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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IMAGE ENTERTAINMENT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
PRELIMINARY MATERIALS
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IMAGE ENTERTAINMENT, INC.
9333 Oso Avenue
Chatsworth, California 91311
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NOTICE OF
1995 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 15, 1995
Dear Shareholder:
The annual meeting of shareholders of Image Entertainment, Inc., a
California corporation (the "Company"), will be held at The Chatsworth Hotel,
located at 9777 Topanga Canyon Boulevard, Chatsworth, California, on Friday,
September 15, 1995, at 10:00 a.m., Pacific Standard Time, for the following
purposes:
1. ELECTION OF DIRECTORS. To elect four (4) directors to hold office until
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their respective successors are duly elected and qualified -- Ira S.
Epstein, Martin W. Greenwald, Russell Harris and Stuart Segall have been
nominated for election (Proposal 1).
2. APPROVAL OF AMENDMENT TO THE COMPANY'S BYLAWS/NUMBER OF DIRECTORS. To
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approve an amendment to the Company's Bylaws to provide for a board of
directors consisting of a minimum of four (4) and a maximum of seven (7)
members (Proposal 2).
3. APPROVAL OF THE 1994 ELIGIBLE DIRECTORS STOCK OPTION PLAN. To approve the
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Company's 1994 Eligible Directors Stock Option Plan providing for an annual
award to each Eligible Director of an option to purchase 15,000 shares of
the common stock of the Company (Proposal 3).
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
---------------------------------------------------
appointment of KPMG Peat Marwick as the Company's independent auditors for
the fiscal year ending March 31, 1996 (Proposal 4).
5. 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. Only shareholders of record at the
close of business on July 21, 1995 are entitled to notice of and to vote at the
meeting.
By Order of the Board of Directors,
Cheryl Lee, Esq.
Secretary
Chatsworth, California
July 31, 1995
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER PERSON, AND YOU
WISH TO 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 MEETING.
PRELIMINARY MATERIALS
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IMAGE ENTERTAINMENT, INC.
9333 Oso Avenue
Chatsworth, California 91311
_________________
PROXY STATEMENT FOR
1995 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 15, 1995
INTRODUCTION
GENERAL.
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"). It is anticipated that Proxy
Statements and Proxies will first be mailed to shareholders on or about July 31,
1995.
TIME, DATE AND PLACE OF THE ANNUAL MEETING.
The Annual Meeting will be held at The Chatsworth Hotel, located at 9777
Topanga Canyon Boulevard, Chatsworth, California, on Friday, September 15, 1995,
at 10:00 a.m., Pacific Standard Time.
RECORD DATE / SHAREHOLDERS ENTITLED TO VOTE.
Only shareholders of record at the close of business on July 21, 1995, the
record date (the "Record Date") fixed by the Board, are entitled to notice of
and to vote at the Annual Meeting. On that date, there were ___________ shares
of the Company's common stock, no par value (the "Common Stock"), 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, 3 and 4. 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, FOR Proposal 2, FOR
Proposal 3 and FOR Proposal 4.
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, 3 and 4) as may
properly come before the Annual Meeting (the Board does not currently know of
any such business).
1
REVOCABILITY OF PROXIES.
A shareholder may revoke a proxy at any time before it is voted at the
Annual Meeting by delivering to the Company's Secretary (Cheryl Lee, Esq.) a
written notice of revocation, by duly executing a 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 on
the Record Date is required to approve the amendment to the Bylaws (Proposal 2).
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 entitled
to vote at the Annual Meeting is required to approve the 1994 Eligible Directors
Plan (Proposal 3). 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) is required to ratify the
appointment of KPMG Peat Marwick as the Company's independent auditors (Proposal
4). Abstentions and broker non-votes are counted for purposes of determining
whether a quorum is present, but they are not counted as voting. Abstentions
are counted as present, but broker non-votes are considered not present for
other purposes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of July 1, 1995 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:
2
Common Stock Percent
Name Beneficial Owned(1)(2) of Class(3)
- -------------------------------------------------------------- ---------------------- -----------
IMAGE INVESTORS CO. (4)(5).................................... 5,203,636 36.38%
One Meadowlands Plaza
East Rutherford, NJ 07073
JOHN W. KLUGE AND STUART SUBOTNICK (4)(5)
One Meadowlands Plaza
East Rutherford, NJ 07073
THE WALT DISNEY COMPANY....................................... 1,671,760 10.82%
500 South Buena Vista
Burbank, CA 91521
TWENTIETH CENTURY FOX FILM CORPORATION........................ 1,671,760 10.82%
2121 Avenue of the Stars
Century City, CA 90312
SUN LIFE INSURANCE COMPANY OF AMERICA......................... 1,128,291 7.57%
One SunAmerica Center
Los Angeles, CA 90067
MARTIN W. GREENWALD (6)....................................... 1,178,473 8.32%
STUART SEGALL (6)............................................. 1,127,107 8.05%
RUSSELL HARRIS (5)(7)......................................... 115,227 *
IRA S. EPSTEIN (8)............................................ 30,981 *
KYLE KIRKLAND................................................. 21,250 *
CHERYL LEE.................................................... 93,409 *
JEFF FRAMER................................................... 39,650 *
DAVID BORSHELL................................................ 57,090 *
All directors and executive officers as a group (8 persons)... 2,672,157 18.15%
* Less than 1%.
(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, each person named 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.
3
(2) The shares listed for each person named (or the group) include shares of
Common Stock subject to options or warrants exercisable on or within 60
days after July 1, 1995. These shares are as follows:
Image Investors Co........................ 425,000 Mr. Harris........................ 27,981
John W. Kluge & Stuart Subotnick (4) Mr. Epstein....................... 27,981
The Walt Disney Company................... 1,671,760 Mr. Kirkland...................... 21,250
Twentieth Century Fox..................... 1,671,760 Ms. Lee........................... 93,409
Sun Life Insurance Company................ 1,128,291 Mr. Framer........................ 39,650
Mr. Greenwald............................. 388,199 Mr. Borshell...................... 56,692
Mr. Segall................................ 224,805 The group......................... 879,967
(3) Common stock not outstanding which is subject to options or warrants
exercisable on or within 60 days of July 1, 1995 is deemed to be
outstanding for the purpose of computing the percentage of the Common Stock
beneficially owned by each named person (including the group), but is not
deemed to be outstanding for any other person.
(4) All the shares of Common Stock and the warrant to purchase 425,000 shares
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. 10 (dated June 27, 1990) to a
Schedule 13D, dated July 18, 1988, filed on behalf of IIC, John W. Kluge
and Stuart Subotnick states that each of IIC, John W. Kluge and Stuart
Subotnick "disclaims membership in a group, although a group might be
deemed to exist." There are demand and piggyback registration rights with
respect to 3,718,169 shares of Common Stock held by IIC (which includes
425,000 shares of Common Stock issuable upon exercise of the warrant but
does not include shares acquired under the stock purchase agreement
referenced in footnote 5 below).
(5) Under a December 29, 1987 stock purchase agreement, as amended (the "Stock
Purchase Agreement"), certain investors (including Mr. Harris and IIC) have
acquired shares of Common Stock from the Company. The Schedule 13D, dated
December 29, 1987, filed relative to the initial acquisition of shares
under the Stock Purchase Agreement states that the investors "disclaim
status as a group." The Stock Purchase Agreement grants antidilution
rights in connection with certain issuances of Common Stock. Antidilution
rights to 9,732 shares exercisable by Mr. Harris and 97,353 shares
exercisable by IIC on or within 60 days after July 1, 1995 are included in
the table. The antidilution rights to the 97,353 shares exercisable by IIC
are also included in the table under Common Stock Beneficially Owned by
John W. Kluge and Stuart Subotnick by virtue of their being directors,
executive officers and sole shareholders of IIC. The Stock Purchase
Agreement also provides that investors collectively holding a percentage of
"Shares" (as defined in the Stock Purchase Agreement) may cause the Company
to register the Shares with the SEC.
(6) 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.
(7) Includes 77,514 shares of Common Stock held by Mr. Harris as trustee for a
family trust.
(8) Includes 2,000 shares of Common Stock held by Mr. Epstein's Keogh plan.
4
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES.
The Bylaws provide for a Board consisting of a minimum of three (3) and a
maximum of five (5) members. The specific number of directors established by
Board resolution effective immediately prior to the Annual Meeting will be four
(4).
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."
