Document:

Prepared by MERRILL CORPORATION

Exhibit

10.1

 

 

STRAIGHT NOTE

 

 

 

	
  $300,000

  	
   

  	
  South
  El Monte, California

  	
  November
  15, 2001

  

 

 

                For
value received, Lee Pharmaceuticals promises to pay Mark DiSalvo or order, at
South El Monte, California the sum of THREE HUNDRED THOUSAND DOLLARS, with
interest from November 15, 2001, on unpaid principal at the rate of twenty (20)
per cent per annum; principal is payable monthly, commencing on December 25,
2001, with monthly principal payments of $10,000.  Interest shall be calculated on the basis of the unpaid principal
balance daily, based on a 365-day year, actual day month and payable
monthly.  Principal and interest shall
be payable in lawful money of the United States.  If action were instituted on this note, I promise to pay such sum
as the Court may fix as attorney's fees. 
This note is secured by the trademarks on the product brands Sayman®,
Cankaid®, and Medicone®.

 

 

 

	
  November 8, 2001

  	
   

  	
  RONALD
  G. LEE

  
	
  Date

  	
   

  	
  Lee Pharmaceuticals -
  Ronald G. Lee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  November 8, 2001

  	
   

  	
  MICHAEL
  L. AGRESTI

  
	
  Date

  	
   

  	
  Lee Pharmaceuticals -
  Michael L. AgrestiNo

	

  No. of Warrant Shares: 150,000

  	

   

  	

  Warrant No. 1

  

 

WARRANT

 

to Purchase Common Stock

of

Image Entertainment,

Inc.,

a California corporation

 

 

THIS IS TO CERTIFY THAT LIGHTHOUSE CAPITAL MANAGEMENT

CORP., a New York corporation, or registered assigns, is entitled to purchase

from Image Entertainment, Inc., a California corporation (the “Issuer”),

at any time on and after October 5, 2001, but not later than 5:00 p.m., Los

Angeles time, on October 4, 2006 (the “Expiration Date”), 150,000 shares

of the common stock of the Issuer (the “Warrant Shares”), in whole or in

part, at a purchase price of (a) $1.975 

per Warrant Share for the first 50,000 Warrant Shares purchased, (b)

$2.275 per Warrant Share for the second 50,000 Warrant Shares purchased, and

(c) $2.575 per Warrant Share for the third 50,000 Warrant Shares purchased, all

adjusted as provided below and otherwise on the terms and conditions  provided below.

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE

NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED

OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,

TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT

REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS,

OR UNLESS THE PROPOSED TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.

 

THE TRANSFER OF AND OTHER TERMS OF THE SECURITIES

REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY AND SUBJECT TO CONDITIONS

SPECIFIED BELOW, AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS

CERTIFICATE SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN

FULFILLED.

 

 

1.                                       Certain Definitions. 

As used in this Warrant, unless the context otherwise requires:

 

“Appraised Value” shall mean the fair market

value of all outstanding Common Stock, as determined by a written appraisal

(the “Appraisal”) prepared by an appraiser acceptable to the Issuer and

the holders of Warrants evidencing 50% in number of the total number of Warrant

Shares at the time purchasable upon the exercise of all then outstanding

Warrants.  “Fair market value” is

defined for this purpose as the price in a single transaction determined on a

going-concern basis that would be agreed upon by the most likely hypothetical

buyer for 100% of the equity capital of the Issuer.  In the event that the Issuer and said holders cannot, in good

faith, agree upon an appraiser, then the Issuer, on the one hand, and said

holders, on the other hand, shall each select an appraiser, the two appraisers

so selected shall select a third appraiser who shall be directed to prepare

such Appraisal and the term Appraised Value shall mean the appraised value set

forth in the Appraisal prepared in accordance with this definition.

 

“Business Day” shall mean any day on which

commercial banks are not authorized or required to close in Los Angeles,

California.

 

1

 

“Commission” shall mean the Securities and

Exchange Commission or any other similar or successor agency of the United

States government administering the Securities Act.

 

“Common Stock” shall mean the Issuer’s

authorized Common Stock, no par value per share, irrespective of class unless

otherwise specified, as constituted on the date of original issuance of this

Warrant, and any stock into which such Common Stock may thereafter be changed

or any other capital stock that is not preferred as to dividends or

distribution of assets over any other class of stock of the Issuer, and which

is not subject to redemption, that may be authorized by the Issuer.

 

“Current Market Price” per share of Common

Stock for the purposes of any provision of this Warrant at the date herein

specified, shall be deemed to be the price determined pursuant to the first

applicable of the following methods.

