SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 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:
IMAGE ENTERTAINMENT, INC.
9333 Oso Avenue
Chatsworth, California 91311
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 6, 1996
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 6, 1996, 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
---------------------
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. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
---------------------------------------------------
appointment of KPMG Peat Marwick LLP as the Company's independent auditors
for the fiscal year ending March 31, 1997 (Proposal 2).
3. 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 9, 1996 are entitled to notice of and to vote at the
meeting.
By Order of the Board of Directors,
CHERYL LEE
Corporate Secretary
Chatsworth, California
July 29, 1996
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.
IMAGE ENTERTAINMENT, INC.
9333 Oso Avenue
Chatsworth, California 91311
PROXY STATEMENT
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 29,
1996.
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 6, 1996,
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 9, 1996, 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 13,865,028 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 and 2. If the Proxy is
properly executed and returned prior to the Annual Meeting, the shares of Common
Stock it represents will be voted as you direct or, if you indicate no
direction, FOR the director nominees named in Proposal 1 and FOR Proposal 2.
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 and 2) as may
properly come before the Annual Meeting (the Board does not currently know of
any such business).
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.
1
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 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 LLP as the Company's
independent auditors (Proposal 2). 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 or deemed to be beneficially owned as of July 1,
1996 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 BENEFICIALLY OWNED/(1)//(2)/ OF CLASS/(3)/
- ---- -------------------------- --------------
IMAGE INVESTORS CO./(4)//(5)/................................. 5,203,636 36.59%
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
JOHN W. KLUGE AND STUART SUBOTNICK/(4)//(5)/
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
DISNEY ENTERPRISES, INC..................................... 1,671,760 10.88%
500 South Buena Vista
Burbank, CA 91521
MARTIN W. GREENWALD /(6)/................................... 1,077,973 7.63%
STUART SEGALL /(6)/......................................... 993,857 7.14%
RUSSELL HARRIS /(5)//(7)/................................... 130,227 *
IRA S. EPSTEIN /(8)/........................................ 45,981 *
CHERYL LEE.................................................. 117,159 *
JEFF FRAMER................................................. 63,400 *
DAVID BORSHELL.............................................. 85,840 *
ALL DIRECTORS & EXECUTIVE OFFICERS AS A GROUP (7 PERSONS)... 2,513,407 17.08%
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* 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 below, each person named reportedly has
sole voting and investment powers with respect to the Common Stock
beneficially owned by such person, subject to applicable community
property and similar laws. On July 1, 1996, there were 13,699,028 shares
of Common Stock outstanding.
/(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, 1996. These shares are as follows:
Image Investors Co........................................... 522,224
John W. Kluge & Stuart Subotnick/(4)/
Disney Enterprises, Inc...................................... 1,671,760
Mr. Greenwald................................................ 425,699
Mr. Segall................................................... 228,555
Mr. Harris................................................... 52,650
Mr. Epstein.................................................. 42,981
Ms. Lee...................................................... 117,159
Mr. Framer................................................... 63,400
Mr. Borshell................................................. 85,840
All directors and officers as a group (7 persons)............ 1,015,935
3
/(3)/ Common stock not outstanding which is subject to options or warrants
exercisable on or within 60 days of July 1, 1996 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 a 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. 11 (dated December 30, 1992)
to a Schedule 13D, dated July 18, 1988, filed on behalf of IIC, John W.
Kluge and Stuart Subotnick states that 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 9,669 shares exercisable by Mr. Harris and 97,224
shares exercisable by IIC on or within 60 days after July 1, 1996 are
included in the table. The antidilution rights to the 97,224 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 77,577 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.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES.
The Bylaws provide for a Board consisting of a minimum of four (4) and a
maximum of seven (7) members.
The name of each nominee for election to the Board, his principal
occupation, age, all positions and offices with the Company held by him and the
year he first became a director and additional biographical data is set forth
below. For information regarding each nominee's security ownership, see
---
"Security Ownership of Certain Beneficial Owners and Management."
4
MARTIN W. GREENWALD.................................................... Age: 54
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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 has been Chairperson of the Optical
Videodisc Association (formerly the Laserdisc Association of America) since
1995.
STUART SEGALL.......................................................... Age: 51
- -------------
Director and Vice President (not an executive officer) since April 1981. Mr.