MARTIN W. GREENWALD........................................... (Age: 53)
- -------------------
Chairman of the Board, Chief Executive Officer and President since April 1981,
and Treasurer since January 1988. Mr. Greenwald's prior experience includes
film production services and investment management. Mr. Greenwald is a 1964
graduate of Fairleigh Dickinson University. Since July 1990, Mr. Greenwald has
been a director of the Permanent Charities Committee of the Entertainment
Industries, an umbrella organization which coordinates charitable contributions
from the entertainment industries. Mr. Greenwald is also the 1995 Chairperson
of the Laserdisc Association of America.
STUART SEGALL................................................. (Age: 50)
- -------------
Director and Vice President (not an executive officer) since April 1981. Mr.
Segall's principal occupation is that of principal of Stu Segall Productions, an
independent motion picture and television production company. From 1984 to
1989, Mr. Segall was a supervising producer for Steven J. Cannell Productions,
Hollywood, California.
IRA S. EPSTEIN................................................ (Age: 63)
- --------------
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.
RUSSELL HARRIS................................................ (Age: 51)
- --------------
Director since January 1991. Mr. Harris is a private investor. Mr. Harris was
President and director of County Voice, a public utility licensed to provide
radio paging services in Southern California, from November 1985 to January
1992. From 1983 to 1987, Mr. Harris held various executive positions with
Metromedia Telecommunications, Inc.
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
5
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 has standing audit and compensation committees, but no nominating
committee (the functions of such committee are performed by the entire Board).
The audit committee is composed of Messrs. Epstein and Harris. 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. During the fiscal year ended March 31, 1995, the
functions of the audit committee were performed by the entire Board. The
compensation committee is composed of Messrs. Epstein and Harris. Its primary
functions are to review and approve salaries, bonuses and other compensation
payable to the Company's executive officers. The compensation committee met two
times during fiscal 1995 and Messrs. Epstein and Harris attended all of the
meetings.
The Board met five times during fiscal 1995. Each director attended all of
the meetings, except Mr. Harris who attended three of the meetings. The Board
administers the Company's 1989 Stock Option Plan and the 1994 Eligible Directors
Stock Option Plan, and the compensation committee administers the 1990 Plan, the
1992 Plan and other employee benefit plans of the Company.
COMPENSATION OF DIRECTORS.
Non-employee directors receive a fee of $400 for each Board meeting
attended. Stock options have been granted to directors from time to time, at
the Board's discretion. In January 1991, Mr. Epstein and Mr. Harris were each
granted 6,731 options under individual plans at an exercise price of $7.191, the
closing price of the Common Stock on the date of grant. In July 1993, Messrs.
Epstein, Harris, Kirkland and Segall were each granted 10,000 options at an
exercise price of $5.625, the closing price of the Common Stock on the date of
grant. The options are fully vested and exercisable for a period of 10 years
from the date of grant. On July 12, 1994, and again on July 12, 1995, Messrs.
Epstein and Harris were each granted 15,000 options at an exercise price equal
to $7.25 and $6.875, respectively. The 1994 and 1995 option grants are subject
to shareholder approval of the new 1994 Eligible Directors Stock Option Plan
(the "Director Plan") at the Annual Meeting. The shares underlying the options
have been or will be registered with the SEC prior to issuance.
6
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 $100,000.00
in the last fiscal year:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------------- ------------
Other Securities All
Annual Underlying Other
Fiscal Salary Bonus Compensation Options Compensation
Name & Principal Position Year(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
- ------------------------- ------- -------- -------- ------------ ---------- ------------
Martin W. Greenwald, 1995 $239,061 $200,126 $ 0 150,000 $ 3,690
President & CEO 1994 $211,671 $333,889 $ 0 - 0 - $ 3,690
1993 $274,946 $ 0 $27,080 - 0 - $ 3,690
Cheryl Lee, 1995 $133,028 $ 54,895 $ 0 25,000 $ 0
Chief Administrative 1994 $125,160 $ 21,444 $ 0 27,480 $ 0
Officer 1993 --- --- --- --- ---
Jeff Framer, 1995 $111,019 $ 54,895 $ 0 25,000 $ 0
Chief Financial 1994 $ 97,372 $ 21,444 $ 0 15,000 $ 0
Officer 1993 --- --- --- --- ---
David Borshell, 1995 $ 92,310 $ 54,895 $ 0 25,000 $ 0
Sr. VP, Sales, Marketing 1994 $ 79,200 $ 21,444 $ 0 15,000 $ 0
& Operations 1993 --- --- --- --- ---
- ------------------------
(1) Mr. Greenwald has been an executive officer for purposes of disclosure in
this table for the last three fiscal years. Ms. Lee, Mr. Framer and Mr.
Borshell have been executive officers for purposes of disclosure in this
table since April 1, 1993.
(2) Mr. Greenwald's fiscal 1995 and 1994 salary amounts include a personal
expense allowance.
(3) The fiscal 1995 amounts for all of the executive officers were awarded
under a formal bonus plan adopted July 1, 1994. The fiscal 1994 amounts
for all of the executive officers (except Mr. Greenwald) were awarded under
a formal bonus plan adopted on July 1, 1993. Mr. Greenwald's fiscal 1994
amount includes $42,889 awarded under the formal bonus plan and $291,000
pursuant to an informal, discretionary award made on June 1994.
(4) While certain executive officers enjoyed certain perquisites in fiscal 1995
and 1994, such perquisites did not exceed the lesser of $50,000 or 10% of
each such executive officer's salary and bonus for the year. The fiscal
1993 amount represents the incremental cost to the Company of providing
insurance premiums for medical, life and disability ($10,355) in excess of
benefits afforded under the Company's general insurance benefits plan,
certain other medical expenses and expenses associated with Mr. Greenwald's
use of a company car.
(5) The fiscal 1994 amount for Ms. Lee includes 12,480 options granted in
partial acknowledgment of a voluntary salary reduction taken pursuant to
the Company's comprehensive March 1993 restructuring plan;
7
however, the option grant was not intended to be in lieu of nor a
substitute for the foregone salary, nor was the value of the grant made in
respect of the value of the reduction.
(6) The fiscal 1995, 1994 and 1993 amounts represent term life and disability
insurance premium payments.
The following table summarizes options granted in fiscal 1995 to the
executive officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
------------------- ----------------------------
Number of Percent of Total
Securities Options Granted
Underlying to Employees Exercise
Options in Fiscal Price Expiration
Name Granted(#)(2) Year(3) ($/Sh) Date 0%($) 5%($) 10%($)
- ----------------------------- ------------- ---------------- -------- ---------- ----- -------- --------
Martin W. Greenwald (4) 37,500(6) 7.35% $7.250 07/12/2004 $0 $170,962 $433,313
37,500(6) 7.35% $7.750 07/12/2004 $0 $182,775 $463,200
37,500(6) 7.35% $8.250 07/12/2004 $0 $194,550 $493,050
37,500(6) 7.35% $8.750 07/12/2004 $0 $206,363 $522,938
Cheryl Lee (5) 15,000(6) 2.94% $7.000 05/18/2004 $0 $ 66,030 $167,340
10,000(7) 1.96% $7.000 05/18/2004 $0 $ 44,020 $111,560
Jeff Framer (5) 15,000(6) 2.94% $7.000 05/18/2004 $0 $ 66,030 $167,340
10,000(7) 1.96% $7.000 05/18/2004 $0 $ 44,020 $111,560
David Borshell (5) 15,000(6) 2.94% $7.000 05/18/2004 $0 $ 66,030 $167,340
10,000(7) 1.96% $7.000 05/18/2004 $0 $ 44,020 $111,560
(1) The amounts are based upon the 5% and 10% annual rates of return prescribed
by the Securities and Exchange Commission and are not intended to forecast
future appreciation, if any, of the Company's stock price nor reflect actual
gains, if any, realizable upon option exercise.
(2) All of the options except Mr. Greenwald's options were granted at the fair
market value of the Common Stock on the date of grant.
(3) Based on options granted to employees totaling 510,000 shares.
(4) All 150,000 options were part of a single grant under the Company's 1992
Stock Option Plan vesting in increments of 37,500 on July 12, 1994, January
12, 1995, July 12, 1995 and January 12, 1996.
(5) The 15,000 options were made under the Company's 1992 Stock Option Plan and
vest in increments of 3,750 on May 19, 1994, November 19, 1994, May 19, 1995
and November 19, 1995. The 10,000 options were granted under individual
grants without reference to a plan and vested immediately.