 

(i)            If the Common Stock is traded on a

national securities exchange or is traded in the over-the-counter market, the

Current Market Price per share of Common Stock shall be deemed to be the

average of the daily market prices for twenty (20) consecutive Trading Days

commencing twenty (20) Trading Days before such date.  The market price for each such Trading Day shall be, (a) if the

Common Stock is traded on a national securities exchange, its last sale price

on the preceding Trading Day on such national securities exchange or, if there

was no sale on that day, the last reported sale price on such national exchange

on the next preceding Trading Day on which there was a sale, or (b) if the

principal market for the Common Stock is the over-the-counter market, and the

Common Stock is quoted on the National Association of Securities Dealers

Automated Quotations System (“NASDAQ”), the last sale price reported on

NASDAQ on the preceding Trading Day or, if the Common Stock is an issue for which

last sale prices are not reported on NASDAQ, the closing bid quotation on such

day, but, in each of the next preceding two cases, if the relevant NASDAQ price

or quotation did not exist on such day, then the price or quotation on the next

preceding Trading Day in which there was such a price or quotation.

 

(ii)           If the Current Market Price per share

of Common Stock cannot be ascertained by any of the methods set forth in

paragraph (i) immediately above, the Current Market Price per share of

outstanding Common Stock shall be deemed to be the price equal to the quotient

determined by dividing the Appraised Value by the number of shares (including

any fractional shares) of Common Stock, on a fully diluted basis.

 

 

“Exchange Act” shall mean the Securities Exchange

Act of 1934, and any similar or successor federal statute, and the rules and

regulations of the Commission thereunder, all as the same shall be in effect at

the time.

 

“Exercise Price” shall mean the purchase price

per Warrant Share as set forth on the first page of this Warrant on the date of

original issue of this Warrant and thereafter shall mean such dollar amount as

shall result from the adjustments specified in Section 4, if any.

 

“Person” shall mean a corporation, an

association, a trust, a partnership, a joint venture, a limited liability

company, a limited liability partnership, an organization, a business, an

individual, a government or political subdivision thereof or a governmental

body.

 

“Restricted Certificate” shall mean a

certificate for Common Stock or a Warrant bearing the restrictive legend set

forth in Section 8.

 

2

 

“Restricted Securities” shall mean Restricted

Stock and Restricted Warrants.

 

“Restricted Stock” shall mean Warrant Stock

evidenced by a Restricted Certificate.

 

“Restricted Warrant” shall mean a Warrant

evidenced by a Restricted Certificate, including, without limitation, this

Warrant.

 

“Securities Act” shall mean the Securities Act

of 1933, as amended, or any similar federal statute, and the rules and

regulations of the Commission thereunder, all as the same shall be in effect at

the time.

 

“Seller” shall mean a holder of Restricted

Stock of the Issuer which shall be registered under the Securities Act at the

request of such holder pursuant to any of the provisions of Section 9.

 

“Trading Day” shall mean any day on which

trading occurs on the NASDAQ.

 

“Warrants” shall mean this Warrant, and all

additional or new warrants issued upon transfer, division or combination of, or

in substitution for, any thereof.  All

such additional or new warrants shall at all times be identical as to terms and

conditions and date, except as to the number of Warrant Shares for which they

may be exercised.

 

2.             Exercise of Warrant.  The holder of this Warrant may, at any time on and after October

5, 2001, but not later than the Expiration Date, exercise this Warrant in whole

at any time or in part from time to time for the number of Warrant Shares which

such holder is then entitled to purchase hereunder.  In order to exercise this Warrant, in whole or in part, the

holder hereof shall deliver to the Issuer at its office maintained for such

purpose, (a) a written notice of such holder’s election to exercise this

Warrant, which notice shall specify the number of Warrant Shares to be

purchased, (b) this Warrant and (c) a sum equal to the aggregate Exercise Price

therefor in immediately available funds. 

Such notice shall be in the form of the Subscription set out at the end

of this Warrant.  Upon delivery thereof,

the Issuer shall cause to be executed and delivered to such holder within ten

(10) Business Days a certificate or certificates representing the aggregate

number of Warrant Shares issuable upon such exercise.

 

The holder may also

exercise this Warrant in whole or in part in a “cashless” or “net-issue”

exercise of this Warrant to the Issuer with a written notice stating the number

of Warrant Shares to be delivered thereunder and the number of Warrant Shares

with respect to which the Warrant is being surrendered in payment of the

aggregate Exercise Price for the Warrant Shares to be delivered to the

holder.  For purposes of this provision,

all Warrant Shares as to which the Warrant is surrendered will be valued at the

Current Market Price.  Such notice shall

be in the form of Subscription set out at the end of this Warrant.

 

The stock certificate or

certificates for Warrant Shares so delivered shall be in such denominations as

may be specified in said notice and shall be registered in the name of such

holder or such other name or names as shall be designated in said notice.  Such certificate or certificates shall be

deemed to have been issued and such holder or any other Person so designated to

be named therein shall be deemed to have become a holder of record of such

Warrant Shares. If this Warrant shall have been exercised only in part, the

Issuer shall, within two (2) Business Days of delivery of said certificate or

certificates, deliver to such holder a new Warrant dated the date it is issued,

evidencing the rights of such holder to purchase the remaining Warrant Shares,

which new

 

3

 

Warrant shall in all other respects be identical with

this Warrant, or, at the request of such holder, appropriate notation may be

made on this Warrant and the Warrant shall be returned to such holder.

