<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
IMAGE ENTERTAINMENT, INC.
-------------------------
(Name of Registrant as Specified In Its Charter)
------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
- --------------------------------------------------------------------------------
IMAGE ENTERTAINMENT, INC.
- --------------------------------------------------------------------------------
9333 Oso Avenue
Chatsworth, California 91311
NOTICE OF 1999 ANNUAL MEETING
To be held September 10, 1999
Dear Shareholder:
The annual meeting of shareholders of Image Entertainment, Inc., a
California corporation, will be held at The Hilton Hotel, located at 6360 Canoga
Avenue, Woodland Hills, California, on Friday, September 10, 1999, at 10:00 a.m.
(local time), for the following purposes:
1. Election of Directors. To elect 4 directors to hold office until their
---------------------
respective successors are duly elected and qualified -- Ira S. Epstein,
Martin W. Greenwald, M. Trevenen Huxley and Stuart Segall have been
nominated for election (Proposal 1).
2. Approval of Amendment of the Restated Articles of Incorporation. To
---------------------------------------------------------------
approve and adopt an amendment to Article III of the Company's Restated
Articles of Incorporation to increase the number of authorized shares of
the Company's common stock, no par value, from 25,000,000 to 30,000,000
(Proposal 2).
3. Ratification of Appointment of Independent Auditors. To ratify the
---------------------------------------------------
appointment of KPMG LLP as the Company's independent auditors for the
fiscal year ending March 31, 2000 (Proposal 3).
4. Other Business. To transact such other business as may properly come
--------------
before the meeting and any adjournments thereof.
Enclosed with this notice is a proxy statement which describes the
foregoing items of business and a proxy.
The board of directors has fixed the close of business on July 13, 1999 as
the record date for determination of shareholders entitled to notice of and to
vote at the meeting.
By Order of the Board of Directors,
/s/ Cheryl Lee
CHERYL LEE
Corporate Secretary
Chatsworth, California
July 29, 1999
- --------------------------------------------------------------------------------
All shareholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend in person, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the envelope provided.
Even if you have given your proxy, you may still vote in person at the meeting.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to vote at the meeting, you must obtain from the
record holder a proxy issued in your name.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT
----------------------------
FOR ANNUAL MEETING OF SHAREHOLDERS OF
IMAGE ENTERTAINMENT, INC.
----------------------------
September 10, 1999
Proxy statements and proxies are being furnished to the shareholders of
Image Entertainment, Inc., a California corporation (the "Company"), in
connection with the solicitation of proxies by the Company's board of directors
(the "Board") for use at the Company's annual meeting of shareholders and any
adjournments thereof (the "Annual Meeting"). The Company's principal executive
offices are located at 9333 Oso Avenue, Chatsworth, California 91311 and its
telephone number is (818) 407-9100. It is anticipated that Proxy statements and
proxies will first be mailed to shareholders on or about July 29, 1999.
Time, Date and Place of the Annual Meeting
The Annual Meeting will be held at The Hilton Hotel, located at 6360 Canoga
Avenue, Woodland Hills, California, on Friday, September 10, 1999, at 10:00 a.m.
(local time).
Record Date / Shareholders Entitled to Vote
Only shareholders of record at the close of business on July 13, 1999, the
record date fixed by the Board (the "Record Date"), are entitled to notice of
and to vote at the Annual Meeting. On the Record Date, there were 16,457,032
shares of the Company's common stock, no par value, outstanding. No shares of
the Company's preferred stock, $1.00 par value, are outstanding.
SOLICITATION OF PROXIES
Voting of Proxies
A proxy is enclosed for you to vote on Proposals 1, 2 and 3. If the proxy
is properly executed and returned prior to the Annual Meeting, the shares of
common stock it represents will be voted as you direct or, if you indicate no
direction, FOR the director nominees named in Proposal 1 and FOR Proposals 2 and
3.
In the event of cumulative voting for directors, the proxyholders appointed
by the proxy (the "Proxyholders") will have discretionary authority to cumulate
votes among the director nominees with respect to which the Proxyholders'
authority to vote was not withheld. The Proxyholders will have discretionary
authority to vote on such business (other than Proposals 1, 2 and 3) as may
properly come before the Annual Meeting (the Board does not currently know of
any such business).
1
<PAGE>
Revocability of Proxies
A shareholder may revoke a proxy at any time before it is voted at the
Annual Meeting by filing with the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date, or by voting in person
at the Annual Meeting.
Voting in Person by Beneficial Owners
If your shares of common stock are held of record by a broker, bank or
other person, and you wish to attend the Annual Meeting and vote in person, you
must obtain from the broker, bank or other holder of record a proxy confirming
your beneficial ownership of the shares and bring it to the Annual Meeting.
Costs of the Solicitation
The Board is making this proxy solicitation, the costs of which (including
the reasonable charges and expenses of brokerage firms, banks and others for
forwarding proxy materials to beneficial owners of common stock) will be borne
by the Company. Proxies will be solicited through the mails, and may also be
solicited personally or telephonically by the Company's officers, other regular
employees and directors (without additional compensation).
VOTE REQUIRED FOR APPROVAL
Except with respect to cumulative voting for directors, each share of
common stock outstanding as of the Record Date is entitled to one vote on each
matter of business that may properly come before the Annual Meeting.
A majority of the shares of common stock outstanding on the Record Date,
represented in person or by proxy, will constitute a quorum at the Annual
Meeting. Assuming a quorum is present, the four nominees receiving the highest
number of votes will be elected as directors (Proposal 1). Votes against a
candidate have no legal effect. Assuming a quorum is present, the affirmative
vote of the holders of a majority of the shares of common stock outstanding is
required to approve an amendment to Article III of the Company's Restated
Articles of Incorporation (Proposal 2). Failure to vote on Proposal 2 will
effectively be a vote against it. Assuming a quorum is present, the affirmative
vote of the holders of a majority of the shares of common stock represented in
person or by proxy and voting at the Annual Meeting (the shares affirmatively
voted must also constitute at least a majority of the required quorum and of the
votes cast) is required to ratify the appointment of KPMG LLP as the Company's
independent auditors (Proposal 3).
Abstentions will be treated as present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions, however, will not constitute
a vote "for" or "against" any matter, and thus will be disregarded in the
calculation of a plurality or of shares voting or votes cast on any matter
submitted to the shareholders for a vote.
"Broker non-votes" (meaning shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote and as to which the broker has physically indicated on the
proxy that the broker or nominee does not have discretionary power to vote on a
particular matter) are counted as present and entitled to vote for
2
<PAGE>
purposes of determining the presence of a quorum. However, for purposes of
determining the outcome of any matter as to which the broker has physically
indicated on the proxy that it does not have discretionary authority to vote,
those shares will be treated as not present and not entitled to vote with
respect to that matter (even though those shares are considered present for
quorum purposes and may be entitled to vote on other matters). Any unmarked
proxies, including those submitted by brokers or nominees, will be voted as
indicated in the accompanying proxy card.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
common stock beneficially owned or deemed to be beneficially owned as of July 1,
1999 by: (i) each person known to the Company to be the beneficial owner of (or
deemed under Rule 13d-3 to be the beneficial owner of) more than 5% of the
common stock, (ii) each director of the Company, (iii) each executive officer
named in the Summary Compensation Table set forth in the Executive Compensation
section, and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Common Stock Percent
Name Beneficially Owned (1)(2) of Class(3)
- ---- ---------------------------- ---------------
<S> <C> <C>
Image Investors Co. (4)........................... 6,781,509 38.05%
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
John W. Kluge and Stuart Subotnick (4)
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
Martin W. Greenwald(5)............................. 1,095,991 6.54%
Stuart Segall(5)................................... 679,210 4.12%
Ira S. Epstein(6).................................. 90,981 *
M. Trevenen Huxley................................. 11,250 *
Cheryl Lee......................................... 154,724 *
Jeff Framer........................................ 82,552 *
David Borshell..................................... 133,831 *
All directors & executive officers as a group 2,247,509 13.01%
(7 persons)
</TABLE>
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*Less than 1%.
