Securities Purchase Agreement
Exhibit 10.1
Execution Copy
This Securities Purchase Agreement, dated December 21, 2009 (the “Agreement”), is by
and between Image Entertainment, Inc., a Delaware corporation (the “Company”), JH Partners,
LLC, as the Investor Representative, and the several Investors listed on Schedule 1 (collectively,
the “Investors”).
WHEREAS, on the terms and conditions set forth in this Agreement, the Company desires to sell,
and the Investors desire to purchase, 22,000 shares of the Company’s Series B Cumulative Preferred
Stock, par value $0.0001 per share (the “Series B Preferred”), and 196,702 shares of the
Company’s Series C Junior Participating Preferred Stock, par value $0.0001 per share (the
“Series C Preferred”);
WHEREAS, in connection with such purchase and sale, the Company has agreed to grant to the
Investors the right, under certain circumstances, to purchase up to an additional 8,000 shares of
Series B Preferred and 71,528 shares of the Series C Preferred; and
WHEREAS, in connection with such purchase and sale, the Company and the Investors desire to
make certain representations and warranties and enter into certain agreements.
NOW THEREFORE, in consideration of the foregoing and the representations, warranties and
agreements set forth in this Agreement, and intending to be legally bound by this Agreement, the
Company and the Investors agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
respective meanings set forth in this Section 1:
“Acquisition Proposal” means any offer, proposal, inquiry or indication of interest
from any Third Party relating to any transaction or series of related transactions involving
(i) any acquisition or purchase by any Person, directly or indirectly, of 15% or more of any class
of outstanding voting or equity securities of the Company, or any tender offer (including a
self-tender) or exchange offer that, if consummated, would result in any Person beneficially owning
15% or more of any class of outstanding voting or equity securities of the Company, (ii) any
merger, amalgamation, consolidation, share exchange, business combination, joint venture or other
similar transaction involving the Company or any of its Subsidiaries, the business of which
constitutes 15% or more of the net revenues, net income or assets of the Company and its
Subsidiaries, taken as a whole, (iii) any sale, lease, exchange, transfer, license (other than
licenses in the ordinary course of business), acquisition or disposition of 15% or more of the
assets of the Company and its Subsidiaries, taken as a whole (measured by the lesser of book or
fair market value thereof) or (iv) any liquidation, dissolution, recapitalization, extraordinary
dividend or other significant corporate reorganization of the Company or any of its Subsidiaries,
the business of which constitutes 15% or more of the net revenues, net income or assets of the
Company and its Subsidiaries, taken as a whole.
“Additional Purchase Notice” shall mean a First Tranche Additional Purchase Notice or
a Second Tranche Additional Purchase Notice.
“Additional Purchase Right” shall have the meaning set forth in Section 2.2.
“Additional Preferred Shares” shall have the meaning set forth in Section 2.2.
“Additional Shares Purchase Price” shall have the meaning set forth in Section 2.2.
“Affiliate” of any Person means any other Person directly or indirectly controlling or
controlled by or under common control with such Person. For purposes of this definition, “control”
when used with respect to any Person has the meaning specified in Rule 12b-2 under the Exchange Act
(including SEC and judicial interpretations thereof); and the terms “controlling” and “controlled”
shall have meanings correlative to the foregoing.
“Amendment to Certificate” means the amendment to the Certificate of Incorporation in
the form attached as Exhibit C.
“Ancillary Agreements” means the Registration Rights Agreement.
“Applicable Law” means, with respect to any Person, any international, national,
federal, state or local law (statutory, common or otherwise), constitution, treaty, convention,
ordinance, code, rule, regulation or other similar requirement enacted, adopted, promulgated or
applied by a Governmental Authority that is binding upon or applicable to such Person, as amended
unless expressly specified otherwise.
“Board” means the Board of Directors of the Company.
“Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday
and is not a day on which banking institutions in New York, New York or Los Angeles, California
generally are authorized or obligated by law, regulation or executive order to close.
“Bylaws” shall have the meaning set forth in Section 4.1.
“Capital Lease Obligations” means the obligations of the Company and its Subsidiaries
on a consolidated basis to pay rent or other amounts under a lease of (or other agreement conveying
the right to use) real and/or personal Property which obligations are required to be classified and
accounted for as a capital lease on a consolidated balance sheet of the Company and its
Subsidiaries under Generally Accepted Accounting Principles (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board, as amended) and, for
purposes of this Agreement, the amount of such obligations shall be the capitalized amount of such
obligations, determined in accordance with Generally Accepted Accounting Principles (including such
Statement No. 13).
“Certificate of Incorporation” shall have the meaning set forth in Section 4.1.
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
“Code” means the Internal Revenue Code of 1986, together with all regulations, rulings
and interpretations thereof or thereunder by the Internal Revenue Service.
“Common Stock” means the common stock of the Company, par value $0.0001 per share.
“Company” shall have the meaning set forth in the preamble of this Agreement.
“Company Rights” shall have the meaning set forth in Section 4.14.
“Company Rights Agreement” shall have the meaning set forth in Section 4.14.
“Confidentiality Agreement” means the Confidentiality Agreement dated as September 25,
2009 by and between the Company and the Investor Representative.
“Content” means audio and video entertainment programming.
“Contract” means any contract, agreement, lease, sublease, license, sublicense,
instrument, note, indenture, option, commitment, understanding or undertaking, whether or not
legally binding, and in each case whether written or oral.
“Conversion Shares” shall have the meaning set forth in Section 4.3(a).
“Convertible Notes” shall have the meaning set forth in Section 4.14.
“Copyrights” means any rights under United States or foreign copyright Laws, whether
registered or unregistered.
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“Credit Agreement” means that certain Loan and Security Agreement dated May 4, 2007,
among the Company, the Guarantors party thereto and Wachovia Capital Finance Corporation (Western),
as agent, and various lenders (as amended to date).
“End Date” shall have the meaning set forth in Section 12.15(b)(i).
“Environmental Claim” means any third party (including any Governmental Authority)
action, lawsuit, claim or proceeding (including claims or proceedings at common law) that seeks to
impose or alleges liability for (i) preservation, protection, conservation, pollution,
contamination of, or releases or threatened releases of Hazardous Substances into the air, surface
water, ground water or land or the clean-up, abatement, removal, remediation or monitoring of such
pollution, contamination or Hazardous Substances; (ii) generation, recycling, reclamation,
handling, treatment, storage, disposal or transportation of Hazardous Substances or solid waste (as
defined under the Resource Conservation and Recovery Act and its regulations); (iii) exposure to
Hazardous Substances; (iv) the safety or health of employees or other Persons in connection with
any of the activities specified in any other subclause of this definition; or (v) the manufacture,
processing, distribution in commerce, presence or use of Hazardous Substances. An “Environmental
Claim” includes a common law action, as well as a proceeding to issue, modify or terminate an
Environmental Permit, or to adopt or amend a regulation to the extent that the Company or its
Subsidiaries are parties to such a proceeding and such a proceeding attempts to redress violations
of the applicable permit, license, or regulation as alleged by any Governmental Authority.
“Environmental Liabilities” means all liabilities arising from any Environmental
Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at
law or in equity, and whether based on negligence, strict liability or otherwise, including:
remedial, removal, response, abatement, restoration (including natural resources), investigative,
or monitoring liabilities, personal injury and damage to property, natural resources or injuries to
persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and
obligations, and all costs and expenses necessary to cause the issuance, re-issuance or renewal of
any Environmental Permit including attorney’s fees and court costs. Environmental Liability shall
mean any one of them.
“Environmental Permit” means any permit, license, approval or other authorization
under any applicable law, regulation and other requirement of the United States or of any state,
municipality or other subdivision thereof relating to pollution or protection of health or the
environment, including laws, regulations or other requirements relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or Hazardous Substances or toxic
materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, recycling, presence, use, treatment, storage, disposal,
transport, or handling of, wastes, pollutants, contaminants or Hazardous Substances.
“ERISA” means the Employee Retirement Income Security Act of 1974, and all rules,
regulations, rulings and interpretations adopted by the Internal Revenue Service or the Department
of Labor thereunder.
“ERISA Affiliate” means any person or entity which is (or at any relevant time was) a
member of “a controlled group of corporations” with or under “common control” with the Company,
within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.
“Exchange Act” means the U.S. Securities Exchange Act of 1934 (as amended), and the
rules and regulations promulgated by the SEC thereunder.
“First Tranche Additional Purchase Notice” shall have the meaning set forth in Section
2.3.
“First Tranche Additional Purchase Period” shall have the meaning set forth in Section
2.3.
“Generally Accepted Accounting Principles” means United States generally accepted
accounting principles, as in effect from time to time, applied on a consistent basis.
“Governmental Authority” means any foreign governmental authority, the United States
of America, any state of the United States and any political subdivision of any of the foregoing,
and any agency, instrumentality,
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department, commission, board, bureau, central bank, authority, court or other tribunal, in
each case whether executive, legislative, judicial, regulatory or administrative.
“Hazardous Substance” means any hazardous or toxic waste, substance or product or
material defined or regulated by any applicable environmental law, rule, regulation or order
described in the definition of “Requirements of Environmental Law,” including solid waste (as
defined under the Resource Conservation and Recover Act of 1976 or its regulations), petroleum and
any radioactive materials and waste.
“Hedging Agreements” means any transaction (including an agreement with respect to
such transaction) now or hereafter existing that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, forward transaction, currency swap transaction, cross-currency
rate swap transaction, currency option or any other similar transaction (including any option with
respect to any of these transactions) or any combination of the foregoing, whether linked to one or
more interest rates, foreign currencies, commodity prices, equity prices or other financial
measures.
“Incidental Liens” means (i) Liens for taxes, assessments, levies or other
governmental charges (but not Liens for clean up expenses arising pursuant to Requirements of
Environmental Law) not yet due (subject to applicable grace periods) or that are being contested in
good faith and by appropriate proceedings if, in each case, adequate reserves with respect to such
Liens are maintained on the books of the Company in accordance with Generally Accepted Accounting
Principles; (ii) carriers’, warehousemen’s, mechanics’, landlords’, vendors’, materialmen’s,
repairmen’s, sureties’ or other like Liens arising in the ordinary course of business (or deposits
to obtain the release of any such Lien) and securing amounts not yet due or that are being
contested in good faith and by appropriate proceedings if, in the case of such contested Liens,
adequate reserves with respect to such Liens are maintained on the books of the Company in
accordance with Generally Accepted Accounting Principles; (iii) pledges or deposits in connection
with workers’ compensation, unemployment insurance and other social security legislation; (iv)
easements, rights-of-way, covenants, reservations, exceptions, encroachments, zoning and similar
restrictions and other similar encumbrances or title defects incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount, and that do not in any case singly
or in the aggregate materially detract from the value or usefulness of the property subject to such
Liens or materially interfere with the ordinary conduct of the business of the Company and its
Subsidiaries, taken as a whole; (v) bankers’ liens arising by operation of law; (vi) Liens arising
pursuant to any order of attachment, distraint or similar legal process arising in connection with
any court proceeding the payment of which is covered in full (subject to customary deductibles) by
insurance; (vii) inchoate Liens arising under ERISA to secure contingent liabilities of the
Company; and (viii) rights of lessees and sublessees in assets leased by the Company or any
Subsidiary not prohibited elsewhere in this Agreement.
“Indebtedness” means, as to any Person, without duplication: (i) all indebtedness
(including principal, interest, fees and charges) of such Person for borrowed money or for the
deferred purchase price of Property or services; (ii) any other indebtedness that is evidenced by a
promissory note, bond, debenture or similar instrument; (iii) any obligation under or in respect of
outstanding letters of credit, acceptances and similar obligations created for the account of such
Person; (iv) all Capital Lease Obligations of such Person; (v) all indebtedness, liabilities, and
obligations secured by any Lien on any Property owned by such Person even though such Person has
not assumed or has not otherwise become liable for the payment of any such indebtedness,
liabilities or obligations secured by such Lien; (vi) any obligation under or in respect of Hedging
Agreements and (vii) any guarantees of the foregoing liabilities and synthetic liabilities of such
Person.
“Initial Closing” shall have the meaning set forth in Section 3.1.
“Initial Closing Date” shall mean January 8, 2010 or such later date as agreed by
Company and the Investors.
“Initial Closing Preferred Shares” shall have the meaning set forth in Section 2.1.
“Initial Closing Purchase Price” shall have the meaning set forth in Section 2.1.
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“Intellectual Property” means all United States and foreign intellectual property,
whether registered or unregistered, including all: (a) Copyrights; (b) Trademarks; (c) Internet
domain names; (d) trade secrets or other confidential or proprietary information, know how or
processes; (e) patents, inventions, discoveries and related improvements; (f) rights of publicity
or endorsement including the use of names, sobriquets, voices, signatures, photographs, likenesses
and portraits with respect to any Person; (g) any other intellectual property rights now in
existence or as hereafter devised; and (h) any United States and foreign registrations,
applications, continuations, divisions, re-examinations, renewals, reissues, extensions and similar
protections related thereto throughout the world and all rights to obtain the same.
“Investment” means the purchase by the Investors of the Preferred Shares.
“Investor Representative” means JH Partners, LLC.
“Investors” shall have the meaning set forth in the preamble of this Agreement.
“IP Licenses” means all written licenses, sublicenses, covenants not to xxx, Trademark
co-existence agreements, or any other Contracts relating to the creation, ownership, use,
administration, distribution, sale, licensing or other exploitation of any Intellectual Property,
or any other Contracts requiring the payment of a license fee or royalty, profit sharing or any
other compensation to any other Person with respect to any Intellectual Property, and any other
Contracts relating to Intellectual Property.
“JH Designees” shall have the meaning set forth in Section 6.9.
“Knowledge” of the Company means the actual knowledge, after due inquiry, of any of
the following individuals: Xxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxxxx and Xxxxxxx Xxxxxx.
“Laws” shall have the meaning set forth in Section 4.17.
“Lien” means any mortgage, pledge, charge, encumbrance, security interest, collateral
assignment or other lien, whether based on common law, constitutional provision, statute or
contract, and shall include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions.
“Material Adverse Effect” means any change, development, occurrence or event (each, a
“Company Effect”) that is or would reasonably be expected to be materially adverse to the
business, continuing results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole; provided that any such Company Effect resulting or arising
from or relating to any of the following matters shall not be considered when determining whether a
Material Adverse Effect has occurred or would reasonably be expected to occur: (i) any change,
development, occurrence or event affecting the businesses or industries in which the Company and
its Subsidiaries operate; (ii) any conditions in or changes affecting the United States general
economy or the general economy in any geographic area in which the Company or its Subsidiaries
operate or developments in the financial and securities markets and credit markets in the United
States or elsewhere in the world; (iii) national or international political conditions and changes
in political conditions, including acts of war (whether or not declared), armed hostilities and
terrorism, or developments; (iv) any conditions resulting from natural disasters; (v) changes in
any Laws or Generally Accepted Accounting Principles; or (vi) changes in the market price or
trading volume of Common Stock or any other equity, equity-related or debt securities of the
Company or its Affiliates (it being understood that the underlying circumstances, events or reasons
giving rise to any such change in market price or trading volume (to the extent provided for in
this definition) can be taken into account in determining whether a Material Adverse Effect has
occurred or would reasonably be expected to occur); provided, however, that Company
Effects set forth in clauses (i), (ii), (iii) and (v) above may be taken into account in
determining whether there has been or is a Material Adverse Effect if and only to the extent such
Company Effects have a materially disproportionate impact on the Company and its Subsidiaries,
taken as a whole, relative to the other participants in the industries in which the Company or its
Subsidiaries operate.
“Notice Period” shall have the meaning set forth in Section 10.8(d).
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“Person” means any individual, association, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, Governmental Authority or any other
form of entity.
“Plan” means (a) any employee benefit plan (as defined in Section 3(3) of ERISA),
whether or not subject to ERISA, and (b) any plan, policy, agreement or arrangement providing for
compensation, severance, termination pay, deferred compensation, performance awards, equity-based
compensation, fringe benefits or other employee benefits or remuneration of any kind, whether
written or unwritten or otherwise, funded or unfunded, which is maintained, contributed to, or
required to be contributed to, by the Company or any ERISA Affiliate for the benefit of any current
or former or retired employee, consultant or director of the Company, or with respect to which the
Company has or could reasonably be expected to have any material liability or obligation.
“Preferred Shares” shall have the meaning set forth in Section 2.2.
“Property” means any interest in any kind of property or asset, whether real, personal
or mixed, tangible or intangible.
“Registration Rights Agreement” shall mean a registration rights agreement in the form
attached as Exhibit A.
“Representatives” means, with respect to any Person, the directors, officers,
employees, financial advisors, attorneys, accountants, consultants, agents and other authorized
representatives of such Person, acting in such capacity.
“Requirements of Environmental Law” means all requirements imposed by any
environmental law (including The Resource Conservation and Recovery Act, The Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act,
and any state analogues of any of the foregoing), rule, regulation, or order of any Governmental
Authority which relate to: (i) pollution, protection or clean-up of the air, surface water, ground
water or land; (ii) solid, gaseous or liquid waste or Hazardous Substance generation, recycling,
reclamation, release, threatened release, treatment, storage, disposal or transportation; (iii)
exposure of Persons or property to Hazardous Substances; (iv) the safety or health of employees or
other Persons or (v) the manufacture, presence, processing, distribution in commerce, use,
discharge, releases, threatened releases, emissions or storage of Hazardous Substances into the
environment. “Requirement of Environmental Law” shall mean any one of them.
“SEC” means the U.S. Securities and Exchange Commission or any other U.S. federal
agency then administering the Securities Act or Exchange Act.
“SEC Reports” shall have the meaning set forth in Section 4.
“Second Tranche Additional Purchase Notice” shall have the meaning set forth in
Section 2.3.
“Second Tranche Additional Purchase Period” shall have the meaning set forth in
Section 2.3.
“Securities” shall have the meaning set forth in Section 5.1.
“Securities Act” means the U.S. Securities Act of 1933 (as amended), and the rules and
regulations of the SEC thereunder.
“Series B Certificate of Designations” shall have the meaning set forth in Section
6.4.
“Series B Preferred” shall have the meaning set forth in the recitals of this
Agreement.
“Series C Certificate of Designations” shall have the meaning set forth in Section
6.4.
“Series C Preferred” shall have the meaning set forth in the recitals of this
Agreement.
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“Stockholder Approvals” shall have the meaning set forth in Section 4.3.
“Subsequent Closing” shall have the meaning set forth in Section 3.2.
“Subsequent Closing Date” shall mean the third Business Day following delivery of the
Additional Purchase Notice contemplated by Section 2.3 below or, if later, the date specified by
the Investors in the Additional Purchase Notice, subject to the terms and conditions of this
Agreement.
“Subsidiary” of any Person means any corporation, partnership, joint venture, limited
liability company, trust or other form of legal entity of which (or in which) more than 50% of (i)
the issued and outstanding capital stock having ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting power upon the occurrence of
any contingency), (ii) the interest in the capital or profits of such partnership, joint venture or
limited liability company or (iii) the beneficial interest in such trust or estate is at the time
directly or indirectly owned or controlled by such Person, by such Person and one or more of its
other Subsidiaries or by one or more of such Person’s other Subsidiaries.
“Superior Proposal” means an unsolicited written Acquisition Proposal, which provides
for (i) the acquisition of all or substantially all the stock or assets of the company or (ii) an
investment in the Company, following the closing of which the Company’s current stockholders would
retain at least the same percentage of common stock as the Transaction or receive equivalent value
in cash, and which has terms and conditions which the Board determines in its good faith and
reasonable judgment (after consultation with outside legal counsel and its financial advisor) to be
more favorable to the Company and its stockholders from a financial point of view than the
Transaction and this Agreement (including any changes to the terms of this Agreement committed to
by Investor to the Company in writing in response to such proposal or otherwise).
In making such determination, the Board shall take into account at the time of determination
all of the terms and conditions of such proposal (including the ability of the person making such
proposal to consummate the transactions contemplated by such proposal (based upon, among other
things, the availability of financing and the expectation of obtaining required approvals)). The
Board shall also explicitly consider and give appropriate weight to whether, after the closing of
such Acquisition Proposal and the application of proceeds thereof, the Company will be in default
under any material obligation to creditors, whether such proposal provides sufficient working
capital to continue operations as a going concern without additional external financing for a
reasonable period of time (at least six months), any duties of the Board to creditors and whether
such proposal provides for the payment of the Company’s trade and other unsecured creditors, the
impact on the Company’s ability to access its senior credit facility; the impact on the Company’s
relationships with its suppliers and customers, and the impact on the Company’s ability to attract
and retain qualified employees.
“Termination Fee” shall have the meaning given such term in Section 12.16.
“Third Party” means any Person or “group” (as defined under Section 13(d) of the
Exchange Act) of Persons, other than the Investors or any of their Affiliates or Representatives.
“Trademarks” means all United States and foreign trademarks, service marks, trade
names, brand names, logos, trade dress and other designations of origin, corporate names or other
forms of business names, the goodwill of any business symbolized by any of the foregoing and all
common law rights relating thereto.
“Transaction” means the sale of the Preferred Shares and the credit support
contemplated by Section 10.9.
“Unit” means one share of Series B Preferred and 8.941 shares of Series C Preferred.
