive's substantial experience with respect
to sales and marketing, management and other aspects of the
business of Image, business relationships in connection with the
business of Image, and Executive's familiarity with the clientele
served by Image, it is in the best interests of Image to secure
the services of Executive and to provide Executive with the
compensation and benefits set forth herein; and
WHEREAS, Executive desires to render to Image, on an
exclusive basis, Executive's professional services with respect
to Executive's experience and abilities, and Image desires to
secure, on an exclusive basis, Executive's services, on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties hereto agree as
follows:
1. TERM OF AGREEMENT.
Except as otherwise expressly set forth herein, this
Agreement shall remain in full force and effect for the
period commencing as of the date hereof and ending on
June 30, 2000 (the "Term"); provided, however, that unless
Image or Executive gives written notice of its or his
intention not to extend the Term by January 1, 2000 or any
subsequent anniversary thereof, then the Term of this
Agreement shall automatically be extended for an additional
one (1) year commencing on the July 1 immediately
thereafter, but shall not in any case be extended beyond
June 30, 2005. The capitalized word "Term" as used in other
paragraphs of this Agreement (except Paragraph 3(a)) shall
include any extensions pursuant to the preceding sentence.
2. ENGAGEMENT.
Subject to the terms and conditions contained herein, Image
hereby engages the services of Executive (the "Services")
and Executive hereby accepts such engagement and agrees to
render Executive's Services to Image for the Term.
Executive shall report directly to the President, or, if
none, to the Chief Executive Officer of Image and initially
shall have the title of "SENIOR VICE PRESIDENT, SALES,
MARKETING & OPERATIONS."
(a) Extent of Services and Duties. Executive shall perform
such duties, compatible with Executive's position as an
"Executive Officer" (as defined below) and as the
Executive's senior officer or the Board of Directors of
Image may reasonably direct. In rendering Services to
Image, Executive shall use Executive's best efforts and
ability to maintain, further and promote the interests
and welfare of Image. At the request of Image,
Executive shall serve as an officer or director of
Image or any entity controlled by Image or in which it
has a substantial direct or indirect interest (any such
entity or entities together with Image, the "Company"),
without additional compensation; provided that
Executive is included on any such entity's directors
and officers insurance policy (if any). For purposes
of this Agreement "Executive Officer" shall include any
person similarly designated as an "Executive Officer"
in that person's Employment Agreement with Image.
(b) Exclusive Engagement. Executive hereby acknowledges
and agrees that the engagement of Executive by Image
under this Agreement is exclusive and that during the
Term hereof Executive shall not, directly or
indirectly, whether for compensation or otherwise,
engage in any business that is competitive with the
business of the Company or that otherwise interferes in
any significant respect with the Executive's exclusive
commitment and duties under this Agreement, or render
any services of a business, commercial or professional
nature to any other person or organization that is a
competitor of Image or in a business similar to that of
Image, without the prior written consent of Image.
Notwithstanding the foregoing, Executive may make and
manage personal business investments of his choice and
serve in any capacity with any civic, educational or
charitable organization without seeking or obtaining
approval by the Board, provided that such activities
and services do not substantially interfere or conflict
with the performance of duties hereunder or create any
conflict of interest with such duties.
3. COMPENSATION.
(a) Base Salary. During the Term of this Agreement, Image
hereby agrees to pay Executive for all Services to be
rendered hereunder a base salary ("Base Salary") at the
following rates.
<TABLE>
<CAPTION>
Period Annual Rate
<S> <C>
Year ending on the first anniversary of the date hereof $180,000 per year
Year ending on the second anniversary of the date hereof $189,000 per year
</TABLE>
In the event the Term is extended pursuant to Paragraph
1, the Base Salary for each such extension shall be (i)
the Base Salary for the year ending on the expiration
date of the Term prior to the extension plus (ii) an
amount equal to five percent (5%) of the Base Salary.
The Base Salary will be payable in equal biweekly
installments or as otherwise provided in accordance
with the regular executive officer compensation pay
schedule and procedures in effect from time to time for
Image, subject to Paragraph 7 (Withholding/Deductions).
(b) Bonus Compensation. Executive shall be entitled to
participate in a bonus plan available generally to, on
terms not substantially less favorable than, and with
bonus opportunities not materially disproportionate in
the aggregate to the distinctions made for fiscal year
1999 in respect of similarly situated Executive
Officers of the Company (other than plans, terms or
opportunities available only to the Chief Executive
Officer or President). The level of bonus opportunity
and form of payment shall be determined annually by the
Board or its Compensation Committee and may be
expressed as a multiple of base salary based on
performance of the Company relative to a specified
target.
For fiscal year 1999, the cash bonus shall be
determined based on a formula utilizing earnings before
interest, taxes, depreciation and amortization
("EBITDA") as the applicable performance criterion.
The specific performance targets for fiscal 1999 are
(and for future years will be) confidential business
information and provided to Executive on that basis by
the Chief Executive Officer upon request. The specific
cash bonus payable to Executive for fiscal year 1999
shall be determined by multiplying (i) the percentage
determined by dividing Image's actual EBITDA by the
target EBITDA (the "Performance Factor") by (ii) the
amount equal to 60% of Executive's Base Salary. In
order for a bonus award to be paid under the bonus
program in fiscal year 1999, the Performance Factor
must reach a minimum of 40%. The amount of bonus shall
be capped by a Performance Factor of 125%.
In years following fiscal 1999, annual cash bonuses
under this program may be based on different business
criteria or models and Performance Factors and Base
Salary multiples may change (in the individual case or
for all similarly situated officers) as determined
annually by the Board of Directors or the Compensation
Committee of Image. Image anticipates that bonus
entitlements will be determined on or before the end of
the first quarter of the applicable fiscal year and
that any bonuses payable shall be paid, provided the
Executive is then employed by the Company, no later
than the end of the quarter following each fiscal year.
