As filed with the Securities and Exchange Commission on October 22, 1998
Registration No. 333-65611
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
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 to
security holders, or a complete and legible facsimile thereof pursuant to
Item 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 Rule
462(c) 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
Rule 462(d) 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 delivery of the prospectus is expected to be made pursuant to Rule
434, 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.
-Cover-
<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 ______________, 1998
PROSPECTUS
2,400,000 SHARES
IMAGE ENTERTAINMENT, INC.
COMMON STOCK
-------------
Image Entertainment, Inc. is offering for sale
2,400,000 shares of common stock. Our common stock is
traded on the Nasdaq National Market System under the symbol
"DISK" and its closing price on October 7, 1998 was $3.50
per share. We will consider the factors listed under the
heading "Plan of Distribution" beginning on page 19 of this
prospectus to determine the price at which we will sell
these shares of common stock. We will reserve a portion of
these 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.
---------------
These securities involve a high degree of risk.
See "Risk Factors" beginning on page 3.
---------------
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>
===========================================================
Placement
Price to Agent's Proceeds to
Public Commission<1> Company<2>
- -----------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
===========================================================
<FN>
<1> We have agreed to pay to MDB Capital Group LLC, as
placement agent, a fee in connection with the arrangement
of this offering, to reimburse them for certain expenses
and to indemnify them against certain liabilities,
including liabilities under the Securities Act of 1933.
<2> Before deducting 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).
</FN>
</TABLE>
----------------------------
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. 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. This offering will terminate on
December 15, 1998, unless we extend it with the placement
agent's agreement. We will sell the shares when the
placement agent has received commitments to purchase all of
the shares offered or on December 15, 1998 if the placement
agent does not receive commitments to purchase 2,400,000
shares before that date.
MDB Capital Group LLC reserves the right to withdraw,
cancel, modify or reject any order for the purchase of these
shares in whole or in part for any reason. We reserve the
right to terminate this offering at any time. There will
not be any escrow, trust or similar account for the funds to
be received from the sale of these shares. You are not
required to purchase any minimum amount of the shares being
offered to participate in the offering. 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
-Cover-
<PAGE>
AVAILABLE INFORMATION
Image Entertainment, Inc. (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 Securities and Exchange Commission (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.
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 (the "Annual Report"), the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30,
1998, filed with the Commission on August 13, 1998 (the
"Quarterly Report"), 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 (the "Proxy Statement"). 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.
FORWARD LOOKING STATEMENTS
This prospectus contains certain forward-looking
statements 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.
-ii-
<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 forward-looking statements that
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 digital video disc and laserdisc
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 258,370
shares 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.
Risk Factors
The shares of common stock that we are offering involve
a high degree of risk and you should carefully consider the
information contained in the "Risk Factors" section
beginning at page 3 of this prospectus along with all of the
other information contained in this prospectus.
The Offering
We are offering 2,400,000 shares of common stock.
If we sell all 2,400,000 shares, we will have 15,948,959 shares of common
stock outstanding after the offering. This is based on the number of
shares outstanding at September 25, 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 digital video disc and laserdisc 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, potentially to 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 and
pro forma consolidated financial data from: (i) our fiscal
year-end audited financial statements for the fiscal years
ended March 31, 1994 through 1998, (ii) our unaudited
financial statements for the three months ended June 30,
1997 and 1998, and (iii) our unaudited pro forma
consolidated financial statements, which take into account
the completion of the acquisition and this offering.
Operating data for the three months ended June 30, 1998 is
not necessarily indicative of results for the entire year.
You should read this summary information along with the
Selected Historical and Pro Forma Financial Information and
the Unaudited Pro Forma Consolidated Financial Statements
included later in this prospectus, as well as all of 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 and in the Quarterly Report.
<TABLE>
<CAPTION>
================================================================================================================================
Operating Data (in thousands, Three months ended
except per share data) June 30, Fiscal year ended March 31,
--------------------- -----------------------------------------------------------------------
1998
1998 1997 Pro Forma<1> 1998 1997 1996 1995 1994
--------- --------- ----------- --------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $17,140 $16,902 $84,193 $75,516 $85,650 $95,086 $85,591 $65,578
Income (loss) before
extraordinary item 205 (191) (9,826) (9,581) 972 7,599 7,530 3,739
Extraordinary item, net of taxes - - - - (127)<2> - (1,219)<2> (378)<2>
Net income (loss) $ 205 (191) (9,826) $(9,581) $845 $7,599 $6,311 $3,361
<CAPTION>
Balance Sheet (in thousands)
As of June 30, As of March 31,
--------------------- -------------------------------------------------------------------------
1998
1998 1997 Pro Forma<1> 1998 1997 1996 1995 1994
--------- --------- ----------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets $35,541 $43,078 $43,430 $33,781 $46,448 $39,406 $33,491 $42,526
Total liabilities 26,598 25,014 25,930 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,943 18,064 17,500 8,665 18,051 20,526 16,673 11,114
===================================================================================================================================
<FN>
<1> As adjusted to account for the sale of all 2,400,000
shares offered, the application of the estimated net
proceeds and the Acquisition. Based on the Company's fiscal
year ended March 31, 1998 and the 12 months ended June 30,
1998 of the business being acquired. See our Unaudited Pro
Forma Consolidated Financial Statements and the notes
thereto beginning on page F-2 of this prospectus.
