**EXHIBIT 10.42**

 

**EMPLOYMENTAGREEMENT**

** **

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered intoas of April 1, 2004 (the “Effective Date”), by and between IMAGEENTERTAINMENT INC., a California corporation (“Image”), and MARTIN W.GREENWALD, an individual (“Executive”).

 

**RECITALS**

** **

WHEREAS, the Board of Directors of Image has determined that because ofExecutive’s substantial experience with respect to sales and marketing,management and other aspects of the business of Image, Executive’s businessrelationships in connection with the business of Image, and Executive’s pastleadership and familiarity with the clientele served by Image, it is in thebest interests of Image to secure the services of Executive and to provideExecutive with the compensation and benefits set forth herein; and

 

WHEREAS, Executive desires to render to Image, on an exclusive basis,Executive’s professional services with respect to Executive’s experience andabilities, and Image desires to secure, on an exclusive basis, Executive’sservices, on the terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual promises and covenantscontained herein, the parties hereto agree as follows:

 

**1.**             TERM OF AGREEMENT.

** **

Except as otherwise expressly set forth herein, this Agreement shallremain in full force and effect for the period commencing as of the date hereofand ending on March 31, 2007 (the “Term”) subject to exercise ofthe Renewal Option Periods set forth in Section 7 herein.  The capitalized word “Term” as used in otherparagraphs of this Agreement (except Paragraph 3(a)) shall include anyextensions pursuant to the preceding sentence.

 

**2.**             ENGAGEMENT.

** **

Subject to the terms and conditions contained herein, Image herebyengages the services of Executive (the “Services”) and Executive herebyaccepts such engagement and agrees to render Executive’s Services to Image forthe Term. Executive shall report directly to the Image Board of Directors andinitially shall have the title of “CHIEF EXECUTIVE OFFICER and PRESIDENT.”

 

(a)                                  **Extent of Services and Duties**.  Executive shall perform such dutiescompatible with Executive’s position as an “Executive Officer” (as definedbelow) and as the Board of Directors of Image may reasonably require.  In rendering Services to Image, Executiveshall use Executive’s best efforts and ability to maintain, further and promotethe interests and welfare of Image.  Atthe request of Image, Executive shall serve as an

 

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officer or director of Image or any entity controlled by Image or inwhich it has a substantial direct or indirect interest (any such entity orentities together with Image, the “Company”), without additional compensation,provided that Executive is included on any such entity’s directors and officersinsurance policy (if any) or is otherwise fully indemnified by Image for allsuch additional duties to the full extent provided by law.  For purposes of this Agreement, “ExecutiveOfficer” shall include any person similarly designated as an “ExecutiveOfficer” in that person’s Employment Agreement with Image.

 

(b)                                 **Exclusive Engagement**.  Executive hereby acknowledges and agreesthat the engagement of Executive by Image under this Agreement is exclusive andthat during the Term hereof Executive shall not, directly or indirectly,whether for compensation or otherwise, engage in any business that iscompetitive with the business of the Company or that otherwise interferes inany significant respect with the Executive’s exclusive commitment and dutiesunder this Agreement, or render any services of a business, commercial orprofessional nature to any other person or organization that is a competitor ofImage or in a business similar to that of Image, without the prior writtenconsent of Image.  Notwithstanding theforegoing, Executive may make and manage personal business investments of hischoice and serve in any capacity with any civic, educational or charitableorganization without seeking or obtaining approval by the Board, provided thatsuch activities and services do not substantially interfere or conflict withthe performance of duties hereunder or create any conflict of interest withsuch duties.

 

**3.**             COMPENSATION.

** **

(a)                                  **Base Salary**.  During the Term of this Agreement, Image hereby agrees to payExecutive for all Services to be rendered hereunder a base salary (“BaseSalary”) at the following rates, with annual raises for any specific yearas reflected below:

 
| **Period**                                               |   | **Annual Rate** |
|----------------------------------------------------------|--------|-----------------|
|                                                     |   |            |   |   |
| Year ending on the first anniversary of the date hereof  |   | $               | 522,374 |   | per year |
|                                                     |   |            |   |   |
| Year ending on the second anniversary of the date hereof |   | $               | 548,493 |   | per year |
|                                                     |   |            |   |   |
| Year ending on the third anniversary of the date hereof  |   | $               | 575,917 |   | per year |

 

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In the event the Term is extended pursuant to Paragraphs 1 and 7, theBase Salary for each such extension shall be (i) the Base Salary for the yearending on the expiration date of the Term prior to the extension plus (ii) anamount equal to five percent (5%) of the Base Salary.

