Document:

Exhibit
10.3

[FORM
OF WARRANT]

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

IMAGE ENTERTAINMENT, INC.

WARRANT
TO PURCHASE COMMON STOCK

Warrant No.:            

Number of Shares of Common Stock:1,000,000

Date of Issuance: August 30, 2006 (“Issuance
Date”)

Image Entertainment,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PORTSIDE GROWTH AND OPPORTUNITY
FUND, the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the earlier of (i)
March 2, 2006 and (ii) the date that is ten (10) Trading Days prior to the
consummation of a Fundamental Transaction (the “Initial
Exercise Eligibility Date”) but not after 11:59 p.m., New York time,
on the Expiration Date (as defined below), ONE MILLION (1,000,000) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  This Warrant is one
of the Warrants to purchase Common Stock (the “SPA Warrants”)
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of August 30, 2006 (the “Subscription Date”), by and among the Company
and the investors (the “Buyers”) referred to therein (the “Securities
Purchase Agreement”).  Except
as otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 17.

 

1.             EXERCISE OF WARRANT.

(a)   Mechanics
of Exercise.  Subject to the terms
and conditions hereof (including, without limitation, the limitations set forth
in Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the Initial Exercise Eligibility Date, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as Exhibit
A (the “Exercise Notice”),
of the Holder’s election to exercise this Warrant and (ii) (A) payment to
the Company of an amount equal to the applicable Exercise Price multiplied by
the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant
is being exercised pursuant to a Cashless Exercise (as defined in Section
1(d)).  The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares.  On or before the first (1st) Business Day following the date on
which the Company has received each of the Exercise Notice and the Aggregate
Exercise Price (or notice of a Cashless Exercise) (the “Exercise
Delivery Documents”), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company’s transfer agent (the “Transfer
Agent”).  On or before the
third (3rd) Trading
Day following the date on which the Company has received all of the Exercise
Delivery Documents (the “Share Delivery Date”),
the Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of Warrant Shares to which the Holder is entitled pursuant
to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and dispatch by overnight courier to the address as specified in
the Exercise Notice, a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited
to the Holder’s DTC account or the date of delivery of the certificates
evidencing such Warrant Shares, as the case may be.  If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant
Shares represented by this Warrant submitted for exercise is greater than the
number of Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three (3) Business Days
after any exercise and at its own expense, issue a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number.

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The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.

(b)   Exercise
Price.  For purposes of this Warrant,
“Exercise Price”
means Four Dollars and Twenty-Five Cents ($4.25), subject to adjustment as
provided herein.

(c)   Company’s
Failure to Timely Deliver Securities. 
If the Company shall fail for any reason or for no reason to issue to
the Holder within five (5) Business Days of receipt of the Exercise Delivery
Documents, a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit the Holder’s balance account with DTC for such
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant, then, in addition to all other remedies
available to the Holder, the Company shall pay in cash to the Holder on each
day after such fifth (5th) Business Day that the issuance of
such shares of Common Stock is not timely effected an amount equal to 1.0% of
the product of (A) the sum of the number of shares of Common Stock not issued
to the Holder on a timely basis and to which the Holder is entitled and (B) the
Weighted Average Price of the shares of Common Stock on the Trading Day
immediately preceding the last possible date which the Company could have
issued such shares of Common Stock to the Holder without violating Section
1(a).  In addition to the foregoing, if
within three (3) Trading Days after the Company’s receipt of the facsimile copy
of a Exercise Notice the Company shall fail to issue and deliver a certificate
to the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder, and if on or after such Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within five (5) Business
Days after the Holder’s request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Warrant
Shares) shall terminate, or (ii) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such Warrant Shares and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Weighted Average Price on the date of exercise.

(d)   Cashless
Exercise.  Notwithstanding anything contained
herein to the contrary, if a registration statement covering the resale of the
Warrant Shares that are the subject of the Exercise Notice by the Holder
pursuant to the 1933 Act (the “Unavailable Warrant Shares”)
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to

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receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

	
   

  	
  Net Number =

  	
  (A x B) - (A x C)

  	
   

  
	
   

  	
   

  	
  B

  	
   

  
	
   

  	
  For purposes of
  the foregoing formula:

  

 

A= the total number of
shares with respect to which this Warrant is then being exercised.

B= the Weighted Average
Price of the shares of Common Stock (as reported by Bloomberg) on the date
immediately preceding the date of the Exercise Notice.

C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

(e)   Disputes.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 12.

(f)    Limitations
on Exercises; Beneficial Ownership.

(i)        The Company shall not
effect the exercise of this Warrant, and the Holder shall not have the right to
exercise this Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would beneficially own in
excess of 4.99% the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to
such exercise.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (x) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (y) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Person and its affiliates (including, without limitation, any convertible notes
or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this
Warrant, in determining the number of outstanding shares

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of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form
10-KSB, Form 10-Q, Form 10-QSB, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission (“SEC”) as
the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding. 
For any reason at any time, upon the written or oral request of the
Holder, the Company shall within one (1) Business Day confirm orally and in
writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company by the Holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written
notice to the Company, the Holder may from time to time increase or decrease
the Maximum Percentage to any other percentage not in excess of 9.99% specified
in such notice; provided that any such increase will not be effective until the
sixty-first (61st) day
after such notice is delivered to the Company.