4. OPTIONS AND OTHER STOCK-BASED AWARDS.
In addition to Base Salary and Bonus Compensation, Image may
grant stock options and other stock-based awards to
Executive, in such form and amounts, and at such time or
times, as Image's Board of Directors (or, if applicable, the
administrators of Image's stock option plans and (subject to
shareholder approval) the 1998 Incentive Plan (the "1998
Plan")) shall determine. If this Agreement is terminated
early "Without Cause" under Subparagraph 12(b) or upon or
following a "Change in Control" under Paragraph 13(d), all
unvested options granted to Executive will immediately vest.
The vesting of other stock-based awards will depend upon the
provisions of the Executive's award agreement and the plan
(if any) under which the Awards are granted. Unless this
Agreement is terminated early for Cause under Subparagraph
12(a), all options granted to Executive prior to July 1,
1998 shall be exercisable after employment ceases for the
longest period permissible under the applicable stock option
plan, to the extent the option was vested as of the date of
termination, and all options or rights granted on or after
July 1, 1998 shall be exercisable as provided in the
applicable award or grant.
Image recognizes hereby that Executive is entitled, subject
to shareholder approval of the 1998 Plan, to a grant of
12,090 Restricted Stock Units, in substantially the Form of
Performance Restricted Stock Unit Award attached hereto as
Exhibit A.
5. FRINGE BENEFITS.
Image agrees to provide Executive with fringe benefits
including but not limited to the medical, dental, life and
short and long-term disability insurance, expense allowance
and vacation time described below:
(a) Medical, Dental, Life & Short and Long-Term
Disability Insurance. Image shall purchase (or,
if applicable, maintain) during the Term medical,
dental, life and short and long-term disability
insurance for Executive, and provide coverage
under the medical and dental policies for
Executive's direct dependent beneficiaries (e.g.,
spouse and minor children), on terms no less
favorable than the terms and conditions in effect
as of the date hereof and at all times at least
equal to that received by any other Executive
Officer (collectively, "Insurance").
(b) Business/Travel Expenses. Executive shall be
reimbursed in full for all reasonable and actual
out-of-pocket business and travel expenses
incurred in the performance of Executive's
Services, on terms and at all times at least equal
to that received by any other Executive Officer,
provided Executive shall first present an itemized
account of such expenditures together with
supporting vouchers.
(c) Vacation Time. Executive is entitled to 4 weeks
of paid vacation time per year of the Term, but
may accrue no more than 8 weeks vacation during
the Term. Any unused vacation time as of June 30,
1998 will continue to be available throughout the
Term and will not be subject to any offset,
reduction or deduction until such time as the then
accrued vacation time available under the
foregoing sentence has been used.
6. SEVERANCE.
Upon expiration of the Term, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for the period contemplated by
Subparagraph 3(b); plus a prorated portion of Bonus
Compensation, if any, otherwise payable pursuant to
Subparagraph 3(b) for 6 months or any partial fiscal
year that has occurred prior to the expiration of the
Term, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
7. WITHHOLDING/DEDUCTIONS
There shall be deducted from all compensation payable to
Executive hereunder such sums, including without limitation,
social security, income tax withholding and unemployment
insurance, as Image is by law obligated to deduct and
additionally as the Executive may duly authorize.
8. CONFIDENTIALITY.
In consideration of the payments to be received hereunder,
Executive agrees as follows:
(a) That during the Term of this Agreement he will have
access to and become acquainted with various "Trade
Secrets" (as defined below) and proprietary information
of Image. Except as Executive's duties may require or
as Image may otherwise consent to in writing, Executive
will not at any time disclose or use to the detriment
of Image or the sole benefit of Executive, either
directly or indirectly, and either during or subsequent
to the Term hereof, any information, knowledge or data
he receives in confidence or acquires from Image or
which relates to the Trade Secrets of Image. For
purposes of this Agreement "Trade Secrets" shall
include, but not be limited to:
(i) Financial information, such as Image's
earnings, assets, debts, prices, pricing
structure, volumes of purchases or sales or
other financial data, whether relating to
Image generally, or to particular products,
services, geographic areas, or time periods;
(ii) Supply and service information, such as goods
and services, suppliers' names or addresses,
terms of supply or service contracts, or of
particular transactions, or related
information about potential suppliers, to the
extent that such information is not generally
known to the public, and to the extent that
the combination of suppliers or use of a
particular supplier, though generally known
or available, yields advantages to Image, the
details of which are not generally known:
(iii) Marketing information, such as details
about ongoing or proposed marketing programs
or agreements by or on behalf of Image, sales
forecasts or results of marketing efforts or
information about impending transactions;
(iv) Licensing or Distribution information, such
as details about ongoing or proposed
negotiations or agreements by or on behalf of
Image, terms and details of such negotiations
or agreements or results of licensing or
distribution efforts or information about
impending transactions; or,
(v) Customer information, such as any compilation
of past, existing or prospective customers,
customers' proposals or agreements between
customers and status of customers accounts or
credit, or related information about actual
or prospective customers.
(b) That all files, records, documents, data information
and customer lists are special, valuable and unique
assets of Image and are essential to its continued
business success, and that under no circumstance during
the Term hereof or subsequent thereto will he influence
or attempt to influence any employee of Image to
terminate his or her employment with Image to work for
any competitor of Image, nor shall the Executive
solicit, directly or indirectly, any customers of Image
or disclose or use for the purpose of such
solicitation. without the prior written consent of
Image, any files, records, document, data, information,
customer lists or any other proprietary information of
Image.
(c) Executive acknowledges that any violation of the terms
of this Paragraph 8 will constitute a material breach
of this Agreement and will cause Image immediate and
irreparable harm and that the damages which Image will
suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of
this Paragraph 8, Image shall be entitled to the
issuance of a restraining order, preliminary and
permanent injunction, without bond, restraining or
enjoining such violation by Executive or any entity or
person acting in concert with Executive. Such remedy
shall be additional to and not in limitation of any
other remedy which may otherwise be available to Image.