 

For fiscal year April 1, 2004 through March 31, 2005, only,the aforementioned increase in base salary will be calculated on a 3.75%increase from the previous year. Commencing April 1, 2005, the full 5% increase will be added to thebase salary for all subsequent years of the Term, including any extensionsthereto.

 

The Base Salary will be payable in equal biweekly installments or asotherwise provided in accordance with the regular executive officercompensation pay schedules and procedures in effect from time to time forImage, subject to all applicable withholding and deductions.

 

There shall be deducted from all compensation payable to Executivehereunder such sums, including without limitation, social security, income taxwithholding and unemployment insurance, as Image is by law obligated to deductand additionally as the Executive may duly authorize.

 

(b)                                 **Bonus Compensation**.** **Executivemay be entitled to participate in a bonus plan in an amount and form of paymentto be presented annually by the CEO and Compensation Committee to Image.  Executive acknowledges that any Bonus isdiscretionary and based on corporate profitability and Executive’s performance,jointly.

 

The Bonus, if any, granted to Executive will be paid at the latest byJune 30th of each year.

 

**4.**             OPTIONS AND OTHER STOCK-BASED AWARDS.

 

In addition to Base Salary and discretionary Bonus Compensation, Imagemay grant stock options and other stock-based awards to Executive, in such formand amounts, and at such time or times, as Image’s Board of Directors (or, ifapplicable, the administrators of Image’s stock option plans) shalldetermine.  If this Agreement isterminated early “Without Cause” under Subparagraph 12(b) or upon “Good Reason”by Executive under Paragraph 14, all unvested options granted to Executive willimmediately vest.  The vesting of otherstock-based awards will depend upon the provisions of the Executive’s awardagreement and the plan (if any) under which the Awards are granted.  Unless this Agreement is terminated earlyfor Cause under Subparagraph 12(a), all options granted to Executive prior toApril 1, 2004 shall be exercisable after employment ceases for the longestperiod permissible under the applicable stock option plan, to the extent theoption was vested as of the date of termination, and all options or rightsgranted on or after April 1, 2004 shall be exercisable as provided in theapplicable award or grant.

 

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The Parties acknowledge that the Compensation Committee will bepresented with a revised Executive Stock Plan by the CEO, which, when approved,will be intended to provide Executive with enhanced stock option opportunities.

 

**5.**             FRINGE BENEFITS.

 

(a)                                  Imageagrees to provide Executive with fringe benefits including but not limited tothe medical, dental, life and short and long-term disability insurance, expenseallowance and vacation time described below:

 

(i)                                     **Medical, Dental And Life Insurance**.  Image shall purchase (or, if applicable, maintain)during the Term medical, dental and life insurance for Executive, and providecoverage under the medical and dental policies for Executive’s direct dependentbeneficiaries (*e.g.*, spouse andminor children), on terms no less favorable than the terms and conditions ineffect as of the date hereof and at all times at least equal to that receivedby any other Executive Officer (collectively, “Insurance”).

 

(ii)                                  **Business/Travel Expenses**.  Executive shall be reimbursed in full forall reasonable and actual out-of-pocket business and travel expenses incurredin the performance of Executive’s Services, on terms and at all times at leastequal to that received by any other Executive Officer, provided Executive shallfirst present an itemized account of such expenditures together with supportingvouchers.

 

(iii)                               **Vacation Time**.  Executive is entitled to 4 weeks of paid vacation time per yearof the Term, but may accrue no more than 8 weeks vacation during the Term.  Executive must exercise all or part of his vacationbenefits upon the accrual of eight unused weeks before further vacationbenefits will accrue.

