Exhibit 10.1
Portside Growth and Opportunity Fund
c/o Ramius LLC
599 Lexington Avenue, 20th Floor
New York, New York 10022
December 29, 2009
Image Entertainment, Inc.
20525 Nordhoff Street, Suite 200
Chatsworth, California 91311
Attention: Jeff Framer

Re:   Payoff of Convertible Note

Dear Sirs:
Reference is hereby made to that certain Amended and Restated Senior Secured
Convertible Note (the “Note”), dated as of July 30, 2009, as further amended to
date, made by Image Entertainment, Inc., a Delaware corporation (the “Company”),
in favor of Portside Growth and Opportunity Fund (“Portside”). Capitalized terms
used but not defined herein shall have the meanings assigned to them in the
Purchase Agreement (as defined below).
On December 21, 2009, the Company entered into a Securities Purchase Agreement
(the “Purchase Agreement”) with JH Partners, LLC, as Investor Representative
(the “Investor Representative”), and the Investors named therein. Portside
understands that Investors have the right to terminate the Purchase Agreement on
December 29, 2009 if Investors and the Company have not achieved a reduction in
obligations to the Company’s creditors that is satisfactory to Investors in
their sole discretion, and Investors will be acting in reliance on this letter
(the “Payoff Letter”) if they elect not to exercise their right to terminate the
Purchase Agreement. In order to induce Investors to forego their right to
terminate the Purchase Agreement and to complete the transactions to be
completed at the Initial Closing (as defined in the Purchase Agreement) under
the Purchase Agreement and to make an investment in the Company, a portion of
the proceeds of which will be paid to Portside, Portside has agreed to deliver
to Investors this Agreement setting forth the amount required to be paid in cash
and shares of the Company’s common stock on the Initial Closing Date (as defined
in the Purchase Agreement) by or on behalf of the Company to Portside in order
to pay in full and fully satisfy and discharge the Note.
This Payoff Letter will confirm that, upon receipt by you of the Payoff Amount
(as defined below) in accordance with this Payoff Letter, all of the obligations
of the Company under the Note shall be terminated.
Payoff Amount. (a) On the Initial Closing Date, the Company shall pay to
Portside cash in the amount of $15,000,000.00 (the “Cash Payment”) and issue to
Portside 3,500,000 shares of the Company’s common stock, par value $0.0001 per
share (the “Shares,” and together with the Cash Payment, the “Payoff Amount”).
The Company, or the Investors on behalf of the Company, shall pay the Cash
Payment to Portside pursuant to wire transfer instructions to be provided by
Portside to the Company and the Investors at least two business days prior to
the Initial Closing Date.

 

 

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(b) The Shares shall be issued to Portside (i) in exchange for $10,000 in
principal amount of the Note pursuant to an exchange agreement (“Exchange
Agreement”) to be reasonably agreed between the Company and Portside and (ii) in
reliance upon the exemption from registration provided by Section 3(a)(9) of the
Securities Act of 1933, as amended. The Exchange Agreement shall contain
representations and warranties and closing conditions substantially the same as
those set forth in the sample Exchange Agreement provided by Portside to the
Investors by email on December 29, 2009, except that the Company shall not be
required to make any representations regarding its listing status on a Principal
Market (as defined in the Note) or the absence of a default under the Note, and
the exchange shall not be conditioned on the Company’s common stock continuing
to be listed on a Principal Market. The Exchange Agreement will contain the
Company’s acknowledgement that the holding period of the Shares may be tacked
onto the holding period of the Notes and the Company’s agreement not to take a
contrary position. Furthermore, the Exchange Agreement will provide that the
Company agrees to take all actions, including, without limitation, the issuance
by its legal counsel of any reasonably necessary legal opinions, necessary to
issue Shares that are freely tradable on the principal exchange or quotation
service on which the Company’s common stock is then listed or quoted without
restriction and not containing any restrictive legend, in each case without the
need for any action by the Investor. The Exchange Agreement will require the
Company to use commercially reasonable efforts to maintain a market for
quotation and trading of its common stock, such as the Pink sheets or the OTCBB
if the common stock is not listed on Nasdaq, and will not take actions to
inhibit the quotation and trading of its common stock on any such market. In
respect of the Shares to be delivered to Portside, the Company shall deliver to
Portside a copy of irrevocable transfer agent instructions to its transfer agent
Computershare Investor Services (the “Transfer Agent”), dated the Initial
Closing Date, authorizing and instructing the Transfer Agent to issue the Shares
to Portside.
Termination of Obligations. Upon (a) our receipt of the Cash Payment,
(b) execution of the Exchange Agreement by the Company and Portside and (c) our
receipt of the irrevocable transfer agent instructions to issue the Shares in
accordance with this Payoff Letter and the Exchange Agreement, (i) all
indebtedness for borrowed money and any other obligations of the Company under
the Note, including without limitation the principal, interest, premium and any
other amounts whatsoever due under the Note, shall be fully paid, satisfied,
discharged and released, and the Note shall be terminated; and (ii) all security
interests, mortgages, guaranties, pledges and other liens granted to or held by
Portside and any other secured parties under the security documents securing the
Note shall be forever satisfied, released and discharged without further action.
Treatment of Warrants. The Company hereby acknowledges and agrees that (i) the
transaction contemplated by the Purchase Agreement constitutes a “Dilutive
Issuance”as defined in the Amended and Restated Warrants dated November 10,
2006, as further amended to date, issued by the Company to Portside (the
“Warrants”) and (ii) in accordance with Section 4(b) of the Warrants, payment of
the Black-Scholes Value of the Warrants by the Company to Portside as a result
of the transaction contemplated by the Purchase Agreement shall be solely at the
option of Portside and not the Company.
No Assignment. Portside has sole, good and marketable title to, and owns of
record and beneficially, the Note, free and clear of any and all liens. No other
person has any right, title or interest in the Note. Portside does not have an
obligation of any kind or nature, absolute or contingent, to any other person to
sell, assign, transfer or otherwise dispose of, and has not entered into any
contract, option or other arrangement or understanding with respect to the
direct or indirect sale, assignment, transfer or other disposition of, the Note
(other than this Payoff Letter).

 

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Miscellaneous. The Investor Representative and the Investors are intended
third-party beneficiaries of this Payoff Letter. This Payoff Letter may be
signed by the parties hereto in several counterparts. Delivery of a photocopy or
facsimile of an executed counterpart of this Payoff Letter shall be effective as
delivery of a manually executed original counterpart of this Payoff Letter. The
validity, construction and effect of this Payoff Letter shall be governed by the
laws of the State of New York (without giving effect to principles of conflicts
of law).
Termination. This Payoff Letter shall terminate and be of no further force or
effect upon the earlier of (i) the termination of the Purchase Agreement and
(ii) January 9, 2010 if the Initial Closing has not been completed on January 8,
2009.

 

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Very truly yours,

        PORTSIDE GROWTH AND OPPORTUNITY FUND     By:   /s/ OWEN LITTMAN    
Name: Owen Littman      Title: Authorized Signatory   

AGREED AND ACCEPTED:

          IMAGE ENTERTAINMENT, INC.
      By:   /s/ JEFF M. FRAMER     Name: Jeff M. Framer     Title: President and
Chief Financial Officer       1/7/10       

 

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