(6) In the event of a "Change of Control" (as defined in the Company's 1992
Stock Option Plan) the unvested portion of an option shall immediately vest.
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
8
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.
(7) In the event of a "Change of Control" (as defined in the individual grant),
the Board may terminate the grant and the options. If any termination
occurs, the committee shall give each optionee written notice of the
intention to terminate the grant and the options, and shall permit the
exercise of the options for at least sixty days immediately preceding the
effective date of such termination. In the event an optionee's employment
with the Company ceases, the options will terminate five years following the
effective date of cessation of employment.
The following table summarizes options exercised in fiscal 1995 by the
executive officers named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End(#) Options at FY-End ($)(1)
----------------------------- ---------------------------------
Shares Acquired Value Realized
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- ------------------- --------------- ----------- ----------- ------------- -------------- ----------------
Martin W. Greenwald 475,397 $3,335,969 350,699 75,000 $1,176,000 $ 0
Cheryl Lee - 0 - 0 89,659 7,500 79,449 938
Jeff Framer - 0 - 0 35,900 7,500 33,721 938
David Borshell - 0 - 0 52,942 7,500 46,108 938
(1) Based on the closing price on NASDAQ/NMS of the Common Stock on March 31,
1995 ($7.125).
(2) Market value of underlying securities at exercise or year-end, minus the
exercise price.
DESCRIPTION OF EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS.
On May 19, 1994 the compensation committee approved the material terms of a
two-year compensation arrangement for the executive officers which would
commence on July 1, 1994 and end on June 30, 1996, with a non-renewal notice
requirement and severance consisting of base salary and insurance continuation
for six months and pro rata bonus compensation for six months or any partial
fiscal year that has occurred prior to expiration of the employment term,
whichever is longer. Said material terms were later documented by long-form,
written employment agreements entered into between the Company and each
executive officer.
The employment agreements provided for minimum annual salary for Mr.
Greenwald, Ms. Lee, Mr. Framer, and Mr. Borshell of $249,000 (which includes a
reimbursable personal expense allowance of $54,000 discussed below), $136,000,
$115,000, and $87,140, respectively. Mr. Borshell's base salary was increased to
$100,000, the annual base salary earned by the Company's former Senior Vice
President of Sales and Marketing, Rick Linton, when Mr. Borshell assumed Mr.
Linton's duties and responsibilities upon Mr. Linton's departure. The employment
agreements also provide for the payment of cash bonuses to the executive
officers as incentive compensation provided certain performance targets are met.
The bonus amounts for Mr. Greenwald, Ms. Lee, Mr. Framer and Mr. Borshell
represent a percentage of the Company's fiscal pretax profits and are based upon
certain qualifying conditions, viz., maximum
9
total expenses, minimum gross margin, long-term debt reduction, maximum shipping
expenses and inventory reduction. Mr. Greenwald's percentage ranges between 2%
and 4% provided pretax profits are greater than a specified amount. The
percentage for the other executive officers is 0.625%. All of the performance
criteria set forth in the bonus terms and conditions are applicable to all of
the executive officers.
The employment agreement states that stock option grants will be in such
form and amounts, and at such time or times, as the Board of Directors (or, if
applicable, the stock option plan administrators) shall determine.
In the event of a "Change of Control" (as defined in the employment
agreements), all compensation, rights and benefits under the agreement will
continue for the longer of one year following the effective date of termination
or through the expiration of the remaining term of the agreement.
In the event of a termination for "Cause" (as defined in the employment
agreements), no severance, fringe benefits, compensation or other such rights,
including any pro-rata portion of bonus otherwise due, is due or payable to any
executive so terminated.
Additionally, the executives are entitled to receive medical, life and
disability insurance, vacation and reimbursement of reasonable business
expenses. Mr. Greenwald's agreement further provides for personal life and
disability insurance, the aggregate premium payments for which shall not exceed
$17,000 per annum, reimbursable personal expenses of $54,000 per annum, use of a
company car and base salary and insurance continuation for six months in the
event of death or disability.
On July 1, 1995, the employment agreements were amended to extend the term
thereof from June 30, 1996 to June 30, 1998, to extend the term of the Company's
optional renewal from July 30, 1997 to July 30, 1999, and to fix the annual base
salary increase at 5% over the prior year's annualized base salary, except for
Mr. Borshell, who will receive a 15.5% increase over his prior year's annualized
base salary for the contract year commencing July 1, 1995 and ending June 30,
1996.
STOCK PRICE PERFORMANCE GRAPH.
The graph below compares the cumulative total return of Company, the NASDAQ
U.S. Market Index and a Company-selected peer group (viz., Handleman Company, J2
Communications, LIVE Entertainment, Musicland Stores, Prism Entertainment and
Rentrak) for the 5-year period ending March 31, 1995. The graph assumes an
initial investment of $100 on April 1, 1990 in the Company, the NASDAQ U.S.
Market Index and the peer group. The graph also assumes reinvestment of
dividends, if any.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG IMAGE ENTERTAINMENT, INC., NASDAQ U.S. AND PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
Measurement Period IMAGE NASDAQ
(Fiscal Year Covered) ENTERTAINMENT U.S. PEER GROUP
- ------------------- ------------- --------- ----------
Measurement Pt- 1990 $100 $100 $100
FYE 1991 $ 67.01 $114.21 $ 71.60
FYE 1992 $100.52 $145.58 $ 70.41
FYE 1993 $ 51.45 $167.28 $ 68.13
FYE 1994 $ 64.62 $180.59 $ 68.80
FYE 1995 $ 68.21 $201.30 $ 47.79
10
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
THE COMMITTEE. The Company's Compensation 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/or the full Board approves all such packages.
The Committee administers the 1992 Plan, the 1990 Plan and other employee
benefit plans of the Company.
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: (i) base
salary, (ii) long-term incentive compensation in the form of stock options,
granted periodically, priced at fair market value on date of grant and intended
to give management a stake in the Company's growth while aligning management
interests with those of the Company's shareholders, and (iii) annual incentive
bonuses based on a combination of financial and non-financial goals. The
Company offers a non-contributory 401(k) plan and provides health and disability
insurance to all full-time employees. The Committee plans to attempt to take
all reasonable steps to comply with the 1993 Internal Revenue Code provisions
limiting the deductibility of compensation to certain executives in excess of $1
million so that compensation paid to executives will be deductible by the
Company.
BASE SALARY. The Committee based fiscal 1995 compensation on subjective
criteria approximating the perceived contribution and worth of the individual
executive to the Company, as well as the executive's salary history. Mr.
Greenwald received an 18% increase to his fiscal 1994 base salary and Ms. Lee
received a 9% increase to her fiscal 1994 base salary, consistent with the
Committee's stated compensation objectives, goals and criteria (including
subjective factors), and their continued role as executive officers of the
Company after the Company's 1993 restructuring. Mr. Framer, having completed
his first full fiscal year as the Company's Chief Financial Officer, subsequent
to his promotion from Controller pursuant to the Company's 1993 restructuring,
received a 15% salary increase for fiscal 1994. The increase was intended to
bring him into conformity with a base compensation the Committee deemed
appropriate based on the Committee's compensation objectives, goals and criteria
(including subjective factors) for a Chief Financial Officer of a public company
the size and in the business of the Company. Mr. Borshell, having completed his
first full fiscal year as the Company's Senior Vice President of Operations,
subsequent to his promotion from Vice President of Operations pursuant to the
Company's 1993 restructuring, initially received a 10.3% salary increase for
fiscal 1994. The increase was intended to bring him into conformity with a base
compensation the Committee deemed appropriate based on the Committee's
compensation objectives, goals and criteria (including subjective factors) for a
Senior Vice President of Operations of a public company the size and in the
business of the Company. Mr. Borshell received a subsequent raise after
assuming the responsibilities of the Company's Senior Vice President of Sales
and Marketing, to match the $100,000 base salary of the former executive.
OPTION GRANTS. On May 19, 1994, the Committee approved Company-wide stock
option grants under the Company's 1992 Stock Option Plan. The grants were based
upon management recommendations, the aggregate amount of prior and proposed
grants under the Plan in general and to the employee in particular, the
employee's position, responsibility, seniority and overall contribution to the
Company, and subjective factors. The Committee had originally intended to
discontinue the practice of awarding annual Company-wide option grants in fiscal
1995, however, an additional factor considered by the Committee in awarding the
May 19, 1994 Company-wide grants was the laudable individual and team effort
demonstrated by the Company's employees in response to numerous significant
work-related hardships caused by the January 17, 1994 Northridge earthquake.
