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Image Entertainment 10-K 2008 Documents found in this filing:Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
for
the Fiscal Year Ended March 31, 2008
OR
for
the Transition Period from To
Commission File Number 000-11071
 IMAGE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
20525 Nordhoff Street, Suite 200, Chatsworth, California 91311
(Address of principal executive offices, including zip code) (818) 407-9100
(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
YES o NO þ Indicate by check mark if the registrant is not required to file report pursuant to Section 13
or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ The aggregate market value of the common stock held by non-affiliates of the registrant, based
upon the closing price of $4.29 for shares of the registrant’s common stock on September 28, 2007,
the last business day of the registrant’s most recently completed second fiscal quarter as reported
by the NASDAQ Global Market®, was approximately $52,526,121. In calculating such aggregate market
value, shares of common stock owned of record or beneficially by officers, directors and persons
known to the registrant to own more than five percent of the registrant’s voting securities (other
than such persons of whom the registrant became aware only through the filing of a Schedule 13G
filed with the Securities and Exchange Commission) were excluded because such persons may be deemed
to be affiliates. The registrant disclaims the existence of control or any admission thereof for
any other purpose.
The number of shares outstanding of the registrant’s common stock as of July 11, 2008:
21,855,718
DOCUMENTS INCORPORATED BY REFERENCE
None.
IMAGE ENTERTAINMENT, INC.
Annual Report on Form 10-K/A (Amendment No. 1) For The Fiscal Year Ended March 31, 2008 TABLE OF CONTENTS
Explanatory Note
The purpose of this Form 10-K/A is to amend Part III, Items 10 through 14, of the Annual
Report on Form 10-K for the fiscal year ended March 31, 2008 of Image Entertainment, Inc. (“we,”
“us,” “our,” “the Company,” or “Image”), which was filed with the Securities and Exchange
Commission (“SEC”) on June 30, 2008 (the “2008 Form 10-K”). Form 10-K General Instruction G(3)
requires the information contained herein be included in the Form 10-K filing or incorporated by
reference from our definitive Proxy Statement if such statement is filed no later than 120 days
after our last fiscal year end. We do not expect to file a definitive Proxy Statement containing
the above referenced items within such 120-day period and therefore the Part III information is
filed hereby as an amendment to our 2008 Form 10-K.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The following persons are members of our board of directors (“Board”). Each successor
director shall hold office for a three-year term, until a successor is duly elected and qualified
or until his earlier death, resignation or removal from office. The directors were elected into
the classes below at the 2006 Annual Meeting and served for an initial term of one year for Class I
directors, two years for Class II directors and three years for Class III directors. The Class I
directors were up for election at the 2007 Annual Meeting, Class II directors will be up for
election at the 2008 Annual Meeting and Class III directors will
be up for election at the 2009 Annual Meeting.
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Executive Officers
The following persons are our executive officers, having been elected to their respective offices
by our Board. The term of office for Messrs. Bromiley and Eiberg commenced on April 1, 2008, the
beginning of fiscal year 2009.
Executive officers serve at the pleasure of our Board. There is no family relationship
between any executive officer or director. The following is a brief description of the business
experience of each of our executive officers during the past five years:
Mr. Borshell has served as our President and principal executive officer since April 2008.
Previously he served as our Chief Operating Officer from July 2000 to March 2008 and Senior Vice
President, Sales, Marketing and Operations from December 1994 to June 2000. Prior to 1994, Mr.
Borshell held various positions with us, starting as an Account Executive in February 1986. Mr.
Borshell is a contributor to the Digital Entertainment Group, an industry trade association devoted
to fostering consumer awareness of the DVD format, as well as future digital home entertainment
formats.
Mr. Framer has served as our Chief Financial Officer since April 1993. Previously, he served
as our Controller from September 1990 to March 1993. Mr. Framer was a Senior Manager, at KPMG LLP,
from July 1989 to September 1990; and a Manager, KPMG LLP, from July 1988 to June 1989. Mr. Framer
received his B.S. in Business Administration and Accounting Theory and Practice from California
State University at Northridge in 1984. Mr. Framer is a Certified Public Accountant.