2. Purchase and Sale of the Preferred Shares; Additional Purchase Right.
2.1 Initial Closing. If all of the conditions to the Investment set forth in Sections
6 and 7 of this Agreement shall have been satisfied or waived in accordance herewith, then on the
terms and conditions set
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forth in this Agreement, on the Initial Closing Date, the Investors will purchase from the
Company, and the Company will issue, sell and deliver to the Investors as set forth on Schedule 1
(i) 22,000 shares of Series B Preferred (the “Initial Closing Series B Preferred Shares”)
and (ii) 196,702 shares of Series C Preferred (the “Initial Closing Series C Preferred
Shares,” and together with the Initial Closing Series B Preferred Shares, the “Initial
Closing Preferred Shares”)), for an aggregate purchase price of $22,000,000 in cash (the
“Initial Closing Purchase Price”) to be paid in full to the Company on the Initial Closing
Date.
2.2 Additional Purchase Right. Following the Initial Closing, the Investors shall have
the right to purchase (the “Additional Purchase Right”), up to an additional 8,000 shares
of Series B Preferred (the “Additional Series B Preferred Shares”) and 71,528 shares of
Series C Preferred (the “Additional Series C Preferred Shares,” and together with the
Additional Series B Preferred Shares, the “Additional Preferred Shares”) in the same
proportions as the Initial Closing for an aggregate purchase price of up to $8,000,000 in cash (the
“Additional Shares Purchase Price”) to be paid to the Company on one or more Subsequent
Closing Dates if, and only if, the Investors exercise the Additional Purchase Right. The Initial
Closing Preferred Shares and the Additional Preferred Shares are collectively referred to herein as
the “Preferred Shares.”
2.3 Exercise of the Additional Purchase Right. The Additional Purchase Right shall be
divided into two tranches. The first tranche shall be comprised of 4,000 shares of Series B
Preferred and 35,764 shares of Series C Preferred. The Investors may exercise the first tranche in
whole or in part and in one or more instances, until the maximum number of Additional Preferred
Shares included in the first tranche shall have been purchased, at any time during the period
commencing on the Initial Closing Date and ending at 5:00 p.m. (PST) on the date that is 120 days
after the Initial Closing Date (the “First Tranche Additional Purchase Period”) by
delivering a written notice to the Company in accordance with Section 12.8 hereof (each such
notice, a “First Tranche Additional Purchase Notice”). The second tranche also shall be
comprised of 4,000 shares of Series B Preferred and 35,764 shares of Series C Preferred. The
Investors may exercise the second tranche in whole or in part and in one or more instances, until
the maximum number of Additional Preferred Shares included in the second tranche shall have been
purchased, at any time during the period commencing on the Initial Closing Date and ending at 5:00
p.m. (PST) on the date that is 360 days after the Initial Closing Date (the “Second Tranche
Additional Purchase Period”) by delivering a written notice to the Company in accordance with
Section 12.8 hereof (each such notice, a “Second Tranche Additional Purchase Notice”). For
the sake of clarity, the parties understand and agree that the Investors may exercise both tranches
during the first 120 days after the Initial Closing Date. Each Additional Purchase Notice shall
specify the number of Additional Preferred Shares to be purchased and the anticipated Subsequent
Closing Date.
2.4 No Obligation to Exercise Additional Purchase Right. The Investors may elect to
exercise or not exercise the Additional Purchase Right in their sole discretion. Nothing contained
in this Agreement and no action taken by the Investors nor any failure by the Investors to take any
action pursuant hereto shall create any obligation on the part of Investors to exercise the
Additional Purchase Right or create any liability on the part of Investors to the Company for
failure to exercise the Additional Purchase Right.
2.5 Actions Following Exercise of the Additional Purchase Right. Subject to
Section 2.6, immediately following the Investors’ exercise of the Additional Purchase Right, in
whole or in part, each of the parties to this Agreement shall take all actions necessary or
desirable to consummate the purchase, sale and issuance of the Additional Preferred Shares covered
by the Additional Purchase Notice and the other transactions contemplated hereby within three (3)
Business Days following delivery of the Additional Purchase Notice or, if later, by the date
specified by the Investors in the Additional Purchase Notice.
2.6 Purchase and Sale of the Additional Preferred Shares. If, following the Investors’
exercise of the Additional Purchase Right, all of the conditions to the purchase, sale and issuance
of the Additional Preferred Shares set forth in Sections 8 and 9 of this Agreement shall have been
satisfied or waived in accordance herewith, then on the terms and conditions set forth in this
Agreement, on the Subsequent Closing Date, the Investors will purchase from the Company, and the
Company will issue, sell and deliver to the Investors the number of Additional Preferred Shares
specified in the Additional Purchase Notice for an aggregate purchase price equal to the Additional
Shares Purchase Price or, if less than all of the Additional Preferred Shares are to be purchased,
then
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at a purchase price equal to $8,000,000 multiplied by a fraction, the numerator of which is
the number of Units to be purchased and the denominator of which is 8,000, to be paid in full to
the Company on the Subsequent Closing Date.
2.7 Use of Proceeds from Additional Preferred Shares. Any proceeds from sale of
Additional Preferred Shares may be used only for the limited purposes of (i) acquiring rights to
additional Content; (ii) repayment of any over-advance under the Loan and Security Agreement dated
May 4, 2007, as amended April 28, 2008, by and among Egami Media, Inc., Image Entertainment (UK),
Inc. Home Vision Entertainment, Inc., Wachovia Capital Finance Corporation (Western) and the
lenders party thereto; or (iii) repayment of accounts payable incurred by the Company in the
ordinary course of business.
3. Closings.
3.1 Initial Closing. The purchase, sale and issuance of the Initial Closing Preferred
Shares and the other transactions contemplated by this Agreement (the “Initial Closing”)
shall take place at the offices of Xxxxxx & Xxxxxxx LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, Xxxxxxxxxx, at 10:00 a.m. New York City time, on the Initial Closing Date, subject to
the satisfaction or waiver on the Initial Closing Date of the conditions set forth in Sections 6
and 7, or at such other time and place as the Company and the Investors shall mutually agree. At
the Initial Closing, the Company shall deliver to the Investors certificates representing that
number of Initial Closing Preferred Shares set forth in Section 2.1 against payment of the Initial
Closing Purchase Price by wire transfer of immediately available funds to an account designated by
the Company in advance of the Initial Closing Date. At the Initial Closing, the Investors and the
Company shall execute and deliver the Ancillary Agreements.
3.2 Subsequent Closings. The purchase, sale and issuance of any or all of the
Additional Preferred Shares (each, a “Subsequent Closing”) shall take place at the offices
of Xxxxxx & Xxxxxxx LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx, at 10:00
a.m. New York City time, on one or more Subsequent Closing Dates, subject to the satisfaction or
waiver on the Subsequent Closing Date of the conditions set forth in Sections 8 and 9, or at such
other time and place as the Company and the Investors shall mutually agree. At each Subsequent
Closing, the Company shall deliver to the Investors certificates representing that number of
Additional Preferred Shares set forth in the Additional Purchase Notice against payment of the
purchase price contemplated by Section 2.6 by wire transfer of immediately available funds to an
account designated by the Company in advance of such Subsequent Closing Date.
4. Representations and Warranties of the Company. The Company represents and warrants
to the Investors as of the date of this Agreement that, except (i) as otherwise disclosed or
incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2009 or its other reports and forms filed with or furnished to the SEC under Sections 12,
13, 14 or 15(d) of the Exchange Act after March 31, 2009 (other than any forward looking
disclosures set forth in any risk factor section or forward looking statement disclaimer and any
other disclosure that is similarly nonspecific and predictive or forward looking in nature) and
before the date of this Agreement (all such reports covered by this clause (i) collectively, the
“SEC Reports”) or (ii) as set forth in the disclosure letter dated as of the date of this
Agreement provided to the Investors, specifically identifying the relevant section of this
Agreement (provided, that disclosure in any section of such disclosure letter shall apply
to any section of this Agreement to the extent it is reasonably apparent on its face that such
disclosure is relevant to such section):
4.1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the laws of the state
of its formation; has all requisite power and authority to own its properties and conduct its
business as presently conducted; and is duly qualified to do business and in good standing in each
state in the United States of America where its business requires such qualification except for any
state in which the failure to so qualify would not have a Material Adverse Effect. True and
accurate copies of the Company’s Certificate of Incorporation (the “Certificate of
Incorporation”) and the Company’s Bylaws (the “Bylaws”), each as in effect as of the
date of this Agreement, have been made available to the Investors.
9
4.2 Financial Statements.
(a) The financial statements of the Company and its Subsidiaries on a consolidated
basis for each of the periods included or incorporated by reference in the SEC Reports
fairly present in all material respects, in accordance with Generally Accepted Accounting
Principles, as in effect on the date of the applicable SEC Report, the financial condition
and the results of operations of the Company and its Subsidiaries as of the dates and for
the periods indicated in such SEC Reports (except as may be indicated in the notes to such
financial statements and, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC).
(b) The Company and its Subsidiaries do not have any liabilities or obligations
(accrued, absolute, contingent or otherwise), other than liabilities or obligations
(i) reflected on, reserved against, or disclosed in the notes to, the Company’s
consolidated balance sheet included in the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2009, (ii) that were incurred in the ordinary course of
business and would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, or (iii) that were not incurred in the ordinary course of business
and do not exceed $1,000,000 in the aggregate.
4.3 Authorization; Enforceable Agreement.
(a) All corporate action on the part of the Company, its officers, directors, and
stockholders necessary for the authorization, execution, and delivery of this Agreement and
the Ancillary Agreements, the performance of all obligations of the Company under this
Agreement and the Ancillary Agreements, and the authorization, issuance (or reservation for
issuance), sale, and delivery of (i) the Preferred Shares being sold hereunder (including
the Additional Preferred Shares) and (ii) the shares of Common Stock issuable upon
conversion of the Series C Preferred Shares (the “Conversion Shares”), has been
taken other than the filing of the Series B Certificate of Designations and the Series C
Certificate of Designations; provided, however that the Company has not amended its
Certificate of Incorporation to increase its authorized Common Stock in an amount
sufficient for the issuance of all Conversion Shares. Assuming due authorization, execution
and delivery by the Investors, this Agreement constitutes, and the Ancillary Agreements,
when executed and delivered, will constitute, valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, subject to: (A) the filing
of the Series B Certificate of Designations and the Series C Certificate of Designations
with the Delaware Secretary of State pursuant to Section 6.4, and (B) obtaining the
affirmative vote of the Company’s stockholders to approve the Amendment to Certificate (the
“Stockholder Approvals”).
(b) On or prior to the date of this Agreement, the Board has duly adopted resolutions
(i) evidencing its determination that as of the date of this Agreement this Agreement and
the transactions contemplated by this Agreement are fair to and in the best interests of
the Company and its stockholders, (ii) approving this Agreement and the Ancillary
Agreements and the transactions contemplated by this Agreement and the Ancillary
Agreements, (iii) declaring this Agreement and the issuance and sale of the Preferred
Shares advisable, (iv) adopting the Series B Certificate of Designations and Series C
Certificate of Designations and (v) approving the Amendment to Certificate for submission
to the Company’s stockholders pursuant to Section 10.1 and resolving to recommend that the
stockholders approve the Amendment to Certificate.
4.4 Indebtedness. Neither the Company nor any of its Subsidiaries is, immediately
prior to the execution of this Agreement, or will be, at the time of the Initial Closing after
giving effect to the Initial Closing, in default in the payment of any Indebtedness or in default
under any agreement relating to its material Indebtedness or under any mortgage, deed of trust,
security agreement or lease to which it is a party. Neither the Company nor any of its
Subsidiaries has issued or incurred any debt security or other Indebtedness that by its terms is
convertible into or exchangeable for, or accompanied by warrants for or options to purchase, any
capital stock of the Company.
4.5 Litigation. There is no action, suit, proceeding or investigation pending or, to
the Knowledge of the Company, threatened against, nor any outstanding judgment, order or decree
against, the
10
Company or any of its Subsidiaries before or by any Governmental Authority or arbitral body
which in the aggregate have, or if adversely determined, would reasonably be expected to have, a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in default with respect
to any judgment, order or decree of any Governmental Authority in a materially adverse manner. The
Company is not a party or subject to, and none of its assets is bound by, the provisions of any
material order, writ, injunction, judgment, or decree of any Governmental Authority. There is no
material action, suit, or proceeding by the Company currently pending or that the Company intends
to initiate.
4.6 Title. Each of the Company and its Subsidiaries has good and marketable title to
its Property that is real property and good and valid title to all of its other Property (other
than negligible assets not material to the operations of the Company or any of its Subsidiaries),
free and clear of all Liens except for (i) Incidental Liens, (ii) Liens granted pursuant to the
Credit Agreement and (iii) Liens that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.7 Taxes. Each of the Company and its Subsidiaries has filed all tax returns required
to have been filed and paid all taxes shown on such tax returns to be due, except those for which
extensions have been obtained and except for those which are being contested in good faith and by
appropriate proceedings and in respect of which adequate reserves with respect thereto are
maintained in accordance with Generally Accepted Accounting Principles.
4.8 Subsidiaries. As of the date of this Agreement, the Company has no Subsidiaries
other than as listed in the SEC Reports.
4.9 Governmental Consents. No consent, approval, order, or authorization of, or
registration, qualification, declaration, or filing with, any Governmental Authority on the part of
the Company is required in connection with the offer, sale, or issuance of the Series B Preferred
Shares or Series C Preferred Shares (and the Common Stock issuable upon conversion of the Series C
Preferred Shares), or the consummation of any other transaction contemplated by this Agreement,
except for the following: (i) the filing of the Series B Certificate of Designations and Series C
Certificate of Designations with the Delaware Secretary of State pursuant to Section 6.4; (ii) the
compliance with other applicable state securities laws, which compliance will have occurred within
the appropriate time periods; and (iii) the filing with the SEC of such reports under the Exchange
Act as may be required in connection with this Agreement and the transactions contemplated by this
Agreement. Assuming that the representations of the Investors set forth in Section 5 are true and
correct, the offer, sale, and issuance of the Preferred Shares in conformity with the terms of this
Agreement are exempt from the registration requirements of Section 5 of the Securities Act and all
applicable state securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such exemptions.
4.10 Permits and Licenses. The Company and each of its Subsidiaries possess all
permits and licenses of Governmental Authorities that are required to conduct its business, except
for such permits or licenses the absence of which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.11 Employee Matters.
(a) The Company has made available to Investors to the extent applicable to the Plans:
(i) all documents embodying each Plan (as currently in effect) and related trust documents,
administrative service agreements, group annuity contracts, group insurance contracts, and
policies pertaining to fiduciary liability covering the fiduciaries (all as currently in
effect) for each Plan, (ii) the most recent annual actuarial valuations and/or audited
financial statements for each Plan, as applicable, (iii) the three (3) most recent annual
reports, returns, securities registration statements (other than those available on XXXXX)
or other filings, if any, required to be filed with any Governmental Authority under
applicable Laws in connection with each Plan, (iv) the most recent IRS determination,
opinion, notification and advisory letters with respect to each Plan intended to be
qualified under Section 401(a) of the Code, (v) all material written correspondence by the
Company or any ERISA Affiliate to, or received by the Company or any ERISA Affiliate from,
any Governmental Authority during the last three years
11
relating to any Plan, (vi) all discrimination tests for each Plan, if applicable, for
the most recent six (6) plan years, (vii) all material communications from the Company or
any ERISA Affiliate to Company employees during the last six (6) years relating to any
amendments, terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which may result in any material liability
to the Company under any Plan, and (viii) the most recent summary plan description together
with the summary(ies) of material modifications thereto, if any, required under ERISA with
respect to each Plan.
(b) Neither the Company nor any of its ERISA Affiliates has at any time maintained,
sponsored or contributed to, or has or had any liability with respect to, any Plan that is
subject to Title IV of ERISA or Section 412 of the Code, including, without limitation, any
“multiemployer plan” (as defined in Section 4001(a)(3) of ERISA). Each Plan that is
intended to be qualified under Section 401(a) of the Code (i) is the subject of an
unrevoked favorable determination letter from the Internal Revenue Service or (ii) is a
prototype plan or volume submitter plan entitled, under applicable Internal Revenue Service
guidance, to rely on the favorable opinion or advisory letter issued by the Internal
Revenue Service to the sponsor of such prototype or volume submitter plan, and, to the
Company’s Knowledge, and there has been no event, condition or circumstance that has
adversely affected or, to the Company’s Knowledge, would adversely affect such qualified
status. Each Plan complies with and has been administered and operated in all material
respects in accordance with its terms and with all applicable Laws (including, without
limitation ERISA and the Code), and the Company and each of its Affiliates have filed all
reports, returns, notices, and other documentation required by ERISA or the Code to be
filed with any Governmental Authority with respect to each Plan. With respect to any Plan,
(i) no actions, Liens, lawsuits or claims (other than routine claims for benefits) are
pending or, to the Company’s Knowledge, threatened. To the Company’s Knowledge, no event
has occurred with respect to a Plan which would reasonably be expected to result in a
material liability of the Company or any of its Subsidiaries to any Governmental Authority
(other than for taxes in the ordinary course). To the Company’s Knowledge, neither the
Company nor any of its ERISA Affiliates nor any plan fiduciary of any Plan has engaged in,
or has any material liability in respect of, any transaction in violation of Section 406 of
ERISA or any “prohibited transaction” within the meaning of Section 4975(c)(1) of the Code
or Sections 406 or 407 of ERISA, for which no exemption exists under Section 408 of ERISA
or Section 4975(c)(2) or (d) of the Code.
(c) None of the execution of, or the completion of the transactions contemplated by,
this Agreement (whether alone or in connection with any other event(s)), could result in
(i) severance pay or an increase in severance pay upon termination after the Initial
Closing, (ii) any payment, compensation or benefit becoming due, or increase in the amount
of any payment, compensation or benefit due, to any current or former employee, director or
consultant of the Company or its Affiliates or any Plan, (iii) acceleration of the time of
payment or vesting or result in funding of compensation or benefits, (iv) any new
obligation under any Plan, or (v) any payments which would not be deductible under Section
280G of the Code. There is no contract, agreement, plan or arrangement to which the
Company or any Affiliate is a party or by which it is bound to compensate any person for
excise taxes paid pursuant to Section 4999 of the Code.
(d) Each contract, agreement or arrangement to which the Company or any Subsidiary is
a party that is a “nonqualified deferred compensation plan” subject to Section 409A of the
Code has been operated since January 1, 2005 in good faith compliance with Section 409A of
the Code and the guidance and regulations thereunder (“Section 409A”), is set forth in
writing and either complies with or satisfies a valid exemption from Section 409A. Each
option to purchase shares of the Common Stock was granted with an exercise price that was
not less than the fair market value of the underlying Common Stock on the date the option
was granted based on a reasonable valuation method. Neither the Company nor any Subsidiary
is a party to, or otherwise obligated under, any contract, agreement or arrangement that
provides for the gross-up of the tax imposed by Section 409A(a)(1)(B) of the Code.
12
(e) No condition exists that would prevent the Company or its Subsidiaries from
terminating or amending any Plan at any time for any reason without liability to the
Company, its Subsidiaries or Investors (other than ordinary administrative expenses or
routine claims for benefits.
(f) The Company and its Subsidiaries are not subject to any obligation to pay retiree
medical or other retiree welfare or similar benefits as required by applicable Law,
including, without limitation, pursuant to Section 4980B of the Code, Part 6 of Subtitle B
of Title I of ERISA and any similar state welfare plan continuation coverage Laws.
(g) With respect to the Plans, there are no material benefit obligations for which
contributions have not been timely made or properly accrued and there are no material
benefit obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with the requirements of GAAP, on the financial statements of the
Company.
(h) No employees of the Company or any Subsidiary are represented by any labor
organization or works council with respect to their employment with the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries is presently, nor has it
been in the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to employees and no collective bargaining agreement is being
negotiated by the Company or any of its Subsidiaries. To the Knowledge of the Company,
there are no activities or proceedings of any labor union to organize any employees of the
Company or any Subsidiary. There is no labor dispute, strike, slowdown, concerted refusal
to work overtime, or work stoppage against the Company or any of its Subsidiaries pending
or, to the Knowledge of the Company, threatened. There are no material actions, suits,
claims, labor disputes or grievances pending or, to the Knowledge of Company, threatened
relating to any labor, safety or discrimination matters involving any employee, including,
without limitation, charges of unfair labor practices or discrimination complaints.
Neither the Company nor any of its Subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Neither the Company nor any
Subsidiary has taken any action which would constitute a “plant closing” or “mass layoff”
within the meaning of the WARN Act or similar state or local law, issued any notification
of a plant closing or mass layoff required by the WARN Act or similar state or local law,
or incurred any liability or obligation under WARN or any similar state or local law that
remains unsatisfied. No terminations prior to the Initial Closing would trigger any notice
or other obligations under the WARN Act or similar state or local law.
