Image Entertainment, Inc. (NASDAQ: DISK), a leading independent
licensee and distributor of entertainment programming in North
America, announced today that it has defaulted on payment under its
8.875% senior convertible note due August 30, 2011 in the principal
amount of $15,700,972.60 (the "Note").
On December 9, 2009, the holder (the "Holder") of the Note
provided notice of its election to require the Company to make an
installment payment of principal and accrued interest under the
Note (the "Installment Notice") on December 11, 2009 in the amount
of $4,070,027 (the "Installment Payment"). On December 11, 2009,
the Company entered into a Third Amendment Agreement (the
"Amendment Agreement") with the Holder to amend the Note and the
Installment Notice to change the date on which the Company must pay
the Installment Payment from December 11, 2009 to December 14,
2009. The Amendment Agreement did not rescind the Installment
Notice and provided that the Installment Notice was to be modified
to reflect the appropriate interest accrual as of December 14,
2009.
The Company was unable to make the Installment Payment on
December 14, 2009. The failure to make the Installment Payment on
December 14, 2009 constituted an event of default under the Note.
As a result of the event of default, the Holder is entitled at any
time to provide written notice requiring the Company to redeem all
or any part of the principal amount of the Note. In addition, the
Company must pay the default interest rate of 12% per annum and pay
a late charge in an amount equal to interest on the Installment
Amount at the rate of 15% per annum.
The event of default under the Note also results in a
cross-default under the Company's Loan and Security Agreement, as
amended ("Loan Agreement"), with Wachovia and its Replication
Agreement with Arvato Digital Services ("Arvato"). As a result of
the cross-defaults, both Wachovia and Arvato are entitled, among
other things, to accelerate the amounts due to them under the Loan
Agreement and the Replication Agreement, respectively. As a result
of the default under the Loan Agreement, the Company must pay a
default interest rate premium of 2.0% per annum higher than the
current borrowing rate of 4.0% per annum.
Wachovia and the Holder are parties to a subordination agreement
that provides, among other things, that in the event of a default
under the Note, Wachovia has the right to prevent the Holder from
taking certain action to enforce its rights under the Note for up
to 180 days after July 31, 2009.
The Company does not currently have the funds, or access to the
funds, necessary to repay all of its outstanding obligations to the
Holder, Wachovia, Arvato and its other creditors. Unless the
Company is able to negotiate an amendment, forbearance or waiver
with the Holder, Wachovia, Arvato and its other creditors, the
Company does not currently expect to be able to cure the defaults
under its debt agreements, which failure to cure would have a
material adverse effect on the Company's liquidity, business,
results of operations and financial condition and on its ability to
continue as a going concern and could potentially force the Company
to file for protection from its creditors under Chapter 11 of the
U.S. Bankruptcy Code. The Company continues to work with its
financial advisor to explore strategic alternatives.
About Image Entertainment:
Image Entertainment, Inc. is a leading independent licensee and
distributor of entertainment programming in North America, with
approximately 3,200 exclusive DVD titles and approximately 340
exclusive CD titles in domestic release and approximately 400
programs internationally via sublicense agreements. For many of its
titles, the Company has exclusive audio and broadcast rights and,
through its subsidiary, Egami Media, Inc., has digital download
rights to approximately 2,000 video programs and over 300 audio
titles containing more than 5,100 individual tracks. The Company is
headquartered in Chatsworth, California. For more information about
Image Entertainment, Inc., please go to
www.image-entertainment.com.
Forward-Looking Statements:
This press release includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
relating to, among other things, the Company’s goals, plans and
projections regarding the Company’s financial position, results of
operations, market position, product development and business
strategy. These statements may be identified by the use of words
such as “will,” “may,” “estimate,” “expect,” “intend,” “plan,”
“believe,” and other terms of similar meaning in connection with
any discussion of future operating or financial performance or
other events or developments. All forward-looking statements are
based on management’s current expectations and involve inherent
risks and uncertainties, including factors that could delay, divert
or change any of them, and could cause actual outcomes and results
to differ materially from current expectations.
These factors include, but are not limited to, (a) the Company’s
ability to continue as a going concern, (b) the Company’s ability
to service its principal and interest obligations on its
outstanding debt or otherwise renegotiate or refinance such
outstanding debt, including curing the existing defaults on such
outstanding debt, which renegotiation may not be successful and
refinancing may not be available on acceptable terms, if at all,
which may trigger defaults under its other debt agreements, create
liquidity issues, potentially force the Company to file for
protection from its creditors under Chapter 11 of the U.S.
Bankruptcy Code and prevent the Company from continuing as a going
concern, (c) the Company’s limited funds and the Company’s
inability to raise additional funds on acceptable terms or at all,
(d) the Company’s ability to borrow against the Company’s revolving
line of credit, (e) the Company’s ability to secure media content
on acceptable terms, (f) the Company’s DVD manufacturer continuing
to manufacture and fulfill orders to Company customers while the
Company is past due on its payables to such manufacturer, (g) the
ability of the Company’s common stock to continue trading on The
NASDAQ Stock Market, (h) the performance of business partners upon
whom the Company depends upon, (i) changes in the retail DVD and
digital media and entertainment industries, (j) changing public and
consumer taste and changes in customer spending patterns, (k)
decreasing retail shelf space for the Company’s industry, (l)
further sales or dilution of the Company’s equity, which may
adversely affect the market price of the Company’s common stock,
(m) changes in the Company’s business plan, (n) heightened
competition, including with respect to pricing, entry of new
competitors, the development of new products by new and existing
competitors, (o) changes in general economic conditions, including
the performance of financial markets and interest rates, (p)
difficult, adverse and volatile conditions in the global and
domestic capital and credit markets, (q) claims that the Company
infringed other parties’ intellectual property, (r) changes in
accounting standards, practices or policies, and (s) adverse
results or other consequences from litigation, arbitration or
regulatory investigations.
For further details and a discussion of these and other risks
and uncertainties, see “Forward-Looking Statements” and “Risk
Factors” in the Company’s most recent Annual Report on Form 10-K,
and the Company’s most recent Quarterly Reports on Form 10-Q. Many
of the factors that will determine the outcome of the subject
matter of this press release are beyond Image Entertainment’s
ability to control or predict. Actual results for the periods
identified may differ materially from management’s expectations.
Unless otherwise required by law, the Company undertakes no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or
otherwise.
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