Segall's principal occupation is that of principal of Stu Segall Productions, a
television and motion picture production company with offices in North
Hollywood, California and a full-service production facility in San Diego,
California. From 1984 to 1989, Mr. Segall was a supervising producer for Steven
J. Cannell Productions, Hollywood, California.
IRA S. EPSTEIN......................................................... Age: 64
- --------------
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: 52
- --------------
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
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.
5
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. Although the audit committee did not formally
meet during fiscal 1996, it handled committee matters through informal meetings.
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. Although the
compensation committee did not formally meet during fiscal 1996, it handled
committee matters through informal meetings and unanimous written consents.
The Board met five times during fiscal 1996. Each director attended all
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.
Since July 12, 1994, the Company has made automatic annual awards to non-
employee directors under the Company's 1994 Eligible Directors Stock Option Plan
(the "Directors Plan"). On July 12, 1994, July 12, 1995 and July 12, 1996,
Messrs. Epstein and Harris were each granted 15,000 options under the Directors
Plan at an exercise price equal to $7.25, $6.875 and $5.8125, respectively. The
Directors Plan, which provides for automatic annual grants of options to acquire
the Company's Common Stock (the "Options") to non-employee directors, was
approved by the shareholders at last year's Annual Meeting.
The Options granted pursuant to the Directors Plan will expire 10 years
after the date of grant, subject to earlier termination as described below. The
Options become exercisable in installments at the rate of 50% of the shares
initially subject to the Option on the date six months after the grant date, and
another 25% of such initial number of shares on the date 12 months and on the
date 18 months after the grant date.
If an optionee's services as a member of the Board of Directors terminate
by reason of death or disability, the director's Options become fully
exercisable and remain exercisable for one year thereafter or until the
expiration of their stated term, whichever occurs first, and then terminate. If
the director's services terminate for any other reason, the director's Options,
to the extent they are exercisable on such date, remain exercisable for six
months or until the expiration of their stated term, whichever occurs first, and
then terminate; the Options not exercisable at the time of termination of
service will terminate.
Upon the occurrence of certain events described in the Directors Plan
(such as a dissolution, liquidation or certain merger or asset transactions or
changes in control of the Company), each Option awarded under the Directors Plan
will become immediately exercisable, provided that no Option will be accelerated
to a date which is less then six months after the date of grant of the Option.
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 $100,000 in
the last fiscal year:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Other Securities All
Annual Underlying Other
Fiscal Salary Bonus Compensation Options Compensation
Name & Principal Position Year ($)/(1)/ ($)/(2)/ ($)/(3)/ (#)/(4)/ ($)
- ------------------------- ------ ---------- ---------- ------------ ---------- ------------
Martin W. Greenwald, 1996 $ 258,150 $ 230,639 $ -- 0 $ 4,793/(5)/
President & CEO 1995 239,061 200,126 -- 150,000 3,690/(6)/
1994 211,671 333,889 -- 0 3,690/(6)/
Cheryl Lee, 1996 140,969 57,983 -- 60,000 769/(7)/
Chief Administrative 1995 133,028 54,895 -- 25,000 - 0 -
Officer 1994 125,160 21,444 -- 27,480 - 0 -
Jeff Framer, 1996 119,202 57,983 -- 60,000 650/(7)/
Chief Financial 1995 111,019 54,895 -- 25,000 - 0 -
Officer 1994 97,372 21,444 -- 15,000 - 0 -
David Borshell, 1996 111,327 57,983 -- 75,000 622/(7)/
Sr. VP, Sales, Marketing 1995 92,310 54,895 -- 25,000 - 0 -
& Operations 1994 79,200 21,444 -- 15,000 - 0 -
- ---------------------------------
/(1)/ Mr. Greenwald's fiscal 1996, 1995 and 1994 salary amounts include a
personal expense allowance.
/(2)/ The fiscal 1996 and 1995 amounts for all of the executive officers were
awarded under a formal bonus plan adopted July 1, 1994, as amended. 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.
/(3)/ While certain executive officers enjoyed certain perquisites in fiscal
1996, 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. Mr. Greenwald's perquisites included reimbursement for personal and
dependant medical expenses to the extent not covered by insurance. Mr.
Greenwald's perquisites also included premium payments for personal life
and disability insurance.
/(4)/ 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; 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.
/(5)/ Includes $3,690 term life insurance premium payment and $1,103 Company
contribution under 401(k) Plan. Company contributions under the 401(k)
Plan commenced on January 1, 1996.
7
/(6)/ Term life insurance premium payment.
/(7)/ Company contribution under 401(k) Plan. Company contributions under the
401(k) Plan commenced on January 1, 1996.