(ii)       Principal Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant if
the issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon exercise of this Warrant (including,
as applicable, any shares of Common Stock issued upon conversion or as interest
on the SPA Securities) without breaching the Company’s obligations under the
rules or regulations of the Principal Market (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market for issuances of
shares of Common Stock in excess of such amount or (B) obtains a written opinion
from outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Buyer shall be issued, upon exercise or conversion, as applicable,
of any SPA Warrants or SPA Securities, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock issued to such
Buyer pursuant to the Securities Purchase Agreement on the Issuance Date and
the denominator of which is the aggregate number of shares of Common Stock
issued to the Buyers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Buyer, the “Exchange Cap
Allocation”).  In the event
that any Buyer shall sell or otherwise transfer any of such Buyer’s SPA
Warrants, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation

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allocated to such transferee.  In
the event that any holder of SPA Warrants shall exercise all of such holder’s
SPA Warrants into a number of shares of Common Stock which, in the aggregate,
is less than such holder’s Exchange Cap Allocation, then the difference between
such holder’s Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Exchange
Cap Allocations of the remaining holders of SPA Warrants on a pro rata basis in
proportion to the shares of Common Stock underlying the SPA Warrants then held
by each such holder.  In the event that
the Company is prohibited from issuing any Warrant Shares for which an Exercise
Notice has been received as a result of the operation of this Section 1(f)(ii),
the Company shall pay cash in exchange for cancellation of such Warrant Shares,
at a price per Warrant Share equal to the difference between the Closing Sale
Price and the Exercise Price as of the date of the attempted exercise.

(g)   Insufficient Authorized
Shares.  If at any time while this
Warrant remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon exercise of this Warrant at least a number of shares
of Common Stock equal to 150% (the “Required Reserve Amount”) of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of all of
this Warrant then outstanding (an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for this Warrant then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.

2.     ADJUSTMENT OF EXERCISE
PRICE AND NUMBER OF WARRANT SHARES. 
The Exercise Price and the number of Warrant Shares shall be adjusted
from time to time as follows:

(a)   Adjustment
upon Issuance of shares of Common Stock. 
If and whenever on or after the Subscription Date and through the first
anniversary of the Issuance Date, the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held
by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) or an Excluded Issuance) for a
consideration per share (the “New Issuance
Price”) less than a price (the 

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“Applicable Price”)
equal to the Exercise Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the
Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price.  In the event of any
Dilutive Issuance after the first anniversary of the Issuance Date, then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the product of (A) the Exercise Price in
effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying
the Exercise Price in effect immediately prior to such Dilutive Issuance and
the number of shares of Common Stock Deemed Outstanding immediately prior to
such Dilutive Issuance plus (II) the consideration, if any, received by the
Company upon such Dilutive Issuance, by (2) the product derived by multiplying
(I) the Exercise Price in effect immediately prior to such Dilutive Issuance by
(II) the number of shares of Common Stock Deemed Outstanding immediately after
such Dilutive Issuance.  Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.  For
purposes of determining the adjusted Exercise Price under this Section 2(a),
the following shall be applicable::

(i)            Issuance of
Options.  If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share.  For purposes of this Section
2(a)(i), the “lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion, exercise or exchange
of such Convertible Securities” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with respect to
any one share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii)           Issuance of Convertible Securities.  If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or exchange thereof
is less than the Applicable Price, then such

 7
 

 

share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share.  For
the purposes of this Section 2(a)(ii), the “lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange”
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section
2(a), no further adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease.  No adjustment pursuant to this Section 2(a)
shall be made if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant Shares.

(iv)          Calculation of Consideration
Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or
Convertible Securities

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are issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor.  If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Weighted Average Price of such security on the date of
receipt.  If any shares of Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be.  The fair
value of any consideration other than cash or securities will be determined
jointly by the Company and the Required Holders.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders.  The determination of
such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the Company.

(v)           Record Date.  If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in shares of Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase shares of Common
Stock, Options or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.

(b)   Adjustment
upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the
Subscription Date  combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately

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decreased.  Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(c)   Other
Events.  If any event occurs of the
type contemplated by the provisions of this Section 2 but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the Holder; provided that no such adjustment pursuant to
this Section 2(c) will increase the Exercise Price or decrease the number of
Warrant Shares as otherwise determined pursuant to this Section 2.

3.     RIGHTS
UPON DISTRIBUTION OF ASSETS.  If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

(a)   any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company’s Board of Directors) applicable to one
share of shares of Common Stock, and (ii) the denominator shall be the Weighted
Average Price of the shares of Common Stock on the Trading Day immediately
preceding such record date; and

(b)   the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided
that in the event that the Distribution is of shares of Common Stock (or common
stock) (“Other Shares of Common
Stock”) of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that
would have been payable to the Holder pursuant to the Distribution had the
Holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the

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immediately preceding paragraph (a) and the number of Warrant Shares
calculated in accordance with the first part of this paragraph (b).

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

(a)   Purchase
Rights.  In addition to any
adjustments pursuant to Section 2 above, if at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record holders of
any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

(b)   Fundamental
Transactions.  The Company shall not enter into or
be party to a Fundamental Transaction unless (i)  the Successor Entity
assumes in writing all of the obligations of the Company under this Warrant and
the other Transaction Documents in accordance with the provisions of this
Section (4)(b) pursuant to written agreements in form and substance
satisfactory to the Required Holders and approved by the Required Holders prior
to such Fundamental Transaction, including agreements to deliver to each holder
of the SPA Warrants in
exchange for such Warrants a
security of the Successor
Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and
(ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market.  Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under
this Warrant with the same effect as if such Successor Entity had been named as
the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable
upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of the publicly traded Common Stock (or
its equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been

 11

 

converted immediately prior to such Fundamental Transaction, as
adjusted in accordance with the provisions of this Warrant.  In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant at any
time after the consummation of the Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable upon the exercise of this
Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants
or other purchase or subscription rights) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had this
Warrant been exercised immediately prior to such Fundamental Transaction.  Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the
Holder.  The provisions of this Section
shall apply similarly and equally to successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any limitations on the
exercise of this Warrant.