 

(b)                                 **CEO Fringe Benefits**.  Notwithstanding the foregoing, Image agreesto also provide Executive with the following fringe benefits:

 

(i)                                     **Personal Life and Non-Reimbursable Medical Expenses**.  Image shall purchase (or, if applicable,maintain, or reimburse Executive for the cost of premiums for) personal lifeinsurance for Executive on terms no less favorable than the terms andconditions in effect as of the date hereof; provided, however,that the annual premium payment for such coverage, together with payment forany non-reimbursable medical expenses (*i.e.*,medical expenses not covered by the medical and dental policies), shall notexceed $55,000 per annum (“The Premium/Expense Cap”).  Said Premium/Expense Cap will increase by 5% each year,

 

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commencing April 1, 2005. Executive shall have the exclusive right to name the beneficiaries ofsuch coverage.

 

(ii)                                  **Personal Expenses**.  Executive shall receive an unaccountable,personal expense allowance annualized at $86,916 per year for the first year ofthe current Term, payable in equal monthly installments of $7,243, gross pay.  For each year of the Term commencing on thefirst anniversary of the date hereof, Executive will receive a 5% increase toExecutive’s then personal expense allocation.

 

(iii)                               **Company Car**.  Executive shall be entitled to the use of a company car and toreimbursement for all reasonable expenses incurred in connection with the useof such car, including but not limited to the costs of gasoline,maintenance/service and car insurance. A portion of the cost of said gasoline and/or maintenance, as well as apercentage of the lease value attributed to personal use may be charged againstExecutive at the end of each fiscal year as determined by Image and consistentwith IRS requirements.

 

**6.**             SEVERANCE.

 

Upon expiration of the Term, Executive shall be entitled to receive:

 

(a)                                  BaseSalary continuation for a period of 6 months without vacation accrual; and

 

(b)                                 anyBonus Compensation payable but not previously paid for any prior completedfiscal year, if Executive has remained employed for the period contemplated bySubparagraph 3(b); plus a prorated portion of Bonus Compensation, if any,otherwise payable pursuant to Subparagraph 3(b) for 6 months or any partialfiscal year that has occurred prior to the expiration of the Term, whichever isgreater, payable only if and when the amount thereof is determined inaccordance with the terms of the bonus opportunity or entitlement; and

 

(c)                                  Fullinsurance continuation for a period of 6 months, with COBRA entitlementcommencing thereafter, if permissible; otherwise, 6 months insurancecontinuation under COBRA, payable by Image for the first 6 months, and payableby Executive at his option for the balance of the COBRA term.

 

**7.**             RENEWAL OPTIONS.

** **

Image may exercise 2 one-year options to extend the term of thecontract.  The first option must beexercised by March 31, 2006, through delivery to the address

 

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designated by Executive in Paragraph 15(e) of written notice of intentto extend the Term from April 1, 2007 through March 31, 2008.

 

The second one year option must be exercised by Image by March 31,2007, in the same manner described above, to extend the term from April 1,2008 to March 31, 2009.

 

**8.**             CONFIDENTIALITY.

 

In consideration of the payments to be received hereunder, Executiveagrees as follows:

 

(a)                                  Thatduring the Term of this Agreement he will have access to and become acquaintedwith various “Trade Secrets” (as defined below) and proprietary information ofImage.  Except as Executive’s duties mayrequire or as Image may otherwise consent to in writing, Executive will not atany time disclose or use to the detriment of Image or the sole benefit ofExecutive, either directly or indirectly, and either during or subsequent tothe Term hereof, any information, knowledge or data he receives in confidence oracquires from Image or which relates to the Trade Secrets of Image.  For purposes of this Agreement “TradeSecrets” shall include, but not be limited to:

 

(i)                                     Financialinformation, such as Image’s earnings, assets, debts, prices, pricingstructure, volumes of purchases or sales or other financial data, whetherrelating to Image generally, or to particular products, services, geographicareas, or time periods;

 

(ii)                                  Supplyand service information, such as goods and services, suppliers’ names oraddresses, terms of supply or service contracts, or of particular transactions,or related information about potential suppliers, to the extent that suchinformation is not generally known to the public, and to the extent that thecombination of suppliers or use of a particular supplier, though generallyknown or available, yields advantages to Image, the details of which are notgenerally known;

 

(iii)                               Marketinginformation, such as details about ongoing or proposed marketing programs oragreements by or on behalf of Image, sales forecasts or results of marketingefforts or information about impending transactions;

 

(iv)                              Licensingor Distribution information, such as details about ongoing or proposednegotiations or agreements by or on behalf of Image, terms and details of suchnegotiations or agreements or results of licensing or distribution efforts orinformation about impending transactions; or,

 

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(v)                                 Customerinformation, such as any compilation of past, existing or prospectivecustomers, customers’ proposals or agreements between customers and status ofcustomers accounts or credit, or related information about actual orprospective customers.