<2> 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>
-2-
<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 (the "Placement Agent") 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 digital video
disc and laserdisc retail sales business of Ken Crane's
Magnavox City, Inc. (the "Acquisition"). 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 potentially to
develop our own web site for the retail sale of LDs and
DVDs directly to the public. The development of such
a web site would require an investment of significant
resources to acquire suitable computer systems,
acquire or develop appropriate software, market the
web site and undertake other matters to establish
the web site. We cannot assure you that we will be able to
establish a web site that would 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 the Company's
program suppliers and distribution rights.
Lenders' Consents Required to Complete the Acquisition;
Purchase Agreement Termination Date. 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. We cannot assure you
that these lenders will, in fact, consent to the Acquisition
regardless of the amount of funds that we raise. In
addition, if the closing of the Acquisition has not occurred
before January 15, 1999, each of the parties has the right
to terminate the transaction.
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. In September 1997, we raised additional capital
through a private financing 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 for additional information about our liquidity and
capital resources.
-3-
<PAGE>
Integration of New Business and Employees. We will
face significant risks and challenges when we attempt to
integrate the operations of the business we have agreed to
acquire in the Acquisition (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. We expect to incur
considerable expenses in the near future in connection with
the integration of 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.
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.
Competition for LD Rights and Distribution. 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 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. We
cannot assure you that we will be able to continue to secure
LD license and distribution rights on terms acceptable to
us.
Competition for DVD Rights and Distribution. 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 cannot assure you that we will be able to continue to
secure DVD license and distribution rights on terms
acceptable to us. 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.
Competition from 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. For example,
several recent polls have indicated that the Internet may
surpass all forms of home video entertainment as a leisure
time activity. 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.
-4-
<PAGE>
New Distribution Facility. We have expended
significant time, capital and other resources to construct a
new automated distribution facility in Las Vegas, Nevada.
Although we currently expect the distribution center to be
operational by November 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.
Any delay 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.
Ability 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.
Growth of the DVD Market. We believe that the lack of
mass market acceptance of DVD is principally due to the
following factors: (i) the lack of a consumer-priced
recordable DVD player, (ii) the lack of an established
rental market, (iii) consumer confusion regarding the
features, availability and potential of the format, (iv) the
large number of titles currently available on LD, and (v)
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 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.
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-end holidays and because
most sales of a title occur in the first few months after
its release. 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: (i)
DVD's negative impact on LD sales; (ii) the popularity of
titles in release during the quarter; (iii) our marketing
and promotional activities; (iv) our rights and distribution
activities; (v) the extension, termination or non-renewal of
existing license and distribution rights; and (vi) 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. See "Price Range of
Common Stock" beginning on page 15 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
-5-
<PAGE>
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.
Shares Eligible for Future Sale. As of September 25,
1998, there were outstanding options, warrants and rights to
purchase or acquire 2,767,437 shares of our common stock,
including 2,566,534 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
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 and
"Description of Capital Stock" below for additional
information regarding registration rights. 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.
Immediate and Substantial Dilution. You will incur
immediate and substantial dilution of $2.50 per share
(assuming that all 2,400,000 of the shares being offered are
sold at an offering price of $3.50 per share). If any
outstanding options, warrants or rights to purchase our
common stock are exercised, you will incur additional
dilution. See "Dilution."
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
"kencranes.com" site on the World Wide Web (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 3 above.
Competition in the Internet Commerce Industry. 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. We cannot
assure you that the KC Web Site will be able to compete
successfully against current or future competitors.
Rapid Technological Change. 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
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<PAGE>
Web Site will depend, in part, on our ability to:
(i) license leading technologies useful in the Internet
sales business, (ii) enhance the KC Web Site's existing
services, (iii) develop new services and technology that
address the increasingly sophisticated and varied needs of
our customers, and (iv) respond to technological advances
and emerging industry standards and practices on a cost-
effective and timely basis. 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.
Dependence on Continued Growth of Internet Commerce.
Potential future revenues and profits from sales over the
Internet substantially depend on the widespread 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. 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.
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
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<PAGE>
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.