 

The Issuer shall pay all

expenses, transfer taxes and other charges payable in connection with the

preparation, issue and delivery of stock certificates under this Section 2,

except that, if such stock certificates shall be registered in a name or names

other than the name of the holder of this Warrant, funds sufficient to pay all

stock transfer taxes which shall be payable upon the issuance of such stock

certificate or certificates shall be paid by the holder hereof at the time of

delivering the notice of exercise mentioned above.

 

The Issuer shall issue

certificates for fractional shares of stock upon any exercise of this Warrant

whenever, in order to implement the provisions of this Warrant, the issuance of

such fractional shares is required, or, at the Issuer’s option, the Issuer may

pay cash in lieu of fractional shares determined by the Issuer by multiplying

such fraction by the Current Market Price on the date of exercise.

 

The holder and Issuer

hereby acknowledge that this Warrant has been issued by Issuer to the holder

for services rendered solely in connection with the Financial Consulting

Agreement dated as of October 5, 2001 by and between the Issuer and Lighthouse

Capital Management Corp., a New York corporation.

 

3.             Transfer,

Division and Combination.  Subject

to applicable law and the provisions of Section 8 hereof, this Warrant is, and

all rights hereunder are, transferable, in whole or in part, on the books of

the Issuer to be maintained for such purpose, upon surrender of this Warrant at

the office of the Issuer maintained for such purpose, together with a written

assignment of this Warrant duly executed by the holder hereof or its agent or

attorney and payment of funds sufficient to pay any stock transfer taxes

payable upon the making of such transfer. 

Upon such surrender and payment the Issuer shall execute and deliver a

new Warrant or Warrants in the name of the assignee or assignees and in the

denominations specified in such instrument of assignment, and this Warrant

shall promptly be canceled.

 

Subject to applicable law

and the provisions of Section 8 hereof, this Warrant may be divided or combined

with other Warrants upon presentation at the aforesaid office of the Issuer,

together with a written notice specifying the names and denominations in which

new Warrants are to be issued, signed by the holder hereof.  Subject to compliance with the preceding

paragraph, as to any transfer which may be involved in such division or

combination, the Issuer shall execute and deliver a new Warrant or Warrants in

exchange for the Warrant or Warrants to be divided or combined in accordance

with such notice.

 

The holder of this

Warrant shall pay all expenses, taxes and other charges incurred by the Issuer

in the performance of its obligations in connection with the preparation, issue

and delivery of Warrants under this Section 3. 

The Issuer agrees to maintain at its aforesaid office books for the

registration and transfer of the Warrants.

 

4.             Adjustments.

 

(a)           Adjustments for Stock Splits and

Dividends.  If outstanding shares of

the Common Stock shall be subdivided into a greater number of shares or a

dividend in Common Stock shall be paid in respect of Common Stock, the Exercise

Price in effect immediately prior to such subdivision or at the record date of

such dividend shall simultaneously with the effectiveness of such subdivision

or immediately after the record date of such dividend be proportionately

reduced.  If outstanding shares of

Common Stock shall be combined into a smaller number of shares, the Exercise

Price in effect immediately prior to such combination shall, simultaneously

with the effectiveness of such combination, be proportionately increased. When

any

 

4

 

adjustment is required to be made in the Exercise

Price, the number of Warrant Shares purchasable upon the exercise of this

Warrant shall be changed to the number determined by dividing (i) an amount

equal to the number of shares of Common Stock issuable upon the exercise of

this Warrant immediately prior to such adjustment, multiplied by the Exercise

Price in effect immediately prior to such adjustment, by (ii) the Exercise

Price in effect immediately after such adjustment.

 

(b)           Reorganizations, Mergers,

Consolidations or Reclassifications. 

If there shall occur any capital reorganization or reclassification of

the Common Stock (other than a change in par value or a subdivision or

combination as provided for in Section 4(a) above), or any consolidation or

merger of the Issuer with or into another corporation, or a transfer of all or

substantially all of the assets of the Issuer, then, as part of any such

reorganization, reclassification, consolidation, merger or sale, as the case

may be, lawful provision shall be made so that the holder of this Warrant shall

have the right thereafter to receive upon the exercise hereof the kind and

amount of shares of stock or other securities or property which such holder would

have been entitled to receive if, immediately prior to any such reorganization,

reclassification, consolidation, merger or sale, as the case may be, such

holder had held the number of shares of Common Stock which were then

purchasable upon the exercise of this Warrant. In any such case, appropriate

adjustment (as reasonably determined in good faith by the Board of Directors of

the Issuer) shall be made in the application of the provisions set forth herein

with respect to the rights and interests thereafter of the holder of this

Warrant, such that the provisions set forth in this Section 4 (including

provisions with respect to adjustment of the Exercise Price) shall thereafter

be applicable, as nearly as is reasonably practicable, in relation to any shares

of stock or other securities or property thereafter deliverable upon the

exercise of this Warrant.

 

(c)           Dissolution, Liquidation and

Winding Up.  If the Issuer shall,

other than as provided in Section 4(b) above, dissolve, liquidate or wind up

its affairs, the holder of this Warrant shall have the right thereafter to

receive, upon exercise hereof, in lieu of the shares of the Issuer that the

holder would have been entitled to receive, the same kind and amount of

securities and assets of the Issuer as would have been issued, distributed or

paid to holder upon any such dissolution, liquidation or winding up of the

Issuer with respect to shares of the Issuer had the holder been the holder of

record of such shares receivable upon exercise of this Warrant on the date for

determining those entitled to receive any such distribution.