3
<PAGE>
Notes To Beneficial Ownership Table:
(1) The number of shares beneficially owned includes shares of common stock in
which a person has sole or shared voting power and/or sole or shared
investment power. Except as noted below, each person named reportedly has
sole voting and investment powers with respect to the common stock
beneficially owned by such person, subject to applicable community property
and similar laws. On July 1, 1999, there were 16,445,626 shares of common
stock outstanding.
(2) The number of shares listed as beneficially owned by each named person (and
the directors and executive officers group) includes shares of common stock
underlying options and rights (including conversion rights and restricted
stock units ("RSUs") vesting as of or within 60 days after July 1, 1999), as
follows:
<TABLE>
<S> <C>
Image Investors Co. ........................................ 1,379,310(4)
John W. Kluge and Stuart Subotnick (4)
Mr. Greenwald............................................... 323,358
Mr. Segall.................................................. 36,250
Mr. Epstein................................................. 87,981
Mr. Huxley.................................................. 11,250
Ms. Lee..................................................... 154,724
Mr. Framer.................................................. 82,552
Mr. Borshell................................................ 133,418
All directors & executive officers as a group (7 persons)... 829,533
</TABLE>
(3) Common stock not outstanding but which underlies options and rights
(including conversion rights and RSUs) exercisable as of or within 60 days
after July 1, 1999 is deemed to be outstanding for the purpose of computing
the percentage of the common stock beneficially owned by each named person
(and the directors and executive officers group), but is not deemed to be
outstanding for any other person.
(4) All of the shares of common stock are held of record by Image Investors Co.
("IIC"). The shares of common stock listed in the table as beneficially
owned by IIC may also be deemed to be beneficially owned by John W. Kluge
and Stuart Subotnick by virtue of their being directors, executive officers
and the sole shareholders of IIC. Messrs. Kluge and Subotnick have shared
voting and investment powers with respect to such shares. Amendment No. 11
(dated December 30, 1992) to a Schedule 13D, dated July 18, 1988, filed on
behalf of IIC, John W. Kluge and Stuart Subotnick, states that IIC, John W.
Kluge and Stuart Subotnick each "disclaims membership in a group, although a
group might be deemed to exist." IIC has demand and piggyback registration
rights with respect to 4,696,378 shares of common stock beneficially owned
by IIC (which include 1,379,310 shares of common stock issuable upon
conversion of debt under a credit agreement with the Company dated as of
September 29, 1997).
(5) Includes 1,030 shares of common stock held of record by Momandad, Inc., a
corporation of which Messrs. Greenwald and Segall are the sole shareholders.
With respect to such shares, Messrs. Greenwald and Segall share voting and
investment powers.
(6) Includes 2,000 shares of common stock held by Mr. Epstein's Keogh plan.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
The Bylaws provide for a Board consisting of a minimum of 4 and a maximum
of 7 members.
The name of each nominee for election to the Board, his principal
occupation, age, all positions and offices with the Company held by him and the
year he first became a director and additional biographical data is set forth
below. For information regarding each nominee's security ownership, see
"Security Ownership of Certain Beneficial Owners and Management" above.
Martin W. Greenwald (Age: 57)
- -------------------
Chairman of the Board, Chief Executive Officer and President since April 1981,
and Treasurer since January 1988. Mr. Greenwald is a 1964 graduate of Fairleigh
Dickinson University. Since July 1990, Mr. Greenwald has been a board member of
the Permanent Charities Committee of the Entertainment Industries, an umbrella
organization which coordinates charitable contributions.
Stuart Segall (Age: 54)
- -------------
Director and Vice President (not an executive officer) since April 1981. Mr.
Segall's principal occupation is that of principal of Stu Segall Productions, a
television and motion picture production company with offices in North
Hollywood, California and a full-service production facility in San Diego,
California. From 1984 to 1989, Mr. Segall was a supervising producer for Steven
J. Cannell Productions, Hollywood, California.
Ira S. Epstein (Age: 67)
- --------------
Director since June 1990. Mr. Epstein is of counsel to the Beverly Hills law
firm of Weissman, Wolff, Bergman, Coleman & Silverman. Prior to that, Mr.
Epstein was the managing partner of Cooper, Epstein & Hurewitz, where he
practiced law from 1975 to 1993. Mr. Epstein has held officer and director
positions in numerous corporations.
M. Trevenen Huxley (Age: 47)
- ------------------
Director since September 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 the board of directors of both
Muze, Inc. and Muze UK, Ltd., a wholly-owned subsidiary of Muze, Inc. Muze,
Inc. is a closely-held corporation which is controlled by John W. Kluge and
Stuart Subotnick. Messrs. Kluge and Subotnick, through Image Investors Co., are
also the largest shareholders of the Company.
5
<PAGE>
Vote Required
Four directors are to be elected at the Annual Meeting to hold office until
the Company's next annual meeting of shareholders and until their respective
successors have been elected and qualified. Proxies solicited by the Board will
be voted, unless authority to vote is withheld, for the nominees named above or,
if any of these nominees were unavailable to stand for election (an occurrence
not expected by the Board), such substitute nominee(s) as selected by the Board.
If any shareholder has given notice at the Annual Meeting, before the
voting for directors begins, of the shareholder's intention to cumulate votes,
then all shareholders may cumulate their votes, but only for nominees whose
names have been placed in nomination before the voting. Under cumulative
voting, each shareholder is entitled to the number of votes equal to the number
of directors to be elected multiplied by the number of shares of common stock
held by the shareholder. The shareholder may cast all those votes for a single
nominee or distribute them among as many nominees as the shareholder sees fit.
If voting for directors is noncumulative, each share of common stock will be
entitled to one vote for each of the nominees.
In the event of cumulative voting for directors, the Proxyholders will have
discretionary authority to cumulate votes among the nominees named above
(including any substitute nominees) with respect to shares for which the
Proxyholders' authority to vote was not withheld, so as to elect a maximum
number of such nominees.
Assuming a quorum is present, the nominees receiving the highest number of
votes will be elected as directors (votes against a candidate have no effect).
If voting for directors is noncumulative, the holders of a majority of the
shares of common stock voting could elect all the directors.
Board Committees and Meetings
The Board met four times during fiscal 1999. Each director attended all of
the meetings. The Board administers the Company's 1994 Eligible Directors Stock
Option Plan, as amended.
Although the full Board considers all major decisions of the Company, the
Board has established two standing committees to more fully address certain
areas of importance to the Company:
. the Audit Committee, and
. the Compensation Committee
The Company does not have a nominating committee. The functions of a
nominating committee are performed by the entire Board.