Legal Constraints in Operating on 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. We could be
materially adversely affected by any new legislation or
regulation or by the application or interpretation of
existing laws to the 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.
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<PAGE>
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), 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 three months ended June 30, 1998, DVD
sales represented approximately 38% of the Company's net
sales compared to approximately 8% 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
fiscal quarter ended June 30, 1998, the Company had net
sales to the Acquired Business of approximately $1.6
million, representing approximately 9.4% 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, the Quarterly Report and the Proxy
Statement delivered concurrently with this prospectus.
-9-
<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 digital video disc and laserdisc 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 fiscal quarter
ended June 30, 1998, the Company had net sales to the
Acquired Business of approximately $1.6 million,
representing approximately 9.4% 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. See "Selected Historical and Pro Forma Financial
Information" below and "Unaudited Pro Forma Consolidated
Financial Statements" beginning on page F-2 of this
prospectus.
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 open in November 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.
In exchange for certain assets of the Acquired
Business, the Asset Purchase Agreement dated as of
August 20, 1998 between the Seller and Image/KC, as amended
(the "Purchase Agreement") requires that Image/KC: (i) pay
the Seller $3 million plus 258,370 newly issued shares of
common stock, and (ii) assume certain trade payables of the
Seller (the amount of which will be offset by the value of
certain of the assets acquired), the Seller's obligations
under the lease for the Westminster store and certain of the
Seller's obligations with its current LD and DVD suppliers.
Of the cash portion of the purchase price, $500,000 will be
held in escrow for 90 days after the closing and will be
paid to the Seller in full only if no claims for indemnity
arise prior to the expiration of such 90-day period.
The assets purchased by the Company include, 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 its inventory of adult entertainment titles),
all of the Seller's rights under certain license and
distribution agreements, and all of the Seller's intangible
property rights as related to the Acquired Business. The
Company will also receive an exclusive, irrevocable royalty-
free license to use the "Ken Crane's" name and its
derivatives in connection with the Acquired Business. The
exclusivity provision prohibits the Seller from using or
allowing others to use the "Ken Crane's" name in a similar
context to that of the Acquired Business.
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 general and
administrative expense at the time incurred). 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 be for a term of five years, renewable by
Image/KC for up to two additional one-year terms, and will
provide for him to receive a salary of $150,000 per year
(with 5.0% cumulative annual increases) and a bonus equal to the
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<PAGE>
sum of (i) 0.40% of annual net revenues of Image/KC plus
(ii) 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 will also include standard non-compete terms
preventing Ken Crane, Jr. from competing with Image/KC
during the term of his employment. 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) 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 laserdiscs 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 laserdiscs and digital
video discs through the various channels described above.
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.
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<PAGE>
New Employment Agreements for Management
The Company plans to confirm new employment agreements
during October 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.
Legal Proceedings
On July 31, 1998, the Company filed a complaint in the
United States District Court for the Central District of
California, Western Division (Case No. CV 98-6203 KMW BQRx),
against PolyGram Video, a division of PolyGram Records,
Inc., PolyGram N.V., and The Seagram Company, Ltd. (the
"Federal Court Action"). The complaint relates to a dispute
concerning, among other things, PolyGram Video's obligations
under a December 23, 1996 license agreement with the
Company. The Company has alleged causes of action for
fraud, recision of written contract, breach of contract,
interference with contract, and unfair business practices.
The complaint in the Federal Court Action seeks general
damages of $3 million for fraud, complete recision of the
1996 license agreement, and recovery of unrecouped advances
in the approximate amount of $2.4 million. In the
alternative, the complaint seeks damages of $6 million for
breach of contract and interference with contract, and
injunctive relief prohibiting the acquisition of PolyGram
N.V. by Seagram, or the sale of all or any part of PolyGram
film divisions to finance such acquisition, as a violation
of certain provisions of the license agreement. The Company
also seeks to recover punitive damages, prejudgment
interest, attorney's fees and costs of suit.
After being served with the complaint in the Federal
Court Action, PolyGram Records filed a separate suit against
the Company in the United States District Court for the
Southern District of New York (Case No. 98 Civ. 6025 (JGK))
seeking $3 million plus attorney's fees and costs of suit for the
Company's
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<PAGE>
alleged breach of the 1996 license agreement. The Company
presently intends to prosecute the Federal Court Action
to the fullest extent possible and to vigorously defend the
separate action filed by PolyGram Records.
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 $7.2 million
(assuming an offering price to the public equal to $3.50 per
share, the closing price of the Company's common stock on
October 7, 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 the net proceeds to seek additional
DVD distribution rights, potentially to develop a web site
for retail sales of DVDs and LDs and for general corporate
and working capital purposes.
