Image Entertainment, Inc. (NASDAQ: DISK), a leading independent
licensee and distributor of entertainment programming in North
America, announced today that its board of directors had approved
the sale of up to $30 million of newly authorized Series B
Cumulative Preferred Stock ("Series B Preferred Stock") and Series
C Junior Participating Preferred Stock ("Series C Preferred Stock")
to certain affiliates of JH Partners, LLC (the "Investors").
Pursuant to the terms of a securities purchase agreement dated
December 21, 2009, the Company will sell 22,000 shares of Series B
Preferred Stock and 196,702 shares of Series C Preferred Stock for
an aggregate purchase price of $22.0 million and use the net
proceeds for the repayment of outstanding indebtedness, other
outstanding liabilities and general working capital. The issuance
of the shares is scheduled to occur on or before January 8, 2010
(the "Initial Closing Date"). The transaction is not subject to a
financing condition.
The securities purchase agreement also grants the Investors the
right to purchase up to an additional 8,000 shares of Series B
Preferred Stock and 71,528 shares of Series C Preferred Stock, for
an aggregate purchase price of $8.0 million, in two tranches, each
consisting of 4,000 shares of Series B Preferred Stock and 35,764
shares of Series C Preferred Stock. The Investors may exercise the
first tranche in whole or in part and in one or more closings
within 120 days of the Initial Closing Date. The second tranche may
be similarly exercised within 360 days of the Initial Closing Date.
The net proceeds from the sale of any additional shares may only be
used by the Company to (i) acquire rights to additional audio and
video entertainment programming, (ii) repay any over-advance under
the Company's senior loan and security agreement, as amended (the
"Loan Agreement"), or (iii) repay accounts payable incurred by the
Company in the ordinary course of business.
As conditions to the initial closing, among other things, (i)
the Company must pay to the Investors a $1.0 million transaction
fee and reimburse the Investors for their out-of-pocket fees and
expenses in an amount up to $1.0 million, (ii) all but one of the
current members of the Company's board of directors shall have
resigned and (iii) the board of directors shall have appointed four
individuals designated by the Investors to the board of directors.
The Investors have agreed to provide to the lenders under the Loan
Agreement credit support in an amount up to $5.0 million to induce
the lenders to increase availability under the line of credit
contemplated by the Loan Agreement until a new facility can be
documented and funded.
The securities purchase agreement may be terminated under
certain circumstances, including by mutual agreement of the
parties, by either the Company or the Investors if the transaction
does not close by January 8, 2010 or by the Investors on or before
the close of business on December 24, 2009 if the Company and the
Investors have not achieved by such date a reduction in obligations
to the Company's creditors that is satisfactory to the Investors in
their sole discretion.
Under certain circumstances related to termination of the
securities purchase agreement due to certain actions taken with
respect to other acquisition proposals received after the date of
the securities purchase agreement, the Company would be obligated
to pay a termination fee of $1.0 million and to reimburse the fees
and expenses of the Investors in an amount up to $1.0 million.
The Series B Preferred Stock is not convertible into shares of
common stock, is not entitled to voting rights other than those
rights required by law and limited voting rights with respect to
matters affecting the rights and privileges of the Series B
Preferred Stock, is not redeemable by the Company or the Investors
and bears a cumulative compounding dividend equal to 12% per annum
of the liquidation preference of $1,000 per share (subject to
adjustment). Accrued but unpaid dividends will be added to the
liquidation preference. The Series C Preferred Stock does not bear
a dividend, but each share is entitled to 1,000 times the aggregate
per share amount of all cash and non-cash dividends and other
distributions paid on a share of common stock. The Series C
Preferred Stock votes with the common stock, is convertible into
shares of common stock at a ratio of 1,000 shares of common stock
for each share of Series C Preferred Stock and entitles the holder
to 1,000 votes for each share held on all matters submitted to a
vote of stockholders. The Series C Preferred Stock will
automatically convert into shares of the Company's common stock
when there are sufficient authorized but unissued shares of common
stock to effect the conversion. The issuance of the initial 196,702
shares of Series C Preferred Stock will result in the holders of
those shares holding 90% of the voting power of the Company's
outstanding capital stock. If the Company issues all of the
additional 71,528 shares of Series C Preferred Stock, the holders
of Series C Preferred Stock will hold approximately 92.5% of the
voting power of the Company's outstanding capital stock. The
Company will not call a stockholders meeting to approve the
issuance of the Series B or Series C Preferred Stock.
Jeff Framer, President of the Company said, "We are excited
about the opportunities for the Company this new investment brings.