 

(b)                                 Thatall files, records, documents, data information and customer lists are special,valuable and unique assets of Image and are essential to its continued businesssuccess,  and that under no circumstanceduring the Term hereof or subsequent thereto will he influence or attempt toinfluence any current employee of Image to terminate his or her employment withImage to work for any competitor of Image, nor shall the Executive solicit,directly or indirectly, any customers of Image or disclose or use for thepurpose of such solicitation, without the prior written consent of Image, anyfiles, records, document, data, information, customer lists or any otherproprietary information of Image for a period of 2 (two) years after thetermination, for any reason, of his employment.

 

(c)                                  Executiveacknowledges that any violation of the terms of this Paragraph 8 willconstitute a material breach of this Agreement and will cause Image immediateand irreparable harm and that the damages which Image will suffer may bedifficult or impossible to measure. Therefore, upon any actual or impending violation of this Paragraph 8,Image shall be entitled to the issuance of a restraining order, preliminary andpermanent injunction, without bond, restraining or enjoining such violation byExecutive or any entity or person acting in concert with Executive. Such remedyshall be additional to and not in limitation of any other remedy which mayotherwise be available to Image.

 

**9.**             INDEMNIFICATION OF EXECUTIVE.

** **

Image will, to the maximum extent permitted by law, indemnify and holdExecutive harmless against expenses, including reasonable attorney’s fees,judgments, fines, settlements and other amounts actually and reasonablyincurred in connection with any proceeding arising by reason of Executive’semployment by Image.  Image shalladvance to Executive any expenses incurred in any proceeding to the maximumextent permitted by law.  Executive willbe entitled to utilize defense legal counsel of his choice, subject to theapproval of Image, which approval will not be unreasonably withheld.  Image will at all times maintain directors’and officers’ liability insurance (“D&O Insurance”), or havesufficient funds to self-insure, in amounts and on terms at least as favorableas the D&O Insurance policy in effect on the date hereof.

 

**10.**          DEATH.

 

In the event of Executive’s death this Agreement will terminate on thelast day of the calendar month of Executive’s death.  In such event, but without limiting any worker’s compensationremedies available to Executive’s estate or survivors,

 

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Executive’s personal representative, heirs or beneficiaries entitled bywill or the laws of descent and distribution shall be entitled to receive only:

 

(a)                                  Allaccrued but unpaid wages, bonus payments and vacation;

 

(b)                                 BaseSalary continuation for a period of 6 months or the expiration of the Term,whichever occurs first;

 

(c)                                  anyBonus Compensation payable but not previously paid for any prior completedfiscal year, if Executive has remained employed for the period contemplated bySubparagraph 3(b); plus a prorated portion of Bonus Compensation, if any,otherwise payable pursuant to Subparagraph 3(b) for 6 months or any partialfiscal year that has occurred prior to the expiration of the Term, whichever isgreater, payable only if and when the amount thereof is determined inaccordance with the terms of the bonus opportunity or entitlement; and

 

(d)                                 dependentInsurance continuation for a period of 6 months or the expiration of the Term,whichever occurs first.