 

(d)           Certificate of Adjustment.  In each case of an adjustment or

readjustment of the Exercise Price or the number of shares of Common Stock or

other securities issuable upon exercise of this Warrant, the Issuer, at its

expense, shall compute such adjustment or readjustment in accordance with this

Warrant and prepare a certificate showing such adjustment or readjustment, and

shall mail such certificate, by first-class mail, postage prepaid, to the

holder at the holder’s address as shown on the Issuer’s stock transfer

books.  The certificate shall set forth

such adjustment or readjustment, showing in detail the facts upon which such

adjustment or readjustment is based.

 

(e)           Notices of Record Date.  In the event the Issuer shall propose to

take any action of the type or types requiring an adjustment to the Exercise

Price or the number or character of shares of Common Stock issuable upon

exercise of this Warrant, the Issuer shall give notice to the holder in the

manner set forth in Section 4(d) above, which notice shall specify the record

date, if any, with respect to any such action and the date on which such action

is to take place.  Such notice shall

also set forth such facts with respect thereto as shall be reasonably necessary

to indicate the effect of such action (to the extent such effect may be known

at the date of such notice) on the Exercise Price and the number, kind or class

of shares or other securities or property which shall be deliverable upon the

occurrence of such action or deliverable upon the exercise of this

Warrant.  In the case of any action

which would require the fixing of a record date, such notice shall be given

 

5

 

at least twenty (20) days prior to the date so fixed,

and in case of all other action, such notice shall be given at least thirty

(30) days prior to the taking of such proposed action.

 

(f)            No Impairment.  The Issuer shall not amend its Articles of

Incorporation or participate in any reorganization, transfer of assets,

consolidation, merger, dissolution, issue or sale of securities or any other

voluntary action, for the purpose of avoiding or seeking to avoid the

observance or performance of any of the terms to be observed or performed

hereunder by the Issuer, but shall at all times in good faith use its best

efforts, and assist in carrying out all such action as may be reasonably

necessary or appropriate in order to protect the rights of the holder against dilution

or other impairment.

 

5.             Reservation

and Authorization of Common Stock. 

The Issuer shall at all times reserve and keep available for issue upon

the exercise of Warrants such number of its authorized but unissued shares of

Common Stock as will be sufficient to permit the exercise in full of this

Warrant.  All shares of Common Stock

that shall be issued upon exercise of any Warrant and payment of the exercise

price thereof to the Issuer, shall be duly and validly issued and fully–paid

and nonassessable.

 

6.             Transfer

Taxes.  The Issuer will pay any and

all transfer taxes that may be payable in respect of the issuance or delivery

of shares of Common Stock on exercise of this Warrant.  The Issuer shall not, however, be required

to pay any tax that may be payable in respect of any transfer involved in the

issue and delivery of shares of Common Stock in a name other than that in which

this Warrant is registered, and no such issue or delivery shall be made unless

and until the Person requesting such issue has paid to the Issuer the amount of

any such tax, or has established, to the satisfaction of the Issuer, that such

tax has been paid.

 

7.             No

Voting Rights.  This Warrant shall

not entitle the holder hereof to any voting rights or other rights as a

shareholder of the Issuer.

 

8.             Restrictions on Transferability.

 

(a)           Transferability.  The Restricted Securities shall not be

transferable except upon the conditions specified in this Section 8.  Each such transferee shall be subject to the

same transfer restrictions imposed on the Warrant holder by this Agreement.

 

(b)           Restrictive Legend.  Unless and until otherwise permitted by this

Section 8, each certificate for Warrants issued under this Agreement, each

certificate for any Warrants issued to any subsequent transferee of any such

certificate, each certificate for any Warrant Shares issued upon exercise of

any Warrant and each certificate for any Warrant Shares issued to any

subsequent transferee of any such certificate, shall be stamped or otherwise

imprinted with a legend in substantially the following form:

 

“THE SECURITIES

REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES

ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES

LAWS.  THE SECURITIES HAVE BEEN ACQUIRED

FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS

THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER

FEDERAL OR STATE SECURITIES LAWS OR UNLESS THE PROPOSED TRANSACTION IS

REGISTERED OR QUALIFIED AS REQUIRED.

 

“THE TRANSFER OF AND

OTHER TERMS OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY

AND SUBJECT TO CONDITIONS SPECIFIED BELOW,

 

6

 

AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS

CERTIFICATE SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN

FULFILLED.  UNDER CERTAIN CIRCUMSTANCES

SPECIFIED BELOW, THE ISSUER HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW

CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES EVIDENCED HEREBY,

REGISTERED IN THE NAME OF SUCH HOLDER. 

THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,

AGREES TO BE BOUND BY ALL OF THE PROVISIONS HEREIN.”