(c)   Notwithstanding
the foregoing, in the event of a Fundamental Transaction, at the request of the
Holder delivered before the ninetieth (90th) day after such Fundamental Transaction,
the Company (or the Successor Entity) shall purchase this Warrant from the
Holder by paying to the Holder, within five Business Days after such request
(or, if later, on the effective date of the Fundamental Transaction), cash in
an amount equal to the Black Scholes value of the remaining unexercised portion
of this Warrant on the date of such Fundamental Transaction calculated using
the Black Scholes Option Pricing Model.

5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. 
Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the SPA Warrants, 130% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise.

6.     WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of

 12
 

 

this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of
share capital of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Holder, solely in such Person’s
capacity as the Holder of this Warrant, any of the rights of a shareholder of
the Company or any right to vote, give or withhold consent to any corporate
action (whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance
to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. 
In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a shareholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.  Notwithstanding this Section 6,
the Company shall provide the Holder with copies of the same notices and other
information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to the shareholders.

7.     REISSUANCE
OF WARRANTS.

(a)   Transfer
of Warrant.  If this Warrant is to be
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

(b)   Lost,
Stolen or Mutilated Warrant.  Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon surrender
and cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the right
to purchase the Warrant Shares then underlying this Warrant.

(c)   Exchangeable
for Multiple Warrants.  This Warrant
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.

(d)   Issuance
of New Warrants.  Whenever the
Company is required to issue a new Warrant pursuant to the terms of this
Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii)
shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant

 13
 

 

Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on
the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.

8.     NOTICES.  Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen (15) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the shares of Common Stock, (B) with respect to any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

9.     AMENDMENT
AND WAIVER.  Except as otherwise
provided herein, the provisions of this Warrant may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Required Holders; provided that no such action may increase the
exercise price of any SPA Warrant or decrease the number of shares or class of
stock obtainable upon exercise of any SPA Warrant without the written consent
of the Holder.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the SPA Warrants then outstanding.

10.   GOVERNING
LAW.  This Warrant shall be governed
by and construed and enforced in accordance with, and all questions concerning
the construction, validity, interpretation and performance of this Warrant
shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York.

11.   CONSTRUCTION;
HEADINGS.  This Warrant shall be
deemed to be jointly drafted by the Company and all the Buyers and shall not be
construed against any person as the drafter hereof.  The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.

12.   DISPUTE
RESOLUTION.  In the case of a dispute
as to the determination of the Exercise Price or the arithmetic calculation of
the Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Business Days of receipt
of the Exercise Notice giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation of the

 14
 

 

Exercise Price or
the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment
bank selected by the Company and approved by the Holder  or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

13.   REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this
Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder right to pursue actual damages for
any failure by the Company to comply with the terms of this Warrant.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

(a)   TRANSFER.          This Warrant may be offered for sale,
sold, transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.

14.   CERTAIN
DEFINITIONS.  For purposes of this
Warrant, the following terms shall have the following meanings:

(a)   “1933 Act” means the Securities Act of 1933, as amended.

(b)   “Approved Stock Plan” means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company’s securities may be issued to any employee, officer or director for
services provided to the Company.

(c)   “Bloomberg” means Bloomberg Financial Markets.

(d)   “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

(e)   “Common Stock” means (i) the Company’s shares of Common
Stock, par value $0.0001 per share, and (ii) any share capital into which
such Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

 15
 

 

(f)    “Common Stock Deemed Outstanding” means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus
the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon exercise of the SPA Warrants.

(g)   “Convertible Securities” means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.

(h)   “Eligible Market” means the Principal Market, The New York
Stock Exchange, Inc., The NASDAQ Global Select Market or The NASDAQ Capital
Market.

(i)    “Expiration Date” means the date sixty (60) months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

(j)    “Fundamental Transaction” means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), (v) reorganize, recapitalize
or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or
shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.

(k)   “Options” means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.

(l)    “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person

 16
 

 

or Parent Entity, the Person or Parent Entity with the largest public
market capitalization as of the date of consummation of the Fundamental
Transaction.

(m)  “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

(n)   “Principal Market” means The NASDAQ Global Market.

(o)   “Required Holders” means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.

(p)   “SPA Securities” means the Notes issued pursuant to the
Securities Purchase Agreement.

(q)   “Successor Entity” means the Person (or, if so elected by the
Required Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

(r)    “Trading Day” means any day on which the Common Stock are
traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock are then traded;
provided that “Trading Day” shall not include any day on which the Common Stock
are scheduled to trade on such exchange or market for less than 4.5 hours or
any day that the Common Stock are suspended from trading during the final hour
of trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York time).

(s)   “Weighted Average Price” means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York City
time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg
through its “Volume at Price” function or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New
York City time, as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of
any of the market makers for such security as reported in the “pink sheets” by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Required Holders.  If the Company and the Required Holders are
unable to agree upon the fair market value of the such security, then such

 17
 

 

dispute shall be resolved pursuant to Section 12 with the term “Weighted
Average Price” being substituted for the term “Exercise Price.” All such
determinations shall be appropriately adjusted for any share dividend, share split
or other similar transaction during such period.

[Signature
Page Follows]

 18

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to
Purchase Common Stock to be duly executed as of the Issuance Date set out
above.

	
  

  	
   

  	
  IMAGE ENTERTAINMENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

IMAGE ENTERTAINMENT, INC.

The
undersigned holder hereby exercises the right to purchase                                   
of the shares of Common Stock (“Warrant
Shares”) of Image Entertainment, Inc., a Delaware corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.  Form of Exercise Price.  The Holder intends that payment of the
Exercise Price shall be made as:

                      a
“Cash Exercise” with respect to                                   
Warrant Shares; and/or

                      a
“Cashless Exercise” with respect to                                   
Warrant Shares.

2.  Payment of Exercise Price.  In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum
of $                                  
to the Company in accordance with the terms of the Warrant.

3.  Delivery
of Warrant Shares.  The Company shall
deliver to the holder                             
Warrant Shares in accordance with the terms of the Warrant.