 

**11.**          PERMANENT DISABILITY/SUSPENSION.

** **

If Executive fails, because of physical or mental illness, incapacityor injury (“disability”) and other than in connection with an authorized leaveof absence, to perform a majority of Executive’s usual duties for a period oflonger than 120 consecutive days or an aggregate 150 days in a 12-monthperiod.  Image’s obligation to pay BaseSalary will be suspended, subject to compliance with applicable law.  If the suspension because of disability isreasonably anticipated to exceed 180 consecutive days, or an aggregate 210 daysin a 12-month period, Image may terminate this Agreement effective upon 30 daysprior written notice to Executive.  Insuch event, Executive shall be entitled to receive, in addition to any otherinsurance benefits, the following:

 

(a)                                  BaseSalary continuation for a period of 6 months;

 

(b)                                 anyBonus Compensation payable but not previously paid for any prior completedfiscal year, if Executive has remained employed for that year; plus a proratedportion of Bonus Compensation, if any, otherwise payable pursuant toSubparagraph 3(b) for 6 months or any partial fiscal year that has occurredprior to the suspension of Executive’s duties due to disability, whichever isgreater, payable only if and when the amount thereof is determined inaccordance with the terms of the bonus opportunity or entitlement; and

 

(c)                                  Paymentof insurance premiums for a period of 6 months in addition to any other premiumbenefits available through the insurance policies.

 

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Disagreement as to the severity, characterization or anticipatedduration of a disability or suspension and/or the date suchdisability/suspension commenced, as it relates only to company-providedbenefits exclusive of disability insurance-funded benefits, shall be settled bythe majority decision of three neutral arbitrators (or licensed physicians, ifthe parties so agree) — one to be selected by each party to the dispute, thetwo thus appointed shall choose the third, and the three thus appointed shallconstitute the board of arbitration. Such board, acting by majority vote within 30 days after choosing thethird arbitrator, shall resolve such disagreement and their decision shall befinal and binding on Executive, Image and any other person with an interest inthe matter.

 

**12.**          TERMINATION.

** **

(a)                                  **“Cause.”** In the event of “Cause” (as defined below), Image may terminate thisAgreement at any time effective upon delivery of written notice toExecutive.  In such event, all of Image’sobligations hereunder will immediately terminate without furtherliability.  Moreover, Executive shallnot be entitled to receive any severance, fringe benefits, compensation orother such rights hereunder, nor shall Executive be entitled to receive any BonusCompensation otherwise payable pursuant to Subparagraph 3(b).  For purposes of this Agreement “Cause”shall include, but is not limited to:

 

(i)                                     Executive’s(a) fraud, dishonesty or felonious conduct or breach of fiduciary duty;(b)willful misconduct or gross negligence in the performance of Executive’sduties hereunder; (c) knowing and/or willful violation (including conduct inrespect of Executive’s supervisory responsibilities) of any law, rule orregulation or other wrongful act that causes or is likely to cause harm, lossor disrepute to the Company; or (d) conviction of a felony or misdemeanor(other than minor traffic violations, a first time driving under the influenceof alcohol conviction, or an offense that does not affect the business or reputationof the Company); or

 

(ii)                                  Executive’sbreach of any material provision of this Agreement or any other materialagreement between Image and Executive, whenever executed, provided, however,that bona fide disagreements or disputes as to expense reimbursement shall notbe deemed fraud or felonious conduct or Executive’s breach of any materialprovision of this Agreement.

 

(iii)                               Executive’sfailure to comply with all relevant and material obligations, assumable andchargeable to an executive of his corporate rank and responsibilities, underthe Sarbanes-Oxley Act.

 

(iv)                              Inthe event of termination for Cause pursuant to the grounds in Paragraph12(a)(i)(a) or 12(a)(i)(b), Company must first conduct a

 

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thorough, good faith investigation by an impartial third party (such asa retired judge or alternative dispute resolution service provider) to confirmthe Company’s belief that it is more likely than not that Cause exists toterminate Executive.

 

(b)                                 **“Without Cause**.”  Notwithstanding anything contained herein to the contrary, ifthis Agreement is terminated prior to expiration of the Term for any reasonother than (i) pursuant to Paragraph 10 or 11, (ii) for Cause, or (iii) pursuantto Executive’s Termination for Good Reason pursuant to Paragraph 14, thisAgreement shall be deemed to have been terminated “Without Cause.”  If such termination occurs prior to a Changein Control, Executive shall be entitled to receive all of the compensation,rights and benefits described in Paragraphs 3(a) and (b), 4 and 5 through theexpiration of the Term and the severance described in Paragraph 6, as if thisAgreement were in full force.