DILUTION
As of June 30, 1998, the net tangible book value of the
Company was approximately $8,943,000 or approximately $0.66
per share of common stock. Net tangible book value per
share is equal to the Company's total tangible assets (total
assets less intangible assets) less total liabilities
divided by the 13,533,139 shares of common stock outstanding
at June 30, 1998. Without taking into account any other
changes in such net tangible book value after June 30, 1998,
but giving pro forma effect to the Acquisition and the sale
by the Company of all 2,400,000 shares of common stock being
offered (based on the estimated net proceeds discussed under
"Use of Proceeds" and after deducting fees and other
estimated expenses payable by the Company in connection with
the Acquisition, including non-recurring compensation and
consulting payments to Ken Crane, Jr., Casey Crane and
Pamela Crane aggregating $1,960,000 net of income tax
effect), the net tangible book value of the Company at
June 30, 1998, would have been approximately $16,183,000 or
$1.00 per share. This represents an immediate increase in
the net tangible book value of approximately $0.34 per share
to the existing shareholders, and an immediate dilution of
approximately $2.50 per share to the investors in this
offering, as illustrated below. The following table does
not give effect to the exercise of options, warrants and
rights outstanding as of June 30, 1998 to purchase a total
of 2,620,627 shares of common stock.
<TABLE>
<CAPTION>
Pro Forma Dilutive Impact as of June 30, 1998 <1>
- -----------------------------------------------------------------------------
<S> <C> <C>
Offering price per share of common stock $3.50
Net tangible book value per share of common stock before
this offering (as of June 30, 1998) $0.66
Increase per share of common stock attributable to new
investors $0.34
Pro forma net tangible book value per share of common stock
after this offering and the Acquisition $1.00
Dilution per share of common stock to new investors $2.50
- -----------------------------------------------------------------------------
<FN>
<1> Calculated without taking into account any changes in
the Company's net tangible book value after June 30, 1998
except for giving pro forma effect to the Acquisition
(including non-recurring compensation and consulting
payments to Ken Crane, Jr., Casey Crane and Pamela Crane
aggregating $1,960,000 net of income tax effect) and the
Company's sale of all 2,400,000 shares of common stock at an
assumed offering price of $3.50 per share, the closing price
of the Company's common stock on October 7, 1998. See
"Unaudited Pro Forma Consolidated Financial Statements"
beginning on page F-2 of this prospectus.
</FN>
</TABLE>
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CAPITALIZATION
The following table sets forth (i) the capitalization
of the Company at June 30, 1998 and (ii) the pro forma
capitalization of the Company at June 30, 1998 as adjusted
at that date to give effect to the Acquisition, the sale of
the shares being offered (hypothetically assuming that all
2,400,000 shares are sold or that only 1,000,000 shares are
sold at an assumed offering price of $3.50 per share, the
closing price of the Company's common stock on October 7,
1998), and the application of the estimated net proceeds to be
received from this offering. See "Use of Proceeds" above,
"Unaudited Pro Forma Consolidated Financial Statements"
beginning on page F-2 of this prospectus and "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" and the financial statements and
related notes included in the Annual Report and the
Quarterly Report.
<TABLE>
<CAPTION>
================================================================================================================================
At June 30, 1998
--------------------------------------------------------------
As Adjusted As Adjusted
(maximum) (1,000,000
Actual offering<1> shares)<2>
--------- -------------- -----------
(in thousands)
<S> <C> <C> <C>
Total Indebtedness
Revolving Credit Facility $1,459 $1,459 $1,459
Construction Credit Facility 3,174 3,174 3,174
Distribution Equipment Lease Facility 526 526 526
Convertible Subordinated Note Payable 5,000 5,000 5,000
Note Payable 1,350 1,350 1,350
Shareholders' Equity
Preferred Stock, $1 par value, 3,365,385 shares
authorized; no shares issued and outstanding - - -
Common Stock, no par value, 25,000,000 shares authorized;
13,533,139 issued and outstanding at June 30, 1998;
16,191,509 issued and outstanding as adjusted for the
maximum offering and the Acquisition; 14,533,139 issued
and outstanding as adjusted for the sale of 1,000,000 Shares
and assuming that the Acquisition is not completed<3> 17,837 27,037 20,627
Additional paid-in capital 3,064 3,064 3,064
(Accumulated Deficit) (11,958) (13,918) (11,958)
-------- --------- --------
Net Shareholders' Equity 8,943 16,183 11,733
-------- ---------- --------
Total Capitalization $20,452 $27,692 $23,242
========= ========== ========
================================================================================================================================
<FN>
<1> As adjusted to give effect to the Acquisition
(including non-recurring compensation and consulting
payments to Ken Crane, Jr., Casey Crane and Pamela Crane
aggregating $1,960,000 net of income tax effect), the
Company's sale of all 2,400,000 shares of common stock being
offered at an assumed offering price of $3.50 (the closing
price of the Company's common stock on October 7, 1998) and
the application of the estimated net proceeds therefrom.