Mr. Bromiley has served as our Chief Acquisition Officer since April 2008. Previously he led
the Company’s feature film initiative as a consultant from June 2007 until he was hired by Image in
January 2008 as its Senior Vice President, Acquisitions. From November 1999 to May 2007, Mr.
Bromiley held the position of President of First Look Home Entertainment, a division of First Look
Studios. Prior to that, he spent two years as President of Maple Palm
Productions and nine years working for Roger Corman’s Concorde/New Horizon Pictures Corp.
where he oversaw all theatrical distribution and co-created the home entertainment division.
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Mr. Eiberg has served as our Executive Vice President, Operations and Chief Technology Officer
since April 2008. He is in charge of the Company’s supply chain, distribution and technology. In
April 2003, Mr. Eiberg began his employment at Image as Vice President, Information Technology and
in June 2005 he assumed the role of Senior Vice President, Operations. Prior to joining Image, Mr.
Eiberg spent 11 years at Bell Industries, a distributor, manufacturer and service provider,
managing information technology and operations as its Vice President, Technology.
Mr. Fink served as our Chief Marketing Officer from January 2007 to June 2007.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the
directors, executive officers and the beneficial holders of more than 10% of our common stock are
required to file reports of ownership and changes in ownership with the SEC. Based solely on our
records and written representations from certain of these persons, we believe that during fiscal
year 2008 all applicable Section 16(a) filing requirements were met,
with the following exception. An
affiliate of the Company, a 27.77% shareholder, Image Investors Company, disclosed on a Form 4
filed on June 23, 2008 the exercise of a warrant for common stock of the Company. The exercise
occurred on March 21, 2008, and accordingly, the Form was not timely filed.
Code of Ethics and Governance Guidelines
Our Code of Ethics Policy, which is applicable to all employees, including our principal
executive officer and principal financial officer, as well as our Insider Trading Policy, Corporate
Governance Guidelines, the written Charters for our Audit, Compensation, and Nominations and
Governance Committees, as well as periodic and current reports filed with the SEC are available on
our website, www.image-entertainment.com, and are available in print to any shareholder upon
request. Amendments and waivers, if any, will be disclosed on our website. Such information is
incorporated herein by reference.
Director Independence
The Board has determined for fiscal year 2008 that David Coriat, Ira S. Epstein, Gary Haber,
M. Trevenen Huxley and Robert J. McCloskey are “independent” as that term is used in NASDAQ
Marketplace Rule 4200(a)(15). There are no family relationships
among or between any of our directors,
executive officers or key employees.
Committees of the Board and Attendance at Meetings
Our Board meets on a regular basis during the year to review significant developments
affecting us and to act on matters requiring Board approval. It also holds special meetings when
an important matter requires Board action between scheduled meetings. Members of senior management
regularly attend Board meetings to report on and discuss their respective areas of responsibility.
Although the full Board considers our major decisions, the Board has established an Audit
Committee, a Compensation Committee, and a Nominations and Governance Committee to more fully
address certain areas of importance to Image. In September 2005, the Board also established a
Special Committee to address an unsolicited proposal from Lions Gate Entertainment and other
alternatives to maximize stockholder value. The last special committee meeting was held in
November 2006, at which time the committee deferred future decisions to the full Board and
officially disbanded the Special Committee. The Board has appointed individuals from among its
members to serve on the remaining three committees. The membership of each of these four
committees is composed entirely of independent directors.
In fiscal 2008, the Audit Committee held a total of five committee meetings, which consisted
of one special meeting and four regular meetings. Three of the meetings were attended by all of
the members and two were attended by all of the members except one, but a quorum was present. The
Compensation Committee held three special meetings attended by all of its members. The Nominations
and Governance Committee held one special meeting attended by all
of its members. The Special Committee did not hold meetings during fiscal 2008. No other
committee meetings were held. All other committee business was transacted in executive session of
meetings of the full Board.