 

**13.**          CHANGE IN CONTROL.

** **

Notwithstanding anything contained herein to the contrary, the termsand conditions of this Paragraph 13 shall control upon or following a “Changein Control” (as defined below).

 

(a)                                  **Termination**.  If (1) this Agreement is terminated prior to expiration of theTerm for any reason other than (a) pursuant to Paragraph 10 (Death) or 11(Permanent Disability/Suspension), (b) for Cause or (c) pursuant to Paragraph14 (Executive’s Right to Terminate for Good Reason) and if such terminationoccurs after a Change in Control, Executive shall be entitled to receive all ofthe compensation, rights and benefits described in Paragraphs 3(a) and (b), 4and 5 for a period of one year following the effective date of termination, orthrough the expiration of the Term, whichever is longer, and the severancedescribed in Paragraph 6, as if this Agreement were in full force.  If any other Executive Officer’s options areacquired pursuant to a Change in Control, Executive’s options will be acquiredon the same terms as any other Executive Officer.  Executive must receive 30 days prior written notice oftermination regardless of the reason for termination.

 

(b)                                 **“Change in Control Prior to Effective Date.”**  With respect to options granted prior to theEffective Date, “Change in Control” shall mean and be deemed to haveoccurred on the earliest of the following dates:

 

(i)                                     thedate, pursuant to Section 13(d) of the Act and the rules promulgatedthereunder, a person shall have acquired beneficial ownership of more than 45%of the Voting Stock;

 

(ii)                                  thedate the persons who were members of the Board at the beginning of any 24-monthperiod shall cease to constitute a

 

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majority of the Board, unless the election, or the nomination forelection by Image’s shareholders, of each new director was approved bytwo-thirds of the members of the Board then in office who were in office at thebeginning of the 24-month period; or

 

(iii)                               thedate Image’s shareholders shall approve a definitive agreement (a) to merge orconsolidate Image with or into another corporation, unless the holders ofImage’s capital stock immediately before such merger or consolidation will,immediately following such merger or consolidation, hold as a group on afully-diluted basis the ability to elect at least a majority of the directors ofthe surviving corporation (assuming cumulative voting, if applicable), or (b)to sell or otherwise dispose of all or substantially all the assets of Image.

 

(c)                                  **“Change in Control After Effective Date.”** For purposes of this Agreement and of optionsand other stock-based awards granted after the Effective Date, “Change inControl” shall mean and be deemed to have occurred on the earliest of thefollowing dates or events:

 

(i)                                     thedate of an acquisition by any Person of beneficial ownership (within the meaningof Rule 13d-3 under Exchange Act) or a pecuniary interest in more than 45% ofthe Common Stock or voting securities then entitled to vote generally in theelection of directors of Image (“Voting Stock”), otherthanan acquisition by one or more Excluded Persons (Image, Image Investors Co. orMessrs. John Kluge, Stuart Subotnick or Executive) in connection with a newissuance of Voting Stock (or rights to acquire Voting Stock) after theeffective date of the 1998 Plan by Image to the Excluded Person in atransaction that the Committee determines (in advance of the issuance) does notconstitute a Change in Control event, or in the event that one or moreExcluded Persons take Image from a public company to a privately held company;

 

(ii)                                  approvalby the shareholders of Image of a plan of merger, consolidation, orreorganization of Image or sale or other disposition of all or substantiallyall of Image’s assets involving a more than 50% change in ownership(collectively, a “Business Combination”), other than a BusinessCombination: (1) (a) in which substantially all of the holders of Image’sVoting Stock hold or receive directly or indirectly 50% or more of the votingstock of the resulting entity or a parent company thereof, and (b) after whichno Person (other than any one or more of the Excluded Persons, as definedabove) owns more than 50% of the voting stock of the resulting entity (or aparent company) who did not own directly or indirectly at least that amount ofVoting Stock immediately before the Business Combination; or (2) in which the

 

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holders of Image’s capital stock immediately before such BusinessCombination will, immediately after such Business Combination, hold as a groupon a fully diluted basis the ability to elect at least a majority of thedirectors of the surviving corporation (or a parent company);

 

(iii)                               approvalby the Board of Directors and (if required by law) by shareholders of Image ofa plan to consummate the dissolution or complete liquidation of Image; or

 

(iv)                              thedate the persons who were members of the Board of Directors at the beginning ofany 24-month period shall cease to constitute a majority of the Board, unlessthe election, or the nomination for election by Image’s shareholders, of eachnew director was approved by two-thirds of the members of the Board ofDirectors then in office who were in office at the beginning of the 24-monthperiod.