	
  Date:

  	
   

  	
  ,

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
    Name of Registered Holder

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
								

 

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Exercise Notice and hereby directs Computershare Investor Services to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated August    , 2006 from the
Company and acknowledged and agreed to by Computershare
Investor Services

	
  

  	
  IMAGE ENTERTAINMENT, INC.

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:EXHIBIT
10.4

REGISTRATION
RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of August 30, 2006,
by and among Image Entertainment, Inc., a Delaware corporation, with
headquarters located at 20525 Nordhoff Street, Suite 200, Chatsworth,
California 91311 (the “Company”),
and the undersigned buyers (each, a “Buyer”,
and collectively, the “Buyers”).

WHEREAS:

A.            In connection with the Securities
Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer (i) senior
subordinated convertible notes of the Company (the “Notes”), which will, among other things, be convertible into
shares of the Company’s common stock, $0.0001 par value per share (the ”Common Stock”, as converted, the “Conversion Shares”) in accordance with the
terms of the Notes, and (ii) warrants (the “Warrants”),
which will be exercisable to purchase shares of Common Stock (as exercised
collectively, the “Warrant Shares”).

B.            The Notes bear interest, which at
the option of the Company, subject to certain conditions, may be paid in shares
of Common Stock (the “Interest Shares”).

C.            To induce the Buyers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state
securities laws.

NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

1.     Definitions.

Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

a.     “Business Day”
means any day other than Saturday, Sunday or any other day on which commercial
banks in the City of New York are authorized or required by law to remain
closed.

b.     “Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement.

c.     “Effective
Date” means the date the Registration Statement has been declared
effective by the SEC.

 

d.     “Effectiveness
Deadline” means the date that is 120 days after the Closing Date.

e.     “Filing
Deadline” means the date that is 60 days after the Closing Date.

f.      “Investor”
means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 and any transferee or assignee
thereof to whom a transferee or assignee assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.

g.     “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

h.     “register,”
“registered,” and “registration”
refer to a registration effected by preparing and filing one or more
Registration Statements (as defined below) in compliance with the 1933 Act and
pursuant to Rule 415 and the declaration or ordering of effectiveness of such
Registration Statement(s) by the SEC.

i.      “Registrable
Securities” means (i) the Conversion Shares issued or issuable
upon conversion of the Notes, (ii) the Warrant Shares issued or issuable
upon exercise of the Warrants, (iii) the Interest Shares issued or issuable
with respect to the Notes and (iv) any shares of capital stock of the Company
issued or issuable with respect to the Conversion Shares, the Notes, the
Interest Shares, the Warrant Shares and the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on conversions of the Notes or
exercises of the Warrants.

j.      “Registration
Statement” means a registration statement or registration statements
of the Company filed under the 1933 Act covering the Registrable Securities.

k.     “Required
Holders” means the holders of at least a majority of the Registrable
Securities.

l.      “Required
Registration Amount” for the Registration Statement means 150% of
the sum of (i) the aggregate of the maximum number of Conversion Shares issued
and issuable pursuant to the Notes at the then applicable Conversion Price as
of the trading day immediately preceding the applicable date of determination,
(ii) the number of Warrant Shares issued and issuable pursuant to the Warrants
as of the trading day immediately preceding the applicable date of
determination and (iii) the number of Interest Shares issued or issuable
pursuant to the terms of the Notes as of the trading date immediately preceding
the applicable date of determination, all subject to adjustment as provided in
Section 2(e) (without regard to any limitations on conversion of the Notes or
exercise of the Warrants).

m.      “Rule 415”
means Rule 415 promulgated under the 1933 Act or any successor rule providing
for offering securities on a continuous or delayed basis.

 2
 

 

n.     “SEC”
means the United States Securities and Exchange Commission.

2.     Registration.

a.     Mandatory Registration.  The Company shall prepare, and, as soon as
practicable but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form S-3 covering the resale of at least the
number of shares of Common Stock equal to the Required Registration Amount
determined as of date the Registration Statement is initially filed with the SEC.  In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration on another appropriate form reasonably acceptable to the
Required Holders, subject to the provisions of Section 2(d).  The Registration Statement shall contain
(except if otherwise directed by the Required Holders) the “Selling
Stockholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B. 
The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the Effectiveness Deadline. 
By 9:30 am on the Business Day following the Effective Date, the Company
shall file with the SEC in accordance with Rule 424 under the 1933 Act the
final prospectus to be used in connection with sales pursuant to such
Registration Statement.

b.     Allocation of Registrable Securities.  The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of
Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor
at the time the Registration Statement covering such initial number of
Registrable Securities or increase thereof is declared effective by the
SEC.  In the event that an Investor sells
or otherwise transfers any of such Investor’s Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor.  Any shares of Common Stock
included in a Registration Statement and which remain allocated to any Person
which ceases to hold any Registrable Securities covered by such Registration
Statement shall be allocated to the remaining Investors, pro rata based on the
number of Registrable Securities then held by such Investors which are covered
by such Registration Statement.  In no
event shall the Company include any securities other than Registrable
Securities on any Registration Statement without the prior written consent of
the Required Holders.

c.     Legal Counsel.  Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 (“Legal Counsel”), which shall be Schulte Roth & Zabel LLP
or such other counsel as thereafter designated by the Required Holders.  The Company and Legal Counsel shall reasonably
cooperate with each other in performing the Company’s obligations under this
Agreement.

d.     Ineligibility for Form S-3.  In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness
of the Registration Statement then in effect until such time as a Registration

 3
 

 

Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.