<2> As adjusted to give effect to the Company's sale of
1,000,000 shares of common stock being offered at an assumed
offering price of $3.50 (the closing price of the Company's
common stock on October 7, 1998) and the application of the
estimated net proceeds therefrom and assuming that the
Company is unable to complete the Acquisition.
<3> Excludes shares reserved for issuance under any plan,
option or other right.
</FN>
</TABLE>
-14-
<PAGE>
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>
Fiscal Year 1999
September 30, 1998 10.00 3.25
June 30, 1998 7.50 3.313
Fiscal Year 1998
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
Fiscal Year 1997
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>
<PAGE>
SELECTED HISTORICAL AND PRO FORMA 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 June 30, 1998 and 1997 and for the
three months ended June 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
June 30, 1998 and for the three months ended June 30, 1998
and 1997 are contained in the Company's Quarterly Report.
Operating data for the three months ended June 30, 1998 is
not necessarily indicative of results for the entire year.
The summary unaudited pro forma operating data of the
Company for the fiscal year ended March 31, 1998 is derived
from the Unaudited Pro Forma Consolidated Financial
Statements included in this prospectus beginning on page F-2
and reflects adjustments to the summary historical operating
data of the Company to give effect to this offering, the
estimated net proceeds to be received from this offering and
the Acquisition. The summary pro forma operating data is
not necessarily indicative of either future results of
operations or the results that would have occurred if this
offering and the Acquisition had been consummated on the
indicated dates. The following financial information should
be read along with this Selected Historical and Pro Forma
Financial Information: (i) the Company's Unaudited Pro Forma
Financial Statements and related notes, (ii) the information
included under the heading "Capitalization," and (iii) the
historical consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Annual
Report and the Quarterly Report.
-15-
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Operating Data (in thousands, Three months ended
except per share data) June 30, Fiscal year ended March 31,
--------------------- ----------------------------------------------------------------------
1998
1998 1997 Pro Forma<1> 1998 1997 1996 1995 1994
--------- --------- ------------ --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $17,170 $16,902 $84,193 $75,516 $85,650 $95,086 $85,591 $65,578
Operating costs and expenses 16,773 16,936 93,528 84,605<2> 83,399<3> 86,926 77,851 60,576
Operating income (loss) 367 (34) (9,335) (9,089) 2,251 8,160 7,740 5,002
Interest expense (176) (203) (662) (662) (415) (155) (1,184) (2,336)
Interest income 25 46 118 118 231 337 518 487
Other expense - - - - (662)<4> - - -
Amortization of deferred
financing costs - - - - - - (111) (270)
Net gain on insurance settlement - - - - - - 742 960
Income (loss) before income taxes
and extraordinary item 216 (191) (9,879) (9,633) 1,405 8,342 7,705 3,843
Income tax (expense) benefit 11 - 53 52 (433) (743) (175) (104)
Income (loss) before
extraordinary item 205 (191) (9,826) (9,581) 972 7,599 7,530 3,739
Extraordinary item, net of taxes - - - - (127)<5> - (1,219)<5> (378)<5>
Net income (loss) $ 205 (191) (9,826) $(9,581) $845 $7,599 $6,311 $3,361
Income (loss) per share:
Income (loss) before
extraordinary item
Basic $.02 $ (.01) $ (.61) $(.71) $ .07 $ .56 $ .57 $ .30
Diluted $.02 $ (.01) (.61) $(.71) $ .07 $ .51 $ .48 $ .26
Net income (loss)
Basic $.02 $ (.01) $ (.61) $(.71) $ .06 $ .56 $ .48 $ .27
Diluted $.02 $ (.01) (.61) (.71) .06 $ .51 $ .40 $ .23
Weighted average number
of shares outstanding
Basic 13,506 13,431 16,129 13,471 13,504 13,569 13,255 12,347
Diluted 13,614 13,431 16,129 13,471 13,836 14,802 15,641 14,392
<CAPTION>
Balance Sheet Data
(in thousands) As of June 30, As of March 31
--------------------- ----------------------------------------------------------------------
1998
1998 1997 Pro Forma<1> 1998 1997 1996 1995 1994
--------- --------- ------------ --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets 35,541 43,078 43,430 $33,781 46,448 39,406 33,491 42,526
Total liabilities 26,598 25,014 25,930 25,116 28,397 18,880 16,818 31,412
Net shareholders' equity 8,943 18,064 17,500 8,665 18,051 20,526 16,673 11,114
===============================================================================================================================
<FN>
<1> As adjusted to account for the sale of all 2,400,000
shares offered, the application of the estimated net
proceeds and the Acquisition. Based on the Company's fiscal
year ended March 31, 1998 and the Acquired Business's 12
months ended June 30, 1998. See Unaudited Pro Forma
Consolidated Financial Statements and the notes thereto
beginning on page F-2 of this prospectus.