 

(c)           Notice of Proposed Transfers.  Prior to any transfer or attempted transfer

of any Restricted Securities, the holder of such Restricted Certificate shall

give written notice to the Issuer of such holder’s intention to effect such

transfer.  Each such notice shall

describe the manner and circumstances of the proposed transfer in sufficient

detail.  Upon receipt of such notice,

the Issuer may request an opinion of counsel of such holder (which counsel

shall be reasonably satisfactory to the Issuer) to the effect that such

proposed transfer may be effected without registration under the Securities

Act.  Upon receipt of such opinion, or

if the Issuer does not request such an opinion, within 10 days after receiving

notice of the proposed transfer, the Issuer shall, as promptly as practicable,

so notify the holder of such Restricted Certificate and such holder shall

thereupon be entitled to transfer such Restricted Securities in accordance with

the terms of the notice delivered by such holder to the Issuer.  Each certificate evidencing the Restricted

Securities thus to be transferred (and each certificate evidencing any

untransferred balance of the Restricted Securities evidenced by such Restricted

Certificate) shall bear the restrictive legend set forth in Section 8(b),

unless in the opinion of the Issuer or the opinion of such counsel, if

requested, pursuant to Rule 144(k) of the Securities Act, such legend is not

required in order to insure compliance with the Securities Act.

 

9.             Registration

Rights.

 

(a)           If the Issuer at any time proposes to

register any of its equity securities under the Securities Act on Form   S-1, S-2 or S-3, or the equivalent, whether

of its own accord or at the request of any holder or holders of such

securities, it will each such time give written notice to all holders of

outstanding Restricted Securities of its intention so to do.

 

Upon the written request

of a holder or holders of any Restricted Securities given within twenty (20)

days after receipt of any such notice (stating the intended method of

disposition of such securities by the prospective Seller or Sellers), the

Issuer will use its best efforts to cause all Restricted Stock, the holders of

which shall have so requested registration thereof, to be registered under the

Securities Act, all to the extent requisite to permit the sale or other

disposition (in accordance with the intended methods thereof as aforesaid) by

the prospective Seller or Sellers of the Restricted Stock so registered; provided,

however, the Issuer, in its sole discretion, may elect  not to file a registration statement

pursuant to this Section 9(a) or may withdraw any registration statement filed

pursuant to this Section 9(a) at any time prior to the effective date

thereof.  In the case of an underwritten

public equity offering by the Issuer, (i) each holder of Restricted Securities

shall, if requested by the managing underwriter, agree not to sell any equity

securities of the Issuer held by such holder of Restricted Securities (other

than the Restricted Stock so registered) for a period of up to 180 days

following the effective date of the registration statement relating to such

offering, and (ii) each Seller agrees that all of the Restricted Stock to be

sold pursuant to the request procedures set forth in this Subsection shall be

registered pursuant to such registration statement and disposed of as therein

described.

 

(b)           If the managing underwriter for the

respective offering advises that the inclusion in such registration of some or

all of the Restricted Stock sought to be registered by the Seller in its

opinion will have a material adverse impact on the Issuer (including without

limitation causing the proceeds of the price per

 

7

 

share the Issuer or the requesting holder of

securities will derive from such registration to be reduced or causing the

number of securities to be registered at the instance of the Issuer or such

requesting holder plus the number of securities sought to be registered by the

Sellers to be too large a number to be reasonably sold), the number of

securities sought to be registered for each Seller shall be reduced as set

forth below:

 

(i)            the

number of shares of Restricted Stock sought to be registered by the Sellers

shall be reduced pro rata along with other sellers selling pursuant to similar

incidental registration rights, to the extent necessary to eliminate such

material adverse impact on the Issuer; and

 

(ii)           if

the reduction provided for in clause (i) above does not reduce the number of

securities to be registered to that number which would eliminate such material

adverse impact on the Issuer, then the number of shares of Common Stock sought

to be registered by the Issuer or other persons exercising demand registration

rights, as the case may be, shall be reduced to the extent necessary to reduce

the number of securities to the extent necessary to eliminate such material

impact on the Issuer.

 

(c)           Registration

Procedures.  If and whenever the

Issuer is required by the provisions of this Section 9 to use its best efforts

to effect the registration of any of the Restricted Stock under the Securities

Act, the Issuer will (except as otherwise provided in this Agreement), as

expeditiously as possible,

 

(i)            cooperate

with any underwriters for, and the Sellers of, such Restricted Stock, and will

enter into a usual and customary underwriting agreement with respect thereto

and take all such other reasonable actions as are necessary or advisable to

permit, expedite and facilitate the disposition of such Restricted Stock in the

manner contemplated by the related registration statement, and the Issuer will

provide to any Seller of Restricted Stock, any underwriter participating in any

distribution thereof pursuant to a registration statement, and any attorney,

accountant or other agent retained by any Seller or underwriter, reasonable

access to appropriate Issuer officers and employees to answer questions and to

supply information reasonably requested by any such Seller, underwriter,

attorney, accountant or agent in connection with such registration statement;

 

(ii)           use

its best efforts to furnish or cause to be furnished to each Seller of

Restricted Stock covered by such registration statement, addressed to such

Sellers, a copy of the opinion of counsel for the Issuer, and a copy of the

“comfort” letter signed by the independent public accountants who have

certified the Issuer’s financial statements included in the registration

statement, delivered on the closing date to the underwriters of such Restricted

Stock;