e.     Sufficient Number of Shares Registered.  In the event the number of shares available
under a Registration Statement filed pursuant to Section 2(a) is insufficient
to cover all of the Registrable Securities required to be covered by such
Registration Statement or an Investor’s allocated portion of the Registrable
Securities pursuant to Section 2(b), the Company shall amend the applicable
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the trading day immediately preceding the date of the
filing of such amendment or new Registration Statement, in each case, as soon
as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises.  The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof.  For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if at any
time the number of shares of Common Stock available for resale under the
Registration Statement is less than the product determined by multiplying (i)
the Required Registration Amount as of such time by (ii) 0.90.  The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on the conversion of
the Notes or the exercise of the Warrants and such calculation shall assume
that the Notes are then convertible into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Notes) and that the Warrants are
then exercisable for shares of Common Stock at the then prevailing Exercise
Price (as defined in the Warrants).

f.      Effect of Failure to File and Obtain
and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering all
of the Registrable Securities required to be covered thereby and required to be
filed by the Company pursuant to this Agreement is (A) not filed with the SEC
on or before the Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
Effectiveness Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement or to register a sufficient number of shares of Common Stock) (a “Maintenance Failure”) then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its
ability to sell the underlying shares of Common Stock (which remedy shall not
be exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to two percent (2.0%) of the
aggregate Purchase Price (as such term is defined in the Securities Purchase Agreement)
of such Investor’s Registrable Securities included in such Registration
Statement on each of the following dates: (i) the day of a Filing Failure and
on every thirtieth day (pro rated for periods totaling less than thirty (30)
days) thereafter until such Filing Failure is cured; (ii) the day of an
Effectiveness Failure and on every thirtieth day (pro rated for periods
totaling less than thirty (30) days) thereafter until such Effectiveness
Failure is cured; and (iii) the initial day of a Maintenance Failure and on
every thirtieth day (pro rated for periods totaling less than thirty (30) days)
thereafter until such Maintenance Failure is cured.  The payments to

 4
 

 

which a holder shall be
entitled pursuant to this Section 2(f) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the earlier of (I) the last day of the calendar month during which such
Registration Delay Payments are incurred and (II) the third Business Day after
the event or failure giving rise to the Registration Delay Payments is
cured.  In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.  Notwithstanding anything herein or in the
Securities Purchase Agreement to the contrary, in no event shall the aggregate
amount of Registration Delay Payments (other than Registration Delay Payments
payable pursuant to events that are within the control of the Company) exceed,
in the aggregate, 10% of the aggregate Purchase Price of the Notes.

3.     Related Obligations.

At
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:

a.     The Company shall submit to the SEC, within
two (2) Business Days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on a particular Registration Statement, as the case may
be, a request for acceleration of effectiveness of such Registration Statement
to a time and date not later than 48 hours after the submission of such
request.  The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction pursuant to Rule
144(k) (or any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the “Registration Period”). 
The Company shall ensure that each Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein
(in the case of prospectuses, in the light of the circumstances in which they
were made) not misleading.

b.     The Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB or
any

 5
 

 

analogous report under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report
by reference into such Registration Statement, if applicable, or shall file
such amendments or supplements with the SEC on the same day on which the 1934
Act report is filed which created the requirement for the Company to amend or
supplement such Registration Statement.

c.     The Company shall (A) permit Legal Counsel
to review and comment upon (i) a Registration Statement at least five (5)
Business Days prior to its filing with the SEC and (ii) all amendments and
supplements to all Registration Statements (except for Annual Reports on Form
10-K and Form 10-KSB, and Reports on Form 10-Q and Form 10-QSB and any similar
or successor reports) within a reasonable number of days prior to their filing
with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel reasonably objects.  The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which
consent shall not be unreasonably withheld. 
The Company shall furnish to Legal Counsel, without charge, (i) copies
of any correspondence from the SEC or the staff of the SEC to the Company or
its representatives relating to any Registration Statement, (ii) promptly after
the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, if requested by an
Investor, and all exhibits and (iii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. 
The Company shall reasonably cooperate with Legal Counsel in performing
the Company’s obligations pursuant to this Section 3.

d.     The Company shall furnish to each Investor
whose Registrable Securities are included in any Registration Statement,
without charge, (i) promptly after the same is prepared and filed with the SEC,
at least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference, if requested by an Investor, all exhibits and each
preliminary prospectus, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Investor.

e.     The Company shall use its best efforts to
(i) register and qualify, unless an exemption from registration and
qualification applies, the resale by Investors of the Registrable Securities
covered by a Registration Statement under such other securities or “blue sky”
laws of all applicable jurisdictions in the United States, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection

 6
 

 

therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. 
The Company shall promptly notify Legal Counsel and each Investor who
holds Registrable Securities of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of
the Registrable Securities for sale under the securities or “blue sky” laws of
any jurisdiction in the United States or its receipt of notice of the
initiation or threatening of any proceeding for such purpose.

f.      The Company shall notify Legal Counsel and
each Investor in writing of the happening of any event, as promptly as
practicable after becoming aware of such event, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading (provided that
in no event shall such notice contain any material, nonpublic information),
and, subject to Section 3(r), promptly prepare a supplement or amendment to
such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to Legal Counsel and
each Investor (or such other number of copies as Legal Counsel or such Investor
may reasonably request).  The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when
a prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

g.     The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
a Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of notice of the initiation or threat of any
proceeding for such purpose.

h.     If any Investor is required under
applicable securities law to be described in the Registration Statement as an
underwriter, at the reasonable request of such 
Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the Investors,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.

