Section 4. Procedure for Exercise. The Option herein granted may be exercised by thedelivery by Optionee of written notice to the Secretary of the Company setting forth the number ofshares of Stock with respect to which the Option is being exercised. The notice shall beaccompanied by (i) cash, cashier’s check, bank draft, or postal or express money order payableto the order of the Company, or wire transfer, (ii) if permitted by the Committee, shares of Stocktheretofore owned by Optionee duly endorsed for transfer to the Company, (iii) if permitted by theCommittee, the Company’s withholding of shares of Stock that would otherwise be issued on exerciseof the Option, (iv) if the Stock is registered under the Securities Exchange Act of 1934, asamended, and to the extent permitted by law, instructions to a broker to deliver to the Company thetotal payment required, all in accordance with the regulations of the Federal Reserve Board, (v)such other consideration as the Committee may permit, or (vi) any combination of the preceding,equal in value to the aggregate exercise price. Notice may be delivered by facsimile. The noticeshall specify the address to which the certificates for such shares are to be mailed. The Optionshall be deemed to have been exercised immediately prior to the close of business on the date (i)written notice of such exercise and (ii) payment in full of the exercise price for the number ofshares for which the Option is being exercised are both received by the Company and Optionee shallbe treated for all purposes as the record holder of such shares of Stock as of such date.As promptly as practicable after receipt of such written notice and payment, the Company shalldeliver to Optionee certificates for the number of shares with respect to which such Option hasbeen so exercised, issued in Optionee’s name or such other name as Optionee directs; provided,however, that such delivery shall be deemed effected for all purposes when a stock transfer agentof the Company shall have deposited such certificates in the United States mail, addressed toOptionee at the address specified pursuant to this Section 4.Section 5. Termination of Employment or Service. If, for any reason other thanretirement, death or disability, Optionee ceases to be employed by the Company or its Affiliates orceases to serve as a director or consultant, the Option may be exercised (to the extent Optioneewould have been entitled to do so at the date of termination of employment or cessation of servingas a director or consultant) during a three-month period after such date (after which period theOption shall expire), but in no event may the Option be exercised after the expiration of theOption Period; provided, however, that if Optionee’s employment or service as a director orconsultant is terminated because of the Optionee’s (a) theft or embezzlement from the Company orits Affiliates, (b) disclosure of trade secrets of the Company or its Affiliates, (c) failure toperform his/her job duties and services resulting in a material adverse effect on the Company orits Affiliates or (d) the commission of a willful, felonious act while in the employment or serviceof the Company or its Affiliates (such reasons shall hereinafter be collectively referred to as“for cause”), then the Option or unexercised portion thereof shall expire upon such termination ofemployment or cessation of serving as a director or consultant.In the event that Optionee dies or Optionee’s employment or service ceases because Optionee isdetermined to be disabled, the Option may be exercised (to the extent Optionee would have beenentitled to do so at the date of death or termination of employment or service) at any time andfrom time to time, within a one year period after such death or termination of employment orservice, by Optionee or his guardian or legal representative or, in the case of death, the executoror administrator of Optionee’s estate or by the person or persons to whom Optionee’s rights underthis Option Agreement shall pass by will or the laws of descent and distribution (after whichperiod the Option shall expire), but in no event may the Option beexercised after the expiration of the Option Period. Optionee shall be deemed to be disabledif, in the opinion of a physician selected by the Committee, Optionee is unable to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairmentwhich can be expected to result in death or which has lasted or can be expected to last for acontinuous period of not less than 12 months.
 