<2> 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.
<3> 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.
<4> Other expense represents a non-recurring charge composed
primarily of legal and accounting fees associated with the
termination of acquisition negotiations.
<5> 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>
-16-
<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 September 25, 1998, 13,548,959 shares of
common stock were outstanding and held of record by
approximately 1,667 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 September 25, 1998, there were 2,566,534 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: (i) 3,293,169 shares
of common stock beneficially owned by it, and (ii) an
additional 23,899 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
-17-
<PAGE>
ownership interest in the Company. These rights are
triggered if, among other things, shares of common 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. 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.
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.
-18-
<PAGE>
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 (i) when the Placement Agent has received
indications of interest for all 2,400,000 shares, or
(ii) 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 closing
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 closing 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 a securities account with the Placement Agent and
to settle the transaction on the scheduled closing date.
This offering will not continue after December 15, 1998,
unless the Company decides to extend it with the Placement
Agent's agreement. 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 ($168,000 assuming the
sale of 2,400,000 shares at $3.50 per share, the closing
price of the Company's common stock on October 7, 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.
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.
-19-
<PAGE>
INDEX TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Unaudited Pro Forma Consolidated Financial Statements F-2
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended March 31, 1998 F-3
Notes to Unaudited Pro Forma Consolidated Statement of
Operations for the year ended March 31, 1998 F-4
Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998 F-5
Notes to Unaudited Pro Forma Consolidated Balance Sheet
as of March 31, 1998 F-6
</TABLE>
-F-1-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated
financial information (the "Pro Forma Financial Statements")
of the Company is based upon the historical consolidated
financial statements of the Company incorporated by
reference herein, adjusted to give effect to the Acquisition
and the receipt of proceeds from this offering
(collectively, the "Transactions").
The Pro Forma Financial Statements were prepared to
illustrate the estimated effects of the Transactions. The
pro forma adjustments are designed to reflect the following
impacts upon the consolidated financial statements: (i) the
inclusion of the results of operations of the Acquired
Business to the consolidated financial statements of the
Company, (ii) the elimination of sales from the Company to
the Acquired Business, (iii) the elimination of accounts
receivable of the Company and accounts payable of the
Acquired Business related to product purchased by the
Acquired Business from the Company, (iv) the elimination of
profit in ending inventory on hand of the Acquired Business
purchased from the Company, (v) the recording of fair value
of the assets acquired in the Acquisition and the related
goodwill, and the amortization thereon, (vi) the incremental
royalty expense resulting from reduced gross margins on
certain sales of exclusivity licensed titles sold by the
Acquired Business, (vii) the income tax effect of the
aforementioned adjustments, and (viii) the effect on
shareholder's equity from the issuance of common stock in
the Transaction. The Pro Forma Financial Statements do not
reflect non-recurring compensation and consulting payments
to be made to Ken Crane, Jr. of $1.5 million and to Pamela
Crane and Casey Crane of $250,000 each. The payment to Ken
Crane, Jr. will be made upon the closing of the Acquisition
and an immediate charge to earnings of $1.5 million will be
recorded. The payments to Pamela Crane and Casey Crane will
be made 50% upon the closing of the Acquisition and 50% in
January 1999 and will be recorded as a charge to earnings
ratably over the term of the consulting agreements, which is
one year.
The pro forma consolidated statements of operations
data give effect to the Transactions as if the Transactions
had occurred on April 1, 1997 and the pro forma consolidated
balance sheet data give effect to the Transactions as if the
Transactions had occurred on March 31, 1998. The pro forma
adjustments are based upon available information and certain
adjustments that the Company believes are reasonable. The
Pro Forma Financial Statements do not purport to represent
what the Company's results of operations or financial
condition for any future period or as of any date. The Pro
Forma Financial Statements should be read in conjunction
with the with the historical consolidated financial
statements of the Company and the notes thereto and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in the Company's Annual
Report and in the Company's Quarterly Report incorporated by
reference herein.
The Acquisition will be accounted for as a purchase.
Under purchase accounting, the total purchase cost and fair
value of the liabilities assumed will be allocated to the
net tangible assets of the Company based upon their
respective fair values as of the closing based on valuations
and other studies that are not yet available. A preliminary
allocation of the purchase cost has been made to the major
categories of assets and liabilities in the accompanying pro
forma consolidated financial information based on the
Company estimates. The actual allocation of purchase cost
and resulting effect on operating income may differ
significantly from the pro forma amounts included herein.
The fiscal year end of the Company is March 31, 1998.