All of the executive officers received awards under this Company-wide grant
(except Mr. Greenwald who was alternatively awarded with a 150,000 option grant
on July 12, 1994). The Committee views option grants as special long-term
incentives and intends to further increase motivation by limiting the grant of
such awards in future years so that grants will not be Company-wide. The
Committee also awarded the executive officers (except Mr. Greenwald who was
alternatively awarded with a 150,000 option grant on July 12, 1994) 10,000 non-
plan options in recognition of their diligent efforts and skillful handling of
11
the Company's operations after the Northridge earthquake severely impacted the
Company's business and forced temporary closure and relocation of the Company's
offices and warehouse facilities. In addition to relocating the Company in a
timely fashion, the executive officers addressed the needs of the employees,
vendors, investors and major licensors and program suppliers, and otherwise
mitigated the adverse impact of the earthquake. Additionally, the executive
officers expedited and secured a multimillion dollar earthquake related
insurance settlement in June 1994 and an $880,000 earthquake related business
interruption insurance settlement in early calendar 1995.
BONUSES. Bonuses were awarded to the current executive officers based on a
formula plan contained in their July 1, 1994 employment agreements. All of the
executive officers were entitled to receive a percentage of pretax profits (2% -
4% provided a minimum pre-tax profit amount was achieved for Mr. Greenwald, and
0.625% for each of Ms. Lee, Mr. Framer and Mr. Borshell) conditioned upon the
achievement of specific performance criteria (viz., maximum total expenses of a
specified amount, minimum gross margins of a specified percentage, long-term
debt reduction of a specified amount as of a specified date, maximum shipping
expenses of a specified amount and inventory reduction of a specified amount by
a specified date). The Committee has not disclosed the exact numbers specified
in the bonus plan components because such information is deemed to be
confidential and proprietary, the disclosure of which would be against the best
interests of the Company. All of the performance goals enumerated in the bonus
terms and conditions must be achieved before any such executive is entitled to
receive a bonus and all of said goals are applicable to all of the executives.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The fiscal 1995 compensation
package of Chief Executive Officer Martin Greenwald was determined by the
Committee using the same compensation objectives, goals and criteria (including
subjective factors) applied to other executive officers based on its perception
of his contribution, as well as general consideration of overall company
performance, profitability, sales growth, return on equity and market share.
The Committee intentionally waited until it had available for review the audited
numbers for the Company's prior fiscal year, which numbers were finalized in
June 1994, before establishing the terms of executive employment agreements
effective during fiscal 1995 (including the bonus for fiscal 1995). In fiscal
1994, the Company reported record sales and earnings. The Committee thus
established Mr. Greenwald's compensation, as well as the compensation of the
other executive officers, with the intent of further motivating executive
management to apply their skills and expertise to the Company's business and
operations for fiscal 1995, and future periods. In fiscal 1995, the Company
again reported record results. Net sales increased 30.5% to a record $85.6
million from $65.6 million in fiscal 1994 and operating income increased 54.7%
to a record $7.7 million from $5.0 million in fiscal 1994. Fiscal 1995 income
before extraordinary item increased 101.4% to a record $7.5 million, or $.51 per
share, from $3.7 million, or $.30 per share, in fiscal 1994, and net income
increased 87.8% to a record $6.3 million, or $.44 per share, from $3.4 million,
or $.27 per share, in fiscal 1994. The Committee attributes, in part, the
record results to prudent management and sound business practices, including
aggressive cost-containment, implemented by executive management. The Company's
financial performance enabled it to make several accelerated pay-downs of
expensive sen ior debt, which debt was ultimately refinanced in November 1994
when the Company retired the $11.5 million balance and replaced it with a $15
million revolving credit and term loan facility. The new facility provides
borrowing flexibility and significant interest savings. Since December 31,
1995, the Company has been substantially debt-free. Additionally, Mr.
Greenwald's efforts enabled the Company to successfully overcome the adverse
impact of the Northridge earthquake and secure the earthquake related insurance
settlements discussed above. The Committee further recognized the importance of
Mr. Greenwald's relationships with the Company's key program suppliers and
potential program suppliers. Finally, in June 1995, the Company acquired U.S.
Laser, the largest laserdisc "one-stop" in the country and both a customer and
competitor of the Company, for $3.1 million. While stock market price is
important, it was not a determining factor in Mr. Greenwald's compensation
increase. Given that Mr. Greenwald's last option grant was made in October
1991, as additional incentive to further enhance Company profitability over the
long-term in an increasingly competitive and changeable market, on July 12,
1994, the Committee granted Mr. Greenwald options to purchase 150,000 shares,
vesting over 18 months, at staggered exercise prices in excess of the then
current market price. In determining the option award, the Committee applied
the same methodology it used to establish the options
12
awarded to the other executive officers and Mr. Greenwald's salary and bonus
compensation package. The Committee does not presently intend to grant
additional options to Mr. Greenwald in the near term.
COMPENSATION COMMITTEE
Ira S. Epstein
Russell Harris
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John W. Kluge and Stuart Subotnick, who may be deemed to beneficially own
more than 5% of the Company's Common Stock as the sole shareholders of IIC, may
be deemed to control Orion Pictures Corporation ("OPC"). OPC's wholly-owned
subsidiary Orion Home Video Corporation ("OHVC") licenses programs to the
Company in the ordinary course of its business. The Company believes that the
terms of its license agreements with the subsidiary are comparable to the terms
of similar agreements between the Company and parties unaffiliated with the
Company's principals. During the period commencing on April 1, 1994 to July 31,
1995, the Company paid OHVC royalties of approximately $1.37 million.
In January 1995, the Board approved that certain Stock Purchase Agreement,
dated as of January 26, 1995, by and between the Company and Kyle Kirkland, a
director of the Company. The stock purchase agreement provided for the purchase
of 60,000 shares of restricted Common Stock held by Mr. Kirkland. The purchase
price was $7.4375 per share. The closing price of the Common Stock on January
26, 1995 was $7.75. Mr. Kirkland acquired the shares upon exercise of a warrant
dated November 18, 1991. The exercise price of the warrant was $2.50 per share.
In July 1995, the Board approved that certain Stock Purchase Agreement, dated
as of July 12, 1995, by and between the Company and Stuart Segall, a director of
the Company. The stock purchase agreement provided for the purchase of 137,000
shares of restricted Common Stock held by Mr. Segall. The purchase price was
$6.625 per share. The closing price of the Common Stock on July 12, 1995 was
$6.8125. Mr. Segall acquired 44,216 of 137,000 the shares upon exercise of an
option dated December 31, 1984. The exercise price of the option was $1.070 per
share. Mr. Segall acquired 92,784 of the 137,000 shares upon exercise of a
warrant dated December 18, 1985. The exercise price of the warrant was $0.594
per share.
Under a November 28, 1991 agreement with Buena Vista Home Video, the Company
has the exclusive right to replicate, market and distribute all Disney,
Touchstone, Buena Vista and Hollywood Pictures programming on laserdisc in the
United States and Canada and their respective territories. In connection with
the agreement, Buena Vista's parent company, The Walt Disney Company, was issued
a warrant to purchase 1,671,760 shares of the Company's Common Stock.
Under a July 1, 1992 agreement with Twentieth Century Fox Home Entertainment
(formerly "FoxVideo, Inc."), the Company has the exclusive right to distribute
all Fox programming on laserdisc in the United States and Canada and their
respective territories. In connection with the agreement, Fox's parent company,
Twentieth Century Fox Film Corporation, was issued a warrant to purchase
1,671,760 shares of the Company's Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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
13
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 1994
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% shareholders were complied with, except for an
inadvertent late filing on Form 4 by Mr. Harris covering two transactions.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S BYLAWS
NUMBER OF DIRECTORS.
Under the California Corporations Code (the "Corporations Code"), a
corporation's bylaws may provide for a board of directors consisting of a
minimum number and a maximum number (which may not be greater than two times the
minimum number minus one) of members, with the exact number to be fixed by
approval of the board or the shareholders in the manner stated in the bylaws.
AMENDMENT TO BYLAWS.
Article III, Section 2 of the Bylaws provides for a Board consisting of a
minimum of three and a maximum of five members, with the exact number to be
fixed by approval of the Board or the shareholders. To further expand the
expertise of the Board at some future date, the Board recommends shareholder
approval of an amendment to Article III, Section 2 which would provide for a
Board consisting of a minimum of four and a maximum of seven members.
VOTE REQUIRED.