9. INDEMNIFICATION OF EXECUTIVE.
Image will, to the maximum extent permitted by law,
indemnify and hold Executive harmless against expenses,
including reasonable attorney's fees, judgments, fines,
settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason
of Executive's employment by Image. Image shall advance to
Executive any expenses incurred in defending any proceeding
to the maximum extent permitted by law. Image will at all
times maintain directors' and officers' liability insurance
("D&O Insurance"), or have sufficient funds to self-insure,
in amounts and on terms at least as favorable as the D&O
Insurance policy in effect on the date hereof.
10. DEATH.
In the event of Executive's death, this Agreement will
terminate on the last day of the calendar month of
Executive's death. In such event, Executive's personal
representative, heirs or beneficiaries entitled by will or
the laws of descent and distribution shall be entitled to
receive only:
(a) Base Salary continuation for a period of 6 months or
the expiration of the Term, whichever occurs first; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to
death, whichever is greater, payable only if and when
the amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) dependent Insurance continuation for a period of 6
months or the expiration of the Term, whichever occurs
first.
11. PERMANENT DISABILITY/SUSPENSION.
If Executive fails, because of physical or mental illness,
incapacity or injury ("disability"), and other than in
connection with an authorized leave of absence, to perform a
majority of Executive's usual duties for a period of longer
than 120 consecutive days or an aggregate 150 days in a 12-
month period, but subject to compliance with applicable law,
Image's obligation to pay Base Salary will be suspended. If
the suspension because of disability is reasonably
anticipated to exceed 180 consecutive days, or an aggregate
210 days in a 12-month period, Image may terminate this
Agreement effective upon 30 days prior written notice to
Executive. In such event, Executive shall be entitled to
receive:
(a) Base Salary continuation for a period of 6 months; and
(b) any Bonus Compensation payable but not previously paid
for any prior completed fiscal year, if Executive has
remained employed for that year; plus a prorated
portion of Bonus Compensation, if any, otherwise
payable pursuant to Subparagraph 3(b) for 6 months or
any partial fiscal year that has occurred prior to the
suspension of Executive's duties due to disability,
whichever is greater, payable only if and when the
amount thereof is determined in accordance with the
terms of the bonus opportunity or entitlement; and
(c) Insurance continuation for a period of 6 months.
Disagreement as to the severity, characterization or
anticipated duration of a disability or suspension and/or
the date such disability/suspension commenced shall be
settled by the majority decision of three neutral
arbitrators (or licensed physicians, if the parties so
agree) - one to be selected by each party to the dispute,
the two thus appointed shall choose the third, and the three
thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after
choosing the third arbitrator, shall resolve such
disagreement and their decision shall be final and binding
on Executive, Image and any other person with an interest in
the matter.
12. TERMINATION.
(a) "Cause." In the event of "Cause" (as defined below),
Image may terminate this Agreement at any time
effective upon delivery of written notice to Executive.
In such event, all of Image's obligations hereunder
will immediately terminate without further liability.
Moreover, Executive shall not be entitled to receive
any severance, fringe benefits, compensation or other
such rights hereunder, nor shall Executive be entitled
to receive any Bonus Compensation otherwise payable
pursuant to Subparagraph 3(b). For purposes of this
Agreement "Cause" shall include, but is not limited to:
(i) Executive's (a) fraud, dishonesty or
felonious conduct or breach of fiduciary
duty; (b) willful misconduct or gross
negligence in the performance of Executive's
duties hereunder; (c) knowing and willful or
negligent violation (including conduct in
respect of Executive's supervisory
responsibilities) of any law, rule or
regulation or other wrongful act, that causes
or is likely to cause harm or loss to the
Company; or (d) conviction of a felony or
misdemeanor (other than minor traffic
violations or similar offenses that do not
affect the business or reputation of the
Company); or
(ii) Executive's breach of any material provision
of this Agreement or any other material
agreement between Image and Executive,
whenever executed, provided, however, that
bona fide disagreements or disputes as to
expense reimbursement shall not be deemed
fraud or felonious conduct or Executive's
breach of any material provision of this
Agreement.
(b) "Without Cause." Notwithstanding anything contained
herein to the contrary, if this Agreement is terminated
prior to expiration of the Term for any reason other
than (i) pursuant to Paragraph 10 or 11, (ii) for Cause
or (iii) because of voluntary termination (whether or
not in breach of this Agreement), this Agreement shall
be deemed to have been terminated "Without Cause", and
if such termination occurs prior to a Change in
Control, Executive shall be entitled to receive all of
the compensation, rights and benefits described in
Paragraphs 3, 4 and 5 through the expiration of the
Term and the severance described in Paragraph 6, as if
this Agreement were in full force.
13. CHANGE IN CONTROL.
Notwithstanding anything contained herein to the contrary,
the terms and conditions of this Paragraph 13 shall control
upon or following a "Change in Control" (as defined below).
(a) Termination. If (1) this Agreement is terminated prior
to expiration of the Term for any reason other than (a)
pursuant to Paragraph 10 (Death) or 11 (Permanent
Disability/Suspension), (b) for Cause or (c) because of
a voluntary termination (other than for Good Reason)
and whether or not in breach of this Agreement, or (2)
Executive terminates this Agreement for Good Reason
under Paragraph 13(d), Executive shall be entitled to
receive all of the compensation, rights and benefits
described in Paragraphs 3, 4 and 5 for a period of
one year following the effective date of termination or
through the expiration of the Term, whichever is
longer, and the severance described in Paragraph 6, as
if this Agreement were in full force. If any other
Executive Officer's options are acquired pursuant to a
Change in Control, Executive's options will be acquired
on the same terms as any other Executive Officer.
