Document:

Exhibit 4.7

 

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, 2007 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.  The Company shall

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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  ́
B) - (A  ́ 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

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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.

(vii)         Floor Price.  Until such time as the Company receives any
necessary stockholder approval, no adjustment pursuant to Section 2(a) shall
cause the Exercise Price to be less than $3.67, as adjusted for any stock
dividend, stock split, stock combination, reclassification or similar
transaction.

(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

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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 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

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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 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 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.  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

 11
 

 

 

publicly traded Common Stock (or
its equivalent) of the Successor Entity (including its Parent Entity) or if the
Successor Entity (including its Parent Entity) is a privately held company, the
common equity of the Successor Entity which the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction had this Warrant
been 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.

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.  Notwithstanding the foregoing, if the Successor Entity (including its Parent Entity)
in any Change of Control (as defined in the SPA Securities) is a privately held
company, the Company, at it’s option, may deliver notice to the Holder
no less than 10 Trading Days prior to the consummation of such Change of
Control stating that upon consummation of such Change of Control the Company
will deliver cash to the Holder in an amount equal to the Black Scholes Value
of the remaining unexercised portion of this Warrant on the date immediately
prior to the announcement of such Change of Control calculated using the Black
Scholes Option Pricing Model and upon delivery of such cash payment, this
Warrant shall no longer be outstanding. 
“Black Scholes Value” means the value of this Warrant based on the Black
and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the day of closing of the applicable Fundamental Transaction
for pricing purposes and reflecting (i) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the remaining term of this
Warrant as of such date of request and (ii) an expected volatility equal to the
greater of 50% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the day immediately following the public announcement of the
applicable Fundamental Transaction.

 12
 

 

 

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 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

 13
 

 

 

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 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.

 14
 

 

 

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.

 15
 

 

 

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 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.

 16
 

 

 

(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.

(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

 17
 

 

 

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 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

 18
 

 

 

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 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]

 19

 

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 10.2

First Amendment

to

AMENDED AND
RESTATED CREDIT AGREEMENT

Among

WHITTIER ENERGY
CORPORATION

as Borrower,

BNP Paribas,

as Administrative Agent,

and

The Lenders
Signatory Hereto

Effective as of November
9, 2006

 

First Amendment to Amended and Restated Credit
Agreement

This First Amendment to Amended
and Restated Credit Agreement (this “First Amendment”) executed
effective as of the 9th of November, 2006 (the “First Amendment Effective
Date”) is among Whittier Energy
Corporation, a corporation formed under the laws of the State of Nevada
(the “Borrower”); each of the undersigned guarantors (the “Guarantors”,
and together with the Borrower, the “Obligors”); each of the Lenders
that is a signatory hereto; and BNP
Paribas, as administrative agent for the Lenders (in such capacity,
together with its successors, the “Administrative Agent”).

Recitals

A.            The Borrower, the Administrative
Agent and the Lenders are parties to that certain Amended and Restated Credit
Agreement dated as of August 9, 2006 (the “Credit Agreement”), pursuant
to which the Lenders have made certain credit available to and on behalf of the
Borrower.

B.            The Borrower has requested and the
Administrative Agent and the Lenders have agreed to amend certain provisions of
the Credit Agreement.

C.            NOW, THEREFORE, in consideration of
the premises and the mutual covenants herein contained, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

Section 1.               Defined Terms.  Each capitalized term which is defined in the
Credit Agreement, but which is not defined in this First Amendment, shall have
the meaning ascribed to such term in the Credit Agreement.  Unless otherwise indicated, all section
references in this First Amendment refer to the Credit Agreement.

Section 2.               Amendments to Credit Agreement.

2.1           Definitions.  The following definitions in Section 1.02 are
hereby amended and restated as follows:

“Agreement”
means this Credit Agreement, as amended by that certain First Amendment to
Credit Agreement, dated as of November 9, 2006, and as the same may from time
to time be further amended, modified, supplemented or restated.

“Net
Cash Proceeds” means (a) in connection with any issuance or sale of Equity
Interests or Debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys’
fees, investment banking fees, accountants’ fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith and (b) with respect to any sale or disposition of
Property, the aggregate cash proceeds received by the Borrower or any of its
Subsidiaries (including, without limitation, any cash received upon the sale or
other disposition 

 2
 

 

of
any non-cash consideration received in any sale or disposition of Property),
net of (i) the direct costs relating to such sale or disposition, including,
without limitation, legal, accounting and investment banking fees, and sales
commissions, and any relocation expenses incurred as a result of such sale or
disposition, (ii) taxes paid or payable as a result of such sale or
disposition, in each case, after taking into account any available tax credits
or deductions and any tax sharing arrangements, (iii) amounts required to be
paid to holders of minority interests in joint ventures or Subsidiaries that
are not wholly-owned as a result of such sale or disposition, (iv) all payments
made with respect to liabilities directly associated with the assets which are
the subject of such sale or disposition, including, without limitation, trade
payables and other accrued liabilities and (v) any reserve or adjustment in
respect of the sale price of such Property established in accordance with GAAP.