Audit Committee. The audit committee is composed of Messrs. Epstein,
Huxley and Segall. The audit committee's primary functions are to recommend to
the Board the firm to be retained by the Company as its independent auditors, to
consult with the auditors with regard to the plan of audit, the results of the
audit and the audit report, and to confer with the auditors with regard to the
adequacy of internal accounting controls. The audit committee met once during
fiscal 1999.
6
<PAGE>
Compensation Committee. The compensation committee is composed of Messrs.
Epstein, Huxley and Segall. The compensation committee's primary functions are
to review and approve salaries, bonuses and other compensation payable to the
Company's executive officers. In addition, the compensation committee
administers the Company's 1998 Incentive Plan, its 1990 and 1992 Stock Option
Plans and other employee benefit plans of the Company. The compensation
committee met twice during fiscal 1999.
Compensation of Directors
Non-employee directors each receive a fee of $400 for each Board meeting
attended.
Formula Option Grants. Since July 12, 1994, the Company has made automatic
annual awards to non-employee directors (the "Formula Option Grants") under the
Company's 1994 Eligible Directors Stock Option Plan, as amended (the "Directors
Plan"). On July 13, 1998 (the first business day following July 12, 1998), Mr.
Epstein and Mr. Russ Harris, who was a nominee for reelection to the Board at
the 1998 Annual Meeting when he passed away, were each granted an option to
purchase 15,000 shares of common stock under the Directors Plan at a per share
exercise price of $7.94.
The Formula Option Grants to Messrs. Epstein and Harris in 1998 represent
the final installment of automatic grants under the Directors Plan. However,
Mr. Segall and Mr. Huxley received substantially equivalent grants under the
1998 Incentive Plan (the "1998 Plan") to provide parity in director compensation
for fiscal year 1999. Neither had previously participated in the Formula Option
Grants under the Directors Plan because, as a non-salaried, non-executive
officer of the Company, Mr. Segall was not eligible to participate, and Mr.
Huxley was not a director of the Company on the July 1998 grant date. Under the
discretionary award provisions of the 1998 Plan (see description below), each of
them received an option grant to purchase 15,000 shares of Company common stock
at a per share exercise price of $7.94. The options are subject to the same
acceleration, early termination and other continuing terms as the Formula
Options.
The Formula Options expire 10 years after the date of grant, subject to
earlier termination as described below, and vest in unequal installments over a
16-month period following the date of grant according to the following schedule:
50% of the options vest in month 6, 25% vest in month 12, and the remaining 25%
vest in month 16. In Mr. Huxley's case, however, vesting is accelerated to
correspond to the vesting schedule for the other directors (50% in month 4, 25%
in month 10, and 25% in month 16.)
If a director's services as a member of the Board terminate by reason of
death or disability, his Formula Options become fully exercisable and remain
exercisable for one year thereafter or until the expiration of their stated
term, whichever occurs first, and then terminate. If the director's services
terminate for any other reason, his Formula Options, to the extent they are
exercisable on such date, remain exercisable for six months or until the
expiration of their stated term, whichever occurs first, and then terminate.
The Formula Options not exercisable at the time of a termination of service will
terminate.
Upon the occurrence of certain events described in the Directors Plan (such
as a dissolution, liquidation or certain merger or asset transactions or changes
in control of the
7
<PAGE>
Company), each Formula Option will become immediately exercisable, provided that
no Formula Option will be accelerated to a date which is less then six months
after the date of grant of the Formula Option.
Commencing in October 1999, under the formula director award provisions of
the 1998 Plan, the Company will make automatic annual grants of restricted stock
units payable in shares of Company common stock (the "Director RSUs") to
directors who are not executive officers of the Company (non-executive
directors). The Director RSUs, described below, will replace and supplant the
Formula Option Grants.
Discretionary Option Grants. Discretionary awards granted to non-executive
directors under current provisions of the 1998 Plan may only be granted in one
or more of the following circumstances:
. in connection with the grantee becoming a member of the Board (as in Mr.
Huxley's case);
. to reward a director's exceptional or extraordinary services as a member
of the Board;
. in consideration for services to the Company outside of the scope of his
or her normal duties in the ordinary course as a Board member; or
. to provide parity as to option compensation for fiscal year 1999 (as in
Mr. Segall's case).
Director RSUs. Commencing in 1999 and ending in 2001, on each October 1
(or the first business day thereafter), each non-executive director then in
office will be granted automatically (without any action by the compensation
committee or the Board) 2,240 restricted stock units (the Director RSU awards).
The Director RSUs expire 10 years after the date of grant, subject to
earlier termination as described below, and vest on a pro rata basis for each
successive day of service during the next 12-month period, commencing on the
grant date. After 2001, the Board will periodically revisit, for three year
cycles, the specific size of the annual grants (not to exceed 5,000 shares per
director per year). A non-executive director will be eligible to receive no
more than one Director RSU award in each year.
Upon termination of services as a member of the Board due to death or total
disability, Director RSUs held by a director become fully vested. Upon
termination of services for any reason other than death or total disability, all
Director RSUs not yet fully vested will be automatically forfeited. The
Director RSUs are subject to the same conversion, termination, acceleration and
other continuing terms as the restricted stock units granted to the executives
under the 1998 Plan and described at page 17. However, if a change in control
event occurs (see page 14), those terms govern only to the extent that any
changes in the Director RSUs and any Board or compensation committee action in
respect thereof are consistent, both with the effect of the event on restricted
stock or restricted stock units held by persons other than executive officers or
directors of the Company, and with the effect on shareholders generally in
respect of the underlying shares.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain annual and long-term compensation,
for each of the last three fiscal years, paid to the Company's Chief Executive
Officer and each Executive Officer whose salary and bonus exceeded $100,000 in
the last fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------- --------------------------
Other
Annual Securities All
Compensa Restricted Underlying Other
Name & Fiscal Salary Bonus -tion Stock Options Compensation
Principal Position Year ($)(1) ($)(2) ($)(3) Award(s)($)(4) (#) ($)
- ------------- ----- ----- ------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin W. 1999 $416,600 $147,822 $__ $313,433 0 $43,613(5)
Greenwald, 1998 284,576 90,300 __ 0 0 45,990(6)
President & CEO 1997 263,187 300 __ 0 150,000 29,662(7)
Cheryl Lee, 1999 180,983 28,329 __ 95,708 0 3,791(8)
Chief Administrative 1998 155,392 300 __ 0 0 2,932(8)
Officer 1997 148,019 5,881 __ 0 0 3,042(8)
Jeff Framer, 1999 174,255 28,329 __ 95,708 0 3,654(8)
Chief Financial 1998 131,411 300 __ 0 0 2,381(8)
Officer 1997 125,173 5,881 __ 0 0 2,593(8)
David Borshell, 1999 165,421 53,408 __ 90,675 0 3,468(8)
Sr. VP, Sales, 1998 125,699 300 __ 0 0 2,176(8)
Marketing & 1997 119,731 5,881 __ 0 0 2,644(8)
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes To Summary Compensation Table:
(1) The fiscal 1999, 1998 and 1997 salary figures for Mr. Greenwald include an
additional annual salary component characterized as an "unaccountable
personal expense allowance" in his employment agreement.