(i) The Company and each of its Subsidiaries is in material compliance with all
applicable foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, worker
classification, tax withholding, prohibited discrimination, equal employment, fair
employment practices, meal and rest periods, immigration status, employee safety and
health, wages (including overtime wages), compensation, and hours of work, and in each
case, with respect to employees, the Company and each of its Subsidiaries: (i) has withheld
and reported all amounts required by Law or by agreement to be withheld and reported with
respect to wages, salaries and other payments to employees, (ii) is not liable for any
arrears of wages, severance pay or any Taxes or any penalty for failure to comply with any
of the foregoing, and (iii) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any Governmental Authority, with respect to
unemployment compensation benefits, Social Security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of business and
consistent with past practice), in each case except for any such liabilities that would not
reasonably be expected to result, individually or in the aggregate, in a liability material
to the Company and its Subsidiaries, taken as a whole. There are no (x) actions, suits,
claims or administrative matters pending or, to the Knowledge of the Company, threatened
against the Company, any of its Subsidiaries, or any of their employees relating to any
Plan or (y) pending, to the Knowledge of the Company, or threatened claims or actions
against Company, any of its Subsidiaries, any Company trustee or any trustee of any
Subsidiary under any worker’s compensation policy or long-term disability policy, in each
case except that would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. Neither the Company or any Subsidiary is party to a
conciliation agreement, consent
13
decree or other agreement or order with any federal, state, or local agency or
Governmental Authority with respect to employment practices. Neither the Company nor any
of its Subsidiaries has any material liability with respect to any misclassification of:
(a) any Person as an independent contractor rather than as an employee, (b) any employee
leased from another employer, or (c) any employee currently or formerly classified as
exempt from overtime wages. The services provided by each of the Company’s, each
Subsidiary’s and their ERISA Affiliates’ Employees are terminable at the will of the
Company and its ERISA Affiliates and any such termination would result in no liability to
the Company or any ERISA Affiliate.
4.12 Valid Issuance of Preferred and Common Stock. The Preferred Shares being
purchased by the Investors hereunder, when issued, sold, and delivered in accordance with the terms
of this Agreement for the consideration expressed in this Agreement, will be duly and validly
issued, fully paid, and nonassessable, and will be free of any Liens or restrictions on transfer
other than restrictions under this Agreement and under applicable state and federal securities
laws. The sale of the Preferred Shares is not subject to any preemptive rights, rights of first
offer or any anti-dilution provisions contained in the Company’s Certificate of Incorporation,
Bylaws or any other agreement.
4.13 Conversion Shares. To the extent permitted by the number of shares of authorized
common stock, the Conversion Shares issuable upon conversion of the Series C Preferred Shares have
been duly and validly reserved for issuance and, upon issuance, will be duly and validly issued,
fully paid and nonassessable and will be free of any Liens or restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and federal securities
laws. Following adoption and filing of the Amendment to Certificate, the Conversion Shares
issuable upon conversion of all of the Series C Preferred Shares will be duly and validly reserved
for issuance and, upon issuance, will be duly and validly issued, fully paid and nonassessable and
will be free of any Liens or restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable state and federal securities laws. The conversion of the
Series C Preferred Shares into Common Stock will not be subject to any preemptive rights, rights of
first offer or any anti-dilution provisions contained in the Company’s Certificate of
Incorporation, Bylaws or any other agreement.
4.14 Capitalization. The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock of which 21,855,718 were issued and outstanding as of November
30, 2009, and 25,000,000 shares of preferred stock, par value $0.0001, of which 5,000,000 have been
designated Series A Junior Participating Preferred Stock, par value $0.0001 per share (the
“Junior Participating Preferred Stock”), and reserved for issuance in connection with
rights (the “Company Rights”) issued pursuant to a Rights Agreement dated as of October 31,
2005 (as amended from time to time, the “Company Rights Agreement”) between the Company and
Computershare Trust Company, Inc., as Rights Agent, none of which are issued and outstanding
(excluding the Preferred Shares to be issued to the Investors pursuant to this Agreement). As of
the close of business of November 30, 2009, the Company has reserved an aggregate of 1,000,000
shares of Common Stock for issuance to employees and consultants pursuant to the Company’s 2008
Stock Awards and Incentive Plan, under which (i) no shares have been issued, (ii) options to
purchase 445,000 shares are outstanding and (iii) 555,000 shares remain available for future grant.
As of the close of business of November 30, 2009, the Company has reserved an aggregate of
1,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the
Company’s 2004 Incentive Compensation Plan, under which (i) 53,070 shares have been issued and are
reflected in the currently outstanding Common Stock, (ii) options to purchase 634,500 shares are
outstanding and (iii) 312,430 shares remain available for future grant. As of the close of
business of November 30, 2009, the Company has reserved an aggregate of 1,193,331 shares of Common
Stock for issuance to employees and consultants pursuant to the Company’s 1998 Incentive Plan,
under which (i) 653,974 shares have been issued and are reflected in the currently outstanding
Common Stock, (ii) options to purchase 1,193,331 shares are outstanding and (iii) no shares remain
available for future grant as the 1998 Incentive Plan expired on June 30, 2008. As of the close of
business of November 30, 2009, the Company has reserved an aggregate of 3,700,000 shares of Common
Stock for issuance upon conversion of the Company’s 7.875% Senior Convertible Notes due 2011 (the
“Convertible Notes”), none of which have been issued. As of the close of business of
November 30, 2009, the Company has reserved an aggregate of 1,000,000 shares of Common Stock for
issuance upon exercise of warrants issued in connection with the Convertible Notes, none of which
have been issued. Except for the Preferred Shares to be issued to the Investors pursuant to this
Agreement, the Company has not issued or reserved for issuance any shares of Preferred Stock or
14
Common Stock since November 30, 2009. All issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. Subject to the Stockholder
Approvals and the filing of the Amendment to Certificate, the Company will reserve that number of
shares of Common Stock sufficient for issuance of the Conversion Shares upon conversion of the
Series C Preferred Stock being issued and sold pursuant to this Agreement. Other than as described
above or otherwise contemplated by this Agreement, there are no outstanding rights, options,
warrants, preemptive rights, rights of first offer, or similar rights for the purchase or
acquisition from the Company of any securities of the Company, nor are there any commitments to
issue or execute any such rights, options, warrants, preemptive rights or rights of first offer.
There are no outstanding rights or obligations of the Company to repurchase or redeem any of its
equity securities. The respective rights, preferences, privileges, and restrictions of the Series B
Preferred, Series C Preferred and the Common Stock will be as stated in the Certificate of
Incorporation (including the Series B Certificate of Designations and Series C Certificate of
Designations). All outstanding securities have been issued in compliance with state and federal
securities laws.
4.15 Compliance with Other Instruments. The Company is not in violation or default of
any provision of the Certificate of Incorporation or the Bylaws. The execution, delivery, and
performance of and compliance with this Agreement and the Ancillary Agreements and the issuance and
sale of the Preferred Shares (excluding the issuance of a portion of the Conversion Shares issuable
upon conversion of the Series C Preferred Shares for which the Stockholder Approvals are required)
will not (i) result in any default or violation of the Certificate of Incorporation (including the
Series B Certificate of Designations and the Series C Certificate of Designations) or the Bylaws,
(ii) result in any default or violation of any agreement relating to its Indebtedness or under any
mortgage, deed of trust, security agreement or lease to which it is a party or in any default or
violation of any material judgment, order or decree of any Governmental Authority or (iii) be in
conflict with or constitute, with or without the passage of time or giving of notice, a default
under any such provision, require any consent or waiver under any such provision, or result in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets
of the Company pursuant to any such provision, or the suspension, revocation, impairment or
forfeiture of any material permit, license, authorization, or approval applicable to the Company,
its business or operations, or any of its assets or properties pursuant to any such provision.
4.16 Environmental Matters. No activity of the Company or any of its Subsidiaries
requires any Environmental Permit which has not been obtained and which is not now in full force
and effect, except to the extent failure to have any such Environmental Permit would not reasonably
be expected to have a Material Adverse Effect. The Company and its Subsidiaries are and have been
in compliance with all applicable Requirements of Environmental Law and Environmental Permits
including applicable limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Requirement of Environmental Law
or Environmental Permit, except where failure to be in such compliance would not reasonably be
expected to have a Material Adverse Effect. The Company and its Subsidiaries (i) including with
respect to their Property are not subject to any (A) Environmental Claims or (B) Environmental
Liabilities, in either case arising from or based upon any act, omission, event, condition or
circumstance occurring or existing on or prior to the date hereof which would reasonably be
expected to have a Material Adverse Effect, and (ii) have not received individually or collectively
any written notice of any violation or alleged violation of any Requirements of Environmental Law
or Environmental Permit or any Environmental Claim in connection with their respective Property
which would reasonably be expected to have a Material Adverse Effect. To the Knowledge of the
Company, the present and future liability (including any Environmental Liability and any other
damage to Persons or Property), if any, of the Company and with respect to the Property of any of
the Company or any of its Subsidiaries which is reasonably expected to arise in connection with
Requirements of Environmental Law, Environmental Permits and other environmental matters will not
have a Material Adverse Effect on the Company and its Subsidiaries on a consolidated basis.
4.17 Compliance with Laws. Neither the Company nor any of its Subsidiaries is in
material violation of any applicable federal, state, local, foreign or other law, statute,
regulation, rule, ordinance, code, convention, directive, order, judgment or other legal
requirement (collectively, “Laws”) of any Governmental Authority, except where such
violation would not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. To the Knowledge of the Company, neither the Company nor any of its Subsidiaries is
being investigated with respect to, or has been threatened to be charged with or given notice of
any violation of, any
15
applicable Law, except for such of the foregoing as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.18 No Material Adverse Effect. Since June 30, 2009 no event or circumstance has
occurred that, individually or in the aggregate, has had (and continues to have) or would
reasonably be expected to have a Material Adverse Effect.
4.19 Registration Rights; Voting Rights. Except as provided in the Registration Rights
Agreement, (i) the Company has not granted or agreed to grant, and is not under any obligation to
provide, any rights to register under the Securities Act any of its presently outstanding
securities or any of its securities that may be issued subsequently, and (ii) to the Company’s
Knowledge, no stockholder of the Company has entered into any agreement with respect to the voting
of equity securities of the Company.
4.20 Reports.
(a) Since September 30, 2007, the Company has timely filed all documents required to
be filed with the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) The SEC Reports, when they became effective or were filed with the SEC, as the
case may be, complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC
thereunder, in each case as in effect at such time, and none of such documents contained an
untrue statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make such statements, in the light of the circumstances in
which they were made, not misleading.
(c) The Company (i) has implemented and maintains disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) that are reasonably designed to
ensure that material information relating to the Company, including its consolidated
Subsidiaries, is made known to the individuals responsible for the preparation of the
Company’s filings with the SEC and (ii) has disclosed, based on its most recent evaluation
prior to the date of this Agreement, to the Company’s outside auditors and the Board’s
Audit Committee (A) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to
record, process, summarize and report financial information and (B) any fraud, whether or
not material, that involves management or other employees who have a significant role in
the Company’s internal controls over financial reporting. As of the date of this Agreement,
to the Knowledge of the Company, there is no reason that its outside auditors and its chief
executive officer and chief financial officer will not be able to give the certifications
and attestations required pursuant to the rules and regulations adopted pursuant to Section
404 of the Xxxxxxxx-Xxxxx Act of 2002, without qualification, when next due.
4.21 Investment Company Act. Neither the Company nor any of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940, or, directly or
indirectly, controlled by or acting on behalf of any Person which is an investment company, within
the meaning of said Act.
4.22 Brokers’ Fees and Expenses. No broker, investment banker, or financial advisor
or other Person, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or
commission in connection with transactions contemplated by this Agreement.
4.23 No Restriction on Ability to Pay Cash Dividends. The Company is not party to any
contract, agreement, arrangement or other understanding, oral or written, express or implied, and
is not subject to any provision in its Certificate of Incorporation or Bylaws or other governing
documents or resolutions of the Board, that could restrict, limit, prohibit or prevent the
Company’s ability to pay dividends in full in cash on the Shares in the amounts contemplated by the
Series B Certificate of Designations for a period of one year from and after the Initial Closing.
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4.24 Takeover Statutes. The Board and the Company have taken all action necessary to
render inapplicable to the Investment each and every state takeover statute or similar statute or
regulation that applies to the Company with respect to this Agreement and the Ancillary Agreements,
the purchase and sale of the Preferred Shares, the conversion of the Conversion Shares or any other
transactions contemplated by this Agreement, including the restrictions on “business combinations”
set forth in Section 203 of the DGCL.
4.25 Rights Agreement. The Board has taken all action requested in writing by the
Investors in order to render the Company Rights inapplicable to the purchase and sale of the
Preferred Shares, the conversion of the Conversion Shares, this Agreement or any other transactions
contemplated by this Agreement and to cause the Company Rights Agreement to terminate immediately
prior to the Initial Closing.
4.26 Intellectual Property.
(a) Schedule 4.26(a) contains a complete and accurate list of all
(i) registered Trademarks, (ii) Trademarks which are the subject of a pending application
for registration, (iii) domain names, (iv) registered Copyrights, and (v) Copyrights which
are the subject of a pending application for registration, owned by the Company or its
Subsidiaries, the name of the owner of such Intellectual Property, and where applicable the
registration number, application number and country of registration or application. The
Company and its Subsidiaries do not own any issued patents or pending applications for
patents in any jurisdiction. All of the Intellectual Property listed on Schedule
4.26(a) is valid, subsisting and enforceable. Except as set forth on Schedule
4.26(a), the Company and its Subsidiaries are the sole owner of all right, title and
interest in and to the Intellectual Property listed on Schedule 4.26(a). The
Company and its Subsidiaries have good and marketable title to the Intellectual Property
listed on Schedule 4.26(a) free and clear of all Liens.
(b) The Company and its Subsidiaries own or otherwise have a valid and enforceable
right to exploit all of the Intellectual Property exploited in connection with the
operation of Company’s business, and the business of each Subsidiary, as presently
conducted.
(c) Since January 1, 2005, except as set forth on Schedule 4.26(c), no other
Person has asserted against the Company or any Subsidiary any claims or demands (including
but not limited to claims of infringement, misappropriation or other conflict with the
asserted rights of other Persons, invalidity, unenforceability, breach of contract, or
demand for royalty or audit) with respect to any Intellectual Property owned, possessed,
used or otherwise exploited by the Company or any Subsidiary or any IP License.
(d) Since January 1, 2005, except as set forth on Schedule 4.26(d), the
Company and its Subsidiaries have not asserted against any other Person any claims or
demands (including but not limited to claims of infringement, misappropriation or conflict
with the asserted rights of the Company or its Subsidiaries, invalidity, unenforceability,
breach of contract, or demand for royalty or audit) with respect to any Intellectual
Property owned, possessed, used or otherwise exploited by any other Person or any IP
License.
(e) Schedule 4.26(e) contains a complete and accurate list of all IP Licenses
between the Company or its Subsidiaries and any other Person in force as of the Initial
Closing Date. To the Knowledge of the Company, each of the IP Licenses is in full force
and effect, is enforceable against each of the parties thereto, no party to any such IP
License is currently in material breach or default under any such IP License, and no
condition exists that with notice or lapse of time or both would constitute a breach or
default thereunder by any party to any such IP License or give any party to such IP License
the right to terminate, extend or modify such IP License or the Company’s or its
Subsidiaries’ ownership or other rights in or to any Intellectual Property. A copy of each
IP License was provided to the Investors and such copy represents the complete agreement
between the parties thereto as of the Initial Closing Date.
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5. Representations and Warranties of the Investors. Each Investor represents and
warrants to the Company as of the date of this Agreement that:
5.1 Private Placement.
(a) The Investor is (i) an “accredited investor” within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act; (ii) aware that the sale of the
Preferred Shares, and the Conversion Shares issuable upon conversion of the Series C
Preferred Shares being issued and sold pursuant to this Agreement (collectively, the
“Securities”) to it is being made in reliance on a private placement exemption from
registration under the Securities Act and (iii) acquiring the Securities for its own
account.
(b) The Investor understands and agrees that the Securities are being offered in a
transaction not involving any public offering within the meaning of the Securities Act,
that such Securities have not been and, except as contemplated by the Registration Rights
Agreement, will not be registered under the Securities Act and that such Securities may be
offered, resold, pledged or otherwise transferred only (i) in a transaction not involving a
public offering, (ii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available), (iii) pursuant to an effective registration
statement under the Securities Act or (iv) to the Company or one of its Subsidiaries, in
each of cases (i) through (iv) in accordance with any applicable state and federal
securities laws, and that it will notify any subsequent purchaser of Securities from it of
the resale restrictions referred to above, as applicable.
(c) The Investor understands that, unless sold pursuant to a registration statement
that has been declared effective under the Securities Act or in compliance with Rule 144
thereunder, the Company may require that the Securities will bear a legend or other
restriction substantially to the following effect (it being agreed that if the Securities
are not certificated, other appropriate restrictions shall be implemented to give effect to
the following):
“THIS SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS SECURITY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF
THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (I) IN A TRANSACTION NOT INVOLVING A PUBLIC OFFERING, (II) PURSUANT TO
ANY OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (III) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (IV) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL NOTIFY ANY
SUBSEQUENT PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN
(A) ABOVE.”
(d) The Investor: (i) is able to fend for itself in the transactions contemplated by
this Agreement; (ii) has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its prospective investment in the
Securities; and (iii) has the ability to bear the economic risks of its prospective
investment and can afford the complete loss of such investment.
(e) The Investor acknowledges that (i) it has conducted its own investigation of the
Company and the terms of the Securities, (ii) it has had access to the Company’s public
filings with the SEC and to such financial and other information as it deems necessary to
make its decision to purchase the Securities and (iii) has been offered the opportunity to
conduct such review and analysis of the business, assets, condition, operations and
prospects of the Company and its Subsidiaries and to ask
18
questions of the Company and received answers thereto, each as it deemed necessary in
connection with the decision to purchase the Securities. The Investor further acknowledges
that it has had such opportunity to consult with its own counsel, financial and tax
advisors and other professional advisers as it believes is sufficient for purposes of the
purchase of the Securities. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 4 of this Agreement or the right
of the Investor to rely on such representations and warranties.
(f) The Investor understands that the Company will rely upon the truth and accuracy of
the foregoing representations, acknowledgements and agreements.
(g) Except for the representations and warranties contained in Section 4 of this
Agreement (including any references in such Section to the SEC Reports), the Investor
acknowledges that neither the Company nor any Person on behalf of the Company makes, and
the Investor has not relied upon, any other express or implied representation or warranty
with respect to the Company or any of its Subsidiaries or with respect to any other
information provided to the Investors in connection with the transactions contemplated by
this Agreement.
5.2 Organization. Each Investor has been duly organized and is validly existing in the
jurisdiction and as the form of business entity set forth on Schedule 1.
5.3 Governmental Consents. No consent, approval, order, or authorization of, or
registration, qualification, declaration, or filing with, any federal, state, or local governmental
authority on the part of the Investor is required in connection with the purchase of the Preferred
Shares (and the Conversion Shares issuable upon conversion of the Series C Preferred) or the
consummation of any other transaction contemplated by this Agreement, except for the following: (i)
the filing of the Series B Certificate of Designations and Series C Certificate of Designations
with the Delaware Secretary of State pursuant to Section 6.4; (ii) the compliance with other
applicable state securities laws, which compliance will have occurred within the appropriate time
periods; and (iii) the filing with the SEC of such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by this Agreement.
5.4 Authorization; Enforceability. The Investor has full right, power, authority and
capacity to enter into this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements. The execution, delivery
and performance of this Agreement and the Ancillary Agreements have been duly authorized by all
necessary action on the part of the Investor, and, assuming due authorization, execution and
delivery of this Agreement and the Ancillary Agreements by the Company, this Agreement and the
Ancillary Agreements will constitute valid and binding obligations of the Investor, enforceable
against it in accordance with their terms.
5.5 No Default or Violation. The execution, delivery, and performance of and
compliance with this Agreement and the Ancillary Agreements and the purchase and sale of the
Preferred Shares will not (i) result in any default or violation of the certificate of
incorporation, bylaws, limited partnership agreement, limited liability company operating agreement
or other applicable organizational documents of the Investor, (ii) result in any default or
violation of any agreement relating to its material Indebtedness or under any mortgage, deed of
trust, security agreement or lease to which it is a party or in any default or violation of any
material judgment, order or decree of any Governmental Authority or (iii) be in conflict with or
constitute, with or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets of the Investor
pursuant to any such provision, or the suspension, revocation, impairment or forfeiture of any
material permit, license, authorization, or approval applicable to the Investor, its business or
operations, or any of its assets or properties pursuant to any such provision.
5.6 Financial Capability. The Investor currently has and at the Initial Closing will
have available the funds necessary to purchase the Initial Preferred Shares at the Initial Closing
on the terms and conditions contemplated by this Agreement.
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6. Conditions to the Investors’ Obligations at Initial Closing. The obligation of the
Investors to purchase the Initial Closing Preferred Shares at the Initial Closing is subject to the
fulfillment or waiver on or before the Initial Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of the Company
contained in Section 4 shall be true and correct as of the date hereof and the Initial Closing
Date, except where the failure of such representations and warranties to be so true and correct
without giving effect to any qualification and limitations as to “materiality” or “Material Adverse
Effect” set forth therein, individually or in the aggregate, would not have a Material Adverse
Effect.
6.2 Performance. The Company shall have performed and complied in all material
respects with all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial Closing.
6.3 Compliance Certificate. The Chief Executive Officer and/or Chief Financial Officer
of the Company shall have delivered to the Investors at the Initial Closing a certificate stating
that the conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 Certificate of Designations. The Company shall have adopted and filed with the
Secretary of State of the State of Delaware a Certificate of Designations of the Series B Preferred
in the form attached as Exhibit D (the “Series B Certificate of Designations”) and
a Certificate of Designations of the Series C Preferred in the form attached as Exhibit E
(the “Series C Certificate of Designations”).