 

(iii)          prepare

and file with the Commission a registration statement with respect to such

securities and use its best efforts to cause such registration statement to

become and remain effective; and prepare and file with the Commission such

amendments and supplements to such registration statement and the prospectus

used in connection therewith as may be necessary to keep such registration

statement effective and to comply with the provisions of the Securities Act

with respect to the sale or other disposition of all securities covered by such

registration statement whenever the Seller or Sellers of such securities shall

desire to sell or otherwise dispose of the same;

 

(iv)          furnish

to each Seller such numbers of copies of a summary prospectus or other

prospectus, including a preliminary prospectus, in conformity with the requirements

of the Securities Act, and such other documents, as such Seller may reasonably

request in order to facilitate the public sale or other disposition of the

securities owned by such Seller;

 

8

 

(v)           use

its best efforts to register or qualify the securities covered by such

registration statement under such other securities or blue sky laws of such

jurisdictions as each Seller shall reasonably request, and do any and all other

acts and things which may be necessary or advisable to enable such Seller to

consummate the public sale or other disposition in such jurisdictions of the

securities owned by such Seller, except that the Issuer shall not for any such

purpose be required to qualify to do business as a foreign corporation in any

jurisdiction wherein it is not so qualified or to file therein any general

consent to service or submit the general taxation of any jurisdiction;

 

(vi)          in

the event of the issuance of any stop order suspending the effectiveness of any

registration statement or of any order suspending or preventing the use of any

prospectus or suspending the qualification of any Restricted Stock for sale in

any jurisdiction, use its best efforts promptly to obtain its withdrawal;

 

(vii)         otherwise

use its best efforts to comply with all applicable rules and regulations of the

Commission, and make available to its security holders, as soon as reasonably

practicable, an earnings statement covering the period of at least twelve

months, beginning with the first fiscal quarter beginning after the effective

date of the registration statement, which earnings statement shall satisfy the

provisions of Section 11(a) of the Securities Act; and

 

(viii)        list

such securities on any securities exchange on which any stock of the Issuer is

then listed, if the listing of such securities is then permitted under the

rules of such exchange; provided, however, that notwithstanding

any other provision of this Section 9, the Issuer shall not be required to

maintain the effectiveness of any registration statement for a period in excess

of the earlier of 120 days or the disposition of the Warrant Stock as described

therein.

 

(d)           Expenses;

Limitations on Registration.  All

expenses incident to the Issuer’s performance of its obligations in connection

with any registration of the Sellers’ Restricted Stock under this Section 9,

including, without limitation, printing expenses, fees and disbursements of

counsel for the Issuer, fees of the National Association of Securities Dealers,

Inc. in connection with its review of any offering contemplated in any

registration statement and expenses of any special audits to which the Issuer

shall agree or which shall be necessary to comply with governmental

requirements in connection with any such registration, shall be paid by the

Issuer.  In addition, the Issuer shall

pay (i) all registration and filing fees for the Sellers’ Restricted Stock

under federal and state securities laws, (ii) expenses of registering or

qualifying under or complying with the securities or blue sky laws of any

jurisdictions, unless otherwise required by the securities administrators of

each such jurisdiction and (iii) reasonable fees and disbursements of not more

than one special counsel for the Sellers. 

Notwithstanding the foregoing, the Issuer shall have no obligation to

pay or otherwise bear any portion of the underwriter’s commissions or discounts

attributable to the Restricted Stock being offered and sold by the Sellers.

 

It shall be a condition precedent to the obligation of

the Issuer to take any action pursuant to this Section 9 in respect of the

Securities which are to be registered at the request of any prospective Seller

that (i) subject to the immediately preceding paragraph, the Issuer shall have

received an undertaking satisfactory to it from such prospective Seller to pay

all expenses to be incurred by or for the account of and required to be paid by

such Seller, and (ii) such prospective Seller shall furnish to the Issuer such

information regarding the securities held by such Seller and the intended

method of disposition thereof as the Issuer shall reasonably request and as

shall be required in connection with the action to be taken by the Issuer.

 

(e)           Termination.  The terms of this Section 9 shall cease and

terminate as to any particular Restricted Security when such Restricted

Security shall have been effectively registered under the Securities

 

9

 

Act and sold by the holder thereof in accordance with such registration

or that such Restricted Stock may be sold in accordance with the safe harbor

provisions of Rule 144(k) under the Securities Act.

 

(f)            Rule

144 and 144A.  In order to permit

the holders of Restricted Securities to sell the same, if they so desire,

pursuant to Rule 144 or Rule 144A promulgated by the Commission (or any

successors to such rules), the Issuer will comply with all rules and

regulations of the Commission applicable in connection with use of each of Rule

144 and Rule 144A (or any successors thereto), including the timely filing of

all reports with the Commission in order to enable such holders, if they so

elect, to utilize Rule 144 or Rule 144A, and the Issuer will cause any

restrictive legends to be removed and any transfer restrictions to be rescinded

with respect to any sale of Warrant Stock which is exempt from registration

under the Securities Act pursuant to Rule 144 or Rule 144A.