Executive must receive 30 days prior written notice of
termination regardless of the reason for termination.
(b) "Change in Control Prior to Effective Date." With
respect to options granted prior to the Effective Date,
"Change in Control" shall mean and be deemed to have
occurred on the earliest of the following dates:
(i) the date, pursuant to Section 13(d) of the
Act and the rules promulgated thereunder, a
person shall have acquired beneficial
ownership of more than 45% of the Voting
Stock;
(ii) the date the persons who were members of the
Board at the beginning of any 24-month period
shall cease to constitute a majority of the
Board, unless the election, or the nomination
for election by Image's shareholders, of each
new director was approved by two-thirds of
the members of the Board then in office who
were in office at the beginning of the
24-month period; or
(iii) the date Image's shareholders shall
approve a definitive agreement (a) to merge
or consolidate Image with or into another
corporation, unless the holders of Image's
capital stock immediately before such merger
or consolidation will, immediately following
such merger or consolidation, hold as a group
on a fully-diluted basis the ability to elect
at least a majority of the directors of the
surviving corporation (assuming cumulative
voting, if applicable), or (b) to sell or
otherwise dispose of all or substantially all
the assets of Image.
(c) "Change in Control After Effective Date." For purposes
of this Agreement and of options and other stock-based
awards granted after the Effective Date, "Change in
Control" shall mean and be deemed to have occurred on
the earliest of the following dates or events:
(i) the date of an acquisition by any Person of
beneficial ownership (within the meaning of
Rule 13d-3 under Exchange Act) or a pecuniary
interest in more than 45% of the Common Stock
or voting securities then entitled to vote
generally in the election of directors of
Image ("Voting Stock"), other than an
acquisition by one or more Excluded Persons
(Image, Image Investors Co., or Messrs. John
Kluge, Stuart Subotnick or Martin Greenwald)
in connection with a new issuance of Voting
Stock (or rights to acquire Voting Stock)
after the effective date of the 1998 Plan by
Image to the Excluded Person in a transaction
that the Committee determines (in advance of
the issuance) does not constitute a Change in
Control event;
(ii) approval by the shareholders of Image of a
plan of merger, consolidation, or
reorganization of Image or sale or other
disposition of all or substantially all of
Image's assets involving a more than 50%
change in ownership (collectively, a
"Business Combination"), other than a
Business Combination: (1) (a) in which
substantially all of the holders of Image's
Voting Stock hold or receive directly or
indirectly 50% or more of the voting stock of
the resulting entity or a parent company
thereof, and (b) after which no Person (other
than any one or more of the Excluded Persons,
as defined above) owns more than 50% of the
voting stock of the resulting entity (or a
parent company) who did not own directly or
indirectly at least that amount of Voting
Stock immediately before the Business
Combination; or (2) in which the holders of
Image's capital stock immediately before such
Business Combination will, immediately after
such Business Combination, hold as a group on
a fully diluted basis the ability to elect at
least a majority of the directors of the
surviving corporation (or a parent company);
(iii) approval by the Board of Directors and
(if required by law) by shareholders of Image
of a plan to consummate the dissolution or
complete liquidation of Image; or
(iv) the date the persons who were members of the
Board of Directors at the beginning of any 24-
month period shall cease to constitute a
majority of the Board, unless the election,
or the nomination for election by Image's
shareholders, of each new director was
approved by two-thirds of the members of the
Board of Directors then in office who were in
office at the beginning of the 24-month
period.
For purposes of determining whether a Change in Control
has occurred, a transaction includes all transactions
in a series of related transactions, and terms used in
this definition but not defined are used as defined in
the 1998 Plan.
(d) Executive's Right to Terminate For Good Reason. During
the Term, Executive shall be entitled to terminate
Executive's employment with Image for "Good Reason" (as
defined below) following a Change in Control. For
purposes of this Agreement "Good Reason" shall mean any
of the following events which occurs without
Executive's express written consent following a Change
in Control:
(i) the assignment of any duties materially
inconsistent with Executive's status as an
Executive Officer or a substantial reduction
in the nature or status of Executive's
responsibilities from those in effect
immediately prior to a Change in Control
other than any such alteration primarily
attributable to the fact that Image may no
longer be a public company;
(ii) a reduction by Image in Base Salary;
(iii) the relocation of Image's principal
executive offices to a location more than
35 miles from the current locale or Image's
requiring Executive to be based anywhere
other than Image's principal executive
offices except for required travel on Image's
business to an extent substantially
consistent with Executive's present travel
obligations;
(iv) the failure by Image to continue in effect
without material change any compensation or
benefit plan in which Executive is entitled
to participate, or the failure by Image to
continue Executive's participation therein,
or the taking of any action by Image which
would directly or indirectly materially
reduce any of the benefits of such plans
enjoyed by Executive immediately before the
Change in Control, or the taking of any other
action by Image which materially adversely
changes the conditions or perquisites of
Executive's employment;
(v) the failure of Image to obtain a successor's
assumption and agreement to perform this
Agreement, unless the assumption occurs by
operation of law;
(vi) any purported termination of employment which
is not effected pursuant to
Subparagraph 13(a), any such purported
termination shall not be effective for
purposes of this Agreement;
(vii) the failure of Image to maintain
adequate D&O insurance coverage pursuant to
the terms of this Agreement, unless such
insurance is not available on commercially
reasonable terms; or
(viii) the breach by Image of any material term
of this Agreement.
The rights provided under this Paragraph 13(d) to terminate
for Good Reason shall not adversely affect any rights of
Executive whether before or after a Change in Control in
respect of a breach of this Agreement by Image.