6.5 Ancillary Agreements. The Company shall have executed and delivered the Ancillary
Agreements.
6.6 Opinion of Company Counsel. The Investors shall have received from Xxxxxxx Coie
LLP, counsel for the Company, an opinion, dated as of the Initial Closing Date, in substantially
the form attached as Exhibit F.
6.7 Transaction Fee. Simultaneous with the Initial Closing, the Company shall have
paid to the Investor Representative a transaction fee equal to $1,000,000.
6.8 Payment of Expenses. Simultaneous with the Initial Closing, the Company shall have
reimbursed the Investors for their reasonable documented out-of-pocket fees and expenses in an
amount not to exceed $1,000,000 incurred on or before the Initial Closing Date in connection with
the execution of this Agreement and the Ancillary Agreements and the purchase by the Investors of
the Preferred Shares pursuant to this Agreement.
6.9 Board of Directors. The Board shall have taken all actions necessary and
appropriate to appoint Messrs. Xxxxxxx Xxxx and Xxxxxxx Xxxxxxx and two other persons nominated by
the Investors (the “JH Designees”) to the Board effective as of the Initial Closing Date,
and the JH Designees shall represent at least a majority of the Board immediately following the
Initial Closing. The Company shall have provided the Investors with evidence satisfactory to them
of the taking of such actions and the resignations of all members of the current Board other than
one director.
6.10 Wachovia Consent. The Company shall have received the consent of Wachovia
Capital Finance Corporation (Western), as agent for the lenders under the Credit Agreement, to the
transactions contemplated by this Agreement.
7. Conditions to the Company’s Obligations at Initial Closing. The obligation of the
Company to issue, sell and deliver to the Investors the Initial Closing Preferred Shares at the
Initial Closing is subject to the fulfillment or waiver on or before the Initial Closing of each of
the following conditions:
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7.1 Representations and Warranties. The representations and warranties of the
Investors contained in Section 5 shall be true on and as of the date hereof and the Initial Closing
Date.
7.2 Purchase Price. The Investors shall have paid to the Company the Initial Closing
Purchase Price.
7.3 Ancillary Agreements. The Investors shall have executed and delivered the
Ancillary Agreements.
7.4 Wachovia Consent. The Company shall have received the consent of Wachovia Capital
Finance Corporation (Western), as agent for the lenders under the Credit Agreement, to the
transactions contemplated by this Agreement.
8. Conditions to the Investors’ Obligations at Subsequent Closings. The obligation of
the Investors to purchase any Additional Preferred Shares at any Subsequent Closing is subject to
the fulfillment or waiver on or before each such Subsequent Closing of each of the following
conditions:
8.1 Representations and Warranties. The representations and warranties of the Company
contained in Section 4 shall be true and correct as of the date hereof and the Subsequent Closing
Date, except where the failure of such representations and warranties to be so true and correct
without giving effect to any qualification and limitations as to “materiality” or “Material Adverse
Effect” set forth therein, individually or in the aggregate, would not have a Material Adverse
Effect.
8.2 Performance. The Company shall have performed and complied in all material
respects with all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Subsequent Closing.
8.3 Compliance Certificate. The Chief Executive Officer and/or Chief Financial Officer
of the Company shall have delivered to the Investors at the Subsequent Closing a certificate
stating that the conditions specified in Sections 8.1 and 8.2 have been fulfilled.
8.4 Opinion of Company Counsel. The Investors shall have received from Xxxxxxx Coie
LLP, counsel for the Company, an opinion, dated as of the Subsequent Closing Date, in the form
attached as Exhibit F.
9. Conditions to the Company’s Obligations at Subsequent Closings. The obligation of
the Company to issue, sell and deliver to the Investors the Additional Preferred Shares at any
Subsequent Closing is subject to the fulfillment or waiver on or before each such Subsequent
Closing of each of the following conditions:
9.1 Representations and Warranties. The representations and warranties of the
Investors contained in Section 5 shall be true on and as of the date hereof and the Subsequent
Closing Date.
9.2 Purchase Price. The Investors shall have paid to the Company the Additional Shares
Purchase Price.
10. Covenants. The Company and the Investors hereby covenant and agree, for the
benefit of the other parties to this Agreement and their respective assigns, as follows:
10.1 Stockholder Approvals; Proxy Statement. The Company agrees to use its reasonable
best efforts to call and hold as promptly as reasonably practicable following the Initial Closing
Date a meeting of the stockholders of the Company to obtain the Stockholder Approvals (the
“Stockholder Meeting”), and as promptly as reasonably practicable following the Initial
Closing Date (and in any event within 60 days of the Initial Closing Date), the Company will
prepare and file with the SEC a proxy statement to be sent to the Company’s stockholders in
connection with the Stockholder Meeting (the “Proxy Statement”). Subject to the directors’
fiduciary duties, the Proxy Statement shall include the Board’s recommendation that the
stockholders vote in favor of the Stockholder
21
Approvals. If the Stockholder Approvals are not obtained at the Stockholder Meeting, then the
Company will use its reasonable best efforts to obtain the Stockholder Approvals at the next
occurring annual meeting of the stockholders of the Company. The Company shall use commercially
reasonable efforts to solicit from the stockholders proxies in favor of the Stockholder Approvals
and to obtain the Stockholder Approvals. The Investor Representative agrees to furnish to the
Company all information concerning the Investors and their Affiliates as the Company may reasonably
request in connection with any Stockholder Meeting. The Company shall respond reasonably promptly
to any comments received from the SEC with respect to the Proxy Statement, and the Company shall
cause the Proxy Statement to be mailed to the Company’s stockholders at the earliest reasonably
practicable date. The Company shall provide to the Investor Representative, as promptly as
reasonably practicable after receipt thereof, any written comments from the SEC or any written
request from the SEC or its staff for amendments or supplements to the Proxy Statement and shall
provide the Investor Representative with copies of all correspondence between the Company, on the
one hand, and the SEC and its staff, on the other hand, relating to the Proxy Statement.
Notwithstanding anything to the contrary stated above, prior to filing or mailing the Proxy
Statement (or, in each case, any amendment or supplement thereto) or responding to any comments of
the SEC or its staff with respect thereto, the Company shall provide the Investors with a
reasonable opportunity to review and comment on such document or response. Any communications by
the Company to the Investor Representative pursuant to this Section 10.1 may made by email to an
account designated by the Investor Representative upon request by the Company.
10.2 Use of Proceeds. The Company shall apply the net proceeds from the issuance and
sale of the Initial Closing Preferred Shares as set forth on Schedule 10.2 hereto and the net
proceeds from the issuance and sale of any Additional Preferred Shares as contemplated by Section
2.7.
10.3 Reservation of Common Stock; Issuance of Shares of Common Stock. From and after
the date of the filing of the Amendment to Certificate following the Stockholder Approvals and for
as long as any Series C Preferred Shares remain outstanding, the Company shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but unissued Common Stock or
shares of Common Stock held in treasury by the Company, for the purpose of effecting the conversion
of the Series C Preferred Shares, the full number of Conversion Shares then issuable upon the
conversion of the Series C Preferred Shares (after giving effect to all anti-dilution adjustments)
then outstanding. All Conversion Shares delivered upon conversion of the Series C Preferred Shares
shall be newly issued shares or shares held in treasury by the Company, shall have been duly
authorized and validly issued and shall be fully paid and nonassessable, and shall be free from
preemptive rights and free of any lien or adverse claim.
10.4 Transfer Taxes. The Company shall pay any and all documentary, stamp or similar
issue or transfer tax due on (x) the issue of the Preferred Shares and (y) the issue of Conversion
Shares upon conversion of the Series C Preferred. However, in the case of conversion of Series C
Preferred Shares, the Company shall not be required to pay any tax or duty 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 of the holder of the Series C Preferred Shares to be converted, and no such issue
or delivery shall be made unless and until the Person requesting such issue has paid to the Company
the amount of any such tax or duty, or has established to the satisfaction of the Company that such
tax or duty has been paid.
10.5 Directors’ and Officers’ Insurance and Indemnification. The Company shall
indemnify and hold harmless the individuals who at any time prior to the Initial Closing Date were
directors or officers of the Company or any of its present or former Subsidiaries (the
“Indemnified Parties”) against any costs or expenses (including reasonable attorneys’
fees), judgments, fines, losses, claims, damages or liabilities in connection with actions or
omissions occurring at or prior to the Initial Closing Date (including the transactions
contemplated by this Agreement) to the fullest extent permitted by law and the Certificate of
Incorporation and Bylaws, each as in effect as of the date hereof. The Certificate of
Incorporation and Bylaws in effect on the date hereof shall not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights thereunder of the Indemnified
Parties, unless such modification is required by law. The Company shall maintain, and from and
after the Initial Closing the Investors shall cause the Company to maintain, in effect for not less
than six (6) years from the Initial Closing Date, the current policies of directors’ and officers’
liability insurance and fiduciary liability insurance maintained by the Company and the Company’s
Subsidiaries for the Indemnified Parties and any other employees,
22
agents or other individuals otherwise covered by such insurance policies prior to the Initial
Closing Date with respect to matters occurring at or prior to the Initial Closing Date (including
the transactions contemplated by this Agreement).
10.6 Public Disclosure. On the date of this Agreement, or within 24 hours thereafter,
the Company shall issue a press release in a form mutually agreed to by the Company and the
Investor Representative. No other written release, announcement or filing concerning the purchase
of the Preferred Shares or the transactions contemplated by this Agreement and the Ancillary
Agreements shall be issued, filed or furnished, as the case may be, by any party without the prior
written consent of the other party (which consent shall not be unreasonably withheld, conditioned
or delayed), except as such release, announcement or filing as may be required by Law or the rules
or regulations of any securities exchange, in which case the party required to make the release or
announcement shall, to the extent reasonably practicable, allow the other party reasonable time to
comment on such release or announcement in advance of such issuance. The provisions of this Section
shall not restrict the ability of a party to summarize or describe the transactions contemplated by
this Agreement in any prospectus or similar offering document so long as the other party is
provided a reasonable opportunity to review such disclosure in advance.
10.7 Further Assurances. Each of the Investors and the Company will cooperate and
consult with each other and use commercially reasonable efforts to prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings and other
documents, and to obtain all necessary permits, consents, orders, approvals and authorizations of,
or any exemption by, all third Persons required to consummate the transactions contemplated by this
Agreement.
10.8 No Solicitation.
(a) Until the earlier of January 8, 2010 or the Initial Closing Date, neither the
Company nor any of its Subsidiaries shall, nor shall the Company or any of its Subsidiaries
authorize or permit any of its or their Representatives to, and the Company shall instruct,
and cause each applicable Subsidiary, if any, to instruct, each such Representative not to,
directly or indirectly, solicit, initiate or knowingly take any action to facilitate or
encourage the submission of any Acquisition Proposal or the making of any inquiry, offer or
proposal that could reasonably be expected to lead to any Acquisition Proposal, or, subject
to Section 10.8(b), (i) conduct or engage in any discussions or negotiations with, disclose
any non-public information relating to the Company or any of its Subsidiaries to, afford
access to the business, properties, assets, books or records of the Company or any of its
Subsidiaries to, or knowingly assist, participate in, facilitate or encourage any effort
by, any Third Party that has expressed an intent to make, or has made, any Acquisition
Proposal, (ii) approve any transaction under, or any Third Party becoming an “interested
stockholder” under, Section 203 of Delaware Law, (iii) except as contemplated by Section
4.25, amend the Company Rights Agreement, redeem the Company Rights or take any action with
respect to, or make any determination under, the Company Rights Agreement, (iv) enter into
any agreement in principle, letter of intent, term sheet, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement or other
Contract relating to any Acquisition Proposal or enter into any agreement or agreement in
principle requiring the Company to abandon, terminate or fail to consummate the
transactions contemplated hereby or breach its obligations hereunder (other than a
confidentiality agreement contemplated by Section 10.8(b)), or (v) resolve, propose or
agree to do any of the foregoing. Without limiting the foregoing, it is understood that any
violation of the foregoing restrictions by any Subsidiary of the Company or Representatives
of the Company or any of its Subsidiaries shall be deemed to be a breach of this
Section 10.8(a) by the Company. The Company shall, and shall cause its Subsidiaries to
cease immediately and cause to be terminated, and shall not authorize or knowingly permit
any of its or their Representatives to continue, any and all existing activities,
discussions or negotiations, if any, with any Third Party conducted prior to the date
hereof with respect to any Acquisition Proposal.
(b) Notwithstanding the foregoing provisions of Section 10.8(a), prior to the Initial
Closing, the Board, directly or indirectly through any Representative, may (i) engage in
negotiations or discussions with any Third Party that has made (and not withdrawn) a bona
fide unsolicited Acquisition
23
Proposal in writing after the date of this Agreement, that did not result from or
arise out of a willful and material breach of Section 10.8(a), and that the Board believes
in good faith, after consultation with its outside legal counsel and financial advisor of
nationally recognized reputation, constitutes or would reasonably be expected to lead to a
Superior Proposal, and (ii) thereafter furnish to such Third Party non-public information
relating to the Company or any of its Subsidiaries pursuant to an executed confidentiality
agreement with terms no less favorable to the Company than those contained in the
Confidentiality Agreement and containing additional provisions that expressly permit the
Company to comply with the terms of this Section 10.8 (a copy of which confidentiality
agreement shall be promptly and in any event with 24 hours provided for informational
purposes only to the Investors), but in each case under the preceding clauses (i) and (ii),
only if the Board determines in good faith, after consultation with outside legal counsel
to the Board, that the failure to take such action would be inconsistent with its fiduciary
duties under Applicable Law.
(c) The Board shall not take any of the actions referred to in clauses (i) or (ii) of
Section 10.8(b) unless the Company shall have notified the Investors in writing
contemporaneously with taking such action that it is taking or intends to take such action.
The Company shall notify the Investors promptly (but in no event later than 24 hours) after
it obtains knowledge of the receipt by the Company (or any of its Representatives) of any
Acquisition Proposal, any inquiry, offer or proposal that would reasonably be expected to
lead to an Acquisition Proposal, or any request for non-public information relating to the
Company or any of its Subsidiaries or for access to the business, properties, assets, books
or records of the Company or any of its Subsidiaries by any Third Party. In such notice,
the Company shall identify the Third Party making, and (if applicable) the terms and
conditions of, any such Acquisition Proposal, inquiry, offer, proposal or request. The
Company shall keep the Investors reasonably informed, on a reasonably prompt basis, of the
status and material terms of any such Acquisition Proposal, inquiry, offer, proposal or
request, including (if applicable) any material amendments or proposed amendments as to
price and other material terms thereof. The Company shall, subject to Applicable Law,
promptly provide the Investors with any non-public information concerning the Company’s
business, present or future performance, financial condition or results of operations
provided to any Third Party that was not previously provided to the Investors.
(d) Neither the Board nor any committee thereof shall (i) approve, endorse, adopt or
recommend, or publicly propose to approve, endorse, adopt or recommend, any Acquisition
Proposal or Superior Proposal, (ii) fail to recommend against acceptance of any tender
offer or exchange offer for the Company’s Common Stock within ten (10) Business Days after
the commencement of such offer or (iii) resolve or agree to take any of the foregoing
actions (any of the foregoing, an “Adverse Recommendation”). Notwithstanding the
preceding sentence, at any time prior to the Initial Closing, the Board, following receipt
of and on account of a Superior Proposal, may make an Adverse Recommendation, but only if
the Board determines in good faith, after consultation with outside legal counsel to the
Board, that the failure to take such action would be inconsistent with its fiduciary duties
under Applicable Law; provided, however, that the Board shall not make an Adverse
Recommendation, unless (i) the Company promptly notifies the Investors in writing at least
three (3) Business Days before making an Adverse Recommendation (the “Notice
Period”), of its intention to take such action with respect to a Superior Proposal,
(ii) the Company attaches to such notice the most current version of the proposed agreement
or a detailed summary of all material terms of any such Superior Proposal (which version or
summary shall be updated on a reasonably prompt basis) and the identity of the Third Party
making the Superior Proposal, (iii) the Company shall, and shall cause its financial and
legal advisors to, during the Notice Period, negotiate with the Investors in good faith to
make such adjustments in the terms and conditions of this Agreement so that such
Acquisition Proposal ceases to constitute a Superior Proposal, if the Investors, in their
discretion, propose to make such adjustments; it being agreed that in the event that, after
commencement of the Notice Period, there is any material revision to the terms of a
Superior Proposal, including any revision in price, the Notice Period shall be extended, if
applicable, for a reasonable period of time to permit the Investors to respond to such
material revision (it being understood that there may be multiple extensions); and (iv) the
Investors do not make, within the Notice Period, an offer that is determined by the Board
in good faith, after consulting with its outside counsel and financial advisor of
nationally recognized reputation, to be at least as favorable to the Company and its
stockholders as such Superior Proposal.
24
10.9 Credit Support. The Investors shall provide to the lenders under the Credit
Agreement credit support in an amount up to $5 million to induce the lenders to increase
availability under the line of credit contemplated by the Credit Agreement until the new facility
currently being negotiated can be documented and funded.
11. Indemnification.
11.1 The Company (as “Indemnitor”) hereby agrees to indemnify, pay and hold each
Investor, and each of the respective officers, directors, employees and Affiliates of each Investor
(collectively, the “Indemnified Parties”) harmless from and against any and all other
liabilities, costs, expenses liabilities, obligations, losses, damages (consequential or
otherwise), penalties, actions, judgments, suits, claims and disbursements of any kind or nature
whatsoever (but including only the reasonable fees and expenses of one counsel) which may be
imposed on, incurred by, or asserted against such Indemnified Party, in any manner relating to or
arising out of (i) the failure of any of the representations and warranties set forth in this
Agreement and the Ancillary Agreements, including Section 4 of this Agreement to be true and
correct as of the date of this Agreement, (ii) the Company’s breach of agreements or covenants made
by the Company under this Agreement and the Ancillary Agreements, or (iii) any action, suit, claim,
proceeding or investigation by any Governmental Authority, stockholder of the Company or any other
person (other than the Company) relating to this Agreement or the transactions contemplated hereby
(other than any losses attributable to the acts, errors or omissions on the part of such Investor,
but not including the transactions contemplated hereby) (collectively, the “Indemnified
Liabilities”).
11.2 Each Indemnified Party shall give the Indemnitor prompt written notice of any claim that
might give rise to Indemnified Liabilities setting forth a description of those elements of such
claim of which such Indemnified Party has knowledge; provided, that any delay or failure to give
such notice shall not affect the obligations of the Indemnitor unless (and then solely to the
extent) such Indemnitor is materially prejudiced by such delay or failure. The Indemnitor shall
have the right at any time during which such claim is pending to select counsel to defend and
control the defense thereof and settle any claims for which they are responsible for
indemnification hereunder (provided, that the Indemnitor will not settle any such claim without (i)
the appropriate Indemnified Party’s prior written consent, which consent shall not be unreasonably
withheld or (ii) obtaining an unconditional release of the appropriate Indemnified Party from all
claims arising out of or in any way relating to the circumstances involving such claim) so long as
in any such event the Indemnitor shall have stated in a writing delivered to the Indemnified Party
that, as between the Indemnitor and the Indemnified Party, the Indemnitor is responsible to the
Indemnified Party with respect to such claim to the extent and subject to the limitations set forth
herein; provided, that the Indemnitor shall not be entitled to control the defense of any claim in
the event that in the reasonable opinion of counsel for the Indemnified Party there are one or more
material defenses available to the Indemnified Party which are not available to the Indemnitor;
provided further, that with respect to any claim as to which the Indemnified Party is controlling
the defense, the Indemnitor will not be liable to any Indemnified Party for any settlement of any
claim pursuant to this Section that is effected without its prior written consent. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnified Parties or any of them.
11.3 The obligations of the Company set forth in Section 11.1(i) shall terminate as of the
Initial Closing Date.
12. Miscellaneous.
12.1 Governing Law. This Agreement shall be governed in all respects by the laws of
the State of Delaware without regard to any choice of laws or conflict of laws provisions that
would require the application of the laws of any other jurisdiction.
12.2 Jurisdiction; Enforcement. The parties agree that irreparable damage would occur
if any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that each of the parties shall be
entitled (in addition to any other remedy that may
25
be available to it, including monetary damages) to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement
exclusively in any state or federal courts located in the City of San Francisco and any appellate
court therefrom within the State of California. In addition, each of the parties irrevocably
agrees that any legal action or proceeding with respect to this Agreement and the rights and
obligations arising hereunder, or for recognition and enforcement of any judgment in respect of
this Agreement and the rights and obligations arising hereunder brought by the other party or its
successors or assigns, shall be brought and determined exclusively in any state or federal courts
located in the City of San Francisco and any appellate court therefrom within the State of
California. The parties further agree that no party to this Agreement shall be required to obtain,
furnish or post any bond or similar instrument in connection with or as a condition to obtaining
any remedy referred to in this Section and each party waives any objection to the imposition of
such relief or any right it may have to require the obtaining, furnishing or posting of any such
bond or similar instrument. Each of the parties hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect of its property, generally and unconditionally, to
the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this Agreement in any court
other than the aforesaid courts. Each of the parties hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with
respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of
the above named courts for any reason other than the failure to serve in accordance with this
Section, (b) any claim that it or its property is exempt or immune from jurisdiction of any such
court or from any legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise) and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the
suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of
such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts. Each party hereby consents to service being made through
the notice procedures set forth in Section 12.8 and agrees that service of any process, summons,
notice or document by registered mail (return receipt requested and first-class postage prepaid) to
the respective addresses set forth in Section 12.8 shall be effective service of process for any
suit or proceeding in connection with this Agreement or the transactions contemplated by this
Agreement. EACH OF THE PARTIES KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.3 Survival. The representations and warranties in this Agreement shall expire on
the Initial Closing Date and shall thereafter have no further force and effect.