(2) For a description of the formula bonus plan under which each executive
officer's fiscal 1999 bonus was awarded, see "Bonuses" in the Compensation
Committee Report on Executive Compensation. In fiscal 1998, none of the
named executive officers earned a bonus under the formula bonus plan set
forth in each such officer's employment agreement then in effect (the
"Formula Bonus Plan"). However, in May 1997, Mr. Greenwald was awarded a
$90,000 guaranteed, discretionary bonus for fiscal 1998 which was paid in
biweekly installments commencing June 19, 1997 through March 26, 1998. The
discretionary bonus was not part of the Formula Bonus Plan. The fiscal
1997 bonus figures for all of the named executive officers except Mr.
Greenwald represent amounts awarded under the Formula Bonus Plan. (Mr.
Greenwald did not earn a bonus in fiscal 1997 under the Formula Bonus
Plan.) In fiscal 1999, 1998 and 1997, each of the named executive officers
also received a nominal ($300) holiday bonus.
(3) While all the executive officers enjoyed certain perquisites in fiscal
1999, 1998 and 1997, such perquisites did not exceed the lesser of $50,000
or 10% of any executive officer's fiscal year salary and bonus for each
such year.
(4) Reported awards represent restricted stock units ("RSUs") granted on July
6, 1998 to Mr. Greenwald, Ms. Lee, Mr. Framer and Mr. Borshell of 41,791,
12,761, 12,761 and 12,090, respectively, under the Company's 1998 Plan,
valued, pursuant to applicable rules, at $7.50/share, the closing price of
the
9
<PAGE>
Company's unrestricted common stock on the date of grant. The RSUs are
payable solely in shares of the Company's common stock and vest commencing
June 30, 1999 and on each of the next four anniversaries of that date in
equal installments at a minimum rate of 20% per year. If in any fiscal year
the Company achieves a minimum specified percentage of the applicable
performance target (which it did not achieve in fiscal year 1999), the
grant will vest instead at a rate of 33 1/3% for that year. Each executive
officer is entitled to receive "dividend equivalents" in additional RSUs if
any dividends are paid on the common stock prior to vesting. The number and
market value of RSUs held by each of these executives at March 31, 1999
(based upon the then closing market value stock price of $ 5.875) were:
Mr. Greenwald, 41,791 and $245,522;
Ms. Lee, 12,761 and $74,971;
Mr. Framer, 12,761 and $74,971; and
Mr. Borshell, 12,090 and $71,029.
If employment by the Company terminates due to total disability or death,
any unvested RSUs in the executive officer's stock unit account will become
fully vested and the shares issuable in payment thereof will be distributed
immediately. Upon retirement, the executive officer's stock unit account
will be credited with a pro rata portion of the next installment of the
award that would otherwise vest based on the number of quarters or partial
quarters served during the applicable fiscal year. If employment by the
Company is terminated for any reason other than death, disability,
retirement or in connection with a change in control event, all unvested
RSUs will be forfeited. For a description of the effects of termination of
employment prior to or following a change in control event, see page 13
("Other Change in Control Arrangements").
The 1998 Plan grants the compensation committee discretion to accelerate,
extend or otherwise modify benefits payable under the RSU awards in various
circumstances, including a termination of employment (other than "for
cause") or a change in control event. See also page 17 ("Restricted Stock
Unit Grants").
(5) Includes $3,690 of term life insurance premium payments, $35,057 of
universal life insurance premium payments and $4,866 of Company
contributions to a 401(k) plan.
(6) Includes $3,690 of term life insurance premium payments, $38,230 of
universal life insurance premium payments and $4,070 of Company
contributions to a 401(k) plan.
(7) Includes $3,690 of term life insurance premium payments, $21,805 of
universal life insurance premium payments (which commenced in June 1996)
and $4,167 of Company contributions to a 401(k) plan.
(8) Entire amount consists of Company contributions to a 401(k) plan.
10
<PAGE>
Options in Last Fiscal Year
No options were granted in fiscal 1999 to any of the executive officers.
The following table summarizes options exercised in fiscal 1999 by the
executive officers named in the Summary Compensation Table and certain other
information regarding their outstanding options:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
Shares Number of Shares Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options at FY-End (#) Options at FY-End
Exercise Realized ------------------------- ----------------------------
Name (#) ($)(1) Exercisable Unexercisable(2) Exercisable(3) Unexercisable(3)
- ----- ------- ------- ----------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Martin Greenwald 60,577(4) $66,029 315,000 60,000 $18,750 $ 0
Cheryl Lee 4,987 29,304 152,172 0 13,490 0
Jeff Framer 23,400 112,040 80,000 0 0 0
David Borshell 0 0 131,000 0 8,250 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the closing price on NASDAQ/NMS of the common stock on March 31,
1999 ($5.875).
(2) In the event of a "change of control" under the Company's Restated 1992
Stock Option Plan, the unvested portion of an option shall immediately
vest. A "change of control" under the plan generally includes (i) an
acquisition by one person (or group of persons) of at least 45% of the
ownership of the Company, (ii) certain changes in the majority of the Board
over a 2-year period, or (iii) shareholder approval of a merger or similar
transaction by the Company or of a plan to sell or dispose of all of the
assets of the Company. Additionally, the committee administering the plan
may (subject to Board approval) terminate the plan and the options. If any
termination occurs, the committee shall give each optionee written notice
of the intention to terminate the plan and the options, and shall permit
the exercise of the options for at least thirty days immediately preceding
the effective date of such termination. In the event an optionee's
employment with the Company ceases for any reason other than death or
disability, the options will terminate two weeks following the date
employment ceases; however, the committee, in its sole discretion, may
extend the exercise period from two weeks to three months. In the event of
an optionee's death or disability, the options may be exercised for one
year thereafter. Subject to the other provisions of the plan, the
committee has discretionary authority to amend or terminate the plan and to
do any other act advisable to administer the plan.
(3) Market value of underlying securities at fiscal year end, minus the
exercise price.
(4) All of the Company's stock option plans allow participants to exercise
options and surrender already-owned shares of the Company's common stock in
lieu of a cash payment of the exercise price, which surrendered shares are
valued at fair market value (as defined under the applicable plan) at the
time of exercise. Mr. Greenwald surrendered 48,001 already-owned shares of
Company common stock with a value of $5.25 per share to exercise the
options shown in the table above.
11
<PAGE>
Description of Employment Contracts, Termination of Employment and Change in
Control Arrangements
Employment Contracts
The Company is a party to new employment agreements with each of the
executive officers named in the Summary Compensation Table. The new agreements
were entered into as of July 1, 1998. Except for base salary, bonus
compensation and fringe benefits, all of the terms and conditions of the
agreements, as described below, are identical.
Term. The agreements provide for an initial term of two years ending June
30, 2000, with an automatic one year extension to June 30, 2001 unless written
notice of non-renewal is given by either the executive officer or the Company by
January 1, 2000. Following the first automatic 1-year extension, the term shall
be extended automatically for 1 additional year on each July 1, unless the
Company or an executive officer gives written notice of non-renewal by the
preceding January 1. The term of the agreement may not be extended beyond June
30, 2005. There have been no notices of non-renewal to date.
Base Salary. The base salary amounts for Mr. Greenwald, Ms. Lee, Mr.
Framer and Mr. Borshell increased to $400,000, $190,000, $190,000 and $180,000,
respectively, in July 1998 pursuant to the new agreements. In addition, Mr.
Greenwald received an annual unaccountable personal expense allowance of
$65,637. The agreements provide that on each July 1, each executive will
receive a 5% increase to his or her then annual base salary (including, for Mr.