The following table summarizes options granted in fiscal 1996 to the
executive officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term/(1)/
---------------------------------------------------------------- ------------------------------
Number of Percent of Total
Securities Options Granted
Underlying to Employees Exercise
Options in Fiscal Price Expiration
Name Granted (#)/(2)/ Year/(3)/ ($/Sh) Date 0% ($) 5% ($) 10% ($)
- -------------------- ---------------- --------------- ------ ---------- ------ ------ --------
Cheryl Lee/(4)/ 60,000/(5)/ 24.00% $7.750 06/05/2005 $ 0 $292,440 $741,120
Jeff Framer/(4)/ 60,000/(5)/ 24.00% 7.750 06/05/2005 0 292,440 741,120
David Borshell/(4)/ 75,000/(5)/ 30.00% 7.750 06/05/2005 0 365,550 926,400
- ------------------------------------------
/(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 were granted at a price $0.50 above the fair market
value of the Common Stock on the date of grant.
/(3)/ Based on options granted to employees totaling 250,000 shares.
/(4)/ The options were made under the Company's 1992 Stock Option Plan and vest
in quarterly increments of 5,000 for Ms. Lee and Mr. Framer and 6,250 for
Mr. Borshell on September 6, 1995, December 6, 1995, March 6, 1996, June
6, 1996, September 6, 1996, December 6, 1996, March 6, 1997, June 6,
1997, September 6, 1997, December 6, 1997, March 6, 1998 and June 6,
1998.
/(5)/ 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 options for at least thirty days immediately preceding
the effective date of such termination. In the event an optionee's
employment with the Company ceases for any reason other than death or
disability, the options will terminate two weeks following the date
employment ceases; however, the committee, in its sole discretion, may
extend the exercise period from two weeks to three months. In the event
of an optionee's death or disability, the options may be exercised for
one year thereafter. Subject to the other provisions of the Plan, the
committee has discretionary authority to amend or terminate the Plan and
to do any other act advisable to administer the Plan.
8
The following table summarizes options exercised in fiscal 1996 by the
executive officers named in the Summary Compensation Table and certain other
information regarding their outstanding options:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND 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 Greenwald - 0 - $0 425,699 0 $1,072,613 $0
Cheryl Lee - 0 - 0 112,159 45,000 55,202 0
Jeff Framer - 0 - 0 58,400 45,000 24,634 0
David Borshell - 0 - 0 79,192 56,250 35,505 0
- -------------------
/(1)/ Based on the closing price on NASDAQ/NMS of the Common Stock on March 31,
1996 ($6.75).
/(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.
The Company is currently a party to employment agreements with each of its
executive officers entered into on July 1, 1995. Pursuant to amendments
effective July 1, 1995, all of the agreements have a term commencing July 1,
1994 and ending June 30, 1997, with an automatic extension until June 30, 1999
unless written notice of non-renewal is given by June 30, 1997. Except for base
salary, bonus compensation and fringe benefit amounts, all of the agreements are
identical.
The base salaries (including a personal expense allowance for Mr. Greenwald)
provided for under the agreements are reflected in the Summary Compensation
Table, annualized on a fiscal year basis. Since the agreements only specified
base salary (and for Mr. Greenwald personal expense allowance) amounts for the
first contract year, the agreements were amended on July 1, 1995 to provide that
on the anniversary of each contract year of the agreements commencing on July 1,
1995 each executive would receive a 5% increase to their then annual base salary
(and, for Mr. Greenwald, a 5% increase to his then annual expense allowance),
except for Mr. Borshell, who received a 15.5% increase to his then base salary
for the period commencing on July 1, 1995 and ending on June 30, 1996 and a 5%
increase to his then annual base salary for each subsequent contract year.
The 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 represent a percentage of the Company's fiscal pretax profits
and are based upon certain qualifying conditions, such as maximum total
expenses, minimum gross margin, maximum inventory levels, minimum return on
assets, minimum return on net revenue and minimum current ratio. Mr.
Greenwald's bonus percentage ranges between 2% and 4% provided pretax profits
are greater than a specified amount. The bonus 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 and
are subject to change from time to time at the discretion of the Compensation
Committee.
The agreements provide 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.
9
The agreements provide for severance packages consisting of base salary
continuation and insurance coverage 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. The agreements
also provide for comparable benefits in the event of an executive's death or
permanent disability.