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding on the Record Date is required to approve the amendment.
Failure to vote on the amendment will effectively be a vote against it.
PROPOSAL 3
APPROVAL OF 1994 ELIGIBLE DIRECTORS STOCK OPTION PLAN
PROPOSED ACTION REGARDING THE 1995 ELIGIBLE DIRECTORS STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1994 Eligible Directors
Stock Option Plan (the "Director Plan"), subject to shareholder approval at the
Annual Meeting. The major provisions of the Director Plan, including a
description of the nonqualified stock options (the "Options") that have been and
will be granted thereunder, are summarized below.
The following summary is qualified in its entirety by reference to the text
of the Director Plan, which is set forth in Exhibit A to this Proxy Statement.
Certain terms used below are defined in the Director Plan.
SUMMARY DESCRIPTION OF THE 1995 ELIGIBLE DIRECTORS STOCK OPTION PLAN
PURPOSE OF THE DIRECTOR PLAN. The purpose of the Director Plan is to promote
the success of the Company by providing an additional means through the grant of
nonqualified stock options to attract, motivate and retain
14
experienced and knowledgeable members of the Board of Directors who are not
officers or employees of the Company or any subsidiary thereof and who are
disinterested for purposes of administering other stock incentive plans of the
Company within the meaning of Rule 16b-3 ("Eligible Directors").
ELIGIBILITY AND ADMINISTRATION. The Director Plan provides for automatic
grants to Eligible Directors of nonqualified options to acquire shares of the
Company's Common Stock. As of July 31, 1995, there were three (3) Directors on
the Board who were eligible to participate in the Director Plan. Future
participation will be based on a person's status as an Eligible Director.
The Director Plan is designed to be self-effectuating to the maximum extent
possible. Subject to the express provisions of the Director Plan, the Board of
Directors has the authority to construe and interpret the terms of the Director
Plan and any agreements defining the rights and obligations of the Company and
participants under the Director Plan and to delegate certain authority
thereunder.
AMOUNT OF COMMON STOCK SUBJECT TO OPTIONS UNDER THE DIRECTOR PLAN. A maximum
of 275,000 shares of Common Stock (subject to adjustment) may be issued in total
under the Director Plan, and a maximum of 75,000 shares may be issued to each
Eligible Director under the Director Plan. The number and type of securities
which may be subject to Options under the Director Plan are subject to
adjustment under Section 3.4 of the Director Plan in the event of any
extraordinary distribution in respect of the Common Stock (whether in the form
of Common Stock, other securities, or other property), or any recapitalization,
stock split (including a stock split in the form of a stock dividend), reverse
stock split, reorganization, recapitalization, reclassification, merger,
consolidation and other similar events affecting the Company or its Common
Stock. Shares subject to Options that expire or are terminated prior to
exercise for any reason are to that extent available for future grants.
GRANTS OF OPTIONS. The Director Plan provides for initial and annual grants
to each Eligible Person. Each grant represents an option to purchase 15,000
shares (subject to adjustment). All Directors (except Messrs. Greenwald, Segall
and (in 1994) Kirkland) received options in 1994 and 1995 and all Eligible
Directors will receive non-discretionary options during the remaining term of
the Plan, to purchase shares of the Company's Common Stock. Messrs. Epstein and
Harris received options in 1994 and Messrs. Epstein, Harris and Kirkland
received options in 1995. The per share exercise price of initial options is
the fair market value of the Common Stock on the grant date, plus $0.25. The
exercise price of the annual Option grants under the Director Plan will be the
fair market value on the grant date (July 12 or the next business day
thereafter), unless an Eligible person is receiving his or her initial option
under the Director Plan (viz., Mr. Kirkland). Each Eligible Director in office
on such date will be granted an Option to purchase 15,000 shares of the
Company's Common Stock; provided, however, that an Eligible Director may not
-------- -------
receive options to purchase more than 75,000 shares of the Company's Common
Stock in the aggregate under the Director Plan and under any other compensatory
plan or authority (including individual grants without reference to a plan) of
the Company, excluding shares subject to options granted for special or unique
services (other than services as an employee, officer or director or service
substantially comparable thereto) or pursuant to antidilution or similar rights
or adjustments in respect of outstanding options. The grants to date and
certain material terms thereof are summarized in the chart below.
15
1994 ELIGIBLE DIRECTORS STOCK OPTION PLAN BENEFITS
PLAN BENEFITS (PRIOR GRANTS ONLY)
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Number Exercise Appreciation for Option Term(1)
of Price Expiration -------------------------------
Shares(2) ($/Share) Date 5% 10%
-------- --------- ---------- ---------- ---------
IRA S. EPSTEIN
1994 15,000 $7.25 7/11/2004 $ 68,385 $173,325
1995 15,000 $6.875 7/11/2005 $ 64,860 $164,355
RUSSELL HARRIS
1994 15,000 $7.25 7/11/2004 $ 68,385 $173,325
1995 15,000 $6.875 7/11/2005 $ 64,860 $164,355
KYLE KIRKLAND
1994 0 n/a n/a n/a n/a
1995 (3) 15,000 $7.125 7/11/2005 $ 67,215 $170,325
ELIGIBLE DIRECTORS AS A GROUP
1994 (2 persons) 30,000 $7.25 7/11/2004 $136,770 $346,650
1995 (3 persons) 45,000 $6.875/$7.125 7/11/2005 $196,935 $499,035
(1) The amounts under the columns labeled "5%" and "10%" are included pursuant
to certain rules promulgated by the SEC and are not intended to forecast
future appreciation, if any, in the price of the Company's Common Stock.
Such amounts are based on the assumption that the Directors hold the
options granted for their full ten-year term. The actual value of the
options (if determinable) would vary, depending on (among other variables)
the market price of the Company's Common Stock.
(2) Represents the annual amount to be awarded each year; assuming 3 currently
eligible persons, up to an aggregate amount of 275,000 shares to all
current Eligible Directors and 75,000 shares to any single Eligible
Director, in each case subject to antidilution adjustments and plan limits.
(3) Represents an initial award under the Plan.
The 1994 and 1995 awards to Eligible Directors under the Director Plan are
subject to shareholder approval of the Director Plan. The closing price of a
share of the Company's Common Stock as reported on NASDAQ on July 12, 1994 and
July 12, 1995 was $7.00 and $6.875, respectively.
CONSIDERATION RECEIVED FOR OPTIONS. Typically, the only consideration
received by the Company for the grant of an option under the Director Plan will
be services (or commitment to services) on the Board of Directors by the
optionee.
TYPE AND TERM OF OPTIONS. A nonqualified stock option is the right to
purchase shares of the Company's Common Stock at a future date at the exercise
price on the date the option is granted. Options granted under the Director
Plan will expire ten years after the date of grant, subject to earlier
termination in the event an optionee's service as an Eligible Director
terminates. See "Termination of Directorship."
16
EXERCISE OF OPTIONS. Subject to early termination or acceleration
provisions (which are summarized below), options awarded under the Director Plan
will generally become exercisable in installments at the rate of 50% of the
shares initially subject to such Option on the date six months after the grant
date, and another 25% of such initial number of shares on the date 12 months
after the grant date and on the date 18 months after the grant date. In no
event, however, will an option become or be exercisable prior to six months or
after ten years from its date of grant.
The exercise price of any option granted under the Director Plan may be
paid in full at the time of each exercise (i) in cash or by check, (ii) in
shares of the Company's Common Stock previously owned by the optionee for at
least six months prior to exercise, or (iii) partly in such shares and partly in
cash.
If any option under the Director Plan is not exercised prior to its
expiration or other termination, the underlying shares will thereafter be
available for further option grants under the Director Plan.
NON-TRANSFERABILITY. Options granted under the Director Plan are not
transferable, otherwise than by will or the laws of descent and distribution,
and during the lifetime of the Eligible Director, Options are exercisable only
by such Eligible Director, subject to limited exceptions consistent with
applicable legal restrictions.
TERMINATION OF DIRECTORSHIP. If an Eligible Director's services as a
member of the Board of Directors terminate by reason of death or disability, the
Eligible Director's Options shall become fully exercisable and shall remain
exercisable for one year after the date of such termination or until the
expiration of their stated term, whichever occurs first. Any Option which is
not then exercised shall terminate. If an Eligible Director's services
terminate for any other reason, such Eligible Director's Options, to the extent
they are exercisable on such date, shall remain exercisable for six months after
the date of such termination or until the expiration of their stated term,
whichever occurs first, and shall then terminate.