 

For purposes of determining whether a Change in Control has occurred, atransaction includes all transactions in a series of related transactions, andterms used in this definition but not defined are used as defined in the 1998Plan.

 

(d)                                 **Legal Fees and Expenses**.  If Executive is terminated following aChange in Control and Executive shall incur any legal fees or expenses as aresult of (i) seeking to obtain or enforce any right or benefit provided bythis Agreement or (ii) a claim of wrongful discharge or breach of thisAgreement, Image agrees to pay or reimburse Executive for such fees andexpenses; provided, however, that any claims giving rise to suchfees or expenses must be made in good faith and for good cause.  In the event there is a dispute regardingExecutive’s good faith or the merits of Executive’s claim, and it is determinedby the court that the claim lacked merit or was made in bad faith, Executiveshall be limited to recovering only such fees and expenses, if any, as thecourt shall determine.

 

**14.**          EXECUTIVE’S RIGHT TO TERMINATE FOR GOODREASON.

** **

During the Term, Executive shall be entitled to terminate Executive’semployment with Image for “Good Reason” (as defined below).  For purposes of this Agreement “Good Reason”shall mean any of the following events which occurs without Executive’s expresswritten consent either before or after a Change in Control:

 

(i)                                     theassignment of any duties materially inconsistent with Executive’s status as anExecutive Officer or a substantial reduction in the nature or status ofExecutive’s responsibilities from those in effect immediately prior to a Changein Control other

 

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than any such alteration primarily attributable to the fact that Imagemay no longer be a public company;

 

(ii)                                  areduction by Image in Base Salary;

 

(iii)                               therelocation of Image’s principal executive offices to a location more than 35miles from the current locale unless closer to home or Image’s requiringExecutive to be based anywhere other than Image’s principal executive officesexcept for required travel on Image’s business to an extent substantiallyconsistent with Executive’s present travel obligations;

 

(iv)                              thefailure by Image to continue in effect without material change or substantiallysimilar substitution of any compensation or benefit plan in which Executive isentitled to participate, or the failure by Image to continue Executive’sparticipation therein, or the taking of any action by Image which woulddirectly or indirectly materially reduce any of the benefits of such plansenjoyed by Executive immediately prior to the Change in Control, or the takingof any other action by Image which materially adversely changes the conditionsor perquisites of Executive’s employment;

 

(v)                                 thefailure of Image to obtain a successor’s assumption and agreement to performthis Agreement, unless the assumption occurs by operation of law;

 

(vi)                              anypurported termination of employment which is not effected pursuant toSubparagraph 13(a), or any such purported termination which would not beconsistent with the terms of this Agreement;

 

(vii)                           thefailure of Image to maintain adequate D&O insurance coverage pursuant tothe terms of this Agreement, unless such insurance is not available oncommercially reasonable terms; or

 

(viii)                        thebreach by Image of any material term of this Agreement.

 

The rights provided under this Paragraph 14 to terminate for GoodReason shall not adversely affect any rights of Executive whether before orafter a Change in Control in respect to a breach of this Agreement byImage.  Executive is entitled to allwages, bonuses and benefits for the Balance of the Term of the contract in theevent of a termination under Paragraph 14.

 

**15.**          GENERAL PROVISIONS.

** **

(a)                                  **Successors and Assigns**.  This Agreement is binding upon and shallinure to the benefit of the parties hereto, and any of their heirs, legatees,devisees, personal representatives, assigns and successors in interest of everykind and nature whatsoever.  The partieshereto agree that

 

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Executive’s services are personal and that this Agreement is executedwith respect thereto.  Executive shallhave no right to sell, transfer or assign this Agreement in any mannerwhatsoever.