 7

 

i.      Upon the written request of any Investor in connection with any
Investor’s due diligence requirements, if any, the Company shall make available
for inspection by (i) any Investor, (ii) Legal Counsel and (iii) one firm of
accountants or other agents retained by the Investors (collectively, the “Inspectors”), all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree to hold in strict confidence and shall not make
any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other Transaction Document.  Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.  Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors’ ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.

j.      The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

k.     The Company shall use its best efforts either to (i) cause all
of the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities
covered by a Registration Statement on The Nasdaq National Market or (iii) if,
despite the Company’s best efforts to satisfy, the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on the The New York Stock Exchange,
The Nasdaq Capital Market or the American Stock Exchange for such Registrable
Securities and, without limiting the generality of the foregoing, to use its best
efforts to arrange

 8
 

 

for at least two market makers to register
with the National Association of Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable
Securities.  The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(k).

l.      The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.

m.    If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.

n.     The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to consummate the disposition of such Registrable Securities.

o.     The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the 1933
Act) covering a twelve-month period beginning not later than the first day of
the Company’s fiscal quarter next following the effective date of a
Registration Statement.

p.     The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

q.     Within two (2) Business Days after a Registration Statement
which covers Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.

r.      Notwithstanding anything to the contrary herein, at any time
after the Effective Date, the Company may delay the disclosure of material,
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of

 9
 

 

the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a “Grace Period”);
provided, that the Company shall promptly (i) notify the Investors in writing
of the existence of material, non-public information giving rise to a Grace
Period (provided that in each notice the Company will not disclose the content
of such material, non-public information to the Investors) and the date on
which the Grace Period will begin, and (ii) notify the Investors in writing of
the date on which the Grace Period ends; and, provided further, that no Grace
Period shall exceed five (5) consecutive days and during any three hundred
sixty five (365) day period such Grace Periods shall not exceed an aggregate of
twenty (20) days and the first day of any Grace Period must be at least five
(5) trading days after the last day of any prior Grace Period (each, an “Allowable Grace Period”). 
For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the
notice referred to in clause (i) and shall end on and include the later of the
date the Investors receive the notice referred to in clause (ii) and the date
referred to in such notice.  The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period.  Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3(f) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the applicable
Registration Statement (unless an exemption from such prospectus delivery
requirement exists), prior to the Investor’s receipt of the notice of a Grace Period
and for which the Investor has not yet settled.

4.     Obligations of the Investors.

a.     At least five (5) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor’s Registrable Securities
included in such Registration Statement. 
It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
effectiveness of the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may reasonably
request.

b.     Each Investor, by such Investor’s acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.

c.     Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first

 10
 

 

sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until such
Investor’s receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(g) or the first sentence of 3(f) or receipt of notice
that no supplement or amendment is required. 
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt
of a notice from the Company of the happening of any event of the kind
described in Section 3(g) or the first sentence of 3(f) and for which the
Investor has not yet settled.

d.     Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it or an
exemption therefrom in connection with sales of Registrable Securities pursuant
to the Registration Statement.

5.     Expenses of Registration.

All
reasonable expenses, other than underwriting discounts and commissions incurred
in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements
of counsel for the Company, shall be paid by the Company.  The Company shall also reimburse the
Investors for the fees and disbursements of Legal Counsel in connection with
registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $15,000.

6.     Indemnification.

In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:

a.     To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an “Indemnified
Person”), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys’ fees,
amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending
any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon:  (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“Blue Sky
Filing”), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements

 11
 

 

therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in the light of the circumstances under
which the statements therein were made, not misleading, (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, “Violations”).  Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a):  (i) shall not apply to a Claim by
an Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d) and (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.

b.     In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement and each Person, if
any, who controls the Company within the meaning of the 1933 Act or the 1934
Act (each, an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon any Violation, in each
case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(c), such Investor will reimburse any legal
or other expenses reasonably incurred by an Indemnified Party in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on

 12
 

 

behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.

c.     Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however,
that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses of not more than one counsel for
such Indemnified Person or Indemnified Party to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding.  In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to such
action or Claim.  The indemnifying party
shall keep the Indemnified Party or Indemnified Person reasonably apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto.  No indemnifying party
shall be liable for any settlement of any action, claim or proceeding effected
without its prior written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall,
without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person of
a release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party.  Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made.  The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action.

d.     The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

 13
 

 

e.     The indemnity agreements contained herein shall be in addition
to  (i) any cause of action or similar
right of the Indemnified Party or Indemnified Person against the indemnifying
party or others, and (ii) any liabilities the indemnifying party may be subject
to pursuant to the law.

7.     Contribution.

To
the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under Section 6
to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities, which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale, shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant
to such Registration Statement.

8.     Reports Under the 1934 Act.

With
a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration (“Rule 144”),
the Company agrees to:

a.     make and keep public information available, as those terms are
understood and defined in Rule 144;

b.     file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and

c.     furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably requested
to permit the Investors to sell such securities pursuant to Rule 144 without
registration.

9.     Assignment of Registration Rights.

The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor’s Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee and
(b) the securities with

 14
 

 

respect to which
such registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act or
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.

10.   Amendment of Registration Rights.

Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Registrable Securities.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the
same consideration also is offered to all of the parties to this Agreement.

11.   Miscellaneous.

a.     A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable
Securities.  If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the such record owner
of such Registrable Securities.

b.     Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: 
(i) upon receipt, when delivered personally; (ii) upon receipt, when
sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

If to the Company:

Image Entertainment, Inc.

20525 Nordhoff Street,
Suite 200

Chatsworth, California
91311

Telephone:            (818) 407-9100

Facsimile:              (818) 407-9331

Attention:  Jeff
Framer

with a copy to:

 15
 

 

Greenberg Traurig, LLP

50 Town Center Drive
#1700

Costa Mesa, California 92626

Telephone 714-708-6510

Facsimile 714-708-6501

Attention: Raymond A. Lee

John C. Kirkland

If to Legal Counsel:

Schulte Roth & Zabel
LLP

919 Third Avenue

New York, New York  10022

Telephone:  (212) 756-2000

Facsimile:  (212) 593-5955

Attention:  Eleazer N. Klein,
Esq.