OTHER ACCELERATION OF AWARDS. Upon the occurrence of certain events
described in Sections 3.5 and 4.1(c) of the Director Plan (such as a
dissolution, liquidation, or certain merger or asset transactions or changes in
control of the Company), each Option awarded under the Director Plan will become
immediately exercisable, provided that no Option will be accelerated to a date
which is less than six months after the date of grant of such Option.
TERMINATION OR CHANGES TO THE DIRECTOR PLAN. The Board of Directors may
terminate the Director Plan or may amend the Director Plan, but no amendment may
be made without shareholder approval if such approval is required by law or Rule
16b-3. In addition, the Director Plan may not be amended more than once every
six months (other than as may be necessary to conform to any applicable changes
in the Internal Revenue Code), unless such amendment would be consistent with
certain provisions of and considerations under Rule 16b-3. No amendment,
suspension or termination of the Director Plan may, without the written consent
of the optionee, affect in any manner materially adverse to the optionee any
rights or benefits of the optionee or obligations of the Company under any
option granted under the Director Plan prior to the effective date of such
change. Unless earlier terminated by the Board, no Option will be granted under
the Director Plan after July 11, 2004.
NON-EXCLUSIVITY. The Director Plan does not limit the authority of the
Board of Directors to grant awards or authorize any other compensation under any
other plan or authority.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the Director Plan under current
federal law, which is subject to change, are summarized in the following
discussion which deals with the general tax principles applicable to the
Director Plan. State and local tax consequences are beyond the scope of this
summary.
17
NONQUALIFIED STOCK OPTIONS. An optionee receiving a nonqualified stock
option under the Director Plan does not recognize taxable income on the date of
grant of the option, assuming (as it is usually the case with plans of this
type) that the option does not have a readily ascertainable fair market value at
the time it is granted. However, the optionee must generally recognize ordinary
income at the time of exercise of the nonqualified stock option in the amount of
the difference between the option exercise price and the fair market value of
the Common Stock on the date of exercise. The amount of ordinary income
recognized by an optionee is deductible by the Company in the year that the
income is recognized. Upon subsequent disposition, any further gain or loss is
taxable either as a short-term or long-term capital gain or loss, depending on
how long the shares of Common Stock are held.
ACCELERATED PAYMENTS. If, as a result of certain changes in control in the
Company, a participant's Options become immediately exercisable, the additional
economic value, if any, attributable to the acceleration may be deemed a
"parachute payment." The additional value will be deemed a parachute payment if
such value, when combined with the value of other payments which are deemed to
result from the change in control, equals or exceeds a threshold amount equal to
300 percent of the participant's average annual taxable compensation over the
five calendar years preceding the year in which the change in control occurs.
In such case, the excess of the total parachute payments over such participant's
average annual taxable compensation will be subject to a 20% non-deductible
excise tax in addition to any income tax payable. The Company will not be
entitled to a deduction for that portion of any parachute payment which is
subject to the excise tax.
VOTE REQUIRED FOR APPROVAL OF THE DIRECTOR PLAN
Approval of the Director Plan requires the affirmative votes of the holders
of a majority of the Common Stock present, or represented, and entitled to vote
at the Annual Meeting, assuming the presence of a quorum. Broker non votes
(i.e., broker designations on the proxy to the effect that the broker does not
have discretionary authority to vote particular shares) are not counted as
present or represented for this purpose; abstentions are not counted as votes
cast but are deemed present for these purposes. Each share of Common Stock is
entitled to one vote.
Shareholders should note that because Eligible Directors have received and
(subject to re-election and shareholder approval) will receive Options under
this proposal, all current eligible Directors of the Company (i.e., Messrs.
Epstein, Harris and Kirkland) have a personal interest in the proposal and its
approval by shareholders. Accordingly, the current Eligible Directors will be
deemed not entitled to vote as shareholders on this proposal.
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has unanimously appointed, and recommends that the shareholders
ratify the appointment of, KPMG Peat Marwick, independent certified public
accounts and the Company's auditors since fiscal 1990, as auditors for fiscal
1996 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 Peat Marwick 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 affirmatively voting must also constitute at
least a majority of a quorum) is required to ratify the appointment of KPMG Peat
Marwick as the Company's independent auditors.
18
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy solicitation
materials for the 1996 Annual Shareholders' Meeting, a shareholder proposal must
be received by the Company's Secretary at the principal executive offices of the
Company no later than April 2, 1996.
In addition, Article III, Section 4, of the Company's Bylaws provide 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/FISCAL 1994 FORM 10-K
The Company's Annual Report to Shareholders (i.e., the Company's Form 10-K
for the fiscal year ended March 31, 1995) 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 Cheryl Lee, Esq., 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,
Cheryl Lee, Esq.
July 31, 1995 Secretary
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.
19
EXHIBIT A
IMAGE ENTERTAINMENT, INC.
1994 ELIGIBLE DIRECTORS STOCK OPTION PLAN
1. THE PLAN
1.1 Purpose. The purpose of this Plan is to promote the success of the
-------
Corporation by providing an additional means through the grant of Options to
attract, motivate and retain experienced and knowledgeable Eligible Directors.
Capitalized terms are defined in Article 4.
1.2 Administration.
--------------
(a) Board Authority and Powers; Interpretation. This Plan shall be, to
-------------------------------------------
the maximum extent possible, self-effectuating. This Plan shall be interpreted
and, to the extent any determinations are required hereunder, shall be
administered by the Board. Subject to the express provisions of this Plan, the
Board shall have the authority to construe and interpret this Plan and any
agreements defining the rights and obligations of the Corporation and
Participants under this Plan.
(b) Binding Determinations. Any action taken by, or inaction of, the
-----------------------
Corporation or the Board relating or pursuant to this Plan shall be within the
absolute discretion of that entity or body and shall be conclusive and binding
upon all persons. No member of the Board or officer of the Corporation shall be
liable for any such action or inaction, except in circumstances involving such
person's bad faith.
(c) Reliance on Experts. In making any determination or in taking or
--------------------
not taking any action under this Plan, the Board may obtain and may rely upon
the advice of experts, including professional advisors to the Corporation. No
director, officer or agent of the Corporation shall be liable for any such
action or determination taken or made or omitted in good faith.
(d) Delegation. The Board may delegate ministerial, non-discretionary
-----------
functions to individuals who are officers or employees of the Corporation.
1.3 Shares Available for Options. Subject to the provisions of Section 3.4,
----------------------------
the capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock.
(a) Number of Shares. The maximum number of shares of Common Stock
-----------------
that may be delivered pursuant to Options granted to Eligible Directors under
this Plan shall not exceed 275,000 shares, subject to adjustments contemplated
by Section 3.4.
(b) Calculation of Available Shares and Replenishment. The shares
--------------------------------------------------
authorized under this Plan shall be reserved for issuance. If any Option shall
expire or be canceled or terminated without having been exercised in full, the
undelivered shares subject thereto shall again be available for the purposes of
this Plan.
2. THE OPTIONS
2.1 Automatic Option Grants. Subject to adjustments contemplated by Section
------------------------
3.4 and the limitations of Section 2.5,
(a) Initial Options. Subject to shareholder approval of this Plan:
----------------
(1) each person who is an Eligible Director on July 12, 1994 shall be granted an
Option to purchase 15,000 shares of Common Stock; and (2) any person who is not
on July 12, 1994 an Eligible Director, but who thereafter becomes an Eligible
Director shall be granted automatically (without
any further action by the Board) an Option (the Option Date of which shall be
the date such person becomes an Eligible Director) to purchase 15,000 shares of
Common Stock. No person shall receive more than one Option under this Section
2.1(a).
(b) Subsequent Options. On the close of business on each July 12 (or
-------------------
if it is not a business day the first business day thereafter) during the term
of this Plan, commencing in 1995, there shall be granted automatically (without
any further action by the Board) to each person who is then an Eligible Director
an Option to purchase 15,000 shares of Common Stock; provided, however, that if
--------- --------
the director received a grant under Section 2.1(a) within six months of such
date, his or her participation in annual grants shall not commence until the
following year.
(c) Maximum Number of Shares. Any annual grants under Section 2.1(b)
-------------------------
that would otherwise exceed the maximum number of shares under Section 1.3(a)
shall be prorated within such limitation among the number of Eligible Directors
entitled thereto.