12.4 Successors and Assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties; provided, however,
the rights of the Investors under this Agreement shall not be assignable to any Person without the
consent of the Company.
12.5 No Third-Party Beneficiaries. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied (other than the
provisions of Section 10.5 which are for the express benefit of the officers and directors
identified therein), is intended to confer on any Person other than the parties any rights,
remedies, obligations or liabilities under or by reason of this Agreement, and no Person that is
not a party to this Agreement (including any partner, member, stockholder, director, officer,
employee or other beneficial owner of any party, in its own capacity as such or in bringing a
derivative action on behalf of a party) shall have any standing as third-party beneficiary with
respect to this Agreement or the transactions contemplated by this Agreement.
12.6 No Personal Liability of Directors, Officers, Owners, Etc. No director, officer,
employee, incorporator, stockholder, managing member, member, general partner, limited partner,
principal or other agent of any of the Investors or the Company shall have any liability for any
obligations of the Investors or the Company, as applicable, under this Agreement or for any claim
based on, in respect of, or by reason of, the respective obligations of the Investors or the
Company, as applicable, under this Agreement. Each party hereby waives and releases all such
liability. This waiver and release is a material inducement to each party’s entry into this
Agreement.
26
12.7 Entire Agreement. This Agreement and the other documents delivered pursuant to
this Agreement, including the Ancillary Agreements, constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
12.8 Notices. Except as otherwise provided in this Agreement, all notices, requests,
claims, demands, waivers and other communications required or permitted under this Agreement shall
be in writing and shall be mailed by reliable overnight delivery service or delivered by hand,
facsimile or messenger as follows:
| if to the Company: | Image Entertainment, Inc. | |||
| 00000 Xxxxxxxx Xxxxxx, Xxxxx 000 | ||||
| Xxxxxxxxxx, Xxxxxxxxxx | ||||
| Attention: Chief Financial Officer | ||||
| Facsimile: (000) 000-0000 | ||||
| with a copy to: | Xxxxxxx Coie LLP | |||
| 0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000 | ||||
| Xxx Xxxxxxx, Xxxxxxxxxx 00000 | ||||
| Attention: Xxxxx X. Xxxx | ||||
| Facsimile: (000) 000-0000 | ||||
| if to the Investors | ||||
| or the Investor Representative: | JH Partners, LLC | |||
| 000 Xxxxxxx Xxxxxx | ||||
| Xxx Xxxxxxxxx, Xxxxxxxxxx | ||||
| Attention: Xxxxxxx X. Xxxxxxx | ||||
| Facsimile: (000) 000-0000 | ||||
| with a copy to: | Xxxxxx & Xxxxxxx LLP | |||
| 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000 | ||||
| Xxx Xxxxxxxxx, Xxxxxxxxxx | ||||
| Attention: Xxxxxx X. Xxxxxxx | ||||
| Facsimile: (000) 000-0000 |
or in any such case to such other address, facsimile number or telephone as either party may, from
time to time, designate in a written notice given in a like manner. Notices shall be deemed given
when actually delivered by overnight delivery service, hand or messenger, or when received by
facsimile if promptly confirmed.
12.9 Delays or Omissions. No delay or omission to exercise any right, power, or remedy
accruing to any party under this Agreement shall impair any such right, power, or remedy of such
party, nor shall it be construed to be a waiver of or acquiescence to any breach or default, or in
any similar breach or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative.
12.10 Expenses. Except as contemplated by Section 6.8 and Section 12.16, each party
shall be responsible for its costs and expenses in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby.
12.11 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only if such amendment or waiver is in writing
and signed, in the case of an amendment, by the Company and the Investor Representative or, in the
case of a waiver, by the party against whom the waiver is to be effective. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the Company.
27
12.12 Counterparts. This Agreement may be executed in any number of counterparts and
signatures may be delivered by facsimile or in electronic format, each of which may be executed by
less than all the parties, each of which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one instrument.
12.13 Severability. If any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable, or void, portions of such provision,
or such provision in its entirety, to the extent necessary, shall be severed from this Agreement
and the balance of this Agreement shall be enforceable in accordance with its terms.
12.14 Titles and Subtitles; Interpretation. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in construing or interpreting
this Agreement. When a reference is made in this Agreement to an Article, Section, Schedule or
Exhibit, such reference shall be to an Article, Section, Schedule or Exhibit of this Agreement
unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without limitation.” The
definitions contained in this Agreement are applicable to the singular as well as the plural forms
of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to in this Agreement means such agreement,
instrument or statute as from time to time amended, modified or supplemented, including (in the
case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes. Each of the parties has participated in the drafting and
negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if it is drafted by each of the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement.
12.15 Termination. This Agreement may be terminated at any time prior to the Initial
Closing:
(a) by mutual written agreement of the Company and the Investors;
(b) by either the Company or the Investors, if:
(i) the Investment has not been consummated on or before January 8, 2009
(subject to possible extension as provided below, the “End Date”), provided,
that the right to terminate this Agreement under this Section 12.15(b)(i) shall not
be available to any party whose willful or intentional material breach of any
provision of this Agreement results in the failure of the Investment to be
consummated by the End Date; or
(ii) any Governmental Authority of competent jurisdiction shall have issued an
order, decree, injunction or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the Investment and such
order, decree, ruling or other action shall have become final and nonappealable, or
if there shall be adopted any Applicable Law that makes consummation of the
Investment illegal or otherwise prohibited;
(c) by the Investors:
(i) if an Adverse Recommendation shall have occurred;
(ii) if the Company shall have entered into, or publicly announced its
intention to enter into, a letter of intent, memorandum of understanding or Contract
(other than a confidentiality agreement contemplated by Section 10.8(b)) relating to
any Acquisition Proposal;
(iii) if the Company or any of its Representatives shall have willfully and
materially breached any of its obligations under Section 10.8; or
28
(iv) in the event (A) of a material breach of any covenant or agreement on the
part of the Company set forth in this Agreement or (B) that any representation or
warranty of the Company set forth in this Agreement shall have been inaccurate when
made or shall have become inaccurate, in either case such that the conditions to the
Investment set forth in Section 6.1 or Section 6.2, respectively, would not be
satisfied as of the time of such breach or as of the time such representation and
warranty became inaccurate; provided, however, that notwithstanding the foregoing,
(in the event that such breach by the Company or such inaccuracies in the
representations and warranties of the Company are curable by the Company through the
exercise of commercially reasonable efforts prior to the End Date and within thirty
(30) days, then the Investors shall not be permitted to terminate this Agreement
pursuant to this Section 12.15(c)(iv) until the earlier to occur of (1) the
expiration of a thirty (30) calendar day period after delivery of written notice
from the Investors to the Company of such breach or inaccuracy, as applicable, or
(2) the ceasing by the Company to exercise commercially reasonable efforts to cure
such breach or inaccuracy, provided that the Company continues to exercise
commercially reasonable efforts to cure such breach or inaccuracy (it being
understood that the Investors may not terminate this Agreement pursuant to this
Section 12.15(c)(iv) if such breach or inaccuracy by the Company is cured within
such thirty (30) calendar day period);
(d) by the Company:
(i) if the Board authorizes the Company, in compliance with the terms of this
Agreement, including Section 10.8(d), to enter into a binding definitive agreement
in respect of a Superior Proposal with a Third Party; provided that the Company
shall have complied with its obligations under Section 10.8 and shall have paid any
amounts then due pursuant to Section 12.16 in accordance with the terms specified
therein; or
(ii) in the event (A) of a material breach of any covenant or agreement on the
part of the Investors set forth in this Agreement or (B) that any of the
representations and warranties of the Investors set forth in this Agreement shall
have been inaccurate in any material respect; provided, however, that
notwithstanding the foregoing, in the event that such breach by the Investors (other
than a breach of Investors’ obligation to pay the Initial Closing Purchase Price
pursuant to Section 2.1, which breach is not subject to this Section 12.15(d)(ii))
or such inaccuracies in the representations and warranties of the Investors are
curable by the Investors through the exercise of commercially reasonable efforts
prior to the End Date and within thirty (30) days, then the Company shall not be
permitted to terminate this Agreement pursuant to this Section 12.15(d)(ii) until
the earlier to occur of (1) the expiration of a thirty (30) calendar day period
after delivery of written notice from the Company to the Investors of such breach or
inaccuracy, as applicable, or (2) the Investors ceasing to exercise commercially
reasonable efforts to cure such breach or inaccuracy, provided that the Investors
continue to exercise commercially reasonable efforts to cure such breach or
inaccuracy (it being understood that the Company may not terminate this Agreement
pursuant to this Section 12.15(d)(ii) if such breach or inaccuracy by the Investors
is cured within such thirty (30) calendar day period); or
(e) by the Investors on or before the close of business on December 24, 2009 if the
Company and the Investors have not achieved by such date a reduction in obligations to the
Company’s creditors that is satisfactory to the Investors in their sole discretion.
12.16 Termination Fee.
(a) If this Agreement is terminated pursuant to Section 12.15(c)(i), (ii) or (iii),
then the Company shall pay to the Investors (by wire transfer of immediately available
funds), within two (2) Business Days after such termination, a fee in an amount equal to
$1,000,000 (the “Termination Fee”).
29
(b) If this Agreement is terminated pursuant to Section 12.15(d)(i), then the Company
shall pay to the Investors (by wire transfer of immediately available funds), at or prior
to such termination, the Termination Fee.
(c) In the event that this Agreement is terminated pursuant to Section 12.15(c)(i),
(ii) or (iii) or Section 12.15(d)(i), the Company shall as promptly as possible (but in any
event within three (3) Business Days) following receipt of an invoice therefor pay all of
the Investors’ documented reasonable out-of-pocket fees and expenses (including reasonable
legal and other third party advisors fees and expenses) in an amount not to exceed
$1,000,000 actually incurred by the Investor and its Affiliates on or prior to the
termination of this Agreement in connection with the transactions contemplated by this
Agreement.
30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
| IMAGE ENTERTAINMENT, INC. |
||||
| By: | /s/ XXXX X. XXXXXX | |||
| Name: | Xxxx X. Xxxxxx | |||
| Title: | President and Chief Financial Officer | |||
| JH PARTNERS, LLC, as the Investor Representative |
||||
| By: | /s/ XXXX X. XXXXXX | |||
| Name: | Xxxx X. Xxxxxx | |||
| Title: | President | |||
| JH INVESTMENT PARTNERS EVERGREEN FUND, L.P. |
||||
| By: | JH Investment Management III, LLC | |||
| Its: General Partner | ||||
| By: | /s/ XXXX X. XXXXXX | |||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
| JH INVESTMENT PARTNERS III, L.P. |
||||
| By: | JH Investment Management III, LLC | |||
| Its: General Partner | ||||
| By: | /s/ XXXX X. XXXXXX | |||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
| JH INVESTMENT PARTNERS GP FUND III, LLC |
||||
| By: | JH Investment Management III, LLC | |||
| Its: Manager | ||||
| By: | /s/ XXXX X. XXXXXX | |||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
Schedule 1
Investors
JH Investment Partners Evergreen Fund, L.P.
JH Investment Partners III, L.P.
JH Investment Partners GP Fund III, LLC
EXHIBIT A
Registration Rights Agreement
Series C Junior Participating Preferred Stock
This Registration Rights Agreement, dated as of December [ ], 2009, is by and among Image
Entertainment, Inc., a Delaware corporation (the “Company”), [JH Entity], as the Investor
Representative, and the several investors listed on Schedule 1 (together with their Permitted
Transferees, collectively, the “Investors”).
WHEREAS, on the date of this Agreement, the Company and the Investors entered into a
Securities Purchase Agreement dated the date of this Agreement (the “Purchase Agreement”)
pursuant to which the Company agreed to sell to the Investors, and the Investors agreed to purchase
from the Company, [ ] shares of the Company’s Series B Cumulative Preferred Stock, par value
$0.0001 per share (the “Series B Preferred”), and [ ] shares of the Company’s Series C
Junior Participating Preferred Stock, par value $0.0001 per share (the “Series C
Preferred”) on the terms and subject to the conditions set forth in the Purchase Agreement; and
WHEREAS, it is as an inducement to the Investors to enter into the Purchase Agreement and a
condition to the closing of the transactions contemplated by the Purchase Agreement that the
Company and the Investors enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the agreements contained in this
Agreement, and intending to be legally bound by this Agreement, the Company and the Investors agree
as follows:
1. Definitions. Capitalized terms used and not otherwise defined in this Agreement
that are defined in the Purchase Agreement shall have the respective meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall have the respective
meanings set forth in this Section 1:
“Automatic Shelf Registration Statement” means an “automatic shelf registration
statement” as defined in Rule 405 under the Securities Act.
“Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday
and is not a day on which banking institutions in New York, New York or Los Angeles, California
generally are authorized or obligated by law, regulation or executive order to close.
“Company” shall have the meaning set forth in the preamble of this Agreement.
“Effectiveness Deadline” means with respect to any registration statement required to
be filed to cover the resale by the Investors of the Registrable Securities pursuant to Section 2,
(i) the date such registration statement is filed, if the Company is a WKSI as of such date and
such registration statement is an Automatic Shelf Registration Statement eligible to become
immediately effective upon filing pursuant to Rule 462, or (ii) if the Company is not a WKSI as of
the date such registration statement is filed, the 5th Business Day following the date
on which the Company is notified by the SEC that such registration statement will not be reviewed
or is not subject to further review and comments and will be declared effective upon request by the
Company.
“Electing Investors” means, with respect to a registration, each of the Investors that
has elected to register Registrable Securities directly owned by such Investor in accordance with
Section 2 or 3, as the
case may be, as communicated in writing to the Company by the Investor Representative in
accordance with Section 2(a) or 3(a), as applicable.
“Filing Deadline” means with respect to any registration statement required to be
filed to cover the resale by the Investors of the Registrable Securities pursuant to Section 2, (i)
15 Business Days following the written notice of demand therefor by the Investor Representative, if
the Company is a WKSI as of the date of such demand, or (ii) if the Company is not a WKSI as of the
date of such demand, (x) 20 Business Days following the written notice of demand therefor if the
Company is then eligible to register for resale the Registrable Securities on Form S-3 or (y) if
the Company is not then eligible to use Form S-3, 45 Business Days following the written notice of
demand therefor, provided that, to the extent that the Company has not been provided the
information regarding the Electing Investors and their Registrable Securities in accordance with
Section 9(b) at least two Business Days prior to the applicable Filing Deadline, then the such
Filing Deadline shall be extended to the second Business Day following the date on which such
information is provided to the Company.
“Freely Tradable” shall mean, with respect to any security, a security that (a) is
eligible to be sold by the holder thereof without any volume or manner of sale restrictions under
the Securities Act pursuant to Rule 144 thereunder, (b) bears no legends restricting the transfer
thereof and (c) bears an unrestricted CUSIP number (to the extent such security is issued in global
form).
“Indemnified Party” shall have the meaning set forth in Section 8(c).
“Indemnifying Party” shall have the meaning set forth in Section 8(c).
“Investor Indemnitee” shall have the meaning set forth in Section 8(a).
“Investors” shall have the meaning set forth in the preamble of this Agreement.
“Other Securities” shall have the meaning set forth in Section 3(a).
“Permitted Transferees” shall have the meaning set forth in Section 11(d).
“Piggyback Notice” shall have the meaning set forth in Section 3(a).
“Piggyback Registration” shall have the meaning set forth in Section 3(a).
“prospectus” means the prospectus included in a registration statement (including a
prospectus that includes any information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under the Securities Act),
as amended or supplemented by any prospectus supplement, with respect to the terms of the offering
of any portion of the Registrable Securities covered by a registration statement, and all other
amendments and supplements to the prospectus, including post-effective amendments.
“Purchase Agreement” shall have the meaning set forth in the recitals of this
Agreement.
“Register,” “registered,” and “registration” shall refer to a
registration effected by preparing and filing a registration statement with the SEC in compliance
with the Securities Act and applicable rules and regulations thereunder, and the declaration or
ordering of effectiveness of such registration statement by the SEC.
2
“Registrable Securities” means (a) shares of Common Stock issued by the Company upon
conversion of any shares of Series C Preferred, and (b) any securities issued as (or issuable upon
the conversion or exercise of any warrant, right or other security that is issued as) a dividend,
stock split, recapitalization or other distribution with respect to, or in exchange for, or in
replacement of, the securities referenced in clause (a) above or this clause (b); provided
that the term “Registrable Securities” shall exclude in all cases any securities (i) that shall
have ceased to be outstanding, (ii) that are sold pursuant to an effective registration statement
under the Securities Act or publicly resold in compliance with Rule 144 or (iii) that are Freely
Tradable (it being understood that, for purposes of determining eligibility for resale under clause
(iii) of this proviso, no securities held by any Investor shall be considered Freely Tradable to
the extent such Investor reasonably determines that it is an “affiliate” (as defined under Rule 144
under the Securities Act) of the Company). Solely for purposes of determining at any time whether
any Registrable Securities are then outstanding, transferred or Freely Tradable, the Series C
Preferred shall be treated, on an as-converted basis, as Registrable Securities.
“Registration Expenses” shall mean, with respect to any registration, (a) all expenses
incurred by the Company in effecting any registration pursuant to this Agreement, including all
registration and filing fees, printing expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses, (b) one-half of all reasonable fees and expenses related to any
registration of Registrable Securities by the Electing Investors (including the fees and
disbursements of one legal counsel (and only one legal counsel) to the Electing Investors) and (c)
all expenses of the Company’s independent accountants in connection with any regular or special
reviews or audits incident to or required by any such registration; provided that
Registration Expenses shall not include any Selling Expenses.
“registration statement” means any registration statement that is required to register
the resale of the Registrable Securities under this Agreement, and including the related prospectus
and any pre- and post-effective amendments and supplements to each such registration statement or
prospectus.
“Selling Expenses” shall mean all underwriting discounts, selling commissions and
stock transfer taxes, if any, applicable to the sale of Registrable Securities and all fees and
expenses related of the Electing Investors (other than such fees and expenses included in
Registration Expenses).
“Suspension Period” shall have the meaning set forth in Section 2(d).
“WKSI” shall mean a “well known seasoned issuer” as defined in Rule 405 under the
Securities Act.
2. Demand Registration.
(a) Subject to the terms and conditions of this Agreement, including Section 2(c), if at any
time following [ , 2010], the Company receives a written request from the Investor Representative
on behalf of any Electing Investors that the Company register under the Securities Act Registrable
Securities representing at least [ ] shares of Common Stock, then the Company shall file, as
promptly as reasonably practicable but no later than the applicable Filing Deadline, a registration
statement under the Securities Act covering all Registrable Securities that the Investor
Representative, on behalf of the Electing Investors, requests to be registered. The registration
statement shall be on Form S-3 (except if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3, in which case such registration shall be on another
appropriate form for such purpose) and, if the Company is a WKSI as of the Filing Deadline, shall
be an Automatic Shelf Registration Statement. The Company shall use its commercially reasonable
efforts to cause the registration statement to be declared effective or otherwise to become
effective under the Securities Act as soon as reasonably practicable but, in any event, no later
than the Effectiveness Deadline, and shall use its commercially reasonable efforts to
3
keep the registration statement continuously effective under the Securities Act until the
earlier of (1) the date on which the Investor Representative notifies the Company in writing that
the Registrable Securities included in such registration statement have been sold or the offering
therefor has been terminated or (2) (x) 15 Business Days following the date on which such
registration statement was declared effective by the SEC, if the Company is a WKSI and filed an
Automatic Shelf Registration Statement in satisfaction of such demand, (y) 30 Business Days
following the date on which such registration statement was declared effective by the SEC, if the
Company is not a WKSI and registered for resale the Registrable Securities on Form S-3 in
satisfaction of such demand, or (z) 50 Business Days following the date on which such registration
statement was declared effective by the SEC, if the Company is neither a WKSI nor then eligible to
use Form S-3 and registered for resale the Registrable Securities on Form S-1 or other applicable
form in satisfaction of such demand; provided that each period specified in clause (2) of
this sentence shall be extended automatically by one Business Day for each Business Day that the
use of such registration statement or prospectus is suspended by the Company pursuant to Section
2(d) or pursuant to Section 5(i). Neither the Company nor any other Person (other than any
Electing Investor) shall be entitled to include Other Securities in any registration initiated by
the Investor Representative on behalf of the Electing Investors pursuant to this Section 2 without
the prior written consent of the Investor Representative (in the case of Other Securities of the
Company, such consent not to be unreasonably withheld, conditioned or delayed), and upon such
consent the Registrable Securities shall have priority for inclusion in any firm commitment
underwritten offering, ahead of all Other Securities, in any Underwriter Cutback.
(b) If the Electing Investors intend to distribute the Registrable Securities covered by the
Investor Representative’s request by means of an underwriting, (i) the Investor Representative
shall so advise the Company as a part of its request made pursuant to Section 2(a) and (ii) the
Investor Representative shall have the right to appoint the book-running, managing and other
underwriter(s) in consultation with the Company.