 

(g)           Indemnification.

 

(i)            In

the event of any registration of any of its securities under the Securities Act

pursuant to this Section 9, the Issuer shall indemnify and hold harmless the

Seller of such Restricted Stock, its directors and officers, and each other

Person, if any, who controls such Seller within the meaning of the Securities

Act (“Controlling Person”), against any losses, claims, damages or

liabilities, joint or several, to which such Seller or any such director or

officer or Controlling Person may become subject under the Securities Act or

any other statute or at common law, insofar as such losses, claims, damages or

liabilities (or actions in respect thereof) arise out of or are based upon (a)

any alleged untrue statement of any material fact contained, on the effective

date thereof, in any registration statement under which such securities were

registered under the Securities Act, or in any preliminary prospectus or final

prospectus contained therein, or any amendment or supplement thereto, (b) any

alleged omission to state therein a material fact required to be stated therein

or necessary to make the statements therein not misleading or (c) any violation

by the Issuer of any rule or regulation promulgated under the Securities Act or

the Exchange Act, or other federal or state law applicable to the Issuer and

relating to any action or inaction required of the Issuer in connection with

such registration, and shall reimburse such Seller or such director, officer or

Controlling Person for any legal or any other expenses reasonably incurred by

such Seller or such director, officer or Controlling Person in connection with

investigating or defending any such loss, claim, damage, liability or action; provided,

however, that the Issuer shall not be liable in any such case to the

extent that any such loss, claim, damage or liability arises out of or is based

upon any alleged untrue statement or alleged omission made in such registration

statement, preliminary prospectus, prospectus, or amendment or supplement in

reliance upon and in conformity with written information furnished to the

Issuer through an instrument duly executed by such Seller specifically for use

therein.  Such indemnity shall remain in

full force and effect regardless of any investigation made by or on behalf of

such Seller or such director, officer or Controlling Person, and shall survive

the transfer of such securities by such Seller.

(ii)           Each

holder of any Restricted Stock shall, by acceptance thereof, severally and not

jointly, indemnify and hold harmless the Issuer, its directors and officers and

each other Person, if any, who controls the Issuer against any losses, claims,

damages or liabilities, joint or several, to which the Issuer or any such

director or officer or any such Person may become subject under the Securities

Act or any other statute or at common law, insofar as such losses, claims,

damages or liabilities (or actions in respect thereof) arise out of or are

based upon (a) any alleged untrue statement of any material fact contained, on

the effective date thereof, in any registration statement under which

Restricted Stock was registered under the Securities Act, or in any preliminary

prospectus or final prospectus contained therein, or any amendment or

supplement thereto, or (b) any alleged omission to state therein a material

fact required to be stated therein or necessary to make the statements therein

not misleading, in each case to the extent, but only to the extent that such

alleged untrue statement or alleged omission was contained in written

information furnished to the Issuer, and shall reimburse

 

10

 

the Issuer or such director, officer or other Person for any legal or

any other expenses reasonably incurred in connection with investigating or

defending any such loss, claim, damage, liability or action.  Notwithstanding the foregoing, obligations

of any holder shall be limited to an amount equal to the proceeds to such

holder from the Restricted Stock sold pursuant to the registration statement to

which the losses, claims, liabilities or damages relate.

 

(iii)          Indemnification

similar to that specified in clauses (i) and (ii) of this Section 9(g) shall be

given by the Issuer and each holder of any Restricted Certificate (with such

modifications as shall be appropriate) to each other and to any underwriter

with respect to any required registration or other qualification of any

Restricted Stock under any federal or state law or regulation of governmental

authority other than the Securities Act. 

The indemnity and expense reimbursements obligations of the Issuer under

clauses (i) and (ii) of this Section 9(g) shall be in addition to any liability

the Issuer may otherwise have.

 

(iv)          Each

Person (“Indemnitor”) who under the preceding provisions of this Section

9(g) agrees to indemnify another Person (“Indemnitee”) shall have the right,

subject to the provisions hereto, to designate counsel (reasonably acceptable

to the Indemnitee) to defend any case or proceeding against the Indemnitee

arising in respect of any claim of liability for which such indemnification may

be claimed, to the end that duplication of legal expense may be minimized.  Each Indemnitee may engage legal counsel at

the Indemnitor’s expense if the Indemnitor shall fail to perform hereunder.

 

10.           Deemed

Representations, Warranties and Agreements of the Holder.

 

(a)           By

acceptance of this Warrant, the holder represents and warrants to the Issuer

that (a) it is an “accredited investor” (as such term is defined in Rule 501

promulgated under the Securities Act), and (b) it is acquiring this Warrant,

and shall acquire the Warrant Shares, for investment, for its own account and

not with a view towards the resale or distribution thereof.

 

(b)           By

acceptance of this Warrant, the holder acknowledges that:

 

(i)            Holder

must bear the economic risk of the investment proposed herein for an indefinite

period of time because the Warrant Shares will not have been registered under

the Securities Act and cannot be sold by the holder unless they are registered

under the Securities Act or an exemption therefrom is available thereunder.