Greenwald, a 5% increase to his annual unaccountable personal expense
allowance). Mr. Greenwald's base salary as reported in the Summary Compensation
Table also includes his annual unaccountable personal expense allowance.
Cash Bonus. Pursuant to the new formula bonus plan contemplated by the
agreements, the executive officers earn cash bonuses as incentive compensation
based on the Company's performance relative to annually determined targets. The
cash bonus plan for fiscal 1999 and for fiscal 2000 is based on a formula
relative to earnings before interest, taxes, depreciation and amortization
("EBITDA"); for fiscal 1999, the cash bonus amounts shown in the Summary
Compensation Table at page 9 were determined using a formula which measures the
Company's performance against a confidential target EBITDA and multiplies the
resulting percentage by a specified percentage of the executive officer's base
salary. The specific performance criteria and targets as well as percentages of
salary or other variables pursuant to which the cash bonuses are determined are
applicable to all of the executive officers and subject to change annually at
the discretion of the compensation committee. For a further description of the
cash bonuses, see the Compensation Committee Report on Executive Compensation at
page 16.
Stock-Based Awards. The agreements provide that stock-based grants will be
in such form and amounts, and at such time or times, as the Board (or, if
applicable, the administrator of the relevant stock option or award plan)
determines.
Severance Packages. The agreements provide for severance packages
consisting of base salary (and, for Mr. Greenwald, allowances) and insurance
continuation for 6 months, and a pro rata portion of any bonus payable for the
longer of 6 months or that part of the fiscal year
12
<PAGE>
occurring prior to expiration of the term. The agreements also provide for
comparable benefits in the event of an executive officer's death or total
disability.
Termination of Employment. The agreements provide for varying benefits
upon a termination of employment depending upon the reason for the termination
and when it occurs. If an agreement is terminated prior to a change in control
"without cause" (which generally means for any reason than (a) death or
disability, (b) for cause or (c) a voluntary termination), the executive officer
will continue to receive all compensation, rights and benefits under the
agreements through the expiration of the remaining term, plus the severance
benefits described above.
If the employment agreement is terminated due to a change in control for
any reason other than (a) death or total disability, (b) for cause or (c) a
voluntary termination (other than a termination for "good reason"), or by the
executive officer for "good reason," the executive officer will be entitled to
receive all compensation, rights and benefits under the employment agreement for
the longer of one year following the effective date of termination or through
the expiration of the remaining term, plus the severance benefits described
above. "Good reason" generally includes a material reduction in duties, status,
compensation or benefits, a material breach by the Company, or a forced
relocation.
If a termination "for cause" occurs, no severance, fringe benefits,
compensation or other such rights, including any pro rata portion of bonus
otherwise due, is due or payable. A termination "for cause" generally includes
the executive officer's fraud, willful misconduct, gross negligence, breach of
fiduciary duty or material breach of an agreement with the Company.
The agreements provide that all unvested existing options granted to the
executive officer will immediately vest if the agreement is terminated by the
Company "without cause" or by the executive for "good reason" following a change
in control. In addition, any unvested portion of the executive officer's RSU
award that has not expired will vest immediately if the Company terminates the
agreement "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. The definition of change in control under the agreements is
substantially equivalent to the definition of a change in control event under
the 1998 Plan, described below under the heading "Other Change in Control
Arrangements."
Fringe Benefits. The executive officers are entitled to receive medical,
dental, life and short and long-term disability insurance, vacation and
reimbursement for reasonable business expenses. Mr. Greenwald's agreement
further provides for the payment of personal life and disability insurance
premium payments and reimbursement for medical expenses not covered by medical
insurance of up to $30,000 per annum (increased from $17,000 per annum under his
prior employment agreement), an additional annual salary component characterized
as an "unaccountable personal expense allowance" (as stated above), and use of a
company car.
Other Change in Control Arrangements
Outstanding employee stock options granted under the Company's stock option
plans and individual option grants without reference to a plan include
provisions for acceleration of exercisability upon a change in control
substantially as summarized in note 2 to the Aggregated
13
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table.
Options granted under the Company's 1990 Stock Option Plan include provisions
for acceleration of exercisability upon a change of control except in the event
the acquiring corporation (or a parent or subsidiary thereof) agrees to (a)
assume the Company's obligations under the plan and the options or (b) replace
the options with new options having terms at least as favorable to the optionee.
Options granted on May 19, 1994 under individual plans include provisions
allowing the Board to terminate the plan and the option term in the event of a
change in control, whereupon the optionee may exercise the options for at least
60 days following the effective date of termination. Under the 1990 Stock Option
Plan, "change of control" generally means (1) the dissolution of the Company,
(2) the sale of all or substantially all of the Company assets, or (3) a merger
or similar transaction in which the Company would not be the surviving
corporation, or in which the Company would survive but as the wholly-owned
subsidiary of another corporation.
Pursuant to the 1998 Plan, if an executive officer's employment is
terminated by the Company for any reason other than because of death or total
disability, either (a) in express anticipation of an announced transaction that
would constitute a change in control event (as summarized below) and less than 3
months before its occurrence, or (b) within one year following a change in
control event, then any unvested portion of his or her RSU award that has not
previously expired will vest immediately, provided that no RSU vesting will be
accelerated to a date less than six months after the date of grant.
Furthermore, immediately prior to a change in control event, all RSUs credited
to an executive officer's stock unit account (including dividend equivalents)
will vest and will be distributed immediately. A change in control event under
the 1998 Plan generally includes (1) an acquisition by one person (or group of
persons) of at least 45% of the ownership of the Company, other than an
"excluded person," (2) certain changes in a majority of the Board over a 2-year
period, (3) Board and (if required by law) shareholder approval of a plan to
consummate the dissolution or complete liquidation of the Company, or (4)
mergers and similar transactions which result in a 50% change in ownership of
the Company (subject to certain exceptions). The term "excluded persons"
includes Image Investors Co. ("IIC"), a principal shareholder of the Company,
John Kluge and Stuart Subotnick, who own and control IIC, and Mr. Greenwald.
14
<PAGE>
Stock Price Performance Graph*
The graph below compares the cumulative total return of the Company, the
NASDAQ U.S. Market Index and a Company-selected peer group (the group consists
of Handleman Company, J2 Communications, Musicland Stores, and Rentrak ) for the
5-year period ending March 31, 1999. The graph assumes an initial investment of
$100 on April 1, 1994 in the Company, the NASDAQ U.S. Market Index and the peer
group. The graph also assumes reinvestment of dividends, if any.
[GRAPH APPEARS HERE]
Cumulative Total Return
-----------------------------------
3/94 3/95 3/96 3/97 3/98 3/99
IMAGE ENTERTAINMENT, INC. 100 106 100 57 45 87
PEER GROUP 100 70 34 30 71 74
NASDAQ STOCK MARKET (U.S.) 100 111 151 168 254 342
- ----------------------
* This section of the Proxy Statement shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filings of the Company pursuant to the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this section by reference therein, and shall
not be deemed soliciting material or otherwise deemed filed under either of the
Acts.
15
<PAGE>
Compensation Committee Report on Executive Compensation*
The Committee. The Company's compensation committee (for the purposes of
this report only, the "Committee") was established in 1992 and is composed
entirely of outside directors. The Committee reviews with the full Board all
aspects of the compensation packages for each executive officer of the Company.