(c) The Company shall not be required to effect a registration pursuant to this Section 2: (i)
after the Company has effected six registrations pursuant to this Section 2, and each of such
registrations has been declared or ordered effective and kept effective by the Company as required
by Section 5(a); or (ii) more than twice during any single calendar year.
(d) Notwithstanding anything to the contrary in this Agreement, (1) upon notice to the
Investor Representative, the Company may delay the Filing Deadline and/or the Effectiveness
Deadline with respect to, or suspend the effectiveness or availability of, any registration
statement for up to 90 days in the aggregate in any 12-month period (a “Suspension Period”)
if the Board of Directors of the Company determines that there is a valid business purpose for
delay of filing or effectiveness of, or suspension of, the registration statement; provided
that any suspension of a registration statement pursuant to Section 6 shall be treated as a
Suspension Period for purposes of calculating the maximum number of days of any Suspension Period
under this Section 2(d); and (2) upon notice to the Investor Representative, the Company may delay
the Filing Deadline and/or the Effectiveness Deadline with respect to any registration statement
for a period not to exceed 30 days prior to the Company’s good faith estimate of the launch date
of, and 90 days after the closing date of, a Company initiated registered offering of equity
securities (including equity securities convertible into or exchangeable for Common Stock);
provided that (i) the Company is actively employing in good faith all commercially
reasonable efforts to launch such registered offering throughout such period, (ii) the Investors
are afforded the opportunity to include Registrable Shares in such registered offering in
accordance with Section 3 and (iii) the right to delay or suspend the effectiveness or available of
such registration statement pursuant to this clause (2) shall not be exercised by the Company more
than twice in any twelve-month period and not more than 90 days in the aggregate in any
twelve-month period. If the Company shall delay any Filing Deadline pursuant to this clause (d)
for more than 10 Business Days, the Investor Representative
4
may, on behalf of the Electing Investors, withdraw the demand therefor at any time after such
10 Business Days so long as such delay is then continuing by providing written notice to the
Company to such effect, and any demand so withdrawn shall not count as a demand for registration
for any purpose under this Section 2, including Section 2(c).
3. Piggyback Registration.
(a) Subject to the terms and conditions of this Agreement, if at any time following
[ , 2010], the Company files a registration statement under the Securities Act with respect to an
offering of Common Stock or other equity securities of the Company (such Common Stock and other
equity securities collectively, “Other Securities”), whether or not for sale for its own
account (other than a registration statement (i) on Form X-0, Xxxx X-0 or any successor forms, (ii)
filed solely in connection with any employee benefit or dividend reinvestment plan or (iii)
pursuant to a demand registration in accordance with Section 2), then the Company shall use
commercially reasonably efforts to give written notice of such filing to the Investor
Representative (for distribution to the Investors) at least five Business Days before the
anticipated filing date (or such later date as it becomes commercially reasonable to provide such
notice) (the “Piggyback Notice”). The Piggyback Notice and the contents thereof shall be
kept confidential by the Investor Representative, the Investors and their respective Affiliates and
representatives, and the Investor Representative and the Investors shall be responsible for
breaches of confidentiality by their respective Affiliates and representatives. The Piggyback
Notice shall offer the Investors the opportunity to include in such registration statement, subject
to the terms and conditions of this Agreement, the number of Registrable Securities as they may
reasonably request (a “Piggyback Registration”). Subject to the terms and conditions of
this Agreement, the Company shall use its commercially reasonable efforts to include in each such
Piggyback Registration all Registrable Securities with respect to which the Company has received
from the Investor Representative written requests for inclusion therein within 10 Business Days
following receipt of any Piggyback Notice by the Investor Representative, which request shall
specify the maximum number of Registrable Securities intended to be disposed of by the Electing
Investors and the intended method of distribution. For the avoidance of doubt and notwithstanding
anything in this Agreement to the contrary, the Company may not commence or permit the commencement
of any sale of Other Securities in a public offering to which this Section 3 applies unless the
Investor Representative shall have received the Piggyback Notice in respect to such public offering
not less than 10 Business Days prior to the commencement of such sale of Other Securities. The
Electing Investors, acting through the Investor Representative, shall be permitted to withdraw all
or part of the Registrable Securities from a Piggyback Registration at any time at least two
Business Days prior to the effective date of the registration statement relating to such Piggyback
Registration. No Piggyback Registration shall count towards the number of demand registrations that
the Investors are entitled to make in any period or in total pursuant to Section 2. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be required to provide notice of,
or include any Registrable Securities in, any proposed or filed registration statement with respect
to an offering of Other Securities for sale exclusively for the Company’s own account at any time
following [December [ ], 2016].
(b) If any Other Securities are to be sold in an underwritten offering, (1) the Company or
other Persons designated by the Company shall have the right to appoint the book-running, managing
and other underwriter(s) for such offering in their discretion and (2) the Electing Investors shall
be permitted to include all Registrable Securities requested to be included in such registration in
such underwritten offering on the same terms and conditions as such Other Securities proposed by
the Company or any third party to be included in such offering; provided, however,
that if such offering involves an underwritten offering and the managing underwriter(s) of such
underwritten offering advise the Company in writing that it is their good faith opinion that the
total amount of Registrable Securities requested to be so included, together with all Other
Securities that the Company and any other Persons
5
having rights to participate in such registration intend to include in such offering (an
“Underwriter Cutback”), exceeds the total number or dollar amount of such securities that
can be sold without having an adverse effect on the price, timing or distribution of the
Registrable Securities to be so included together with all Other Securities, then there shall be
included in such firm commitment underwritten offering the number or dollar amount of Registrable
Securities and such Other Securities that in the good faith opinion of such managing underwriter(s)
can be sold without so adversely affecting such offering, and such number of Registrable Securities
and Other Securities shall be allocated for inclusion as follows: (x) to the extent such public
offering is the result of a registration initiated by the Company, (i) first, all Other
Securities being sold by the Company; (ii) second, all Registrable Securities requested to
be included in such registration by the Electing Investors, pro rata, based on the number of
Registrable Securities beneficially owned by such Electing Investors; and (iii) third, all
Other Securities of any holders thereof (other than the Company and the Electing Investors)
requesting inclusion in such registration, pro rata, based on the number of Other Securities
beneficially owned by each such holder of Other Securities or (y) to the extent such public
offering is the result of a registration by any Persons (other than the Company or the Investors)
exercising a contractual right to demand registration, (i) first, all Other Securities
owned by such Persons exercising the contractual right, pro rata, based on the number of Other
Securities beneficially owned by each such holder of Other Securities; (ii) second, all
Registrable Securities requested to be included in such registration by the Electing Investors, pro
rata, based on the number of Registrable Securities beneficially owned by such Electing Investors;
and (iii) third, all Other Securities being sold by the Company; and (iv) fourth,
all Other Securities requested to be included in such registration by other holders thereof (other
than the Company and the Electing Investors), pro rata, based on the number of Other Securities
beneficially owned by each such holder of Other Securities.
4. Expenses of Registration. Except as specifically provided for in this Agreement,
all Registration Expenses incurred in connection with any registration, qualification or compliance
hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any
registration hereunder, shall be borne by the Electing Investors in proportion to the number of
Registrable Securities for which registration was requested. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to Section 2, the
request of which has been subsequently withdrawn by the Investor Representative unless (a) the
withdrawal is based upon a Material Adverse Effect or material adverse information concerning the
Company that (i) the Company had not publicly disclosed in a report filed with or furnished to the
SEC at least 48 hours prior to the request or (ii) the Company had not disclosed to any Investor
Designee in person or by telephone at the last meeting of the Board of Directors or any committee
of the Board of Directors, in each case, at which an Investor Designee is present or at any time
since the date of such meeting of the Board of Directors and which effect or information would
reasonably be expected to result in a Material Adverse Effect or constitute material adverse
information concerning the Company, (b) the withdrawal is made in accordance with the last sentence
of Section 2(d), or (c) the Investor Representative agrees on behalf of the Investors to forfeit
their right to one requested registration pursuant to Section 2.
5. Obligations of the Company. Whenever required to effect the registration of any
Registrable Securities pursuant to Section 2 or 3 of this Agreement, the Company shall, as promptly
as reasonably practicable:
(a) Prepare and file with the SEC a registration statement (including all required exhibits to
such registration statement) with respect to such Registrable Securities and use commercially
reasonable efforts to cause such registration statement to become effective, or prepare and file
with the SEC a prospectus supplement with respect to such Registrable Securities pursuant to an
effective registration statement and keep such registration statement effective or such prospectus
supplement current, in the case of a registration pursuant to Section 2, in accordance with Section
2.
6
(b) Prepare and file with the SEC such amendments and supplements to the applicable
registration statement and the prospectus or prospectus supplement used in connection with such
registration statement as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration statement.
(c) To the extent reasonably practicable, not less than five Business Days prior to the filing
of a registration statement or any related prospectus or any amendment or supplement thereto, the
Company shall furnish to the Investor Representative on behalf of the Electing Investors copies of
all such documents proposed to be filed and give reasonable consideration to the inclusion in such
documents of any comments reasonably and timely made by the Investor Representative or its legal
counsel, provided that the Company shall include in such documents any such comments that
are necessary to correct any material misstatement or omission regarding an Electing Investor.
(d) Furnish to the Investor Representative such number of copies of the applicable
registration statement and each such amendment and supplement thereto (including in each case all
exhibits but not documents incorporated by reference) and of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as
the Investor Representative may reasonably request on behalf of the Electing Investors in order to
facilitate the disposition of Registrable Securities owned by the Electing Investors. The Company
hereby consents to the use of such prospectus and each amendment or supplement thereto by each of
the Electing Investors in accordance with applicable laws and regulations in connection with the
offering and sale of the Registrable Securities covered by such prospectus and any amendment or
supplement thereto.
(e) Use its commercially reasonable efforts to register and qualify the securities covered by
such registration statement under blue sky or such other state securities laws of such U.S.
jurisdictions as shall be reasonably requested by the Investor Representative and to keep such
registration or qualification in effect for so long as such registration statement remains in
effect; provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(f) Enter customary agreements and take such other actions as are reasonably required in order
to facilitate the disposition of such Registrable Securities, including, if the method of
distribution of Registrable Securities is by means of an underwritten offering, using commercially
reasonable efforts to, (i) participate in and make documents available for the reasonable and
customary due diligence review of underwriters during normal business hours, on reasonable advance
notice and without undue burden or hardship on the Company, provided that (A) any party
receiving confidential materials shall execute a confidentiality agreement on customary terms if
reasonably requested by the Company and (B) the Company may in its reasonable discretion restrict
access to competitively sensitive or legally privileged documents or information, (ii) cause the
chief executive officer and chief financial officer available at reasonable dates and times to
participate in “road show” presentations and/or investor conference calls to market the Registrable
Securities during normal business hours, on reasonable advance notice and without undue burden or
hardship on the Company, provided that the aggregate number of days of “road show”
presentations in connection with an underwritten offering of Registrable Securities for each
registration pursuant to a demand made under Section 2 shall not exceed five Business Days and
(iii) negotiate and execute an underwriting agreement in customary form with the managing
underwriter(s) of such offering and such other documents reasonably required under the terms of
such underwriting arrangements, including using commercially reasonable efforts to procure a
customary legal opinion and auditor “comfort” letters. The Electing Investors shall also enter
into and perform their obligations under such underwriting agreement.
(g) Give notice to the Investor Representative as promptly as reasonably practicable:
7
(i) when any registration statement filed pursuant to Section 2 or in which
Registrable Securities are included pursuant to Section 3 or any amendment to such
registration statement has been filed with the SEC and when such registration
statement or any post-effective amendment to such registration statement has become
effective;
(ii) of any request by the SEC for amendments or supplements to any
registration statement (or any information incorporated by reference in, or
exhibits to, such registration statement) filed pursuant to Section 2 or in which
Registrable Securities are included pursuant to Section 3 or the prospectus
(including information incorporated by reference in such prospectus) included in
such registration statement or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of any registration statement filed pursuant to Section 2 or in which Registrable
Securities are included pursuant to Section 3 or the initiation of any proceedings
for that purpose;
(iv) of the receipt by the Company or its legal counsel of any notification
with respect to the suspension of the qualification of the Common Stock for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; and
(v) at any time when a prospectus relating to any such registration statement
is required to be delivered under the Securities Act, of the happening of any event
as a result of which such prospectus (including any material incorporated by
reference or deemed to be incorporated by reference in such prospectus), as then in
effect, includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, which event requires the
Company to make changes in such effective registration statement and prospectus in
order to make the statements therein or incorporated by reference therein not
misleading (which notice shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made).
(h) Use its commercially reasonable efforts to prevent the issuance or obtain the withdrawal
of any order suspending the effectiveness of any registration statement referred to in Section
5(g)(iii) at the earliest practicable time.
(i) Upon the occurrence of any event contemplated by Section 5(g)(v), reasonably promptly
prepare a post-effective amendment to such registration statement or a supplement to the related
prospectus or file any other required document so that, as thereafter delivered to the Investor
Representative, the prospectus will not contain (or incorporate by reference) an untrue statement
of a material fact or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. If the Company notifies the
Investor Representative in accordance with Section 5(g)(v) to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the Electing Investors shall
suspend use of such prospectus and use their commercially reasonable efforts to return to the
Company all copies of such prospectus (at the Company’s expense) other than permanent file copies
then in the Electing Investors’ possession, and the period of effectiveness of such registration
statement provided for in Section 5(a) above shall be extended by the number of days from and
including the date of the giving of such notice to the date the Investor Representative shall have
received such amended or supplemented prospectus pursuant to this Section 5(i).
8
(j) Use commercially reasonable efforts to procure the cooperation of the Company’s transfer
agent in settling any offering or sale of Registrable Securities, including with respect to the
transfer of physical stock certificates into book-entry form in accordance with any procedures
reasonably requested by the Investor Representative or the managing underwriter(s). In connection
therewith, if reasonably required by the Company’s transfer agent, the Company shall promptly after
the effectiveness of the registration statement cause an opinion of counsel as to the effectiveness
of the registration statement to be delivered to and maintained with its transfer agent, together
with any other authorizations, certificates and directions required by the transfer agent which
authorize and direct the transfer agent to issue such Registrable Securities without legend upon
sale by the holder of such shares of Registrable Securities under the registration statement.
6. Suspension of Sales. Upon receipt of written notice from the Company pursuant to
Section 5(g)(v), the Electing Investors shall immediately discontinue disposition of Registrable
Securities until the Investor Representative (i) has received copies of a supplemented or amended
prospectus or prospectus supplement pursuant to Section 5(i) or (ii) is advised in writing by the
Company that the use of the prospectus and, if applicable, prospectus supplement may be resumed,
and, if so directed by the Company, the Electing Investors shall deliver to the Company (at the
Company’s expense) all copies, other than permanent file copies then in the Electing Investors’
possession, of the prospectus and, if applicable, prospectus supplement covering such Registrable
Securities current at the time of receipt of such notice.
7. Free Writing Prospectuses. The Electing Investors shall not use any free writing
prospectus (as defined in Rule 405 under the Securities Act) in connection with the sale of
Registrable Securities without the prior written consent of the Company given to the Investor
Representative; provided that the Electing Investors may use any free writing prospectus
prepared and distributed by the Company.
8. Indemnification.
(a) Notwithstanding any termination of this Agreement, the Company shall indemnify and hold
harmless the Investor Representative, each of the Electing Investors and each of their respective
officers, directors, employees, agents, partners, members, stockholders, representatives and
Affiliates, and each person or entity, if any, that controls the Investor Representative or the
Electing Investors within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and the officers, directors, employees, agents and employees of each such controlling
Person (each, an “Investor Indemnitee”), against any and all losses, claims, damages,
actions, liabilities, costs and expenses (including reasonable fees, expenses and disbursements of
attorneys and other professionals), joint or several, arising out of or based upon any untrue or
alleged untrue statement of material fact contained or incorporated by reference in any
registration statement, including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto or contained in any “issuer free writing prospectus” (as
such term is defined in Rule 433 under the Securities Act) prepared by the Company or authorized by
it in writing for use by the Investors or any amendment or supplement thereto; or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading; provided that the Company shall not be liable to such Investor Indemnitee in
any such case to the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration statement, including any
such preliminary prospectus or final prospectus contained therein or any such amendments or
supplements thereto or contained in any “issuer free writing prospectus” (as such term is defined
in Rule 433 under the Securities Act) prepared by the Company or authorized by it in writing for
use by the Investors or any amendment or supplement thereto, in reliance upon and in conformity
with information regarding such Investor Indemnitee or its plan of
9
distribution or ownership interests which such Investor Indemnitee furnished in writing to the
Company for use in connection with such registration statement, including any such preliminary
prospectus or final prospectus contained therein or any such amendments or supplements thereto,
(ii) offers or sales effected by or on behalf such Investor Indemnitee “by means of” (as defined in
Securities Act Rule 159A) a “free writing prospectus” (as defined in Securities Act Rule 405) that
was not authorized in writing by the Company, or (iii) the failure to deliver or make available to
a purchaser of Registrable Securities a copy of any preliminary prospectus, pricing information or
final prospectus contained in the applicable registration statement or any amendments or
supplements thereto (to the extent the same is required by applicable law to be delivered or made
available to such purchaser at the time of sale of contract); provided that the Company
shall have delivered to the Investor Representative such preliminary prospectus or final prospectus
contained in the applicable registration statement and any amendments or supplements thereto
pursuant to 5(d) no later than the time of contract of sale in accordance with Rule 159 under the
Securities Act.
(b) Each Electing Investor shall severally, and not jointly, indemnify and hold harmless the
Company and its officers, directors, employees, agents, representatives and Affiliates against any
and all losses, claims, damages, actions, liabilities, costs and expenses (including reasonable
fees, expenses and disbursements of attorneys and other professionals) arising out of or based upon
any untrue or alleged untrue statement of material fact contained in any registration statement,
including any preliminary prospectus or final prospectus contained therein or any amendments or
supplements thereto or contained in any “issuer free writing prospectus” (as such term is defined
in Rule 433 under the Securities Act), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding such Electing Investor
furnished in writing to the Company by the Investor Representative on behalf of such Electing
Investor expressly for use therein. In no event shall the liability of any Electing Investor
hereunder be greater in amount than the dollar amount of the net proceeds received by such Electing
Investor upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) If any proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall assume the defense in such proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in
connection with such defense; provided that any such notice or other communication pursuant
to this Section 8 between the Company and an Indemnifying Party or an Indemnified Party, as the
case may be, shall be delivered to or by, as the case may be, the Investor Representative;
provided, further, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Section
8, except (and only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified
Party shall have the right to employ separate counsel in any such proceeding and to participate in
the defense of such proceeding, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to
pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party
in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that representation of both such Indemnified Party and the
Indemnifying Party by the same counsel would be inappropriate because of an actual conflict of
interest between the Indemnifying Party and such
10
Indemnified Party (in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be
at the expense of the Indemnifying Party); provided that the Indemnifying Party shall not
be liable for the fees and expenses of more than one separate firm of attorneys at any time for all
Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such
proceeding effected without its written consent, which consent shall not be unreasonably withheld,
conditioned or delayed. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed),
effect any settlement of any pending proceeding in respect of which any Indemnified Party is a
party, unless such settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such proceeding. All fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, promptly upon receipt of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder, provided that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such Indemnified Party is not
entitled to indemnification under this Section 8).
(d) If the indemnification provided for in Section 8(a) or 8(b) is unavailable to an
Indemnified Party with respect to any losses, claims, damages, actions, liabilities, costs or
expenses referred to in Section 8(a) or 8(b), as the case may be, or is insufficient to hold the
Indemnified Party harmless as contemplated therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, actions, liabilities, costs or
expenses in such proportion as is appropriate to reflect the relative fault of the Indemnified
Party, on the one hand, and the Indemnifying Party, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs
or expenses as well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party, on the one hand, and of the Indemnified Party, on the other hand, shall be
determined by reference to, among other factors, whether the untrue or alleged untrue statement of
a material fact or omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission. The Company, the
Investor Representative and the Investors agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations referred to in this
Section 8(d). Notwithstanding the foregoing, in no event shall the liability of any Electing
Investor hereunder be greater in amount than the dollar amount of the net proceeds received by such
Electing Investor upon the sale of the Registrable Securities giving rise to such contribution
obligation. No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from an Indemnifying Party
not guilty of such fraudulent misrepresentation.
9. “Market Stand-Off” Agreement; Agreement to Furnish Information.
(a) The Investors agree that they will not sell, transfer, make any short sale of, grant any
option for the purchase of, or enter into any new hedging or similar transaction with the same
economic effect as a sale with respect to, any Common Stock (or other securities of the Company)
held by the Investors (other than those included in the registration) for a period specified by the
representatives of the book-running managing underwriters of Common Stock (or other securities of
the Company convertible into Common Stock) not to exceed 10 days prior and 90 days following any
registered public sale of securities by the Company in which the Company gave the Investors an
opportunity to participate
11
in accordance with Section 3; provided that executive officers and directors of the
Company enter into similar agreements and only as long as such Persons remain subject to such
agreement (and are not fully released from such agreement) for such period. Each of the Investors
agrees to execute and deliver such other agreements as may be reasonably requested by the
representatives of the underwriters which are consistent with the foregoing or which are necessary
to give further effect thereto.