2

 
Subject to the discretion of the Committee, if Optionee ceases to be an employee of theCompany (including as an officer of the Company) as a result of Retirement, Optionee need notexercise the Option within three (3) months of termination of employment but will be entitled toexercise the Option within the maximum term of the Option to the extent the Option was otherwiseexercisable at the date of Retirement. The term “Retirement” as used herein means such terminationof employment in accordance with the retirement policies of the Company and its Affiliates then ineffect.**It is Optionee’s responsibility to be aware of the date on which the Option terminates.**Section 6. Leave of Absence. The Committee shall have the discretion to determinewhether and to what extent the vesting of the Option shall be tolled during any unpaid leave ofabsence; provided, however, that in the absence of such determination, vesting of the Option shallbe tolled during any such unpaid leave (unless otherwise required by any applicable law, rule orregulation). In the event of military leave, vesting shall toll during any unpaid portion of suchleave, provided that, upon Optionee’s returning from military leave (under conditions that wouldentitle him or her to protection upon such return under the Uniform Services Employment andReemployment Rights Act), he or she shall be given vesting credit with respect to the Option to thesame extent as would have applied had the Optionee continued to provide services to the Companythroughout the leave on the same terms as he or she was providing services immediately prior tosuch leave.Section 7. Transferability. The Option shall not be transferable by Optionee otherwisethan by Optionee’s will or by the laws of descent and distribution. During the lifetime ofOptionee, the Option shall be exercisable only by Optionee or his authorized legal representative.Any heir or legatee of Optionee shall take rights herein granted subject to the terms andconditions hereof. No such transfer of this Option Agreement to heirs or legatees of Optionee shallbe effective to bind the Company unless the Company shall have been furnished with written noticethereof and a copy of such evidence as the Committee may deem necessary to establish the validityof the transfer and the acceptance by the transferee or transferees of the terms and conditionshereof.Section 8. No Rights as Shareholder. Optionee shall have no rights as a shareholderwith respect to any shares of Stock covered by this Option Agreement until the Option is exercisedby written notice and accompanied by payment as provided in Section 4 of this Option Agreement.
 
3

 
Section 9. Extraordinary Corporate Transactions. The existence of outstanding Optionsshall not affect in any way the right or power of the Company or its shareholders to make orauthorize any or all adjustments, recapitalizations, reorganizations, exchanges or other changesin the Company’s capital structure or its business, or any merger or consolidation of theCompany, or any issuance of Stock or other securities or subscription rights thereto, or anyissuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stockor the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer ofall or any part of its assets or business, or any other corporate act or proceedings, whether of asimilar character or otherwise. If the Company undergoes a “Change of Control” (as defined in thePlan) or other corporate reorganization described in Section XIII of the Plan, the Option grantedhereunder shall be governed by Section XIII of the Plan.Section 10. Changes in Capital Structure. If the outstanding shares of Stock or othersecurities of the Company, or both, for which the Option is then exercisable shall at any time bechanged or exchanged by declaration of a stock dividend, stock split or combination of shares, thenumber and kind of shares of Stock or other securities subject to the Plan or subject to theOption, and the exercise price, shall be appropriately and equitably adjusted so as to maintain theproportionate number of shares or other securities without changing the aggregate exercise price.Section 11. Compliance with Securities Laws. Upon the acquisition of any sharespursuant to the exercise of the Option herein granted, Optionee (or any person acting under Section7) will enter into such written representations, warranties and agreements as the Company mayreasonably request in order to comply with applicable securities laws or with this OptionAgreement.Section 12. Compliance with Laws. Notwithstanding any of the other provisions hereof,Optionee agrees that he or she will not exercise the Option granted hereby, and that the Companywill not be obligated to issue any shares pursuant to this Option Agreement, if the exercise of theOption or the issuance of such shares of Stock would constitute a violation by Optionee or by theCompany of any provision of any law or regulation of any governmental authority.Section 13. Tax Provisions.(a) Withholding of Tax. To the extent that the exercise of the Option or thedisposition of shares of Stock acquired by exercise of the Option results in compensation income toOptionee for federal or state income tax purposes, Optionee shall pay to the Company at the time ofsuch exercise or disposition such amount of money as the Company may require to meet its obligationunder applicable tax laws or regulations and, if Optionee fails to do so, the Company is authorizedto withhold from any cash remuneration then or thereafter payable to Optionee, any tax required tobe withheld by reason of such resulting compensation income or Company may otherwise refuse toissue or transfer any shares otherwise required to be issued or transferred pursuant to the termshereof.(b) Tax Consequences. Optionee has reviewed, or has had the opportunity to review butchose not to do so, with Optionee’s own tax or legal advisors the federal, state, local and foreigntax consequences that may arise upon the grant, vesting or exercise of the Option and thedisposition of any shares of Stock subject to the Option. Optionee understands that Optionee (andnot the Company) shall be responsible for any tax liability that may arise with respect to theOption and the disposition of any shares subject thereto.
 