In the event of a "Change of Control" (as defined in the agreements), all
compensation, rights and benefits under the agreements will continue for the
longer of one year following the effective date of termination or through the
expiration of the remaining term of the agreements.
In the event of a termination for "Cause" (as defined in the 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 the payment of
personal life and disability insurance premium payments and reimbursement of
medical expenses not covered by medical insurance of up to $30,000 per annum
(increased from $17,000 per annum pursuant to an amendment effective July 1,
1996), reimbursable personal expenses (as stated above) and use of a company
car.
Outstanding employee stock options granted under the Company's 1992 Stock
Option Plan and individual option grants without reference to a plan include
provisions for acceleration of exercisability upon a change in control
substantially as summarized in note 5 to the "Option Grants in Last Fiscal Year"
table. Options granted under the Company's 1990 Stock Option Plan include
provisions for acceleration of exercisability upon a change in control except in
the event the acquiring corporation (or a parent or subsidiary thereof) agrees
to (i) assume the Company's obligations under the plan and the options or (ii)
replace the options with new options having terms at least as favorable to the
optionee. Options granted under the Company's 1989 Restated Stock Option Plan
do not possess change in control features. Options granted in May 19, 1994
under individual plans include provisions that the Board may terminate the grant
and the options, whereupon the optionee may exercise the options for at least
sixty days following the effective date of termination.
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 and Rentrak) for the 5-year
period ending March 31, 1996. The graph assumes an initial investment of $100
on April 1, 1991 in the Company, the NASDAQ U.S. Market Index and the peer
group. The graph also assumes reinvestment of dividends, if any.
- -------------
* This section of the Proxy Statement shall not be deemed to be incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filings of the Company pursuant to the Securities Act of 1933
or the Securities Exchange Act of 1934, as amended, except to the extent the
Company specifically incorporates this section by reference therein, and shall
not be deemed soliciting material or otherwise deemed filed under either of such
Acts.
10
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG IMAGE ENTERTAINMENT, NASDAQ U.S. AND PEER GROUP*
PERFORMANCE GRAPH APPEARS HERE
Measurement Period IMAGE NASDAQ
(Fiscal Year Covered) ENTERTAINMENT U.S. Peer Group
- ------------------- ------------- ------- ----------
Measurement Pt- 1991 $100.00 $100.00 $100.00
FYE 1992 $150.00 $127.00 $115.32
FYE 1993 $ 76.79 $147.00 $112.30
FYE 1994 $ 96.43 $158.00 $113.47
FYE 1995 $101.79 $176.00 $ 79.73
FYE 1996 $ 96.43 $239.00 $ 39.53
FISCAL YEARS ENDED MARCH 31,
- --------------------------------------------------------------------------------
* Prism Entertainment, a company previously included in the peer group, ceased
trading on the American Stock Exchange on December 1, 1995 and has been
eliminated from the peer group for all years presented.
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 approves all such packages; the Board has
approved amendments to employment agreements described above. The Committee
administers the 1992 Plan, the 1990 Plan and other employee benefit plans of the
Company. The following report addresses the Committee's actions and decisions
with respect to compensation for the 1996 fiscal year.
COMPENSATION OBJECTIVES. The Committee's goal is to maximize shareholder
value over the long-term by attracting, retaining and motivating key executives.
The executive compensation packages contain three primary components: (i) base
salary, (ii) long-term incentive compensation in the form of stock options and
(iii) annual incentive bonuses based on the Company's performance. The Company
offers a contributory 401(k) plan and provides health, life and disability
insurance to all full-time employees. In addition, to the extent reasonably
practicable and to the extent it is within the Committee's control, the
Committee intends to limit executive
- ------------
** The Board Compensation Committee Report on Executive Compensation shall not
be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filings of the
Company pursuant to the Securities Act of 1933 or the Securities Exchange Act
of 1934, as amended, except to the extent the Company specifically
incorporates this section by reference therein, and shall not be deemed
soliciting material or otherwise deemed filed under either of such Acts.
11
compensation in ordinary circumstances to that which is deducible by the Company
under Section 162(m) of the Internal Revenue Code of 1986.
BASE SALARY. When the Committee first established the terms of executive
compensation as set forth in the executives' July 1, 1994 employment agreements,
the Committee based 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. Although the employment agreements
specified base salary amounts (and, for Mr. Greenwald only, a personal expense
allowance amount) for the first contract year of the agreements, they did not
provide for a formula or procedure pursuant to which base salary (and Mr.