(d) Option Price. The purchase price per share of the Common Stock
-------------
covered by each Option granted pursuant to Section 2.1(a) shall be the Fair
Market Value of the Common Stock on the Option Date, plus $0.25, and by each
Option granted pursuant to Section 2.1(b) shall be the Fair Market Value of the
Common Stock on the Option Date.
(e) Option Period and Exercisability. Subject to shareholder approval
--------------------------------
of this Plan, each Option granted under this Plan shall become exercisable in
installments at the rate of 50% of the shares initially subject to such Option
on the date six (6) months after the Option Date, and another 25% of such
initial number of shares on the date twelve (12) months after the Option Date
and the remaining 25% of such initial number of shares on the date eighteen (18)
months after the Option Date.
(f) Non-Qualified Options. Each Option granted under this Plan is
---------------------
intended to be a non-qualified stock option (i.e., not an "incentive stock
option") under the Code and shall be so designated.
2.2 Payment of Exercise Price. The exercise price of any Option granted
-------------------------
under this Plan shall be paid in full at the time of each exercise in cash or by
check or in shares of Common Stock valued at their Fair Market Value on the date
of exercise of the Option, or partly in previously owned shares and partly in
cash, provided that any shares used in payment shall have been owned by the
-------------
Participant at least six months prior to the date of exercise.
2.3 Option Period. Each Option granted under this Plan and all rights or
-------------
obligations thereunder shall expire ten years after the Option Date and shall be
subject to earlier termination under Article 3 hereof.
2.4 Limitations on Exercise and Vesting of Options.
----------------------------------------------
(a) Provisions for Exercise. No Option shall be exercisable or shall
------------------------
vest until at least six months after the initial Option Date, and once
exercisable an Option to such extent shall remain exercisable until the
expiration or earlier termination of the Option.
(b) Procedure. Any exercisable Option shall be deemed to be exercised
----------
when the Secretary of the Corporation receives written notice of such exercise
from the Participant, together with the required payment of the exercise price.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall
--------------------------------
be disregarded, but shall be accumulated. No fewer than 100 shares may be
purchased on exercise of any Option at one time unless the number purchased is
the total number at the time available for purchase under the Option.
2.5 Individual Option Limits. The maximum number of shares of Common Stock
------------------------
subject to any and all options that are or have been granted to any individual
under this Plan and under any other compensatory plan or authority (including
individual grants without reference to a plan) of the Corporation or any
subsidiaries shall not exceed 75,000 (subject to adjustment
EXHIBIT A - PAGE 2
under Section 3.4), excluding shares subject to options granted for special or
unique services (other than services as an employee, officer or director or
services substantially comparable thereto) or pursuant to antidilution or
similar rights or adjustments in respect of outstanding options.
3. OTHER PROVISIONS.
3.1 Rights of Participants and Beneficiaries.
----------------------------------------
(a) No Service Commitment. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Option) shall confer upon any
Participant any right to continue to serve as a director of the Corporation nor
shall interfere in any way with the right of the Corporation to change director
compensation or other benefits or to terminate the director's service as a
director, with or without cause. Nothing contained in this Plan or any document
related hereto shall influence the construction or interpretation of the
Corporation's Articles of Incorporation or Bylaws regarding service on the Board
or adversely affect any independent contractual right of any Eligible Director
without his or her consent thereto.
(b) Plan Not Funded. Options payable under this Plan shall be payable
----------------
in shares and (except as provided in Section 1.3(b)) no special or separate
reserve, fund or deposit shall be made to assure payment of such Options. No
Participant, Beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock) of the
Corporation by reason of any Option hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Corporation and any Participant, Beneficiary or other person. To the extent that
a Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Option hereunder, such right shall be no greater than (and will
be subordinate to) the right of any unsecured general creditor of the
Corporation.
3.2 No Transferability. Options may be exercised only by, and shares
------------------
issuable pursuant to an Option shall be paid only to the Participant or, if the
Participant has died, the Participant's Beneficiary or, if the Participant has
suffered a Disability, the Participant's Personal Representative, if any, or if
there is none, the Participant. Other than by will or the laws of descent and
distribution, no right or benefit under this Plan or any Option shall be
transferrable by the Participant or shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such attempted action shall be void. The designation of a
Beneficiary hereunder shall not constitute a transfer for these purposes.
3.3 Termination of Directorship. If a Participant's services as a member of
----------------------------
the Board terminate by reason of death or Disability an Option granted pursuant
to this Plan held by such Participant shall, to the extent then exercisable,
remain exercisable for one year after the date of such termination or until the
expiration of the stated term of such Option, whichever first occurs. The
portion of the Option not then exercisable shall terminate. If a Participant's
services as a member of the Board terminate for any other reason, any portion of
an Option granted pursuant to this Plan which is not then exercisable shall
terminate and any portion of such Option which is then exercisable may be
exercised for six months after the date of such termination or until the
expiration of the stated term whichever first occurs, and shall then terminate.
3.4 Adjustments. If there shall occur any extraordinary distribution in
-----------
respect of the Common Stock (whether in the form of Common Stock, other
securities, or other property), or any recapitalization, stock split (including
a stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, or
exchange of Common Stock or other securities of the Corporation, or there shall
occur any other similar corporate transaction or event in respect of the Common
Stock, or a sale of substantially all of the assets of the Corporation as an
entirety, then the Board shall, in such manner and to such extent (if any) as
may be appropriate and equitable, (1) proportionately adjust any or all of (a)
the number and type of shares of Common Stock (or other securities) which
thereafter may be made the subject of Options (including the specific limits and
numbers of shares set forth elsewhere in this Plan), (b) the number, amount and
type of shares of Common Stock (or other securities or property) subject to any
or all outstanding Options and the vesting provisions of the Options, (c) the
EXHIBIT A - PAGE 3
grant, purchase, or exercise price of any or all outstanding Options, or (d) the
securities, cash or other property deliverable upon exercise of any outstanding
Options, or (2) in the case of an extraordinary distribution, merger,
reorganization, consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for a substitution or exchange of any or all
outstanding Options or for a change in the securities, cash or property
deliverable upon exercise of outstanding Options based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event ; provided, however, that (i) such adjustment and the
-------- -------
Board's actions in respect thereof are based on objective criteria, and (ii)
such adjustment (to the extent consistent with Section 3.11(c)) is consistent
with adjustments to comparable Options (if any) held by persons other than
directors of the Corporation.
3.5 Acceleration Upon a Change in Control Event; Early Termination on
-----------------------------------------------------------------
Certain Events. Upon the occurrence of a Change in Control Event, each Option
- --------------
shall become immediately exercisable in full; provided, however, that no Option
-------- -------
shall be so accelerated to a date less than six months after the Option Date of
the Option. To the extent that any Option granted under this Plan is not
exercised prior to (i) a dissolution of the Corporation or (ii) a merger or
other corporate event that the Corporation does not survive, and no provision is
(or consistent with the provisions of Section 3.4 can be) made for the
assumption, conversion, substitution or exchange of the Option, the Option shall
terminate upon the occurrence of such event.
3.6 Compliance with Laws. This Plan, the granting and vesting of Options
--------------------
under this Plan and the issuance and delivery of shares of Common Stock, and/or
of other securities or property pursuant to Section 3.4, under this Plan or
under Options granted hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal tax and securities laws) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Corporation may deem
necessary or desirable to assure such compliance
3.7 Plan Amendment, Shareholder Approval and Suspension.
---------------------------------------------------
(a) Board Authorization. The Board may, at any time, terminate or,
--------------------
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Options may be granted during any suspension of this Plan or after termination
of this Plan, but the Board shall retain jurisdiction as to Options then
outstanding in accordance with the terms of this Plan.
(b) Shareholder Approval. To the extent required by law or the
---------------------
provisions of Rule 16b-3, any amendment to this Plan or any then outstanding
Option shall be subject to shareholder approval.
(c) Limitations on Amendments to Plan and Options. The provisions of
----------------------------------------------
this Plan shall not be amended more than once every six months (other than as
may be necessary to conform to any applicable changes in the Code or the rules
thereunder), unless such amendment would be consistent with the provisions of
Rule 16b-3(c)(2)(ii)(or any successor provision). No amendment, suspension or
termination of this Plan or change of or affecting any outstanding Option shall,
without written consent of the Participant, affect in any manner materially
adverse to the Participant any rights or benefits of the Participant or
obligations of the Corporation under any Option granted under this Plan prior to
the effective date of such change. Changes contemplated by Section 3.4 shall not
be deemed to constitute changes or amendments for purposes of this Section 3.7.