If to a Buyer, to
its address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

c.     Failure of any party to exercise any right
or remedy under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.

d.     All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York
or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient 

 16
 

 

service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

e.     This Agreement, the other Transaction Documents (as defined in
the Securities Purchase Agreement) and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein.  This Agreement, the other Transaction
Documents and the instruments referenced herein and therein supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

f.      Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.

g.     The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

h.     This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement.  This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

i.      Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

j.      All consents and other determinations required to be made by
the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by the Required Holders.

k.     The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

 17
 

 

l.      This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other Person.

m.    The obligations of each Investor hereunder are several and not
joint with the obligations of any other Investor, and no provision of this
Agreement is intended to confer any obligations on any Investor vis-à-vis any
other Investor.  Nothing contained
herein, and no action taken by any Investor pursuant hereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated herein.

* * * * * *

 18

 

IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  IMAGE ENTERTAINMENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ MARTIN W. GREENWALD

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Martin W. Greenwald

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President and CEO

  

 

IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PORTSIDE
  GROWTH AND

  OPPORTUNITY FUND

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ JEFF SMITH

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Jeff Smith

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  

 

SCHEDULE
OF BUYERS

	
  Buyer

  	
   

  	
  Buyer’s Address

  and Facsimile Number

  	
   

  	
  Buyer’s Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Portside Growth and Opportunity Fund

  	
   

  	
  c/o Ramius Capital Group, L.L.C.

  	
   

  	
  Schulte Roth & Zabel LLP

  
	
   

  	
   

  	
  666 Third Avenue, 26th Floor

  	
   

  	
  919 Third Avenue

  
	
   

  	
   

  	
  New York, New York 10017

  	
   

  	
  New York, New York 10022

  
	
   

  	
   

  	
  Attention:

  	
  Jeffrey Smith

  	
   

  	
  Attention: Eleazer Klein, Esq.

  
	
   

  	
   

  	
   

  	
  Owen Littman

  	
   

  	
  Facsimile: (212) 593-5955

  
	
   

  	
   

  	
  Facsimile:

  	
  (212) 201-4802

  	
   

  	
  Telephone: (212) 756-2000

  
	
   

  	
   

  	
   

  	
  (212) 845-7995

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
  (212) 845-7955

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (212) 201-4841

  	
   

  	
   

  
	
   

  	
   

  	
  Residence:

  	
  Cayman Islands

  	
   

  	
   

  

 

 

EXHIBIT
A

FORM
OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

Computershare Investor Services

350 Indiana Street, Suite 800
Golden, CO 80401

Attention: 
Kathy Heagerty

Re:          Image Entertainment, Inc.

Ladies and
Gentlemen:

[We are][I am] counsel to Image Entertainment, Inc., a
Delaware corporation (the “Company”),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the “Securities Purchase
Agreement”) entered into by and among the Company and the buyers
named therein (collectively, the “Holders”)
pursuant to which the Company issued to the Holders secured convertible notes
(the “Notes”) convertible into the
Company’s common stock, $0.0001 par value per share (the ”Common Stock”) and warrants exercisable for
shares of Common Stock (the “Warrants”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other things,
to register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the Notes and the shares of Common Stock issuable upon exercise of the
Warrants, under the Securities Act of 1933, as amended (the “1933 Act”). 
In connection with the Company’s obligations under the Registration
Rights Agreement, on                   
     , 200  , the Company filed a
Registration Statement on Form S-3 (File No. 333-                       )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.

In connection with the
foregoing, [we][I] advise you that a member of the SEC’s staff has advised
[us][me] by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER
DATE OF EFFECTIVENESS] and [we][I]
have no knowledge, after telephonic inquiry of a member of the SEC’s staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.

This letter shall serve
as our standing instruction to you that the shares of Common Stock are freely
transferable by the Holders pursuant to the Registration Statement.  You need not require further letters from us
to effect any future legend-free issuance or reissuance of shares of Common
Stock to the Holders as contemplated by the Company’s Irrevocable Transfer
Agent Instructions dated August     , 2006, provided at the
time of such

 1
 

 

reissuance, the Company has not otherwise notified you
that the Registration Statement is unavailable for the resale of the
Registrable Securities.

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CC:

  	
   

  	
  [LIST NAMES OF HOLDERS]

  
							

 

 2

 

EXHIBIT
B

SELLING
STOCKHOLDERS

The shares of Common
Stock being offered by the selling stockholders are issuable upon conversion of
the convertible notes and upon exercise of the warrants.  For additional information regarding the
issuance of those convertible notes and warrants, see “Private Placement of
Convertible Notes and Warrants” above. 
We are registering the shares of Common Stock in order to permit the
selling stockholders to offer the shares for resale from time to time.  Except for the ownership of the convertible
notes and the Warrants issued pursuant to the Securities Purchase Agreement,
the selling stockholders have not had any material relationship with us within
the past three years.

The table below lists the
selling stockholders and other information regarding the beneficial ownership
of the shares of Common Stock by each of the selling stockholders.  The second column lists the number of shares
of Common Stock beneficially owned by each selling stockholder, based on its
ownership of the convertible notes and warrants, as of           ,
200  , assuming conversion of all convertible notes and exercise of
the warrants held by the selling stockholders on that date, without regard to
any limitations on conversions or exercise.

The third column lists
the shares of Common Stock being offered by this prospectus by each selling
stockholder.

In accordance with the
terms of a registration rights agreement among the Company and the selling
stockholders, this prospectus generally covers the resale of at least 150% of
the sum of the number of shares of Common Stock issued or issuable (i) upon
conversion of the convertible notes as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC, (ii) as
Interest Shares pursuant to the terms of the Notes as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC and (iii) upon exercise of the related warrants as of the trading
day immediately preceding the date the registration statement is initially
filed with the SEC.  Because the conversion price of
the convertible notes may be adjusted and the exercise price of the warrants
may be adjusted, the number of shares that will actually be issued may be more
or less than the number of shares being offered by this prospectus.  The fourth column assumes the sale of all of
the shares offered by the selling stockholders pursuant to this prospectus.