The Committee, and from time to time the full Board, approves such packages and
any amendments thereto. The Committee administers the Company's 1990 Stock
Option Plan, the Restated 1992 Stock Option Plan, the 1998 Plan and other
employee benefit plans of the Company. The following report addresses the
Committee's objectives and its actions and decisions with respect to
compensation for the 1999 fiscal year.
Compensation Objectives. The Committee's goal is to maximize shareholder
value over the long-term by attracting, retaining and motivating key executives.
The executive compensation packages contain three primary components:
. base salary,
. long-term incentive compensation in the form of stock-based awards,
including options and, commencing in fiscal 1999, restricted stock
unit awards ("RSUs"), and
. short-term incentive compensation in the form of annual cash bonuses
based on the Company's performance.
The Company offers a contributory 401(k) plan and provides health, life and
disability insurance to all full-time employees.
In light of the challenges facing the Company with regard to the adverse
effect of direct competition from the market emergence of digital video discs
("DVDs") on laserdisc ("LD") revenues and the demands of the transition from LD
distribution (which historically generated 100% of the Company's revenues) to
DVD distribution, the Committee implemented in 1998 a new executive compensation
structure in an effort to better integrate executive compensation with corporate
strategic objectives, maintain a strong link between executive rewards and
shareholder interests, and encourage long-term retention of executive officers.
For fiscal 1999, the Committee reevaluated the Company's performance-based
incentives. Based in part on a survey prepared by and recommendations of its
outside consultants, the Committee and the Board approved significant changes in
the Company's short and long-term incentive plans, and, effective July 1, 1998,
new employment agreements for the executive officers. These agreements replaced
the existing annual formula bonus awards with an annual bonus formula relative
to specified targets--for fiscal years 1999 and 2000, targets based
- ----------------
* The Compensation Committee Report on Executive Compensation shall not
be deemed to be incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filings of the Company pursuant to
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates this section by reference therein,
and shall not be deemed soliciting material or otherwise deemed filed under
either of the Acts.
16
<PAGE>
on EBITDA. For a further description of the bonus formula, see "Bonuses" below
and page 12 of this proxy statement ("Description of Employment Contracts,
Termination of Employment and Change in Control Arrangements"). In addition, the
Committee authorized the grant to executive officers of RSUs, which vest on an
annual schedule but may be accelerated based on annual targets also related to
EBITDA. These grants are described below and in the Summary Compensation Table
at page 9.
Base Salary. Base salary was and will continue to be paid in accordance
with each executive's new employment agreement. In approving the employment
agreements in fiscal 1999, the Committee authorized base salary increases
ranging from 21% to 46% of the individual's prior base salary (including, in Mr.
Greenwald's case, his annual unaccountable personal expense allowance),
principally to remain competitive and to retain services. Individual increases
were determined by reference to the individual's performance, the Company's
performance and prevailing industry compensation levels. The agreements provide
for annual percentage increases to base salary of 5%.
Option Grants. The Committee views any option grant portion of the
executive compensation packages as a special form of long-term incentive
compensation to be awarded on a limited and non-regular basis. Stock options
granted to executives are priced at or above the fair market value of the common
stock on the date of grant and are intended to give management a stake in the
Company's growth while aligning management interests with those of the Company's
shareholders. Awards of stock options are determined based on the Committee's
subjective determination of the amount of such awards necessary, as a supplement
to an executive's base salary and performance-based bonus, to retain and
motivate such executive. No options were granted to executive officers in
fiscal 1999.
Restricted Stock Unit Grants. The Committee authorized RSU grants to
executive officers effective July 6, 1998 as an additional form of long-term
incentive intended to provide executives with a more direct incentive to enhance
the value of the Company's common stock. The specific number of RSUs in each
grant was based upon a multiple of the executive's base salary, divided by the
average price of the Company's common stock prior to grant. In general, the
base salary multiples for the executive officers, which ranged from 20% to 70%,
increased with the level of responsibility and the perceived impact of each
position on the strategic direction of the Company. Similarly structured RSU
grants were also made in fiscal 1999.
To encourage retention and promote an allignment of interest with the
Company's shareholders, the RSUs vest over a maximum period of five years;
vesting may be accelerated based upon the Company's performance. The RSUs will
vest in equal annual installments of at least 20%; if performance meets or
exceeds performance targets established annually by the Committee, the RSUs will
vest at the rate of 33 1/3% for that year. For fiscal 1999 and 2000, the
Committee authorized a performance target related to EBITDA. The fiscal 1999
target was not met so the first installment of the 1998 RSUs did not vest at the
accelerated rate in 1999.
Bonuses. Under their new employment agreements and pursuant to a formula
bonus plan, each of the executive officers was entitled to receive a certain
percentage of his or her salary as a cash bonus for fiscal 1999, the receipt and
amount of which depended on the achievement of specific levels of EBITDA, as
established by the Committee in the first quarter of fiscal 1999. Under the
formula bonus plan, each executive officer's bonus was determined by
17
<PAGE>
multiplying a specified percentage of his or her salary (75% for Mr. Greenwald,
30% for each of Ms. Lee and Mr. Framer and 60% for Mr. Borshell) by a certain
performance factor, a percentage derived from a comparison of the Company's
actual EBITDA to the target EBITDA. In order for an executive to receive any
bonus, the performance factor had to equal a minimum of 40%, with the amount of
the bonus increasing as the performance factor percentage increased, up to a
maximum of 125%.
The specific performance criteria and targets used to determine the bonuses
and RSU accelerated vesting are subject to change annually at the Committee's
discretion to adjust for changes in the Company's business, competitive
conditions, changes in its capitalization, performance and needs. The Committee
has not disclosed the exact targets specified in these awards because such
information is deemed to be confidential and proprietary, the disclosure of
which would be against the best interests of the Company. Bonuses for fiscal
1999, which were paid in fiscal 2000, are reflected in the Summary Compensation
Table at page 9 and under "Compensation of Chief Executive Officer" below.
Compensation of Chief Executive Officer. As of July 1, 1998, Mr. Greenwald
received a 46% increase to his combined annual base salary and unaccountable
personal expense allowance under the terms of his new employment agreement.
Pursuant to the formula bonus plan set forth in his new employment agreement,
Mr. Greenwald was eligible for an annual bonus for fiscal 1999 of 30% to 94% of
his base salary if the performance of the Company exceeded a specified minimum
percentage of the applicable EBITDA performance target established by the
Committee in the first quarter of the fiscal year. Although the Company did not
achieve its target EBITDA in fiscal 1999, the Company's actual EBITDA exceeded
the specified minimum percentage of the target results (40%) necessary to
receive a bonus. Mr. Greenwald received a bonus of $147,822, or 35% of his
annual salary (including unaccountable personal expense allowance) based on the
annual bonus formula established by the Committee for fiscal 1999.
On July 6, 1998, Mr. Greenwald received a grant of 41,791 RSUs, subject to
Board and shareholder approval which was timely received. The specific number
of RSUs granted was derived by taking 70% of Mr. Greenwald's base salary and
dividing it by the average price of the Company's common stock prior to grant.
The size of the long-term grant was based on the recommendations from the
outside analysis conducted in mid-1998 and referred to above. The other terms
of his RSUs are described above under "Restricted Stock Unit Grants".