2.2           Section 3.04.          Section 3.04(c)(vii) is hereby amended
and restated in its entirety as follows:

(i)            The Borrower shall prepay the Term
Loan Notes and accrued and unpaid interest thereon in amounts equal to:

(A)          50% of the amount equal to the Net
Cash Proceeds of any sale or disposition of Properties permitted by Section
9.12 minus the amount of any Borrowing Base reduction resulting from
application of Section 9.12(d)(iii), provided, that no such prepayment
pursuant to this Section 3.04(c)(vii)(A) shall be required to the extent the
aggregate Net Cash Proceeds from such sales or dispositions available after
application under Sections 3.04(c)(i) through (iv) are less than $500,000.

(B)           100% of the Net Cash Proceeds of any
Equity Interests of the Borrower.  Such
prepayment shall be made no later than the next Business Day after the receipt
of such proceeds.

(C)           100% of the Net Cash Proceeds of any
Casualty Event related to the Borrower or any of its Subsidiaries, to the
extent a prepayment is not required pursuant to Section 3.04(c)(iv); provided
that if the amount of any Net Cash Proceeds referred to in this Section
3.04(c)(vii)(C) would otherwise be payable under Section 3.04(c)(iv) but such
payment is waived, such amount shall be payable to the Borrower pursuant to
this Section 3.04(c)(vii)(C).

2.3           Section 8.12.  Section 8.12(a) is hereby amended and
restated in its entirety as follows:

 3
 

 

“(a)         On or
before March 1st and September 1st of each year, commencing September 1st,
2006, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report as of the immediately preceding January 1 or July 1, as
applicable.  The Reserve Report as of
January 1 of each year shall be prepared by one or more petroleum engineers
reasonably acceptable to the Administrative Agent and shall cover at least 75%
of the total value of the anticipated projected production from the Borrower’s
and its Subsidiaries’ Oil and Gas Properties and the July 1 Reserve Report of
each year shall be prepared by or under the supervision of the chief engineer
of the Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in the
immediately preceding January 1 Reserve Report.

2.3           Annex I.  Annex I is hereby amended and restated in its
entirety with the Annex I attached hereto.

Section
3.               Additional Lenders.  For an agreed consideration, the
Administrative Agent hereby irrevocably sells and assigns to each of Citibank,
N.A. and KeyBank National Association (collectively, the “New Lenders”),
and the New Lenders, by their signature hereto, hereby irrevocably purchase and
assume from the Administrative Agent, subject to and in accordance with the
Credit Agreement, as of the First Amendment Effective Date (i) the
Administrative Agent’s rights and obligations in its capacity as a Revolving
Credit and Term Loan Lender under the Credit Agreement and any other documents
or instruments delivered pursuant thereto to the extent related to the amount
and percentage interest identified on the attached Annex I, of such
outstanding rights and obligations of the Administrative Agent under the
Agreement and (ii) to the extent permitted to be assigned under applicable law,
all claims, suits, causes of action and any other right of the Administrative
Agent (in its capacity as a Revolving Credit and Term Loan Lender) against any
Person, whether known or unknown, arising under or in connection with the
Credit Agreement, any other documents or instruments delivered pursuant thereto
or the loan transactions governed thereby or in any way based on or related to
any of the foregoing, including contract claims, tort claims, malpractice
claims, statutory claims and all other claims at law or in equity related to
the rights and obligations sold and assigned pursuant to clause (i) above.

Section 4.               Scheduled
Redetermination of the Borrowing Base.  Pursuant to Section 2.07(b), each Lender
consents to a Redetermination pursuant to which the Borrowing Base shall be
increased to $50,000,000, effective from and including the First Amendment
Effective Date to but excluding the next Redetermination Date.  Notwithstanding the foregoing, the Borrowing
Base may be subject to further adjustments from time to time pursuant to
Section 8.13(c) or Section 9.12(d).