Greenwald's personal expense allowance amount) for subsequent contract years
would be determined. Therefore, to eliminate uncertainty and as further
incentive for the executives, the employment agreements were amended effective
July 1, 1995 to provide for annual 5% increases in base salary (as well as Mr.
Greenwald's expense allowance), except for Mr. Borshell who received a 15.5%
increase for the period of July 1, 1995 to June 30, 1996 and will receive annual
5% increases thereafter. The initial 15.5% 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).
OPTION GRANTS. The Committee views the option grant portion of the
executive compensation packages as a special form of long-term incentive
compensation to be awarded on a limited and non-regular basis. Stock options
granted to executives are priced at or above the fair market value of the Common
Stock on the date of grant and are intended to give management a stake in the
Company's growth while aligning management interests with those of the Company's
shareholders. On June 6, 1995, the Committee awarded 60,000 options to each of
Ms. Lee and Mr. Framer and 75,000 options to Mr. Borshell, which the Committee
determined to be the appropriate amounts to motivate these executives in the
long-term.
BONUSES. Bonuses were awarded to the current executive officers based on a
formula plan pursuant to their July 1, 1994 employment agreements. All of the
executive officers were entitled to receive a specified percentage of pretax
profits (2% - 4% for Mr. Greenwald provided a minimum pre-tax profit amount was
achieved, and 0.625% for each of Ms. Lee, Mr. Framer and Mr. Borshell)
conditioned upon the achievement of specific performance criteria (such as
maximum total expenses, minimum gross margin, maximum inventory levels, minimum
return on assets, minimum return on net revenue and minimum current ratio). The
performance criteria are subject to change from time to time at the Committee's
discretion to adjust for changes in the Company's business, capitalization and
performance. 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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The Committee determined that Mr.
Greenwald's base salary and expense allowance as provided in his employment
agreement (including an increase based on the same factors as the increases to
the other executive officers' base salaries), as supplemented by the bonus
awarded to him in accordance with the performance-based formula contained in his
employment agreement, continued to provide appropriate cash compensation to Mr.
Greenwald in light of the compensation objectives, goals and criteria applied
generally to executive officers and summarized above. The Committee also
determined that Mr. Greenwald's receipt of a 150,000 share option in fiscal 1995
reflected the Committee's objectives with respect to the stock option component
of his compensation.
COMPENSATION COMMITTEE
Ira S. Epstein
Russell Harris
12
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 indirectly 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 OVHC are comparable to the terms
of similar agreements between the Company and unaffiliated parties. During the
period commencing on April 1, 1995 and ending on July 1, 1996, the Company paid
OHVC royalties of approximately $702,000.
In June 1996, the Board approved that certain Stock Purchase Agreement,
dated as of June 27, 1996, by and between the Company and Martin Greenwald,
President and Chairman of the Board of Directors. of the Company. The stock
purchase agreement provided for the purchase of 138,000 shares of restricted
Common Stock held by Mr. Greenwald, at a purchase price of $5.8125 per share.
The $5.8125 per share purchase price was at the same discount to market as the
per share purchase price applicable under a Stock Purchase Agreement entered
into with Mr. Segall, a director of the Company, dated as of July 12, 1995. The
closing price of the Common Stock on June 27, 1996 was $6.125. Mr. Greenwald
acquired 56,151 of the 138,000 shares on December 12, 1994 upon the exercise of
an option dated December 31, 1984 granted to him under a Company stock option
plan. The exercise price of the option was $1.070 per share. Mr. Greenwald
acquired the 81,849 balance of the 138,000 shares on November 15, 1994 upon the
exercise of a non-compensatory warrant dated December 18, 1985. The exercise
price of the warrant was $0.594 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, at a purchase
price of $6.5625 per share. The $6.5625 per share purchase price was at
substantially the same discount to market as the per share purchase price
applicable under Mr. Kirkland's Stock Purchase Agreement, dated as of January
26, 1995. The closing price of the Common Stock on July 12, 1995 was $6.875
Mr. Segall acquired 44,216 of the 137,000 shares upon exercise on December 12,
1994 of an option dated December 31, 1984 granted under a Company stock option
plan. The exercise price of the option was $1.070 per share. Mr. Segall
acquired 92,784 of the 137,000 shares on November 15, 1994 upon the exercise of
a non-compensatory 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, Disney Enterprises, Inc. (formerly
called The Walt Disney Company) ("Disney"), was issued a warrant to purchase
1,671,760 shares of the Company's Common Stock at an exercise price of $6.00 per
share. On September 29, 1995, to reduce the potential dilution of the Company's
shareholders and as an inducement for the extension of the November 28, 1991
agreement, the Company granted cashless exercise rights based on average fair
market value at the date of exercise in connection with the warrant.