3.8 Privileges of Stock Ownership. Except as otherwise expressly authorized
------------------------------
by this Plan, a Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock subject to an Option granted under
this Plan prior to the satisfaction of all conditions to the valid exercise of
the Option. No adjustment will be made for dividends or other rights as a
shareholders for which a record date is prior to such date of delivery.
EXHIBIT A - PAGE 4
3.9 Effective Date of Plan. This Plan shall be effective as of July 12,
----------------------
1994, but shall be subject to approval of a majority of the shares represented
and entitled to vote at the shareholder meeting at which this Plan is first
submitted for approval (referred to herein as "shareholder approval").
--------------------
3.10 Term of Plan. No Option shall be granted more than ten years after the
------------
effective date of this Plan (the "termination date"). Unless otherwise expressly
------------------
provided in this Plan or in an applicable Option Agreement, any Option
theretofore granted may extend beyond such date, and this Plan shall continue to
apply thereto.
3.11 Legal Issues.
------------
(a) Choice of Law. This Plan, the Options, all documents evidencing
-------------
Options and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.
(b) Severability. If any provision shall be held by a court of
-------------
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) Plan Construction. It is the intent of the Corporation that this
------------------
Plan and Options hereunder satisfy the requirements of a formula plan under Rule
16b-3 and be interpreted in a manner that satisfies the applicable requirements
of Rule 16b-3 so that participants will be able to administer other stock plans
of the Corporation consistent with such Rule and be entitled to the benefits of
Rule 16b-3 (or other exemptive rules under Section 16 of the Exchange Act) in
respect of the option grants and certain other transactions in respect thereof
and will not be subjected to avoidable liability thereunder. If any provision of
this Plan or of any Option would otherwise frustrate or conflict with the intent
expressed above, that provision to the extent possible shall be interpreted and
deemed amended so as to avoid such conflict.
(d) Non-Exclusivity of Plan. Nothing in this Plan shall limit or be
------------------------
deemed to limit the authority of the Board to grant awards or authorize any
other compensation under any other plan or authority.
4. DEFINITIONS
4.1 Definitions.
-----------
(a) "Beneficiary" shall mean the person, persons, trust or trusts
-------------
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Option Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is identified and able to act under the circumstances.
(b) "Board" shall mean the Board of Directors of the Corporation or,
-------
with respect to administrative matters (as distinguished from Plan amendments,
suspension, or termination), any duly authorized committee of members of the
Board designated to administer this Plan.
(c) "Change in Control Event" shall mean any of the following:
-------------------------
(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation; or
(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries or other affiliates, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization are, or will be, owned
directly or indirectly by shareholders of the Corporation immediately before
such reorganization (assuming for purposes
EXHIBIT A - PAGE 5
of such determination that (A) there is no change in the record ownership of the
Corporation's securities from the record date for such approval until such
reorganization and (B) such record owners hold no securities of the other
parties to such reorganization, except that any securities of such other parties
that are held by affiliates of the Corporation shall be considered owned by
shareholders of the Corporation); or
(3) Approval by the shareholders of the Corporation of the sale
of substantially all of the Corporation's business and/or assets to a person or
entity which is not an affiliate; or
(4) Any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act, but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing 45% or more of the combined voting
power of the Corporation's then outstanding securities entitled to vote in the
election of directors of the Corporation; or
(5) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Corporation's shareholders, of each new Board member was
approved by a vote of at least two-thirds of the Board members then still in
office who were Board members at the beginning of such period (including for
these purposes (but, in the case of a successor, without duplication) any new
members whose election or nomination was so approved).
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
------
from time to time.
(e) "Commission" shall mean the Securities and Exchange Commission.
------------
(f) "Common Stock" shall mean the Common Stock of the Corporation and
--------------
such other securities or property as may become the subject of Options, or
become subject to Options, pursuant to an adjustment made under Section 3.4 of
this Plan.
(g) "Corporation" shall mean Image Entertainment, Inc., a California
-------------
corporation, and its successors.
(h) "Disability" shall mean a "permanent and total disability" within
------------
the meaning of Section 22(e)(3) of the Code.
(i) "Eligible Director" shall mean a member of the Board who is not:
------------------- ---
(1) as of the applicable Option Date, an officer or employee of the Corporation
or any subsidiary, or (2) as of the applicable Option Date or during the prior
one year period, a person to whom equity securities (including options, stock
appreciation rights or other derivative securities) of the Corporation or an
affiliate are or have been granted or awarded (or for whose benefit any thereof
have been materially amended) under or pursuant to any discretionary equity
securities plan of the Corporation or an affiliate ("Other Stock Plan") (except
------------------
under this Plan or any other formula or ongoing securities acquisition plan, the
participation in which does not compromise the disinterested administration of
---
any Other Stock Plan under Rule 16b-3).
(j) "ERISA" shall mean the Employee Retirement Income Security Act of
-------
1974, as amended.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
--------------
amended from time to time.
(l) "Fair Market Value" on any specified date shall mean (i) if the
-------------------
stock is listed or admitted to trade on a national securities exchange, the
closing price of the stock on the Composite Tape, as published in the Western
Edition of The Wall Street Journal, of the principal national securities
exchange on which the stock is so listed or admitted to trade, on such date or,
if there is no trading of the stock on such date, then the closing price of the
stock as quoted on such Composite Tape on the
EXHIBIT A - PAGE 6
next preceding date on which there was trading in such shares (the "reference
----------
date"); (ii) if the stock is not listed or admitted to trade on a national
- ------
securities exchange, the last price for the stock on the reference date, as
furnished through the NASDAQ National Market Reporting System by the National
Association of Securities Dealers, Inc. ("NASD") or a similar organization if
------
the NASD is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the NASDAQ National Market Reporting System, the mean between the
bid and asked price for the stock on the reference date, as furnished by the
NASD or a similar organization; or (iv) if the NASD or a similar organization
does not furnish the mean between the bid and asked price for the stock on the
reference date, the valuation as of the reference date furnished by an
independent advisor or investment banker to the Corporation who is recognized in
valuations of this type.
(m) "Option" shall mean an option to purchase Common Stock authorized
--------
and granted under this Plan, and related rights.
(n) "Option Agreement" shall mean an agreement in the form of Exhibit
------------------
A, completed in the manner required by this Plan and executed on behalf of the
Corporation by an executive officer of the Corporation.
(o) "Option Date" shall mean the applicable date for automatic grant
-------------
of Options set forth in Article 2.
(p) "Participant" shall mean an Eligible Director who has been granted
-------------
an Option under the provisions of this Plan.
(q) "Personal Representative" shall mean the person or persons who,
-------------------------
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(r) "Plan" shall mean this Eligible Directors' Stock Option Plan.
------
(s) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
------------
Commission pursuant to the Exchange Act, as amended from time to time.
EXHIBIT A - PAGE 7
PRELIMINARY MATERIALS
IMAGE ENTERTAINMENT, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1994 ANNUAL MEETING OF
SHAREHOLDERS
SEPTEMBER 15, 1995
The undersigned appoints Ira S. Epstein, Martin W. Greenwald, Russell Harris
and Stuart Segall, and each of them, proxies (each with full power of
substitution) to represent the undersigned at the Image Entertainment, Inc. 1995
Annual Meeting of Shareholders to be held on September 15, 1995 and any
adjournments thereof and to vote the shares of the Company's common stock held
of record by the undersigned on July 21, 1995 as directed below.
1. Election of Directors (Proposal 1).
[_] FOR all nominees listed below
(except as indicated to the contrary below).
[_] WITHHOLD AUTHORITY to vote for all nominees 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 RUSSELL HARRIS STUART SEGALL
2. Approval of Amendment to the Company's Bylaws (Proposal 2).
[_] FOR [_] AGAINST [_] ABSTAIN
3. Approval of the Company's 1994 Eligible Directors Stock Option Plan
(Proposal 3).
[_] FOR [_] AGAINST [_] ABSTAIN
4. Ratification of the appointment of KPMG Peat Marwick as the Company's
independent auditors for the fiscal year ending March 31, 1996 (Proposal 4).
[_] FOR [_] AGAINST [_] ABSTAIN
5. 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
PRELIMINARY MATERIALS
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, FOR Proposal 3 and
FOR Proposal 4 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 31, 1995.
Dated:______________________________________
Signed:_____________________________________
Signed:_____________________________________
Please date this Proxy and sign exactly as 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 by
an authorized person.
PLEASE PROMPTLY COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENVELOPE PROVIDED.