(b) In addition, if requested by the Company or the book-running managing underwriters of
Common Stock (or other securities of the Company convertible into Common Stock), the Investor
Representative shall provide on behalf of each Electing Investor such information regarding each
Electing Investor and its respective Registrable Securities as may be reasonably required by the
Company or such representative of the book-running managing underwriters in connection with the
filing of a registration statement and the completion of any public offering of the Registrable
Securities pursuant to this Agreement.
10. Rule 144 Reporting. With a view to making available to the Investors the benefits
of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities
that are Common Stock to the public without registration, the Company agrees to use its
commercially reasonable efforts to: (i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of this Agreement; (ii)
file with the SEC, in a timely manner, all reports and other documents required of the Company
under the Exchange Act; and (iii) so long as the Investors own any Registrable Securities, furnish
to the Investor Representative forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the Securities Act, and of the
Exchange Act; a copy of the most recent annual or quarterly report of the Company; and such other
reports and documents as the Investor Representative on behalf of the Investors may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to sell any such Common
Stock without registration.
11. Miscellaneous.
(a) Termination of Registration Rights. The registration rights granted under this
Agreement shall terminate on the date on which all Registrable Securities are Freely Tradable.
(b) Governing Law. This Agreement shall be governed in all respects by the laws of the
State of State of New York without regard to any choice of laws or conflict of laws provisions that
would require the application of the laws of any other jurisdiction.
(c) Jurisdiction; Enforcement. The parties agree that irreparable damage would occur
if any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that each of the parties shall be
entitled (in addition to any other remedy that may be available to it, including monetary damages)
to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement exclusively in any state or federal courts located in
the City of San Francisco and any appellate court therefrom within the State of California. In
addition, each of the parties irrevocably agrees that any legal action or proceeding with respect
to this Agreement and the rights and obligations arising hereunder, or for recognition and
enforcement of any judgment in respect of this Agreement and the rights and obligations arising
hereunder brought by the other party or its successors or assigns, shall be brought and determined
exclusively in any state or federal courts located in the City of San Francisco and any appellate
court therefrom within the State of California. The parties further agree that no party to this
Agreement shall be required to obtain, furnish or post any bond or similar instrument in connection
with or as a condition to obtaining any remedy referred to in this Section and each party waives
any objection
12
to the imposition of such relief or any right it may have to require the obtaining, furnishing
or posting of any such bond or similar instrument. Each of the parties hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect of its property, generally
and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will
not bring any action relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than the aforesaid courts. Each of the parties hereby irrevocably
waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, (a) any claim that it is not personally
subject to the jurisdiction of the above named courts for any reason other than the failure to
serve in accordance with this Section, (b) any claim that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of execution of
judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by the
applicable Law, any claim that (i) the suit, action or proceeding in such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such courts. Each party
hereby consents to service being made through the notice procedures set forth in Section 11(g) and
agrees that service of any process, summons, notice or document by registered mail (return receipt
requested and first-class postage prepaid) to the respective addresses set forth in Section 11(g)
shall be effective service of process for any suit or proceeding in connection with this Agreement
or the transactions contemplated by this Agreement. EACH OF THE PARTIES KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY WITH AND UPON THE ADVICE OF COMPETENT COUNSEL IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(d) Successors and Assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties.
(e) No Third-Party Beneficiaries. Notwithstanding anything contained in this Agreement
to the contrary, nothing in this Agreement, expressed or implied, is intended to confer, and this
Agreement shall not confer, on any Person other than the parties to this Agreement any rights,
remedies, obligations or liabilities under or by reason of this Agreement, and no other Persons
shall have any standing with respect to this Agreement or the transactions contemplated by this
Agreement; provided, however that each Indemnified Party (but only, in the case of
an Investor Indemnitee, if such Investor Indemnitee has complied with the requirements of Section
8(c), including the first proviso of Section 8(c)) shall be entitled to the rights, remedies and
obligations provided to an Indemnified Party under Section 8, and each such Indemnified Party shall
have standing as a third-party beneficiary under Section 8 to enforce such rights, remedies and
obligations.
(f) Entire Agreement. This Agreement, the Purchase Agreement and the other documents
delivered pursuant to the Purchase Agreement constitute the full and entire understanding and
agreement among the parties hereto with regard to the subjects of this Agreement and such other
agreements and documents.
(g) Notices. Except as otherwise provided in this Agreement, all notices, requests,
claims, demands, waivers and other communications required or permitted under this Agreement shall
be in writing and shall be mailed by reliable overnight delivery service or delivered by hand,
facsimile or messenger as follows:
| if to the Company: | Image Entertainment, Inc. 00000 Xxxxxxxx Xxxxxx, Xxxxx 000 Xxxxxxxxxx, Xxxxxxxxxx Attention: [Chief Financial Officer] Facsimile: [ ] |
13
| with a copy to: | ||||
| if to any of the Investors or the Investor Representative: |
JH Partners, LLC 000 Xxxxxxx Xxxxxx Xxx Xxxxxxxxx, Xxxxxxxxxx Attention: Xxxxxxx X. Xxxxxxx Facsimile: (000) 000-0000 |
|||
| with a copy to: | Xxxxxx & Xxxxxxx LLP 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000 Xxx Xxxxxxxxx, Xxxxxxxxxx Attention: Xxxxxx X. Xxxxxxx Facsimile: (000) 000-0000 |
or in any such case to such other address, facsimile number or telephone as any party hereto may,
from time to time, designate in a written notice given in a like manner. Notices shall be deemed
given when actually delivered by overnight delivery service, hand or messenger, or when received by
facsimile if promptly confirmed.
(h) Delays or Omissions. No delay or omission to exercise any right, power, or remedy
accruing to any party to this Agreement shall impair any such right, power, or remedy of such
party, nor shall it be construed to be a waiver of or acquiescence in any breach or default, or of
or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach
or default be deemed a waiver of any other breach or default. All remedies, either under this
Agreement or by law or otherwise afforded to any Investor, shall be cumulative and not alternative.
(i) Expenses. The Company and the Investors shall bear their own expenses and legal
fees incurred on their behalf with respect to this Agreement and the transactions contemplated
hereby, except as otherwise provided in Section 4.
(j) Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only if such amendment or waiver is in writing
and signed, in the case of an amendment, by the Company and the Investor Representative or, in the
case of a waiver, by the party against whom the waiver is to be effective. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of any Registrable
Securities at the time outstanding (including securities convertible into Registrable Securities),
each future holder of all such Registrable Securities, and the Company.
(k) Counterparts. This Agreement may be executed in any number of counterparts and
signatures may be delivered by facsimile or in electronic format, each of which may be executed by
less than all the parties, each of which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one instrument.
14
(l) Severability. If any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable, or void, portions of such provision, or
such provision in its entirety, to the extent necessary, shall be severed from this Agreement and
the balance of this Agreement shall be enforceable in accordance with its terms.
(m) Titles and Subtitles; Interpretation. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in construing or interpreting
this Agreement. When a reference is made in this Agreement to a Section or Schedule, such reference
shall be to a Section or Schedule of this Agreement unless otherwise indicated. Whenever the words
“include,” “includes” or “including” are used in this Agreement, they shall be deemed to be
followed by the words “without limitation.” The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. Any agreement, instrument or statute, rule or
regulation defined or referred to in this Agreement means such agreement, instrument or statute,
rule or regulation as from time to time amended, modified or supplemented, including (in the case
of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes. Any reference to any section under the Securities Act or Exchange
Act, or any rule promulgated thereunder, shall include any publicly available interpretive
releases, policy statements, staff accounting bulletins, staff accounting manuals, staff legal
bulletins, staff “no-action,” interpretive and exemptive letters, and staff compliance and
disclosure interpretations (including “telephone interpretations”) of such section or rule by the
SEC. Each of the parties has participated in the drafting and negotiation of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if
it is drafted by each of the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.
| IMAGE ENTERTAINMENT, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JH PARTNERS, LLC, as the Investor Representative |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JH INVESTMENT PARTNERS EVERGREEN FUND, L.P. |
||||
| By: | JH Investment Management III, LLC | |||
| Its: General Partner | ||||
| By: | ||||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
| JH INVESTMENT PARTNERS III, L.P. |
||||
| By: | JH Investment Management III, LLC | |||
| Its: General Partner | ||||
| By: | ||||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
| JH INVESTMENT PARTNERS GP FUND III, LLC |
||||
| By: | JH Investment Management III, LLC | |||
| Its: Manager | ||||
| By: | ||||
| Name: | Xxxx X. Xxxxxx | |||
| Its: Managing Member | ||||
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
Schedule 1
Investors
JH Investment Partners Evergreen Fund, L.P.
JH Investment Partners III, L.P.
JH Investment Partners GP Fund III, LLC
EXHIBIT C
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
IMAGE ENTERTAINMENT, INC.
TO THE
CERTIFICATE OF INCORPORATION
OF
IMAGE ENTERTAINMENT, INC.
Image Entertainment, Inc., a corporation organized and existing under the General Corporation
Law of the State of Delaware (the “Company”) does hereby certify:
1. The name of the corporation is Image Entertainment, Inc. A Corrected Certificate of
Incorporation of the Company was filed with the Secretary of State of the State of Delaware on May
15, 2006 (the “Corrected Certificate of Incorporation”).
2. This Certificate of Amendment to the Certificate of Incorporation of the Company has been
duly adopted in accordance with the provisions of Section 242 of the DGCL by the directors and
stockholders of the Company.
3. Section 4(a) of the Corrected Certificate of Incorporation is hereby amended to read in its
entirety as follows:
“4. Capital Stock
(a) Authorized Capital Stock. The total number of shares of capital stock that
the Corporation is authorized to issue is Sixty Million (50,000,000) shares, consisting of
Fifty Million (50,000,000) shares of common stock, $0.0001 par value per share (“Common
Stock”), and Ten Million (10,000,000) shares of preferred stock, $0.0001 par value per
share (“Preferred Stock”).
The shares of Common Stock, par value $0.0001 per share, which are outstanding
immediately before this Certificate of Amendment is filed with the Secretary of State of
Delaware will be combined so that, when this Certificate of Amendment is filed with the
Secretary of State of Delaware, each twenty (20) shares of Common Stock, par value $0.0001
per share, will become one share of Common Stock, par value $0.0001 per share, with any
holder who would be entitled to a fraction of a share as a result of the combination
receiving, in lieu of that fraction of a share, cash in an amount determined by the Board
of Directors.”
4. Section 5(b) of the Corrected Certificate of Incorporation is hereby amended to read in its
entirety as follows:
“(b) Term of Office. At each annual meeting of stockholders, directors shall
be elected by plurality vote for a term expiring at the next annual meeting of stockholders
and until his or her successor shall be elected and qualified or until such director’s
earlier death, resignation, retirement or removal from office.”
5. Section 6 of the Corrected Certificate of Incorporation is hereby amended to read in its
entirety as follows:
“6. Intentionally Omitted.”
IN WITNESS WHEREOF, Image Entertainment, Inc. has caused this certificate to be executed by
the [_____] of the Company this
_____
day of , 20
_____.
| IMAGE ENTERTAINMENT, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Its: | ||||||
EXHIBIT D
CERTIFICATE OF DESIGNATIONS OF
SERIES B CUMULATIVE PREFERRED STOCK,
PAR VALUE $0.0001 PER SHARE,
OF
IMAGE ENTERTAINMENT, INC.
SERIES B CUMULATIVE PREFERRED STOCK,
PAR VALUE $0.0001 PER SHARE,
OF
IMAGE ENTERTAINMENT, INC.
Pursuant to Sections 151 and 103 of the
General Corporation Law of the State of Delaware
General Corporation Law of the State of Delaware
IMAGE ENTERTAINMENT, INC., a corporation organized and existing under the laws of the State of
Delaware (the “Corporation”), certifies that pursuant to the authority contained in its
Certificate of Incorporation, as amended from time to time (the “Certificate of
Incorporation”), and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the Corporation has duly
approved and adopted the following resolution on , 2009, and the resolution was adopted by
all necessary action on the part of the Corporation:
RESOLVED, that pursuant to the authority vested in the Board of Directors by the Certificate
of Incorporation and Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors does hereby designate, create, authorize and provide for the issue of a series of
30,000 shares of Preferred Stock, par value $0.0001 per share, having the voting powers and such
designations, preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions that are set forth in this resolution of the Board of
Directors pursuant to authority expressly vested in it by the provisions of the Certificate of
Incorporation and hereby constituting an amendment to the Certificate of Incorporation as follows:
Section 1. Designation. The designation of the series of preferred stock of the Corporation
is “Series B Cumulative Preferred Stock,” par value $0.0001 per share (the “Series B Preferred
Stock”). Each share of the Series B Preferred Stock shall be identical in all respects to every
other share of the Series B Preferred Stock. The Series B Preferred Stock shall be perpetual.
Section 2. Number of Shares. The authorized number of shares of Series B Preferred Stock is
30,000. Shares of Series B Preferred Stock that are redeemed, purchased or otherwise acquired by
the Corporation, shall revert to authorized but unissued shares of Preferred Stock
(provided that any such cancelled shares of Series B Preferred Stock may be reissued only
as shares of any series other than Series B Preferred Stock).
Section 3. Defined Terms and Rules of Construction.
(a) Definitions. As used herein with respect to the Series B Preferred Stock:
“Affiliate” of any Person shall mean any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such Person. For
purposes of this definition, “control” when used with respect to any Person has the meaning specified in Rule
12b-2 under the Exchange Act; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.
“Board of Directors” shall mean the board of directors of the Corporation.
“Business Day” shall mean a day that is a Monday, Tuesday, Wednesday, Thursday or
Friday and is not a day on which banking institutions in New York, New York or Los Angeles,
California generally are authorized or obligated by law, regulation or executive order to close.
“Bylaws” shall mean the Bylaws of the Corporation in effect on the date hereof, as
they may be amended from time to time.
“Capital Stock” shall mean any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in (in each case however
designated) stock issued by the Corporation.
“Certificate of Designations” shall mean this Certificate of Designations relating to
the Series B Preferred Stock, as it may be amended from time to time.
“Certificate of Incorporation” shall mean the Certificate of Incorporation of the
Corporation, as amended or corrected from time to time, including by this Certificate of
Designations.
“Common Stock” shall mean the common stock, par value $0.0001 per share, of the
Corporation.
“Corporation” shall mean Image Entertainment, Inc., a corporation organized and
existing under the laws of the State of Delaware, and any successor thereof.
“Fiscal Quarter” shall mean any quarter of a Fiscal Year.
“Fiscal Year” shall mean the fiscal year of the Corporation ending on March 31 of each
year.
“Junior Stock” shall mean the Common Stock and any other class or series of Capital
Stock that ranks junior to the Series B Preferred Stock (1) as to the payment of dividends or (2)
as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation,
or both.
“Liquidation Preference” shall initially mean for each share of Series B Preferred
Stock, the Series B Preferred Original Issue Price.
“Original Issue Date” shall mean , 2009.
“Parity Stock” shall mean any class or series of Capital Stock (other than the Series
B Preferred Stock) that ranks equally with the Series B Preferred Stock both (1) in the priority of
payment of dividends and (2) in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation (in each case, without regard to whether dividends accrue
cumulatively or non-cumulatively).
2
“Person” shall mean any individual, company, partnership, limited liability company,
joint venture, association, joint stock company, trust, unincorporated organization, government or
agency or political subdivision thereof or any other entity.
“Preferred Stock” shall mean any and all series of preferred stock of the Corporation,
including the Series B Preferred Stock.
“Reorganization Event” shall have the meaning ascribed to it in Section 7(a).
“Series B Original Issue Price” shall mean $1,000.00 per share, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar
recapitalization with respect to the Series B Preferred Stock.
“Series B Preferred Stock” shall have the meaning ascribed to it in Section 1.
“Subsidiary” shall mean any company, partnership, limited liability company, joint
venture, joint stock company, trust, unincorporated organization or other entity of which the
Corporation owns at least 50% of the Voting Stock of such entity.
“Voting Stock” shall mean Capital Stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances (determined without
regard to any classification of directors) to elect one or more members of the board of directors
(without regard to whether or not, at the relevant time, Capital Stock of any other class or
classes (other than Common Stock) shall have or might have voting power by reason of the happening
of any contingency).
(b) Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning
assigned to it herein; (ii) an accounting term not otherwise defined herein has the meaning
accorded to it in accordance with generally accepted accounting principles in effect from time to
time in the United States, applied on a consistent basis; (iii) words in the singular include the
plural, and in the plural include the singular; (iv) “or” is not exclusive; (v) “will” shall be
interpreted to express a command; (vi) “including” means including without limitation; (vii)
provisions apply to successive events and transactions; (viii) references to any Section or clause
refer to the corresponding Section or clause, respectively, of this Certificate of Designations;
(ix) any reference to a day or number of days, unless expressly referred to as a Business Day,
shall mean the respective calendar day or number of calendar days; and (x) headings are for
convenience only.
3
Section 4. Dividends.
(a) Dividends on Series B Preferred Stock. The holders of the Series B Preferred Stock shall
be entitled to receive, on a pari passu basis out of funds legally available therefor, prior to the
payment of any other dividends to any class or series of Capital Stock of the Corporation,
cumulative, compounding dividends at an annual rate equal to 12.0% of the Liquidation Preference
(the “Dividend Rate”). Such dividends shall accrue, whether or not
declared, and shall be cumulative; provided that such dividends shall be payable only
when, as and if declared by the Board of Directors. Such dividends on each share of Series B
Preferred Stock shall accrue automatically on a daily basis during each fiscal period of the
Corporation commencing as of the date on which such share of Series B Preferred Stock was issued
without any action on the part of the Board of Directors and shall be paid in cash. Dividends
accrued on each share of Series B Preferred Stock will be compounded quarterly on the last day of
each Fiscal Quarter of the Corporation with the effect that an additional dividend shall accrue on
such shares at the Dividend Rate on the amount so compounded until such amount is actually paid.
If not declared and paid earlier, such dividends shall be paid upon liquidation as set forth in
Section 5(a). So long as any shares of Series B Preferred Stock shall be outstanding, no dividend,
whether in cash or property, shall be paid or declared, nor shall any other distribution be made,
on any other shares of Preferred Stock or Common Stock, nor shall any shares of Preferred Stock or
Common Stock be purchased, redeemed or otherwise acquired for value by the Corporation (except for
acquisitions of Preferred Stock or Common Stock by the Corporation pursuant to agreements which
permit the Corporation to repurchase such shares upon termination of services to the Corporation or
in exercise of the Corporation’s right of first refusal upon a proposed transfer) until all
dividends set forth in this Section 4(a) on the Series B Preferred Stock shall have been paid or
declared and set apart for payment.
(b) Priority of Dividends. Subject to Sections 4(a), 4(b) and 6, such dividends (payable in
cash, securities or other property) as may be determined by the Board of Directors or an authorized
committee thereof may be declared and paid on any Capital Stock, including Common Stock and other
Junior Stock, from time to time out of any funds legally available for such payment.
Section 5. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of the
Series B Preferred Stock shall be entitled to receive for each share of Series B Preferred Stock,
out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for
distribution to stockholders of the Corporation, and after satisfaction of all liabilities and
obligations to creditors of the Corporation, on par with each share of Parity Stock but before any
distribution of such assets or proceeds is made to or set aside for the holders of Junior Stock, an
amount equal to the sum of (a) the Liquidation Preference per share of the Series B Preferred Stock
plus (b) the amount per share equal to all accrued but unpaid dividends thereon. To the extent
such amount is paid in full to all holders of Series B Preferred Stock and all the holders of
Parity Stock, the holders of Junior Stock of the Corporation shall be entitled to receive all
remaining assets of the Corporation (or proceeds thereof) according to their respective rights and
preferences.
(b) Partial Payment. If in connection with any distribution described in Section 5(a) above
the assets of the Corporation or proceeds thereof are not sufficient to pay all amounts due in full
to all holders of Series B Preferred Stock and all holders of Parity Stock, the amounts paid to the
holders of Series B Preferred Stock and to the holders of all such other Parity Stock shall be paid
pro rata in accordance with the respective aggregate amounts due to the holders of Series B
Preferred Stock and the holders of all such other Parity Stock.
4
(c) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5,
the merger or consolidation of the Corporation with any other corporation or other entity,
including a merger or consolidation in which the holders of Series B Preferred Stock receive cash,
securities or other property for their shares, or the sale, lease or exchange (for cash, securities
or other property) of all or substantially all of the assets of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Corporation, but instead shall
be subject to the provisions of Section 7.
Section 6. Voting Rights.
(a) General. Except as required by law or as set forth herein, the holders of shares of
Series B Preferred Stock shall not have voting rights.
(b) Class Voting Rights as to Particular Matters. For so long as any shares of Series B
Preferred Stock remain outstanding, in addition to any other vote or consent of stockholders
required by law or by the Certificate of Incorporation, the affirmative vote or consent of the
holders of at least a majority of the shares of Series B Preferred Stock then outstanding and
entitled to vote thereon, given in person or by proxy, either in writing without a meeting or by
vote at any meeting called for the purpose, shall be necessary for effecting any of the actions
described in clauses (1) through (3) below:
(1) Dividends, Repurchase and Redemption.