Under a July 1, 1992 agreement with Twentieth Century Fox Home Entertainment
(formerly called 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 ("Fox"), was issued a warrant to
purchase 1,671,760 shares of the Company's Common Stock at an exercise price of
$6.00 per share. On May 10, 1996, to reduce the potential dilution of the
Company's shareholders and as an inducement for the extension of the July 1,
1992 agreement, the Company granted cashless exercise rights based on average
fair market value at the date of exercise in connection with the warrant. On
May 10, 1996, Fox exercised the warrant pursuant to the cashless exercise right
at an average market price of $6.9375, resulting in a net issuance to Fox of
300,060 shares. The closing price on the date of exercise was $7.3125.
13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Common Stock, to file with the Securities and Exchange Commission (the
"SEC") and the NASDAQ/NMS initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports they
file. Based solely upon review of the copies of Section 16(a) reports furnished
to the Company, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that, during
fiscal 1995 all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than 10% shareholders were complied with.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has unanimously appointed, and recommends that the shareholders
ratify the appointment of, KPMG Peat Marwick LLP, independent certified public
accounts and the Company's auditors since fiscal 1990, as auditors for fiscal
1997. 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 LLP will be present at the Annual Meeting,
will have the opportunity to make statements if they so desire, and will be
available to respond to appropriate questions.
VOTE REQUIRED.
Assuming a quorum is present, the affirmative vote of the holders of a
majority of the Common Stock represented (in person or by proxy) and voting at
the Annual Meeting (the shares affirmatively voting must also constitute at
least a majority of a quorum) is required to ratify the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors.
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy solicitation materials
for the 1997 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 March 30, 1997.
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
14
notifying shareholder: (a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the number of
shares of voting stock of the Company owned by each proposed nominee; (d)
the name and residence address of the notifying shareholder; and (e) the
number of shares of voting stock of the Company owned by the notifying
shareholder. Nominations not made in accordance herewith shall be
disregarded by the then chairman of the meeting, and the inspectors of
election shall then disregard all votes cast for each nominee.
ANNUAL REPORT TO SHAREHOLDERS FORM 10-K
The Company's Annual Report to Shareholders (i.e., the Company's Form 10-K
for the fiscal year ended March 31, 1996) 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 and 2) as may properly come before the Annual
Meeting (the Board does not know of any such business as of this date) and all
matters incident to the conduct of the Meeting.
By Order of the Board of Directors,
IMAGE ENTERTAINMENT, INC.
CHERYL LEE
Corporate Secretary
Chatsworth, California
July 29, 1996
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.
15
IMAGE ENTERTAINMENT, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1996 ANNUAL MEETING OF
SHAREHOLDERS
SEPTEMBER 6, 1996
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.
1996 Annual Meeting of Shareholders to be held on September 6, 1996 and any
adjournments thereof and to vote the shares of the Company's common stock held
of record by the undersigned on July 9, 1996 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. Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending March 31, 1997 (Proposal 2).
[_] FOR [_] AGAINST [_] ABSTAIN
3. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the Annual Meeting and any matters
incident to the conduct of the Meeting.
PLEASE SIGN ON REVERSE SIDE
The shares represented by this Proxy will be voted as directed above. If no
direction is indicated, the shares represented by this Proxy will be voted FOR
the director nominees named in Proposal 1 and FOR Proposal 2 and will be voted
in the discretion of the proxies on such other business as may properly come
before the Annual Meeting. The undersigned acknowledges receipt of the Notice
of Annual Meeting of Shareholders and the Proxy Statement dated July 29, 1996.
Dated: _____________________________________
Signed: ____________________________________
Signed: ____________________________________
Please date this Proxy and sign exactly as
your name appears hereon. If shares are
jointly held, this Proxy should be signed
by each joint owner. Executors,
administrators, guardians or others signing
in a fiduciary capacity should state their
full titles. A Proxy executed by a
corporation should be signed in its name by
its president or other authorized officer.
A Proxy executed by a partnership should be
signed in its name by an authorized person.
PLEASE PROMPTLY COMPLETE, DATE AND SIGN
THIS PROXY AND RETURN IT IN THE ENVELOPE
PROVIDED.