The fiscal year end of the Acquired Business is July 31,
1998. To comply with the Commission's rules and
regulations, the twelve month period ended June 30, 1998 for
the Acquired Business has been utilized for inclusion in the
accompanying pro forma consolidated statement of operations
data. The pro forma consolidated balance sheet includes the
information for the Acquired Business as of June 30, 1998.
The impact of using the June 30, 1998 financial information
instead of July 31, 1998 does not have a material effect
upon the Pro Forma Financial Statements.
-F-2-
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Statement of
Operations
(in thousands, except per share data)
==========================================================================================================================
The
The Acquired
Company- Business- Pro Pro Forma-
Year ended Year ended Forma Year Ended
March 31, 1998 June 30,1998<b> Adjustments March 31, 1998
-------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
Net Sales $75,516 16,746 (8,069)<C> 84,193
Operating costs and expenses 84,605 16,274 93,528
Elimination of cost of sales (8,069)<C>
Amortization of good will 353 <a>
Increase in royalty expense 200 <e>
Elimination of profit in ending inventory 165 <d>
-------------- ------------ ---------- ------------
Operating income(loss) (9,089) 472 (718) (9,335)
Interest expense (662) - - (662)
Interest income 118 - - 118
-------------- ------------ ---------- ------------
Income (loss) before income taxes (9,633) 472 (718) (9,879)
Income tax expense(benefit) (52) - (1) <f> (53)
-------------- ------------ ----------- ------------
Net income (loss) (9,581) 472 (717) (9,826)
============== ============ =========== ============
Net loss per share:
Basic (0.71) (0.61)
Diluted (0.71) (0.61)
Number of weighted average shares used in net
loss per share calculation:
Basic 13,471 2,658 16,129
Diluted 13,471 2,658 16,129
==========================================================================================================================
-F-3-
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
<FN>(a)The Acquisition will be accounted for as a purchase.
Under purchase accounting, the total purchase cost and fair
value of the liabilities assumed will be allocated to the
net tangible assets of the Company based upon their
respective fair valued as of the closing based on valuations
and other studies that are not yet available. A preliminary
allocation of the purchase cost has been made to the major
categories of assets and liabilities in the accompanying pro
forma consolidated financial information based on Company
estimates. The actual allocation of purchase cost and
resulting effect on operating income may differ
significantly from the pro form amounts included herein.
The adjustment for estimated pro forma amortization is
based on the estimated fair values. The resulting
goodwill, aggregating $5.3 million, is expected to be
amortized over 15 years at $353,000 per year.
The estimated net realizable value of inventories is
expected to approximate the fair value of the inventory
acquired in the Acquisition.
(b) Reflects the results of operations of the Acquired
Business for the year ended June 30, 1998.
(c) Reflects the elimination of sales made by the Company to
the Acquired Business during the year ended March 31, 1998.
(d) Reflects the elimination of profit in ending inventory
aggregating $165,000 in the Acquired Business for inventory
purchased from the Company during the year ended and on hand
at June 30, 1998.
(e) Reflects the incremental royalty expense aggregating
$200,000 resulting from reduced gross margins on certain
sales of exclusively licensed titles sold by the Acquired
Business.
(f) The tax effects of the pro forma adjustments to income
(loss) before income taxes is based on the estimated
effective tax rate during the period. The pro forma
adjustments assume that no valuation reserves would be
required under SFAS 109, "Accounting for Income Taxes."
</FN>
</TABLE>
-F-4-
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated
Balance Sheet
(in thousands)
=========================================================================================================================
The
The Acquired
Company- Business- Pro Forma Pro Forma-
March 31, 1998 June 30, 1998<C> Adjustments March 31, 1998
-------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Assets
Cash and Cash equivalents $ 1,015 1 3,825 <a><b> 4,841
Accounts receivable 6,978 - (613)<d> 6,365
Inventories 11,205 1,234 (165)<e> 12,274
Royalties, distribution fee and license fee
advances 4,566 - (200)<f> 4,366
Prepaid expenses and other assets 1,094 14 - 1,108
Property, equipment and improvements 6,223 253 - 6,476
Land held for sale 2,700 - - 2,700
Intangible assets - 5,300<a> - 5,300
--------- --------- ------------- ---------
Total assets 33,781 6,802 2,847 43,430
========= ========= ============= ========
Liabilities and Shareholders' equity
Accounts payable and accrued expenses 12,303 1,427 (613)<d> 13,117
Accrued royalties, distribution fees and
license fees 2,003 - - 2,003
Notes payable 10,810 - - 10,810
--------- --------- -------------- ---------
Total liabilities 25,116 1,427 (613) 25,930
--------- --------- -------------- ---------
Common stock 17,764 5,375<a> 3,825<b> 26,964
Additional paid in capital 3,064 - 3,064
Accumulated deficit (12,163) - (365)<e><f> (12,528)
--------- ---------- -------------- ---------
Net shareholders' equity 8,665 5,375 3,460 17,500
--------- ---------- -------------- ---------
Total liabilities and shareholders' equity 33,781 6,802 2,847 43,330
========= ========== ============== =========
=========================================================================================================================
-F-5-
<PAGE>
<FN>
Notes to Unaudited Pro Forma Consolidated Balance sheet
<a> The Acquisition will be accounted for as a purchase.