Section 162(m) Policy. To the extent reasonably practicable and to the
extent within the Committee's control, the Committee prefers to limit executive
compensation in ordinary circumstances to that which is deductible by the
Company under Section 162(m) of the Internal Revenue Code. During fiscal year
1999, all compensation paid to executive officers was within the Section 162(m)
limit. Grants of RSUs, however, are not considered performance-based for these
purposes and are included as compensation for these purposes only when they
vest. Accordingly, to the extent that the value of shares vesting in any future
year under RSU awards, when combined with salary, allowances and other non-
exempt compensation, exceeds $1,000,000, the excess would not be deductible.
Under current circumstances, the Committee does not satisfy the Code requirement
that performance-based (i.e., Section 162(m) exempt) compensation be awarded by
a committee of at least two "outside directors" (as defined in the
18
<PAGE>
Code) because of the directors' other relationships described below.
Nevertheless, the Committee does not expect non-exempt compensation to exceed
the applicable limit for fiscal year 2000.
COMPENSATION COMMITTEE
Ira S. Epstein
M. Trevenen Huxley
Stuart Segall
Compensation Committee Interlocks and Insider Participation
Mr. Segall is a non-salaried employee and non-executive officer of the
Company.
Mr. Epstein, a non-employee director (and director nominee), served on the
Company's compensation committee for the entire fiscal year 1999. Mr. Epstein
is of counsel to the law firm of Weissman, Wolff, Bergman, Coleman & Silverman,
which in fiscal 1999 was retained by the Company and which continues to provide
legal services to the Company and receives fees for such services at prices
that, in the opinion of management, are fair and reasonable and as favorable to
the Company as those which could have been obtained from unrelated third
parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a credit agreement with Image Investors Co.
("IIC"), a principal shareholder of the Company owned and controlled by John W.
Kluge and Stuart Subotnick, dated as of September 29, 1997 (the "Credit
Agreement"), pursuant to which the Company borrowed $5 million from IIC, with
interest payable quarterly at 8% per annum, and principal due in five years.
The loan is unsecured and subordinated to the Company's senior lender, Union
Bank, and is convertible into the Company's common stock at any time during the
term at a conversion price of $3.625 per share (the closing price of the
Company's common stock on September 29, 1997). Proceeds from the loan were used
to pay down the Company's then outstanding balance under its revolving credit
facility.
In connection with its recent acquisition of Ken Crane's Magnavox City,
Inc., on January 6, 1999, the Company completed the sale of 2,400,000 shares of
newly issued common stock to a group of institutional investors and other
accredited investors at a price of $5.00 per share. Pursuant to the terms of
the placement agent agreement dated December 21, 1998, the Company reserved up
to 1,000,000 shares to sell directly to IIC or its affiliates in the offering on
the same terms and conditions available to other investors, except that the
Company would pay to the placement agent a reduced commission on the sale of the
shares to IIC. On December 22, 1998, IIC purchased 600,000 additional shares of
the Company's common stock for an aggregate purchase price of $3,000,000.
19
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the common stock, to file with the Securities and Exchange Commission (the
"SEC") and the NASDAQ/NMS initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports they
file. Based solely upon review of the copies of Section 16(a) reports furnished
to the Company, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that, during
fiscal 1999, its executive officers, directors and greater than 10% shareholders
complied with all applicable Section 16(a) filing requirements.
PROPOSAL 2
AMENDMENT OF ARTICLE III OF THE
RESTATED ARTICLES OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
On July 23, 1999, the Board unanimously adopted, subject to shareholder
approval, an amendment to Article III of the Company's Restated Articles of
Incorporation to increase the number of authorized shares of no par value common
stock from 25,000,000 to 30,000,000 shares (the "Amendment"). The proposed
Amendment does not affect any terms or rights of the Company's common stock.
The text of the Amendment is set forth below:
RESOLVED, that Article III of the Company's Restated Articles of
Incorporation be amended in its entirety to read as follows:
"The corporation is authorized to issue two classes of shares, which shall
be designated `Common Stock' and `Preferred Stock' and referred to herein
as Common Stock or Common Shares and Preferred Stock or Preferred Shares,
respectively. The total number of shares of Common Stock that this
corporation is authorized to issue is 30,000,000, no par value,
and the total number of shares of Preferred Stock that this corporation is
authorized to issue is 3,365,385, $1.00 par value."
Purpose and Advantages of Amendment
The Board believes it is desirable to authorize additional shares of common
stock so that in the future there will be sufficient shares available for
issuance for purposes that the Board may determine to be in the best interests
of the Company and its shareholders. Such purposes could include:
. acquisitions
. stock incentive and employee benefit plans
20
<PAGE>
. the offer of shares for financing purposes
. other corporate purposes
The Board will have the authority to issue the additional shares authorized
under the Amendment without further action by the shareholders, except as
required by law or any applicable NASDAQ or stock exchange requirements. For
example, NASDAQ requires shareholder approval when shares newly issued for an
acquisition would amount to 20% or more of the shares outstanding prior to the
issuance. California law generally requires that the Company obtain shareholder
approval for mergers or other reorganizations involving the issuances of common
stock of a similar magnitude.
Background; Effects of Amendment
As of July 13, 1999 (the Record Date), of the 25,000,000 currently
authorized shares of common stock, 16,457,032 shares (66%) were issued and
outstanding, and 8,542,968 shares (34%) were unissued. Of the unissued shares,
2,076,666 shares (24%) were reserved for issuance under the 1990 Stock Option
Plan, the Restated 1992 Stock Option Plan, the Directors Plan and the 1998 Plan
and 1,379,310 shares (17%) were reserved for issuance upon conversion of the
subordinated note issued to IIC under the Credit Agreement (see "Certain
Relationships and Related Transactions" at page 19). The remainder of the
authorized shares of common stock were not issued or reserved for issue. An
indeterminate number of rights to purchase shares may become issuable to certain
investors, including IIC, if the Company issues stock purchase rights to other
persons at a price less than 80% of average market price at the time of issue,
under the terms of the stock purchase agreement dated as of December 29, 1987
(as amended as of July 7, 1992).
The Board believes that the adoption of the Amendment is advisable to
provide the Company with sufficient flexibility to act promptly in carrying out
corporate objectives without the need to seek shareholder approval to authorize
additional shares for a specific transaction on a timely basis. At the present
time, there are no agreements, understandings or arrangements for the issuance
of the additional shares of common stock, except in connection with the
agreements and plans referenced in the preceding paragraph. The Company intends
to apply to NASDAQ for the listing of any additional shares of common stock if
and when such shares are to be issued. The terms of any future issuance of
shares of common stock will be dependent largely on market and financial
conditions and other factors existing at the time of issuance.
The newly authorized shares of common stock will have voting and other
rights identical to those of the currently authorized shares of common stock.
Holders of the Company's common stock have no preemptive rights with respect to
the issuance of additional shares of common stock.
The Company is currently authorized to issue 3,365,385 shares of preferred
stock (of which no shares were issued and outstanding or reserved for issuance
at the Record Date). Approval of the Amendment would not change the number of
authorized shares of preferred stock or the rights, preferences, privileges or
restrictions of or on any shares of preferred stock which may be issued in the
future. The Restated Articles of Incorporation provide that the Board may, among
other things, issue the preferred stock in one or more series and fix the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences
21
<PAGE>
and the number of shares constituting any series, without further vote or action
by the shareholders.