Section 5.               Conditions
Precedent.  The effectiveness of this
First Amendment is subject to the receipt by the Administrative Agent of the
following documents and satisfaction of the other conditions provided in this
Section 5, each of which shall be reasonably satisfactory to the
Administrative Agent in form and substance:

5.1           Payment of
Outstanding Invoices.  Payment by the
Borrower to the Administrative Agent of all fees and other amounts due and
payable on or prior to the First 

 4
 

 

Amendment Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Borrower.

5.2           First Amendment.  The Administrative Agent shall have received
multiple counterparts as requested of the this First Amendment from each
Lender.

5.3           No Default.  No Default or Event of Default shall have
occurred and be continuing as of the First Amendment Effective Date.

5.4           Notes.  The
Administrative Agent shall have received duly executed (a) Revolving Credit
Notes payable to the order of each Revolving Credit Lender in a principal
amount equal to its Maximum Revolving Credit Amount dated as of the First
Amendment Effective Date and (b) Term Loan Notes to the order of each Term Loan
Lender in a principal amount equal to its Term Loan Commitment dated as of the
date hereof.

Section 6.               Representations
and Warranties; Etc.  Each Obligor
hereby affirms:  (a) that as of the date
of execution and delivery of this First Amendment, all of the representations
and warranties contained in each Loan Document to which such Obligor is a party
are true and correct in all material respects as though made on and as of the
First Amendment Effective Date (unless made as of a specific earlier date, in
which case, was true as of such date); and (b) that after giving effect to this
First Amendment and to the transactions contemplated hereby, no Defaults exist
under the Loan Documents or will exist under the Loan Documents.

Section 7.               Miscellaneous.

7.1           Confirmation.  The provisions of the Credit Agreement (as
amended by this First Amendment) shall remain in full force and effect in
accordance with its terms following the effectiveness of this First Amendment.

7.2           Ratification and
Affirmation of Obligors.  Each of the
Obligors hereby expressly (i) acknowledges the terms of this First Amendment,
(ii) ratifies and affirms its obligations under the Guarantee Agreement and the
other Security Instruments to which it is a party, (iii) acknowledges, renews
and extends its continued liability under the Guarantee Agreement and the other
Security Instruments to which it is a party and agrees that its guarantee under
the Guarantee Agreement and the other Security Instruments to which it is a
party remains in full force and effect with respect to the Indebtedness as
amended hereby.

7.3           Counterparts.  This First Amendment may be executed by one
or more of the parties hereto in any number of separate counterparts, and all
of such counterparts taken together shall be deemed to constitute one and the
same instrument.

7.4           No Oral Agreement.  This
written First Amendment, the Credit Agreement and the other Loan Documents
executed in connection herewith and therewith represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous, or unwritten oral agreements of the parties.  There are no subsequent oral agreements
between the parties.

 5
 

 

7.5           Governing Law.  This
First Amendment (including, but not limited to, the validity and enforceability
hereof) shall be governed by, and construed in accordance with, the laws of the
State of Texas.

 6
 

 

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed effective as of the date first written above.

 

	
  BORROWER:

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Geoffrey M. Stone

  	
   

  
	
   

  	
  Name: Geoffrey M. Stone

  
	
   

  	
  Title:   Vice President of Finance and
  Chief 

  Accounting Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  WHITTIER
  ENERGY COMPANY

  
	
   

  	
  WHITTIER
  OPERATING, INC.

  
	
   

  	
  OLYMPIC
  RESOURCES (ARIZONA) LTD.

  
	
   

  	
  RIMCO
  PRODUCTION COMPANY, INC.

  
	
   

  	
  VAQUERO
  GAS COMPANY, INCORPORATED

  
	
   

  	
  RIMCO
  ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Geoffrey M. Stone

  	
   

  
	
   

  	
  Name: Geoffrey M. Stone

  
	
   

  	
  Title:   Vice President of Finance and
  Chief 

  Accounting Officer

  

 

 7
 

 

 

	
  ADMINISTRATIVE AGENT:

  	
  BNP PARIBAS,

  	
   

  
	
   

  	
  as Administrative Agent and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David Dodd

  	
   

  
	
   

  	
  Name: David Dodd

  
	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Betsy Jocher

  	
   

  
	
   

  	
  Name: Betsy Jocher

  
	
   

  	
  Title:   Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  NEW
  LENDERS:

  	
  CITIBANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Thomas Benavides

  	
   

  
	
   

  	
  Name:  Thomas Benavides

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KEYBANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas Rajan

  	
   

  
	
   

  	
  Name: Thomas Rajan

  
	
   

  	
  Title: Senior Vice President

  
							

 

 8

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