Under purchase accounting, the total purchase cost and fair
value of the liabilities assumed will be allocated to the
net tangible assets of the Company based upon their
respective fair values as of the closing based on valuations
and other studies that are not yet available. A preliminary
allocation of the purchase cost has been made to the major
categories of assets and liabilities in the accompanying
pro forma consolidated balance sheet data based on Company
estimates. The actual allocation of purchase cost and
resulting effect on operating income may differ
significantly from the pro forma amounts included herein.
Purchase cost:
Purchase Price:
Cash $3,075,000
Stock 2,000,000
Estimated fees and expenses 300,000
--------
Total purchase cost $5,375,000
Adjusted book value of net assets acquired:
Inventories 1,234,000
Prepaid expenses and cash 15,000
Property and equipment 253,000
Accounts payable assumed (1,427,000)
---------
Unallocated excess (goodwill) $5,300,000
==========
<b> Reflects the issuance of 2,400,000 shares of common stock
at $3.50 per share for aggregate consideration of $8.4
million. Fees and expenses related to the Transactions are
estimated to be $1.2 million.
Also reflects the issuance of 258,370 shares of common
stock at $7.74 per share for aggregate consideration of
$2.0 million in connection with the Company's
acquisition of the Acquired Business.
<C> Reflects the acquired assets and assumed liabilities of
the Acquired Business as of June 30, 1998.
<d> Reflects the elimination of accounts receivable of the
Company and accounts payable of the Acquired Business
related to produce purchased by the Acquired Business from
the Company.
<e> Reflects the elimination of profit in ending inventory
aggregating $165,000 in the Acquired Business for inventory
purchased from the Company during the year ended June 30,
1998.
<f> Reflects the incremental royalty liability aggregating
$200,000 resulting from reduced gross margins on certain
sales of exclusively licensed titles sold by the Acquired
Business.
</FN>
</TABLE>
-F-6-
<PAGE>
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.
----------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Available Information ii
Incorporation of Certain Information by
Reference; Deliveries ii
Forward Looking Statements ii
Prospectus Summary 1
Risk Factors 3
The Company 9
Recent Developments 10
Use of Proceeds 13
Dilution 13
Capitalization 14
Price Range of Common Stock 15
Selected Historical and
Pro Forma Financial Information 15
Certain Transactions 17
Description of Capital Stock 17
Plan of Distribution 19
Legal Matters 19
Experts 19
Unaudited Pro Forma Consolidated
Financial Statements F-1
</TABLE>
-Cover-
<PAGE>
2,400,000 SHARES
IMAGE
ENTERTAINMENT,
INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MDB
CAPITAL
GROUP
LLC
-Cover-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<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>
*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.
-II-1-
<PAGE>
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 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.
-II-2-
<PAGE>
Item 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
1* Form of Placement Agent Agreement.
2.1** Asset Purchase Agreement dated as of August 20, 1998 by
and between Image Newco, Inc. and Ken Crane's
Magnavox City, Inc.
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** Specimen Common Stock certificate.
5* 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.
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** Eligible Director Non-Qualified Stock Option Agreement
dated as of July 22, 1998 between the Company and
Stuart Segall.
-II-3-
<PAGE>
10.10** 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.
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.
-II-4-
<PAGE>
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.
10.29 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.
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.
10.30 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.
-II-5-
<PAGE>
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.
10.32 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* Consent Letter of O'Melveny & Myers LLP, counsel to the
Company (included with Exhibit 5).
24** Power of Attorney (included on page II-8).
<FN>
* To be filed by amendment.
** 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. 1 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
October 22, 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. 1 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 October 22, 1998
Martin W. Greenwald Board, Chief
Executive Officer,
President and
Treasurer
/s/ Jeff M. Framer
- ------------------------ Chief Financial October 22, 1998
Jeff M. Framer Officer (Principal
Financial and
Accounting Officer)
*
- ------------------------ Director October 22, 1998
Stuart Segall
*
- ------------------------ Director October 22, 1998
Ira Epstein
*
- ------------------------ Director October 22, 1998
M. Trevenen Huxley
* By /s/ Martin W. Greenwald
------------------------
Martin W. Greenwald
Attorney-in-Fact
</TABLE>
-II-8-
<PAGE>