(e) Legal Fees and Expenses. If Executive is terminated
following a Change in Control and Executive shall incur
any legal fees or expenses as a result of (i) seeking
to obtain or enforce any right or benefit provided by
this Agreement or (ii) a claim of wrongful discharge or
breach of this Agreement, Image agrees to pay or
reimburse Executive for such fees and expenses;
provided, however, that any claims giving rise to such
fees or expenses must be made in good faith and for
good cause. In the event there is a dispute regarding
Executive's good faith or the merits of Executive's
claim, and it is determined by the court that the claim
lacked merit or was made in bad faith, Executive shall
be limited to recovering only such fees and expenses,
if any, as the court shall determine.
14. GENERAL PROVISIONS.
(a) Successors and Assigns. This Agreement is binding upon
and shall inure to the benefit of the parties hereto,
and any of their heirs, legatees, devisees, personal
representatives, assigns and successors in interest of
every kind and nature whatsoever. The parties hereto
agree that Executive's services are personal and that
this Agreement is executed with respect thereto.
Executive shall have no right to sell, transfer or
assign this Agreement in any manner whatsoever.
(b) Entire Understanding; Amendment. This Agreement and
the Exhibit hereto constitute the entire understanding
and agreement between the parties with respect to the
subject matter hereof and supersede (i) any and all
prior and preliminary discussions, (ii) any and all
prior written or oral and any and all contemporaneous
written or oral agreements, understandings and
negotiations between the parties, including but not
limited to prior written or oral employment agreements
and severance agreements, and (iii) the Employment
Agreement between Image and Executive dated July 1,
1994, as amended through July 1, 1997. There are no
warranties, representations or other agreements between
the parties in connection with the subject matter
hereof except as set forth or referred to herein. This
Agreement shall not be modified, amended or altered
except by an instrument in writing executed by the
parties hereto.
(c) Severability. In case one or more of the provisions
contained in this Agreement (or any portion of any such
provision) shall for any reason be held invalid,
illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement (or any
portion of any such provision), but this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision (or portion thereof) had never
been contained herein.
(d) Waiver. The failure by Image, at any time, to require
performance by Executive of any of the provisions
hereof, shall not be deemed a waiver of any kind nor
shall it in any way affect Image's rights thereafter to
enforce the same.
(e) Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be
in writing and shall be deemed to have been given
24 hours after deposit thereof for mailing at any
general or branch United States Post Office, enclosed
in a registered or certified postpaid envelope and
addressed as follows:
To Image: IMAGE ENTERTAINMENT, INC
9333 Oso Avenue
Chatsworth, CA 91311
Attn: General Counsel
To Executive:DAVID BORSHELL
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
The parties hereto may designate a different place at
which notice shall be given; provided, however, that
any such notice of change of address shall be effective
only upon receipt.
(f) Good Faith. The parties hereto shall perform, fulfill
and discharge their duties and obligations hereunder in
a reasonable manner in good faith.
(g) Governing Law. This Agreement and all rights,
obligations and liabilities arising hereunder shall be
construed and enforced in accordance with the laws of
the State of California.
(h) Attorneys' Fees. Subject to Paragraph 13(e), in the
event it becomes necessary to commence any proceeding
or action to enforce the provisions of this Agreement,
the court before whom the same shall be tried may award
the prevailing party all costs and expenses thereof,
including without limitation, reasonable attorney's
fees, the usual, customary and lawfully recoverable
court costs, and all other expenses in connection
therewith.
(i) Advice of Counsel. The parties represent and warrant
that in executing this Agreement, they have each had
the opportunity to obtain independent financial, legal,
tax and other appropriate advice, and are not relying
upon any other party or the attorneys or other agents
of such other party) for any such advice.
(j) Subject Headings and Defined Terms. Subject headings
and choice of defined terms are included for
convenience only and shall not be deemed part of this
Agreement.
(k) Cumulative Rights and Remedies. The rights and
remedies provided for in this Agreement shall be
cumulative; resort to one right or remedy shall not
preclude resort to another or to any other right or
remedy provided for by law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first above written.
IMAGE ENTERTAINMENT, INC. EXECUTIVE
By:/s/ Martin W. Greenwald /s/ David Borshell
--------------------------- ------------------------------
Martin W. Greenwald David Borshell, an individual
Its: Pres.
-------------------------
c/o Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, CA 91311-6089
<PAGE>
IMAGE ENTERTAINMENT, INC.
PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT
THIS AGREEMENT dated as of the 6th day of July, 1998,
between IMAGE ENTERTAINMENT, INC., a California corporation (the
"Corporation") and ____________ (the "Employee").
The Board of Directors has approved and subject to
shareholder approval the Corporation has adopted the Image
Entertainment, Inc. 1998 Incentive Plan (the "Plan").
The Corporation has granted to the Employee as of the
date first above written (the "Award Date") a performance
restricted stock unit award (the "Performance Restricted Stock
Unit Award" or "Award") under Section 5.1 of the Plan, upon the
terms and conditions set forth herein and subject to shareholder
approval of the Plan.
In consideration of services rendered and to be
rendered by the Employee and the mutual promises made herein and
the mutual benefits to be derived therefrom, the parties agree as
follows:
1. Grant. Subject to the terms of this Award
Agreement, the Corporation grants to the Employee a Performance
Restricted Stock Unit Award with respect to an aggregate of
______ shares of Common Stock (the "Restricted Stock Units").
2. General Terms. The Award is subject to, and the
Corporation and the Employee agree to be bound by, the terms and
conditions of the Plan and the General Provisions Applicable to
Performance Restricted Stock Unit Awards Granted Under the Plan
(the "General Provisions") that have been adopted pursuant to the
Plan. The Plan and the General Provisions are incorporated
herein by this reference. The Employee acknowledges receiving a
copy of the Plan and General Provisions and reading their
provisions. Capitalized terms not otherwise defined herein shall
have the meaning assigned to such terms in the Plan or General
Provisions.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
EMPLOYEE IMAGE ENTERTAINMENT, INC.