The Company has struggled in recent periods because of a lack of
resources. The Company's new investors bring a wealth of
entertainment industry experience coupled with access to sufficient
capital to allow the Company to continue growing."
About Image Entertainment
Image Entertainment, Inc. is a leading independent licensee and
distributor of entertainment programming in North America, with
approximately 3,200 exclusive DVD titles and approximately 340
exclusive CD titles in domestic release and approximately 400
programs internationally via sublicense agreements. For many of its
titles, the Company has exclusive audio and broadcast rights and,
through its subsidiary, Egami Media, Inc. has digital download
rights to approximately 2,000 video programs and over 300 audio
titles containing more than 5,100 individual tracks. The Company is
headquartered in Chatsworth, California. For more information about
Image Entertainment, Inc., please go to
www.image-entertainment.com.
Forward-Looking Statements:
This press release includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
relating to, among other things, the execution of the securities
purchase agreement and the consummation of the transactions
contemplated by the securities purchase agreement. These statements
may be identified by the use of words such as “will,” “may,”
“estimate,” “expect,” “intend,” “plan,” “believe,” and other terms
of similar meaning in connection with any discussion of future
operating or financial performance or other events or developments.
All forward-looking statements are based on management’s current
expectations and involve inherent risks and uncertainties,
including factors that could delay, divert or change any of them,
and could cause actual outcomes and results to differ materially
from current expectations.
These factors include, but are not limited to, (a) the Company’s
ability to continue as a going concern, (b) the Company’s ability
to service its principal and interest obligations on its
outstanding debt or otherwise renegotiate or refinance such
outstanding debt, including curing the existing defaults on such
outstanding debt, which renegotiation may not be successful and
refinancing may not be available on acceptable terms, if at all,
which may trigger defaults under its other debt agreements, create
liquidity issues, potentially force the Company to file for
protection from its creditors under Chapter 11 of the U.S.
Bankruptcy Code and prevent the Company from continuing as a going
concern, (c) the Company’s limited funds and the Company’s
inability to raise additional funds on acceptable terms or at all,
(d) the Company’s ability to borrow against the Company’s revolving
line of credit, (e) the Company’s ability to secure media content
on acceptable terms, (f) the Company’s DVD manufacturer continuing
to manufacture and fulfill orders to Company customers while the
Company is past due on its payables to such manufacturer, (g) the
Company's decision to appeal the delisting determination, the
ability of the Company to successfully appeal the delisting
determination issued by the Staff of The Nasdaq Stock Market on
December 15, 2009 and the ability of the Company's common stock to
continue trading on The Nasdaq Stock Market, (h) the performance of
business partners upon whom the Company depends upon, (i) changes
in the retail DVD and digital media and entertainment industries,
(j) changing public and consumer taste and changes in customer
spending patterns, (k) decreasing retail shelf space for the
Company’s industry, (l) further sales or dilution of the Company’s
equity, which may adversely affect the market price of the
Company’s common stock, (m) changes in the Company’s business plan,
(n) heightened competition, including with respect to pricing,
entry of new competitors, the development of new products by new
and existing competitors, (o) changes in general economic
conditions, including the performance of financial markets and
interest rates, (p) difficult, adverse and volatile conditions in
the global and domestic capital and credit markets, (q) claims that
the Company infringed other parties’ intellectual property, (r)
changes in accounting standards, practices or policies, and (s)
adverse results or other consequences from litigation, arbitration
or regulatory investigations.
In addition, the Company may not be able to complete the
proposed transaction on the proposed terms or other acceptable
terms, or at all, due to a number of factors, including:
(a) the occurrence of any event, change or other circumstances
that could give rise to the termination of the securities purchase
agreement; (b) the outcome of any legal proceedings that have been
or may be instituted against the Company and others following
announcement of the securities purchase agreement; (c) the
inability to complete the transaction due to the failure to obtain
the necessary approvals or otherwise satisfy the applicable closing
conditions; (d) risks that the proposed transaction disrupts
current plans and operations and the potential difficulties in
employee retention as a result of the transaction; and (e) the
amount of the costs, fees, expenses and charges related to the
transaction.
For further details and a discussion of these and other risks
and uncertainties, see “Forward-Looking Statements” and “Risk
Factors” in the Company’s most recent Annual Report on Form 10-K,
and the Company’s most recent Quarterly Reports on Form 10-Q. Many
of the factors that will determine the outcome of the subject
matter of this press release are beyond Image Entertainment’s
ability to control or predict. Actual results may differ materially
from management’s expectations. Unless otherwise required by law,
the Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise.
Image Entertainment (NASDAQ:DISK)
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