 

(ii)           Holder

has had both the opportunity to ask questions of and receive answers from the

officers and directors of the Issuer and all persons acting on its behalf

concerning this Warrant, the Warrant Shares and the terms and conditions hereof

and to obtain any additional information, to the extent the Issuer possesses or

may possess such information or can acquire it without unreasonable effort or

expense, necessary for the holder to make the investment in the Issuer

contemplated hereby.

 

11.           Loss,

Destruction of Warrant Certificates. 

Upon receipt of evidence satisfactory to the Issuer of the loss, theft,

destruction or mutilation of any Warrant and, in the case of any such loss,

theft or destruction, upon receipt of indemnity or security satisfactory to the

Issuer (the original Warrant holder’s or any other institutional Warrant

holder’s indemnity being satisfactory indemnity in the event of loss, theft or

destruction of any Warrant owned by such institutional holder), or, in the case

of any such mutilation, upon surrender and cancellation of such Warrant, the

Issuer will make and deliver, in lieu of such lost, stolen, destroyed or

mutilated Warrant, a new Warrant of like tenor and representing the right to

purchase the same aggregate number of shares of Common Stock.

 

11

 

11.           Amendments.  The terms of this Warrant may be amended,

and the observance of any term therein may be waived, but only with the written

consent of the holders of Warrants evidencing a majority in number of the total

number of Warrant Shares at the time purchasable upon the exercise of the

Warrant.

 

12.           Notices

Generally.  Any notice, demand or

delivery pursuant to the provisions hereof shall be sufficiently delivered or

made if sent by first class mail, postage prepaid, addressed to any holder of a

Warrant at its last known address appearing on the books of the Issuer, or to

the Issuer at its principal executive office, 9333 Oso Avenue, Chatsworth,

California 91311, or such other address as shall have been furnished to the

party giving or making such notice, demand or delivery.

 

13.           Successors

and Assigns.  This Agreement shall

bind and inure to the benefit of and be enforceable by the parties hereto and

their respective successors and assigns, and, without limiting the generality

of the foregoing, shall inure to the benefit of and be enforceable by each

person who shall from time to time be a holder of any of the Warrants.

 

14.           Governing

Law.  This Warrant shall be governed

by and construed in accordance with the internal laws of the State of

California.

 

IN WITNESS WHEREOF, the Issuer has caused this Warrant

to be signed in its name and on its behalf as of the date set forth below.

 

Dated: October 5, 2001

 

IMAGE ENTERTAINMENT, INC.,

a California corporation

 

 

 

	

  By:

  	

  /s/ MARTIN W. GREENWALD

  	

   

  
	

   

  	

  Martin W. Greenwald, President

  	

   

  

 

12

 

SUBSCRIPTION FORM

 

(to be executed only upon

exercise of Warrant)

 

 

The undersigned registered owner of this Warrant

irrevocably exercises this Warrant for and purchases _____ shares of Common

Stock of Image Entertainment, Inc., a California corporation, purchasable with

this Warrant, and herewith makes payment therefor (by check in the amount of

$__________), all at the price and on the terms and conditions specified in

this Warrant and requests that certificates for the shares of Common Stock

hereby purchased (and any securities or other property issuable upon such

exercise) be issued in the name of and delivered to _____________________ whose

address is ______________ and, if such shares shall not include all of the

shares of Common Stock issuable as provided in this Warrant that a new Warrant

of like tenor and date for the balance of the shares of Common Stock issuable

thereunder be delivered to the undersigned.

 

 

	

  Dated:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  
	

  (Signature of Registered Owner)

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  
	

  (Street Address)

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  
	

  (City)

  	

  (State) (Zip Code)

  

 

 

NOTICE:                                                The signature to the subscription must

correspond with the name as written upon the face of the within Warrant in

every particular, without alteration or enlargement or any change whatever.

 

The signature to this subscription must be guaranteed

by a bank or trust company having an office or correspondent in Los Angeles,

California, or by a firm having membership on the New York Stock Exchange.

 

13

 

ASSIGNMENT FORM

 

 

FOR VALUE RECEIVED the undersigned registered owner of

this Warrant hereby sells, assigns and transfers unto the Assignee named below all

of the rights of the undersigned under this Warrant, with respect to the number

of Warrant Shares set forth below:

 

	

  No. of Warrant Shares

  	

   

  	

  Name and Address of

  Assignee

  	

   

  

 

 

 

 

 

 

 

 

 

and does hereby irrevocably constitute and appoint

_____________________ Attorney to make sure transfer on the books of Image

Entertainment, Inc., a California corporation, maintained for the purpose, with

full power of substitution in the premises.

 

	

  Dated:

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

  Signature

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

  Witness

  	

   

  

 

NOTICE:                                                The signature to the assignment must

correspond with the name as written upon the face of the within Warrant in

every particular, without alteration or enlargement or any change whatever.

 

The signature to this assignment must be guaranteed by

a bank or trust company having an office or correspondent in Los Angeles,

California, or by a firm having membership on the New York Stock Exchange.

 

14

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