 

(b)                                 **Entire Understanding; Amendment**.  This Agreement and the Exhibit hereto constitutethe entire understanding and agreement between the parties with respect to thesubject matter hereof and supersede (i) any and all prior and preliminarydiscussions, (ii) any and all prior written or oral and any and allcontemporaneous written or oral agreements, understandings and negotiationsbetween the parties; including but not limited to prior written or oralemployment agreements and severance agreements, and (iii) all prior writtenEmployment Agreements between Image and Executive.  There are no warranties, representations or other agreementsbetween the parties in connection with the subject matter hereof except as setforth or referred to herein.  ThisAgreement shall not be modified, amended or altered except by an instrument inwriting executed by the parties hereto.

 

(c)                                  **Severability**.  In case one or more of the provisions contained in this Agreement(or any portion of any such provision) shall for any reason be held invalid,illegal or unenforceable in any respect, such invalidity, illegality orunenforceability shall not affect any other provision of this Agreement (or anyportion of any such provision), but this Agreement shall be construed as ifsuch invalid, illegal or unenforceable provision (or portion thereof) had neverbeen contained herein.

 

(d)                                 **Waiver**. The failure by Image, at any time, to require performance by Executiveof any of the provisions hereof, shall not be deemed a waiver of any kind norshall it in any way affect Image’s rights thereafter to enforce the same.

 

(e)                                  **Notices**. All notices, requests, demands and other communications provided for bythis Agreement shall be in writing and shall be deemed to have been given 24hours after deposit thereof for mailing at any general or branch United StatesPost Office, enclosed in a registered or certified postpaid envelope andaddressed as follows:

 
| To Image:     |   | IMAGE ENTERTAINMENT, INC      |
|---------------|--------|-------------------------------|
|          |   | 9333 Oso Avenue               |
|          |   | Chatsworth,CA  91311     |
|          |   | Attn: General Counsel         |
|          |   |                          |
| To Executive: |   | MARTIN GREENWALD              |
|          |   | c/o Image Entertainment, Inc. |
|          |   | 9333 Oso Avenue               |
|          |   | Chatsworth, CA  91311    |

 

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The parties hereto may designate a different place at which noticeshall be given; provided, however, that any such notice of change of addressshall be effective only upon receipt.

 

(f)                                    **Good Faith**.  The parties hereto shall perform, fulfill and discharge theirduties and obligations hereunder in a reasonable manner in good faith.

 

(g)                                 **Governing Law**.  This Agreement and all rights, obligations and liabilities arisinghereunder shall be construed and enforced in accordance with the laws of theState of California.

 

(h)                                 **Attorneys’ Fees**.  Subject to Paragraph 13(e), in the event it becomes necessary tocommence any proceeding or action to enforce the provisions of this Agreement,the court before whom the same shall be tried may award the prevailing partyall costs and expenses thereof, including without limitation, reasonableattorney’s fees, the usual, customary and lawfully recoverable court costs, andall other expenses in connection therewith.

 

(i)                                     **Advice of Counsel**.  The parties represent and warrant that inexecuting this Agreement, they have each had the opportunity to obtainindependent financial, legal, tax and other appropriate advice, and are notrelying upon any other party (or the attorneys or other agents of such otherparty) for any such advice.

 

(j)                                     **Subject Headings and Defined Terms**.  Subject headings and choice of defined termsare included for convenience only and shall not be deemed part of this Agreement.

 

(k)                                  **Cumulative Rights and Remedies**.  The rights and remedies provided for in thisAgreement shall be cumulative; resort to one right or remedy shall not precluderesort to another or to any other right or remedy provided for by law or inequity.

 

IN WITNESS WHEREOF, the parties hereto have executed this EmploymentAgreement as of the date first above written.

 

 
| IMAGE ENTERTAINMENT, INC. | EXECUTIVE                       |
|---------------------------|---------------------------------|
|                      |                            |   |
|                      |                            |   |
| By:                       | /s/ Ira Epstein                 |   | /s/ Martin W. Greenwald |   |
|                      | Ira Epstein, Esq.               | Martin W. Greenwald, an individual |
| Its:                      | Compensation Committee Chairman |   |
|                           |                                 |  |  |  |

 

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