(a California corporation)
By:
- ------------------------------ --------------------------------
- ------------------------------ Title:
(Print Name) -------------------------
- ------------------------------
(Address)
- ------------------------------
(City, State, Zip Code)
<PAGE>
GENERAL PROVISIONS APPLICABLE TO
PERFORMANCE RESTRICTED STOCK UNIT AWARDS
GRANTED UNDER IMAGE ENTERTAINMENT, INC.'S
1998 INCENTIVE PLAN
The specific purposes of Performance Restricted Stock
Unit Awards authorized under the Image Entertainment, Inc. 1998
Incentive Plan (the "Plan") are to encourage and reward continued
service and high levels of performance to the Corporation and to
provide greater incentives for service and performance by
offering compensation competitive with similar companies.
Capitalized terms not otherwise defined herein shall have the
meaning assigned to such terms in the Plan or the Award
Agreement, as the case may be.
These General Provisions supplement the provisions of
Award Agreements contemplated by Section 5.1 of the Plan and
shall apply to any Performance Restricted Stock Unit Award
granted under the Plan when incorporated by reference in the
Award Agreement.
1. Vesting; Lapse of Restrictions. Restricted Stock
Units credited to an Employee's Stock Unit Account (other than
Restricted Stock Units representing Dividend Equivalents) shall
vest, and restrictions (other than those set forth in Section 12
(Compliance; Application of Securities Laws)) shall lapse, with
respect to 20% of the total original number of Stock Units
(subject to adjustment under Section 6.2 of the Plan) comprising
the Award on each of the first, second, third, fourth and fifth
anniversaries of June 30, 1998, so that the restricted period
covered hereby shall have expired with respect to the total
number of Stock Units no later than June 30, 2003, unless (i) the
Award has earlier vested or has been accelerated, as provided in
Section 5(c) (Termination of Service without Cause Prior to or
Following Change in Control Event), Section 6 (Total Disability
or Death), Section 7 (Retirement), Section 8 (Acceleration for
Performance), Section 9 (Adjustments) or Section 10 (Acceleration
Immediately Prior to Change in Control Event) or has been
otherwise accelerated pursuant to the Plan; (ii) the Committee
has taken other action with respect to the Award permitted by the
Plan; or (iii) the Award Agreement otherwise provides. If the
provisions of Section 8 apply and are paid for a prior fiscal
year before June 30 of the current fiscal year, no additional
installment shall vest on such June 30.
2. Form of Distribution of Stock Unit Accounts. Once
vested, Restricted Stock Units credited to an Employee's Stock
Unit Account shall be distributed in an equivalent whole number
of shares of the Company's Common Stock, together with any
Dividend Equivalents with respect to that number of shares. Any
fractional share interests shall be accumulated; the Committee,
however, may determine that cash, other securities, or other
property will be paid or transferred in lieu of any fractional
share interests.
3. Limitations on Rights Associated with Stock Units.
An Employee's Stock Unit Account shall be a memorandum account on
the books of the Company. The Restricted Stock Units credited to
an Employee's Stock Unit Account shall be used solely as a device
for the determination of the number of shares of Common Stock to
be eventually distributed to the Employee in accordance with the
Plan. The Stock Units shall not be treated as property or as a
trust fund of any kind. No Employee shall be entitled to any
voting or other shareholder rights with respect to Restricted
Stock Units granted or credited under the Plan. The number of
Restricted Stock Units credited (and the number of shares to
which the Employee is entitled under the Plan) shall be subject
to adjustment in accordance with Section 9 and the terms of the
Plan.
4. Dividend Equivalent Credits to Stock Unit Account.
As of the applicable dividend payment date, an Employee's Stock
Unit Account shall be credited with additional Restricted Stock
Units in an amount equal to any dividends paid on that number of
shares equal to the aggregate number of Restricted Stock Units in
the Employee's Stock Unit Account as of that date divided by the
Fair Market Value of a share of Common Stock as of that date.
Restricted Stock Units in respect of these Dividend Equivalent
credits will be distributed in shares to the Employee or
forfeited in the same manner as shares issuable in respect of the
Stock Units to which the Dividend Equivalents relate.
5. Effect of Termination of Employment.
(a) Forfeiture after Certain Events. Except as
provided in Section 5(c) (Termination without Cause Prior to or
Following Change in Control Event), Section 6 (Total Disability
or Death) or Section 7 (Retirement) hereof, the Employee's
Restricted Stock Units shall be forfeited to the extent such
Stock Units have not become vested or to the extent they remain
subject to restrictions upon the date an Employee is no longer
employed by the Corporation for any reason, whether with or
without cause, voluntarily or involuntarily, unless the Committee
otherwise provides consistent with the terms of the Plan. If an
entity ceases to be a Subsidiary, such action shall be deemed to
be a termination of employment of all employees of that entity,
but the Committee may make provision in such circumstances for
accelerated vesting of some or all of the remaining Restricted
Stock Units under any Awards then held by some or all such
Employees, effective immediately prior to such event.
(b) Termination of Restricted Stock Units. Upon the
occurrence of any forfeiture of Restricted Stock Units hereunder,
such unvested, forfeited Stock Units, without payment of any
consideration by the Corporation, shall automatically terminate
and the Restricted Stock Units Account cancelled, without any
other action by the Employee, or the Employee's Beneficiary or
Personal Representative, as the case may be.
(c) Termination of Service Without Cause In
Anticipation of or Following Change in Control Event. If an
Employee's employment by the Corporation is terminated by the
Corporation for any reason other than because of death or Total
Disability (as defined in the Plan) or for Cause (as defined in
the Plan or the Employment Agreement), either (i) in express
anticipation of an announced transaction that would constitute a
Change in Control Event (as defined in Section 7 of the Plan) and
less than three months before its occurrence, or (b) within one
year following a Change in Control Event, as determined by the
Committee in its sole and absolute discretion, then any portion
of his or her Award that has not previously expired and that has
not previously vested shall thereupon vest, subject to the
provisions of Section 9 (Adjustments) hereof and Section 6.2 of
the Plan; provided, however, that in no event shall restrictions
on the Stock Units lapse or the Stock Units vest earlier than six
months after the date hereof.