Possible Disadvantages
The increase in authorized common stock will not have any immediate effect
on the rights of the existing shareholders. Any future issuance of additional
shares of common stock may, among other things, dilute the equity or book value
per share, earnings per share and voting rights of current holders of common
stock. A material increase in the outstanding or reserved shares could make it
more difficult for a third party to acquire, or could discourage a third party
from seeking to acquire, a majority of the outstanding voting stock of the
Company. For example, shares of common stock could be privately sold to
purchasers favorable to the Board, thereby diluting the stock ownership of a
person seeking to obtain control of the Company. The Company has no current
plans to use the additional shares in such manner.
Effective Date
If the Amendment is approved, the Company intends to submit promptly a
certificate of amendment to the California Secretary of State's Office. The
Amendment would be effective upon the filing of the certificate of amendment
with the California Secretary of State.
Vote Required
The Board has approved the Amendment and believes it to be in the best
interests of the Company and its shareholders. Approval of the Amendment
requires the affirmative vote of a majority of the common stock issued and
outstanding on the Record Date.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSED
AMENDMENT TO ARTICLE III OF THE RESTATED ARTICLES OF INCORPORATION. PROXIES
RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL UNLESS
SHAREHOLDERS SPECIFY A CONTRARY CHOICE IN THEIR PROXY.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has unanimously appointed, and recommends that the shareholders
ratify the appointment of, KPMG LLP, independent certified public accounts and
the Company's auditors since fiscal 1990, as auditors for fiscal 2000. Though
shareholder ratification is not required by law or otherwise, the Board is
seeking ratification as a matter of good corporate practice. If the appointment
is not ratified, the Board will reconsider the appointment. Representatives of
KPMG LLP will be present at the Annual Meeting, will have the opportunity to
make statements if they so desire, and will be available to respond to
appropriate questions.
Vote Required
Assuming a quorum is present, the affirmative vote of the holders of a
majority of the common stock represented (in person or by proxy) and voting at
the Annual Meeting (the shares
22
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affirmatively voting must also constitute at least a majority of a quorum) is
required to ratify the appointment of KPMG LLP as the Company's independent
auditors.
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy solicitation
materials for the 2000 Annual Shareholders' Meeting, a shareholder proposal
under SEC Rule 14a-8 must be received by the Company's Corporate Secretary at
the principal executive offices of the Company no later than March 31, 2000.
A shareholder may wish to have a proposal (other than a proposal in respect
of a nominee for election to the Board) presented at the 2000 Annual
Shareholders' Meeting, but not to have such proposal included in the Company's
proxy statement for the meeting. If notice of the proposal is not received by
the Company by June 14, 2000, then the proposal will be deemed untimely under
Rule 14a-4(c) under the Securities Exchange Act of 1934, and the Company will
have the right to exercise discretionary voting authority with respect to the
proposal.
In addition, Article III, Section 4, of the Company's bylaws provides as
follows:
Section 4. Nomination for Director. Nominations for election of members
--------- -----------------------
of the Board of Directors may be made by the Board of Directors or by any
shareholder of any outstanding class of voting stock of the Company
entitled to vote for the election of directors. Notice of intention to
make any nominations, other than by the Board of Directors, shall be made
in writing and shall be received by the President of the Company no more
than 60 days prior to any meeting of shareholders called for the election
of directors, and no more than 10 days after the date the notice of such
meeting is sent to shareholders pursuant to Section 4 of Article II of
these bylaws; provided, however, that if only 10 days' notice of the
meeting is given to shareholders, such notice of intention to nominate
shall be received by the President of the Company not later than the time
fixed in the notice of the meeting for the opening of the meeting. Such
notification shall contain the following information to the extent known to
the notifying shareholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of voting stock of the Company owned by each proposed
nominee; (d) the name and residence address of the notifying shareholder;
and (e) the number of shares of voting stock of the Company owned by the
notifying shareholder. Nominations not made in accordance herewith shall
be disregarded by the then chairman of the meeting, and the inspectors of
election shall then disregard all votes cast for each nominee.
ANNUAL REPORT TO SHAREHOLDERS/FORM 10-K
The Company's Annual Report to Shareholders (also the Company's Form 10-K
for the fiscal year ended March 31, 1999) accompanies this proxy statement but
does not constitute proxy soliciting material. Exhibits to the Annual
Report/Form 10-K are available upon payment of a reasonable fee. Please direct
requests, in writing, to:
23
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Cheryl Lee, Esq.
Corporate Secretary
Image Entertainment, Inc.
9333 Oso Avenue
Chatsworth, California 91311
OTHER BUSINESS
The Proxyholders will have discretionary authority to vote on such business
(other than Proposals 1, 2 and 3) as may properly come before the Annual Meeting
(the Board does not know of any such business as of this date) and all matters
incident to the conduct of the meeting.
By Order of the Board of Directors,
IMAGE ENTERTAINMENT, INC.
CHERYL LEE
Corporate Secretary
Chatsworth, California
July 29, 1999
- -------------------------------------------------------------------------------
Whether or not you expect to attend the meeting, we urge you to promptly
complete, date and sign the enclosed proxy and return it in the envelope
provided. Thank you.
- -------------------------------------------------------------------------------
24
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IMAGE ENTERTAINMENT, INC.
Proxy Solicited by the Board of Directors for the 1999 Annual Meeting of
Shareholders
September 10, 1999
The undersigned appoints Ira S. Epstein, Martin W. Greenwald, M. Trevenen
Huxley and Stuart Segall, and each of them, proxies (each with full power of
substitution) to represent the undersigned at the Image Entertainment, Inc.
1999 Annual Meeting of Shareholders to be held on September 10, 1999 and any
adjournments thereof and to vote the shares of the Company's common stock held
of record by the undersigned on July 13, 1999 as directed below.
1. Election of Directors (Proposal 1).
[_] FOR all nominees [_] WITHHOLD
listed below (except as AUTHORITY to vote
indicated to the contrary for all nominees
below). listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee(s) strike
a line through the name of the nominee(s) in the following list:
IRA S. EPSTEIN MARTIN W. GREENWALD M. TREVENEN HUXLEY STUART SEGALL
2. Approval of the proposed amendment to Article III of the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 25,000,000 to 30,000,000 (Proposal 2).
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratification of the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending March 31, 2000 (Proposal 3).
[_] FOR [_] AGAINST [_] ABSTAIN
4. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the Annual Meeting and any matters
incident to the conduct of the Meeting.
PLEASE SIGN ON REVERSE SIDE
The shares represented by this Proxy will be voted as directed above. If no
direction is indicated, the shares represented by this Proxy will be voted FOR
the director nominees named in Proposal 1, FOR Proposal 2 and FOR Proposal 3
and will be voted in the discretion of the proxies on such other business as
may properly come before the Annual Meeting. The undersigned acknowledges
receipt of the Notice of Annual Meeting of Shareholders and the Proxy Statement
dated July 29, 1999.
Dated: _______________
Signed: ______________
Signed: ______________
Please date this Proxy and sign
exactly as your name appears
hereon. If shares are jointly
held, this Proxy should be signed
by each joint owner. Executors,
administrators, guardians or
others signing in a fiduciary
capacity should state their full
titles. A Proxy executed by a
corporation should be signed in
its name by its president or
other authorized officer. A Proxy
executed by a partnership should
be signed in its name by an
authorized person.
PLEASE PROMPTLY COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE
ENVELOPE PROVIDED.