4

 
Section 14. No Right to Employment or Service. Optionee shall be considered to be inthe employment of the Company or its Affiliates or in service as a director or consultant so longas he or she remains an employee, director or consultant of the Company or its Affiliates. Anyquestions as to whether and when there has been a termination of such employment or service as adirector or consultant and the cause of such termination shall be determined by the Committee, andits determination shall be final. Nothing contained herein shall be construed as conferring uponOptionee the right to continue in the employ of the Company or its Affiliates or to continueservice as a director or consultant, nor shall anything contained herein be construed orinterpreted to limit the “employment at will” relationship between Optionee and the Company or itsAffiliates.Section 15. Resolution of Disputes. As a condition of the granting of the Optionhereby, Optionee and Optionee’s heirs, personal representatives and successors agree that anydispute or disagreement which may arise hereunder shall be determined by the Committee in its solediscretion and judgment, and that any such determination and any interpretation by the Committee ofthe terms of this Option Agreement shall be final and shall be binding and conclusive, for allpurposes, upon the Company, Optionee, and Optionee’s heirs, personal representatives andsuccessors.Section 16. Legends on Certificate. The certificates representing the shares of Stockpurchased by exercise of the Option will be stamped or otherwise imprinted with legends in suchform as the Company or its counsel may require with respect to any applicable restrictions on saleor transfer and the stock transfer records of the Company will reflect stop-transfer instructionswith respect to such shares.Section 17. Notices. Except as expressly provided otherwise in this Option Agreement,every notice hereunder shall be in writing and shall be given by registered or certified mail. Allnotices of the exercise of any Option hereunder shall be directed to Image Entertainment, Inc.,20525 Nordhoff Street, Suite 200, Chatsworth, California 91311, Attention: Corporate Secretary. Anynotice given by the Company to Optionee directed to Optionee at the address on file with theCompany shall be effective to bind Optionee and any other person who shall acquire rightshereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence,maturity or termination of any of Optionee’s rights hereunder and Optionee shall be deemed to havefamiliarized himself or herself with all matters contained herein and in the Plan which may affectany of Optionee’s rights or privileges hereunder.Section 18. Construction and Interpretation. Whenever the term “Optionee” is usedherein under circumstances applicable to any other person or persons to whom this award, inaccordance with the provisions of Section 7 hereof, may be transferred, the word “Optionee” shallbe deemed to include such person or persons.
 
5

 
Section 19. Agreement Subject to Plan. This Option Agreement is subject to the Plan.The terms and provisions of the Plan (including any subsequent amendments thereto) are herebyincorporated herein by reference thereto. In the event of a conflict between any term or provisioncontained herein and a term or provision of the Plan, the applicable terms and provisions of thePlan will govern and prevail. All definitions of words and terms contained in the Plan shall beapplicable to this Option Agreement.Section 20. Binding Effect. This Option Agreement shall be binding upon and inure tothe benefit of any successors to the Company and all persons lawfully claiming under Optionee asprovided herein.Section 21. Entire Agreement; Amendment. This Option Agreement and any otheragreements and instruments contemplated by this Option Agreement contain the entire agreement ofthe parties, and this Option Agreement may be amended only in writing signed by both parties.IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been executed as of the                     day of                     , 20        .           **Image Entertainment, Inc****.**             By:                Title:                        **OPTIONEE**                           Address:                                             
 
6

 
**NOTICE OF EXERCISE**To: Image Entertainment, Inc.Date: ____________________The undersigned, pursuant to the provisions set forth in the attached Nonqualified Stock OptionAgreement, hereby irrevocably elects to purchase:                     Shares covered by such Option.The undersigned herewith makes payment of the full Exercise Price for such Shares at the price perShare provided for in such Nonqualified Stock Option Agreement, which is an aggregate of$                    , and makes payment of $                     for required tax withholding.In exercising the Option, the undersigned hereby confirms and acknowledges that the Shares arebeing acquired solely for the account of the undersigned and not a nominee for any other party, andfor investment, and that the undersigned will not offer, sell or otherwise dispose of any suchShares except under circumstances that will not result in a violation of the Securities Act of1993, as amended, or any applicable state securities laws.Please issue a certificate representing said Shares in the name of the undersigned.       OPTIONEE:          Signature          Print Name          Address          Social Security No.