(A) The declaration or payment of any dividend or distribution on Common Stock, other Junior
Stock or Parity Stock (other than a dividend payable solely in Junior Stock) if, at the time of
such declaration, payment or distribution, dividends on the Series B Preferred Stock have not been
paid in full in cash; or
(B) The purchase, redemption or other acquisition for consideration by the Corporation,
directly or indirectly, of any Common Stock, other Junior Stock or Parity Stock (except as
necessary to effect (1) a reclassification of Junior Stock for or into other Junior Stock, (2) a
reclassification of Parity Stock for or into other Parity Stock with the same or lesser aggregate
Liquidation Preference, (3) a reclassification of Parity Stock into Junior Stock, (4) the exchange
or conversion of one share of Junior Stock for or into another share of Junior Stock, (5) the
exchange or conversion of one share of Parity Stock for or into another share of Parity Stock with
the same or lesser per share liquidation amount or (6) the exchange or conversion of one share of
Parity Stock into Junior Stock), in each case if, at the time of such purchase, redemption or other
acquisition, dividends on the Series B Preferred Stock have not been paid in full in cash;
(2) Amendment of Series B Preferred Stock. Any amendment, alteration or repeal of any
provision of the Certificate of Incorporation or Certificate of Designations so as to adversely
affect the relative rights, preferences, privileges or voting powers of the Series B Preferred
Stock; or
(3) Authorizations, Issuances and Reclassifications. The authorization of, issuance of, or
reclassification into, Parity Stock (including additional shares of the Series B Preferred Stock)
or Capital Stock that would rank senior to the Series B Preferred Stock.
5
Section 7. Reorganization Events.
(a) In the event of:
(i) any consolidation or merger of the Corporation with or into another Person or of
another Person with or into the Corporation;
(ii) any sale, transfer, lease or conveyance to another Person of the property of the
Corporation as an entirety or substantially as an entirety; or
(iii) any statutory share exchange of the Corporation with another Person (other than
in connection with a merger or acquisition),
in each case in which holders of Common Stock would be entitled to receive cash, securities or
other property for their shares of Common Stock (any such event specified in this Section 7(a), a
“Reorganization Event”), each share of Series B Preferred Stock outstanding immediately
prior to such Reorganization Event shall, without the consent of the holder thereof, be exchanged
for an amount in cash equal to the sum of (1) the Liquidation Preference per share of the Series B
Preferred Stock plus (2) an amount per share equal to accrued but unpaid dividends on the Series B
Preferred Stock.
(b) Notwithstanding anything to the contrary, Section 7(a) shall not apply in the case of, and
a Reorganization Event shall not be deemed to be, a merger, consolidation, reorganization or
statutory share exchange (i) among the Corporation and its direct and indirect Subsidiaries or (ii)
between the Corporation and any Person for the primary purpose of changing the domicile of the
Corporation (a “Internal Reorganization Event”). Without limiting the rights or the
holders of the Series B Preferred Stock set forth in Section 6(b)(2), the Corporation shall not
effectuate an Internal Reorganization Event unless the Series B Preferred Stock shall be
outstanding as a class of preferred stock of the surviving company having the same rights, terms,
preferences, liquidation preference and accrued and unpaid dividends as the Series B Preferred
Stock in effect immediately prior to such Internal Reorganization Event, as adjusted for such
Internal Reorganization Event pursuant to this Certificate of Designations after giving effect to
any such Internal Reorganization Event. The Corporation (or any successor) shall, within 20 days
of the occurrence of any Internal Reorganization Event, provide written notice to the holders of
the Series B Preferred Stock of the occurrence of such event. Failure to deliver such notice shall
not affect the operation of this Section 7(b) or the validity of any Internal Reorganization Event.
Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation
may deem and treat the record holder of any share of the Series B Preferred Stock as the true and
lawful owner thereof for all purposes, and the Corporation shall not be affected by any notice to
the contrary.
6
Section 9. Notices. All notices or communications in respect of the Series B Preferred Stock
shall be sufficiently given if given in writing and delivered in person or by first class mail,
postage prepaid, or if given in such other manner as may be permitted in this Certificate of
Designations, in the Certificate of Incorporation or Bylaws or by applicable law or regulation.
Notwithstanding the foregoing, if the Series B Preferred Stock is issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may
be given to the holders of the Series B Preferred Stock in any manner permitted by such facility.
Section 10. Replacement Certificates. The Corporation shall replace any mutilated certificate
at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation
shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon
delivery to the Corporation of reasonably satisfactory evidence that the certificate has been
destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.
Section 11. Other Rights. The shares of Series B Preferred Stock shall not have any rights,
preferences, privileges or voting powers or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or
in the Certificate of Incorporation or as provided by applicable law and regulation.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
7
In Witness Whereof, the Corporation has caused this Certificate of Designations to be
duly executed and acknowledged by its undersigned duly authorized officer this
_____
day of ,
2009.
| IMAGE ENTERTAINMENT, INC. | ||||||
| By: | ||||||
| Its: | ||||||
8
EXHIBIT E
CERTIFICATE OF DESIGNATION
of
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
of
IMAGE ENTERTAINMENT, INC.,
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Delaware General Corporation Law)
Image Entertainment, Inc., a corporation organized and existing under the General Corporation
Law of the State of Delaware (hereinafter called the “Corporation”), hereby certifies that the
following resolution was adopted by the board of directors of the Corporation as required by
Section 151 of the General Corporation Law on
, 20 ;
RESOLVED, that pursuant to the authority granted to and vested in the board of directors of
the Corporation (hereinafter the “Board”) in accordance with the provisions of the certificate of
incorporation of the Corporation, as currently in effect, the Board hereby creates a series of
Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Series C Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be designated as
“Series C Junior Participating Preferred Stock” (the “Series C Preferred Stock”) and the number of
shares constituting the Series C Preferred Stock shall be Two Hundred Seventy Thousand shares
(270,000). Such number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of Series C Preferred Stock
to a number less than the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series C Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of Preferred Stock (or
any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to
dividends, each holder of a share of Series C Preferred Stock, in preference to the holders of
shares of common stock, par value $0.0001 per share (the “Common Stock”), of the Corporation, and
of any other junior stock, shall be entitled to receive, when declared by the Board out of
funds legally available for the purpose, dividends in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common
Stock. In the event the Corporation shall, at any time after , 20 (the “Initial Issuance Date”), declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock (and an equivalent dividend is not declared on the Series C Preferred Stock or the
Series C Preferred Stock is not similarly subdivided or combined), then in each such case the
amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the shares of Series C
Preferred Stock as provided in Section 2(a) immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in no event shall a dividend or distribution be declared by the Board on
the Common Stock for which it does not declare and pay the dividend required to be declared on the
Preferred Stock pursuant to Section 2(a).
(c) Declared but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series C Preferred Stock in an amount less than the total amount of such dividends at the time
declared and payable on such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board may fix a record date for the determination of
holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than sixty days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights The holders of shares of Series C Preferred Stock shall have
the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each share of Series C
Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote
of the stockholders of the Corporation. In the event the Corporation shall, at any time after the
Initial Issuance Date, declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock (and an equivalent dividend is not
declared on the Series C Preferred Stock or the Series C Preferred Stock is not similarly
subdivided or combined), then in each such case the number of votes per share to which holders of
shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding immediately prior to such
event.
2
(b) Except as otherwise provided herein, in the Certificate of Incorporation, in any other
Certificate of Designation creating a series of Preferred Stock or any similar stock, or by law,
the holders of shares of Series C Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred
Stock shall have no special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(a) Until all declared and unpaid dividends and distributions on shares of Series C Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series
C Preferred Stock, except dividends paid ratably on the shares of Series C Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock; provided, that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the
Series C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series C
Preferred Stock, or any shares of stock ranking on a parity with the Series C Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as determined by the
Board) to all holders of such shares upon such terms as the Board, after consideration of the
respective annual dividend rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation
could, under Section 4(a), purchase or otherwise acquire such shares at such time and in such
manner.
3
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the
certificate of incorporation, or in any other certificate of designation creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution
or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the
Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock
shall have received an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to the product of 1,000 times the aggregate amount to be distributed
per share to holders of shares of Common Stock, or (ii) to the holders of shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series
C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall, at
any time after the Initial Issuance Date declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock (and an equivalent dividend
is not declared on the Series C Preferred Stock or the Series C Preferred Stock is not similarly
subdivided or combined), then in each such case the aggregate amount to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such event under the proviso in clause
(i) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of Common Stock are
exchanged for or converted or changed into other stock or securities, cash and/or any other
property (or into the right to receive any of the foregoing), then in any such case each share of
Series C Preferred Stock shall at the same time be similarly exchanged, converted or changed into
an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is converted, changed or
exchanged. In the event the Corporation shall, at any time after the Initial Issuance Date declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock (and an equivalent dividend is not
declared on the Series C Preferred Stock or the Series C Preferred Stock is not similarly
subdivided or combined), then in each such case the amount set forth in the preceding sentence with
respect to the conversion, exchange or change of shares of Series C Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to such event.
4
Section 8.
Conversion.
(a) Subject to and upon compliance with the provisions of this Certificate of
Designation including Section 8(g) below, the holder of any Series C Preferred Stock shall have the
right, at its option, at any time after the Initial Issuance Date to convert any shares of Series C
Preferred Stock into that number of fully paid and non-assessable shares of Common Stock (as such
shares shall then be constituted) obtained by multiplying the number of shares of Series C
Preferred Stock to be converted by the Conversion Ratio (as defined below) in effect at such time,
by surrender of the certificate evidencing such shares of Series C Preferred Stock so to be
converted in the manner provided. A holder of Series C Preferred Stock is not entitled to any
rights of a holder of Common Stock until such holder has converted shares of Series C Preferred
Stock to Common Stock, and only to the extent such shares of Series C Preferred Stock are deemed to
have been converted to Common Stock under this Section 8.
(b) In order to exercise the conversion privilege with respect to any shares of Series C
Preferred Stock, the holder of shares to be converted shall surrender such shares, duly endorsed,
at an office or agency maintained by the Corporation for such purposes, and shall give written
notice of conversion in the form provided on the certificate evidencing Series C Preferred Stock
(or such other notice which is acceptable to the Corporation) to the office or agency that the
holder elects to convert shares of Series C Preferred Stock. Such notice shall also state the name
or names (with address or addresses) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 8(f). Each share of Series C Preferred Stock
surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the
same name as the registration of such Series C Preferred Stock, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Corporation duly executed by,
the holder or his duly authorized attorney. As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than that of the holder
(as if such transfer were a transfer of the Series C Preferred Stock), the Corporation shall issue
and shall deliver to such holder at the office or agency maintained by the Corporation for such
purpose, a certificate or certificates for the number of full shares of Common Stock to be issued
by the Corporation upon the conversion of shares of Series C Preferred Stock in accordance with the
provisions of this Section 8 and a check or cash in respect of any fractional interest in respect
of a share of Common Stock arising upon such conversion, as provided in Section 8(c). In case any
Series C Preferred Stock shall be surrendered for partial conversion, the Corporation shall execute
and deliver to the holder of the Series C Preferred Stock so surrendered, without charge to such
holder, a new certificate evidencing the unconverted shares of Series C Preferred Stock evidenced
by the surrendered certificate.
5
Each conversion shall be deemed to have been effected as to any such Series C Preferred Stock
on the date on which the requirements set forth above in this Section 8(b) have been satisfied as
to such Series C Preferred Stock, and the Person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder of record of the shares represented thereby; provided, however, that any such
surrender on any date when the stock transfer books of the Company shall be closed shall constitute
the Person in whose name the certificates are to be issued as the record holder thereof for all
purposes on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Ratio in effect on the date upon which such Series C
Preferred Stock shall be surrendered.
(c) No fractional shares of Common Stock or scrip representing fractional shares shall be
issued upon conversion of Series C Preferred Stock. If any fractional share of stock would be
issuable upon the conversion of any share or shares of Series C Preferred Stock, the Corporation
shall make an adjustment and payment therefor in cash at the fair market value per share. To the
extent the Common Stock is listed or quoted for trading on a recognized national trading market,
the current market price of a share of Common Stock shall be the Closing Price on the last business
day immediately preceding the day on which the Series C Preferred Stock is deemed to have been
converted.
(d) The conversion ratio applicable to the Series C Preferred Stock shall be 1,000 shares of
Common Stock for each share of Series C Preferred Stock (herein called the “Conversion Ratio”),
subject to adjustment as provided in this Section 8.
(e) The Conversion Ratio shall be adjusted from time to time by the Corporation as follows:
(1) In case the Corporation shall hereafter pay a dividend or make a distribution to all
holders of the outstanding Common Stock in shares of Common Stock, the Conversion Ratio in effect
at the opening of business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be increased by
multiplying such Conversion Ratio by a fraction, the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding at the close of business on the date fixed for such
determination and (y) the total number of shares constituting such dividend or other distribution
and the denominator of which shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination, such increase to become effective immediately
after the opening of business on the day following the date fixed for such determination. The
Corporation will not pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Corporation. If any dividend or distribution of the type described in this
Section 8(e)(1) is declared but not so paid or made, the Conversion Ratio shall again be adjusted
to the Conversion Ratio which would then be in effect if such dividend or distribution had not been
declared.
(2) In case outstanding shares of Common Stock shall be subdivided into a greater number of
shares of Common Stock, the Conversion Ratio in effect at the opening of
business on the day following the day upon which such subdivision becomes effective shall be
proportionately increased, and conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Ratio in effect at the
opening of business on the day following the day upon which such combination becomes effective
shall be proportionately decreased, such increase or reduction, as the case may be, to become
effective immediately after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
6
(3) Whenever the Conversion Ratio is adjusted as herein provided, the Corporation shall
prepare a notice of such adjustment of the Conversion Ratio setting forth the adjusted Conversion
Ratio and the date on which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Ratio to each holder of Series C Preferred Stock at his last address
appearing on the share register, within twenty (20) days after the effectiveness thereof. Failure
to deliver such notice shall not affect the legality or validity of any such adjustment.
(4) For purposes of this Section 8(e), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Corporation but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Corporation will not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Corporation.
(f) The issuance of stock certificates on conversions of shares of Series C Preferred Stock
shall be made without charge to the converting holder for any tax in respect of the issue thereof.
The Corporation shall not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of stock in any name other than that of the
holder of any share of Series C Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any such stock certificate unless and until the Person or Persons
requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall
have established to the satisfaction of the Corporation that such tax has been paid.
(g) The Corporation shall provide, free from preemptive rights, out of its authorized but
unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the
conversion of the shares of Series C Preferred Stock from time to time as such are presented for
conversion. The Company covenants that all shares of Common Stock which may be issued upon
conversion of Series C Preferred Stock will upon issuance be fully paid and non-assessable by the
Company and free from all taxes, liens and charges with respect to the issuance thereof, other than
those created by or imposed upon the holders through no action of the Company. If at any time a
holder of shares of Series C Preferred Stock seeks to convert shares of Series C Preferred Stock
pursuant to Section 8(b), and the Company does not have sufficient authorized but unissued shares
of Common Stock available to effect such conversion, the Company shall promptly (i) take all action
within its control to cause a sufficient number of additional shares to be authorized and (ii)
issue to the holder (or holders, if more than one holder seeks to convert shares of Series C
Preferred Stock pursuant to Section 8(b) on the same date, pro-rata based on the ratio that the
number of shares of Series C Preferred Stock then held by each such holder bears to the aggregate
number of such shares held by such holders) all of the shares of Common Stock that are available to
effect such conversion. The number of shares of Series C Preferred
Stock sought to be converted which exceeds the amount which is then convertible into available
shares of Common Stock (the “Excess Amount”) shall not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder’s option at any time after) the date
additional shares of Common Stock are authorized by the Company to permit such conversion.
7
(h) If any shares of Series C Preferred Stock remain outstanding on the Mandatory Conversion
Date (as defined below), then all such shares of Series C Preferred Stock will be automatically
converted as of such date in accordance with this Section 8 as if the holders of such shares of
Series C Preferred Stock had exercised a privilege to convert such shares and voluntarily
surrendered such shares for conversion on the date immediately preceding the Mandatory Conversion
Date, and the conversion date had been fixed as of the Mandatory Conversion Date. All holders of
Series C Preferred Stock shall thereupon and within ten (10) business days after receipt of notice
of the occurrence of the Mandatory Conversion Date surrender all certificates for Series C
Preferred Stock, duly endorsed for cancellation, to the Corporation. No Person shall thereafter
have any rights in respect of Series C Preferred Stock, except the right to receive shares of
Common Stock on conversion thereof. “Mandatory Conversion Date” means the first date on which the
Corporation has sufficient authorized but unissued shares of Common Stock, together with shares of
Common Stock held in treasury, to provide for conversion in full of the Series C Preferred Stock,
after taking into account shares reserved for issuance upon exercise of outstanding rights,
warrants and options and upon conversion of outstanding convertible securities.
Section 9. No Redemption. The shares of Series C Preferred Stock shall not be
redeemable.
Section 10. Rank. The Series C Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any other class of the
Corporation’s Preferred Stock.
Section 11. Amendment. The certificate of incorporation of the Corporation shall not
be amended, including any amendment through consolidation, merger, combination or other
transaction, in any manner which would materially alter or change the powers, preferences or
special rights of the Series C Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least a majority of the outstanding shares of Series C
Preferred Stock, voting together as a single class.
Section 12. Definitions. As used herein, the terms below shall have the following
meanings:
(a) “Closing Price” with respect to any securities on any day shall mean the closing sale
price regular way on such day or, in case no such sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in each case on the Nasdaq Global Select
Market, Nasdaq Global Market, Nasdaq Capital Market (collectively, “Nasdaq”), or, if such security
is not listed or admitted to trading on Nasdaq, on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of such security on the over-the-counter
market on the day in question as reported by Pink Quote (operated by Pink OTC Markets) or the OTC
Bulletin Board or a similar generally accepted national reporting service.
8
(b) “fair market value” shall mean the amount which a willing buyer would pay a willing seller
in an arm’s length transaction.
(c) “Person” means any person or entity, whether an individual, trustee, corporation, limited
liability company, general partnership, limited partnership, trust, unincorporated organization,
business association, firm, joint venture, governmental agency or authority.
(d) “record date” shall mean, with respect to any dividend, distribution or other transaction
or event in which the holders of Common Stock have the right to receive any cash, securities or
other property or in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other property (whether
such date is fixed by the Board of Directors or by statute, contract or otherwise).
9
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation
as of , 20 .
| IMAGE ENTERTAINMENT, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
10
EXHIBIT F
FORM OF OPINION OF XXXXXXX COIE LLP
1. The Company has been duly incorporated under the General Corporation Law of the State of
Delaware and has the corporate power and authority to (i) enter into the Documents and perform its
obligations thereunder and (ii) own its properties and to conduct its business. Based on
certificates from public officials, we confirm that the Company is validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business in California.
2. The execution, delivery of the Documents and the performance of the obligations under the
Documents have been duly authorized by all necessary corporate action of the Company, and the
Documents have been duly executed and delivered by the Company.
3. Each of the Purchase Agreement, [the Investor Rights Agreement] and the Registration Rights
Agreement constitutes a legally valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms.
4. The Preferred Shares have been duly and validly authorized, and, when issued and delivered
against payment therefor pursuant to the Agreement, will be validly issued, fully paid and
nonassessable and the issuance of such shares will not be subject to any preemptive rights. To the
extent permitted by the number of shares of authorized Common Stock, shares of Common Stock
issuable upon conversion of the Series C Preferred Shares (the “Conversion Shares”) issuable upon
conversion of the Series C Preferred Shares have been duly and validly reserved for issuance and,
upon issuance, will be duly and validly issued, fully paid and nonassessable and the issuance of
such Conversion Shares will not be subject to any preemptive rights. Following adoption and filing
of the Amendment to Certificate, the Conversion Shares issuable upon conversion of all of the
Series C Preferred Shares will be duly and validly reserved for issuance and, upon issuance, will
be duly and validly issued, fully paid and the issuance of such Conversion Shares will not be
subject to any preemptive rights.
5. The execution and delivery of the Purchase Agreement, [the Investor Rights Agreement] and
the Registration Rights Agreement by the Company, and the performance of the obligations of the
Company under the Agreement, [the Investor Rights Agreement] and the Registration Rights Agreement
on the date hereof do not:
(i) violate the provisions of the Governing Documents,
(ii) result in the breach of or a default under any of the Material Agreements listed
on Annex I hereto,
(iii) violate any federal or California statute, rule or regulation applicable to the
Company, or
(iv) require any consents, approvals, or authorizations to be obtained by the Company
from, or any registrations, declarations or filings to be made by the Company with, any
governmental authority, under any federal, Delaware corporate or California statute, rule,
regulation applicable to the Company on or prior to the date hereof that have not been
obtained or made.
6. To the best of our knowledge, there is no action, suit, proceeding or governmental
investigation pending, or threatened in writing, against the Company which questions the validity
of the Documents or the right of the Company to enter into the Documents.
7. Assuming the truthfulness of the representations of the Investors set forth in the Purchase
Agreement and of the Company’s officer set forth in a certificate of an officer of the Company
delivered to us in connection herewith, the Preferred Shares, upon issuance and delivery and
payment therefor in the manner described in the Agreement, will be issued in a transaction exempt
from the registration requirements of the Securities Act and exempt from, or not subject to, the
qualification requirements of the California Corporate Securities Law of 1968, as amended, and the
issuance of the Conversion Shares, if issued and delivered to the Investors on the date hereof in
accordance with the terms of the Governing Documents, would also be exempt from such registration
requirements and exempt from, or not subject to, such qualification requirements.
8. The Company is not, and immediately after the application of the net proceeds from the
offer and sale of the Preferred Shares will not be, required to register as an investment company
within the meaning of the Investment Company Act of 1940, as amended.