6. Effect of Total Disability or Death. If the
Employee incurs a Total Disability or dies while employed by the
Corporation, the Employee's Stock Unit Account shall be fully
vested and the shares issuable in payment thereof shall be
distributed immediately.
7. Effect of Retirement. Upon Retirement, the
Employee's Stock Unit Account will be credited with a pro rata
portion of the next installment of the Award that would otherwise
vest based on the number of quarters or partial quarters served
during the Applicable Performance Period.
8. Acceleration for Performance.
(a) The Committee shall determine the performance of
the Corporation as measured, over the Applicable Performance
Period, as measured in relation to specified Business Criteria or
models specified by the Committee in accordance with the
provisions of subsection (b). The Performance Factor shall then
be evaluated against a specified Performance Target in accordance
with the provisions of subsection (c). If and to the extent the
Corporation's performance as certified by the Committee meets or
exceeds the Minimum Specified Percentage of the Performance
Target for a particular fiscal year, the Employee's original
Award shall be subject to accelerated vesting as provided in
Section 8(c) as of the date of the Committee's determination, to
be made as soon as practicable following the year-end audit but
no later than June 29 in accordance with the provisions of
subsection (b) ("Determination Date"). To the extent that an
Award is not subject to accelerated vesting as of any particular
Determination Date by reason of performance, the Award shall
remain eligible for accelerated vesting as of each subsequent
Determination Date (prior to the forfeiture or other vesting of
the Award) based upon the Corporation's performance during each
subsequent Applicable Performance Period relative to the then
applicable Business Criteria and Performance Targets.
(b) Terms used in this Section 8 have the following
meanings, subject to the Committee's authority hereunder and the
Plan:
"Applicable Performance Period" shall mean the fiscal
year period commencing April 1, 1998 and ending March 31, 1999,
or the applicable fiscal year ending on any March 31 thereafter
within the term of the Award.
"Business Criteria" shall have the meaning set forth in
Section 5.2.7 of the Plan. For fiscal year 1999, the Committee
has determined that earnings before interest, taxes, depreciation
and amortization ("EBITDA") shall constitute the relevant
business criterion for the purpose of determining the Performance
Factor and Performance Target for fiscal 1999.
"Determination Date" shall mean the date no later than
June 29 of each year as of which the Committee makes its
determination of the Corporation's Performance Factor for the
Applicable Performance Period and other decisions essential to
the calculation of the extent (if any) to which Performance
Restricted Stock Unit Awards governed by these General Provisions
shall be subject to accelerated performance vesting.
"Minimum Specified Percentage" shall mean the minimum
percentage of the Performance Target that the Performance Factor
must meet or surpass in order to accelerate vesting, as specified
annually by the Committee on or before June 29 of the Applicable
Performance Period. In order for the vesting of the Awards to
accelerate in fiscal year 1999, the Performance Factor must reach
a minimum of 80% of the EBITDA Performance Target.
"Performance Factor" shall mean the percentage
determined by dividing the Corporation's actual performance as
measured by the Business Criteria or model specified by the
Performance Target. The relevant Business Criteria underlying
the determination of the Performance Factor shall be set by the
Committee on or before June 29 of the Applicable Performance
Period. For fiscal 1999, the Performance Factor of the
Corporation shall be determined by dividing the Corporation's
actual EBITDA (Business Criterion) by the target EBITDA specified
by the Committee as the Performance Target for fiscal 1999. For
2000, 2001 and future fiscal years, the Committee shall establish
on or before June 29 of the applicable year, the applicable
Business Criteria, Performance Target and Minimum Specified
Percentage for accelerated vesting.
"Performance Target" shall mean the target level of
performance set by the Committee and based on the relevant
Business Criteria for the Applicable Performance Period. The
specific EBITDA performance targets for 1999 and future years are
confidential and available to the Employee from the Chief
Executive Officer or Chief Financial Officer upon request.
(c) Accelerated Vesting. If the Performance Factor in
any applicable Performance Period meets or exceeds the applicable
Minimum Specified Percentage for any Applicable Performance
Period, the Restricted Stock Units will vest at a rate of 33 1/3%
(rather than 20%) of the total number of Stock Units (subject to
adjustment under Section 6.2 of the Plan) for that Applicable
Performance Period; provided, however, that performance vesting
will not occur until the Committee or its delegate(s) confirm(s)
based on audited results that the Corporation satisfied the
applicable performance objective.
9. Adjustments in Case of Changes in Common Stock.
If there shall occur any change in the outstanding shares of the
Company's Common Stock by reason of any stock dividend, stock
split, recapitalization, merger, consolidation, combination or
other reorganization, exchange of shares, sale of all or
substantially all of the assets of the Company, split-up, split-
off, spin-off, extraordinary redemption, liquidation or similar
corporate change or change in capitalization or any distribution
to holders of the Company's Common Stock (other than cash
dividends and cash distributions), the Committee shall make such
proportionate and equitable adjustments (if any) consistent with
the effect of such even on stockholders generally (but without
duplication of benefits if Dividend Equivalents are credited), as
the Committee determines to be necessary or appropriate, in the
number, kind and/or character of shares of Common Stock or other
securities, property and/or rights contemplated hereunder and of
rights in respect of Restricted Stock Units and Stock Unit
Accounts credited under the Plan so as to preserve the benefits
intended, but only to the extent that such adjustment or
determination in respect of the Awards would be consistent with
the requirements of Section 162(m) to qualify as performance-
based compensation.