Under the terms of the
convertible notes and the warrants, a selling stockholder may not convert the
convertible notes or exercise the warrants to the extent such conversion or
exercise would cause such selling stockholder, together with its affiliates, to
beneficially own a number of shares of Common Stock which would exceed 4.99% of
our then outstanding shares of Common Stock following such conversion or
exercise, excluding for purposes of such determination shares of Common Stock
issuable upon conversion of the convertible notes which have not been converted
and upon exercise of the warrants that have not been exercised.  The number of shares in the second column
does not reflect this limitation.  The
selling stockholders may sell all, some or none of their shares in this
offering.  See “Plan of Distribution.”

 1
 

 

 

	
  Name of Selling Stockholder

  	
   

  	
  Number of Shares Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  to be Sold Pursuant to this

  Prospectus

  	
   

  	
  Number of Shares Owned

  After Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (1)
  Portside Growth and Opportunity Fund

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  

 

(1)           Ramius Capital Group, LLC (“Ramius
Capital”) is the investment adviser of Portside Growth and Opportunity Fund (“Portside”)
and consequently has voting control and investment discretion over securities
held by Portside.  Ramius Capital
disclaims beneficial ownership of the shares held by Portside.  Peter A. Cohen, Morgan B. Stark, Thomas W.
Strauss and Jeffrey M. Solomon are the sole managing members of C4S& Co.,
LLC, the sole managing member of Ramius Capital.  As a result, Messrs. Cohen, Stark, Strauss
and Solomon may be considered beneficial owners of any shares deemed to be
beneficially owned by Ramius Capital. 
Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial ownership
of these shares.

 2

 

PLAN OF
DISTRIBUTION

We are registering the
shares of Common Stock issuable upon conversion of the convertible notes and
upon exercise of the warrants to permit the resale of these shares of Common
Stock by the holders of the convertible notes and warrants from time to time
after the date of this prospectus.  We
will not receive any of the proceeds from the sale by the selling stockholders
of the shares of Common Stock.  We will bear
all fees and expenses incident to our obligation to register the shares of
Common Stock.

The selling stockholders
may sell all or a portion of the shares of Common Stock beneficially owned by
them and offered hereby from time to time directly or through one or more
underwriters, broker-dealers or agents. 
If the shares of Common Stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for underwriting
discounts or commissions or agent’s commissions.  The shares of Common Stock may be sold in one
or more transactions at fixed prices, at prevailing market prices at the time
of the sale, at varying prices determined at the time of sale, or at negotiated
prices.  These sales may be effected in
transactions, which may involve crosses or block transactions,

·                  on any national
securities exchange or quotation service on which the securities may be listed
or quoted at the time of sale;

·                  in the
over-the-counter market;

·                  in transactions
otherwise than on these exchanges or systems or in the over-the-counter market;

·                  through the
writing of options, whether such options are listed on an options exchange or
otherwise;

·                  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

·                  block trades in
which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;

·                  purchases by a
broker-dealer as principal and resale by the broker-dealer for its account;

·                  an exchange
distribution in accordance with the rules of the applicable exchange;

·                  privately
negotiated transactions;

·                  short sales;

·                  sales pursuant
to Rule 144;

 C-1
 

 

·                  broker-dealers
may agree with the selling securityholders to sell a specified number of such
shares at a stipulated price per share;

·                  a combination of
any such methods of sale; and

·                  any other method
permitted pursuant to applicable law.

If the selling
stockholders effect such transactions by selling shares of Common Stock to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of
the shares of Common Stock in the course of hedging in positions they
assume.  The selling stockholders may also
sell shares of Common Stock short and deliver shares of Common Stock covered by
this prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The
selling stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

The selling stockholders
may pledge or grant a security interest in some or all of the convertible
notes, warrants or shares of Common Stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of Common Stock from time to time pursuant to
this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended, amending,
if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.  The selling stockholders
also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.

The selling stockholders
and any broker-dealer participating in the distribution of the shares of Common
Stock may be deemed to be “underwriters” within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions allowed to, any
such broker-dealer may be deemed to be underwriting commissions or discounts
under the Securities Act.  At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.

Under the securities laws
of some states, the shares of Common Stock may be sold in such states only
through registered or licensed brokers or dealers.  In addition, in some states the shares of
Common Stock may not be sold unless such shares have been registered or
qualified

 C-2
 

 

for sale in such state or an exemption from
registration or qualification is available and is complied with. 

There can be no assurance
that any selling stockholder will sell any or all of the shares of Common Stock
registered pursuant to the registration statement, of which this prospectus
forms a part.

The selling stockholders
and any other person participating in such distribution will be subject to
applicable provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, including, without limitation, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any
of the shares of Common Stock by the selling stockholders and any other
participating person.  Regulation M may
also restrict the ability of any person engaged in the distribution of the
shares of Common Stock to engage in market-making activities with respect to
the shares of Common Stock.  All of the
foregoing may affect the marketability of the shares of Common Stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of Common Stock.

We will pay all expenses
of the registration of the shares of Common Stock pursuant to the registration
rights agreement, estimated to be $[   ]
in total, including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or “blue sky”
laws; provided, however, that a selling stockholder will pay all underwriting
discounts and selling commissions, if any. 
We will indemnify the selling stockholders against liabilities,
including some liabilities under the Securities Act, in accordance with the
registration rights agreements, or the selling stockholders will be entitled to
contribution.  We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under
the Securities Act, that may arise from any written information furnished to us
by the selling stockholder specifically for use in this prospectus, in
accordance with the related registration rights agreement, or we may be
entitled to contribution.

Once sold under the
registration statement, of which this prospectus forms a part, the shares of
Common Stock will be freely tradable in the hands of persons other than our
affiliates.

 C-3

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