10. Acceleration Immediately Prior to Change in
Control Event. Immediately prior to the occurrence of a Change
in Control Event, all Restricted Stock Units credited to an
Employee's Stock Unit Account (including Dividend Equivalents),
shall vest and shall be distributed immediately.
11. Continuance of Employment. Notwithstanding any
commitment of the Employee to remain in the employ of the
Corporation, the grant of an Award shall not confer upon the
Employee any right with respect to the continuation of his or her
employment or other service by the Corporation or any Subsidiary
or constitute any contract or agreement of employment or other
service. These General Provisions shall not alter or in any way
affect the rights of the Corporation or the Employee under any
other written employment agreement between them, except as
expressly provided herein.
12. Compliance; Application of Securities Laws.
No shares of Common Stock shall be delivered and
(subsequent to vesting and delivery) no shares shall be offered
for sale by the holder unless and until any then applicable
requirements of the Securities and Exchange Commission (the
"Commission") or any other regulatory agency having jurisdiction
and any exchanges upon which the Common Stock may be listed shall
have been fully satisfied. Upon the Corporation's request, the
Employee, or any other person entitled to such shares of Common
Stock pursuant to the Award, shall provide a written assurance of
compliance (or representations reasonably requested by the
Corporation to assure such compliance) satisfactory to the
Corporation.
The Committee may impose such additional conditions on
the Award or on its acceleration or vesting or on the payment of
any related tax or withholding obligation as in its sole
discretion may be required or advisable to satisfy any applicable
legal or regulatory requirements, including, without limitation,
provisions necessary to avoid liability under Section 16 of the
Exchange Act or to secure benefits of Rule 16b-3 (or any
successor rule) promulgated by the Commission pursuant to the
Exchange Act.
13. Tax Withholding.
The Corporation shall satisfy any state or federal
income tax withholding obligation arising upon distributions of
shares of Common Stock in respect of an Employee's Stock Unit
Account by reducing the number of shares of Common Stock
otherwise deliverable to the Employee. The appropriate number of
shares required to satisfy such tax withholding obligation in the
case of Restricted Stock Units will be based on the Fair Market
Value of a share of Common Stock on the day prior to the date of
distribution. If the Corporation, for any reason, cannot (or
chooses not to) satisfy the withholding obligation in accordance
with the preceding sentence, the Employee shall pay or provide
for payment in cash of the amount of any taxes which the Company
may be required to withhold with respect to the benefits
hereunder.
14. Employment by Subsidiaries. Employment by any
Subsidiary shall be considered as the equivalent of employment by
the Corporation for all purposes hereunder.
15. Notices. Any notice to be given under the terms
of the Plan, these General Provisions or an Award Agreement shall
be in writing and addressed to the Corporation at its principal
executive office, to the attention of the Corporate Secretary and
to the Employee at the address given beneath the Employee's
signature to the Award Agreement, or at such other address as
either party may thereafter designate in writing to the other.
16. Administration of Awards.
(a) Powers of Committee. Subject to the limitations
of the Plan, the Committee shall have the responsibility for
carrying out the intents and purposes of these General Provisions
and related Performance Restricted Stock Unit Awards and shall
have all powers necessary to accomplish those purposes,
including, but not by way of limitation, the following:
(i) to construe, interpret and administer the
General Provisions and Award Agreements;
(ii) to make all determinations required by these
General Provisions;
(iii) to collect and interpret such reported
results of and other information regarding the Corporation
as the Committee may deem advisable or appropriate, or to
utilize such other readily available information as it may
deem advisable or appropriate, with respect to
determinations made hereunder;
(iv) to determine, compute and certify the extent
of vesting and the amount of any other benefits payable to
Employees hereunder; and
(v) to, in determining the performance of each
relative entity, make such adjustments as it deems
appropriate and equitable in its discretion to reflect
changes in capitalization and similar corporate changes
affecting the Corporation.
In making any discretionary adjustments hereunder or
under the Plan, the Committee shall make the same adjustments and
confer the same benefits on all holders of Restricted Stock Units
subject to these General Provisions, unless the Award Agreement
otherwise expressly provides. Notwithstanding anything contained
herein to the contrary, the Committee shall have no discretion to
increase the number of shares to be delivered upon attainment of
the performance goals set forth herein except pursuant to Section
6.2 of the Plan.
(b) No Liability of Committee. The determination of
the Committee made in good faith as to any disputed question or
controversy shall be binding and conclusive for all purposes of
the Award Agreement and the Plan. In performing its duties, the
Committee shall be entitled to rely on information, opinions,
reports or statements prepared or presented by: (i) officers or
employees of the Corporation whom the Committee believes to be
reliable and competent as to such matters, and (ii) counsel (who
may be employees of the Corporation), accountants and other
persons as to matters which the Committee believes to be within
such persons' professional or expert competence. The Committee
shall be fully protected with respect to any action taken or
omitted by it in good faith pursuant to the advice of such
persons.
(c) Amendments. The Committee further may amend
Awards and these General Provisions, subject to the limitations
of Section 6.6.4 of the Plan; provided, however, that except as
contemplated by Section 9 (Adjustments), no amendment or
termination shall cancel or otherwise adversely affect in any
material respect, without his or her written consent, the
Employee's rights with respect to the Employee's Stock Unit
Account or dividend equivalent credits thereon so long as the
Account is outstanding). Any amendments authorized hereby shall
be stated in an instrument in writing, and all Employees shall be
bound by permitted amendments upon receipt of notice thereof.
<PAGE>
Image Entertainment, Inc.
Chatsworth, California
Re: Unaudited Financial Information
We acknowledge our awareness of the use herein of our report
dated October 30, 1998 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered a part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and
11 of the Act.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
November 25, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Image Entertainment, Inc.:
We consent to the use of our reports incorporated by reference
herein and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
November 25, 1998
<PAGE>