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Audit Committee. Our Audit Committee for fiscal 2008 was comprised of Messrs. Haber,
Coriat and Epstein. Our Board has determined that Mr. Haber, the fiscal 2008 Chairman of the Audit
Committee, meets the requirements of “audit committee financial expert” as that term is defined in
Item 407(d)(5) of Regulation S-K under the Exchange Act. As provided in the Audit Committee’s
charter adopted on June 5, 2000, revised and readopted on December 18, 2003, and filed in our proxy
statement for fiscal 2004, the Audit Committee’s primary functions are to:
Compensation Committee. Our Compensation Committee for fiscal 2008 was comprised of
Messrs. Epstein and McCloskey (Chairman). The Compensation Committee’s primary functions are to
review and approve salaries, bonuses and other compensation payable to our executive officers. In
addition, the Compensation Committee administers our 2004 Incentive Compensation Plan, 1998
Incentive Plan, and employee benefit plans other than our 1994 Eligible Directors Stock Option
Plan. For more information on this matter, please refer to our “Compensation Committee Report on
Executive Compensation.”
Nominating and Governance Committee. Our Nominating and Governance Committee for
fiscal 2008 was comprised of Messrs. McCloskey and Coriat (Chairman). This committee’s primary
function is to review and recommend our potential director candidates and corporate governance
matters. Prior to formation of this committee, this function was previously assumed exclusively by
independent directors of the Board voting in executive session.
The charter of the Nominating and Governance Committee, which was filed in our proxy statement
for fiscal 2005, states that the committee will consider Board candidates recommended for
consideration by our stockholders, provided the stockholders present information regarding
candidates as required by the charter or reasonably requested by us within the timeframe proscribed
in Rule 14a-8 of Regulation 14A under the Exchange Act, and other applicable rules and regulations.
Recommendation materials are required to be sent to the committee, c/o Robert McCloskey, at our
corporate address. There are no specific minimum qualifications required to be met by a director
nominee recommended for a position on the Board, nor are there any specific qualities or skills
that are necessary for the members of our Board to possess, other than as are necessary to meet any
requirements under the rules and regulations applicable to us. The Nominating and Governance
Committee considers a potential candidate’s experience, areas of expertise, and other factors
relative to the overall composition of the Board.
The Nominating and Governance Committee considers director candidates that are suggested by
members of the Board, as well as management and stockholders. Although it has not previously done
so, the committee may also retain a third-party executive search firm to identify candidates. The
process for identifying and evaluating nominees for director, including nominees recommended by
stockholders, involves reviewing potentially eligible candidates, conducting background and
reference checks, interviewing the candidate and others (as schedules permit), meeting to consider
and approve the candidate and, as appropriate, preparing and presenting to the full Board an
analysis with regard to particular recommended candidates. The committee endeavors to identify
director nominees who have the highest personal and professional integrity, have demonstrated
exceptional ability and judgment, and, together with other director nominees and members, are
expected to serve the long-term interest of our stockholders and contribute to our overall
corporate goals.
Annual Meeting Attendance. We have adopted a policy encouraging attendance by the
Board, if practicable and time permitting, at our stockholder annual meetings, either in person, by
telephone or by other similar means of live communication including video conference or webcast.
All of our directors attended our Fiscal 2007 Annual Meeting of Stockholders held on March 28,
2008.
Executive Sessions of Non-Management Directors. Our non-management directors also
meet in executive sessions on an as needed basis.
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Communications with Directors
Stockholders may communicate with the Board or to one or more individual members of the Board
by writing Image Entertainment, Inc., 20525 Nordhoff Street, Suite 200, Chatsworth, CA 91311,
Attention: Corporate Secretary. As appropriate, communications received from stockholders are
forwarded directly to the Board, or to any individual member or members, depending on the facts and
circumstances outlined in the communication. The Board has authorized the Secretary, in his
discretion, to exclude communications that are patently unrelated to the duties and
responsibilities of the Board, such as spam, junk mail and mass mailings. In addition, material
that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the
provision that any communication that is filtered out by the Secretary pursuant to the policy will
be made available to any non-management director upon request.
AUDIT COMMITTEE REPORT (1)
Our Audit Committee is comprised of three independent directors and operates under a written
charter approved by the Board of Directors. The charter was reviewed and approved with no changes
made, at a Board meeting in March 2008. Our management is responsible for the internal accounting
controls and the financial reporting process, and the preparation of financial statements in
accordance with generally accepted accounting principles. Our independent registered public
accounting firm, BDO Seidman, LLP, is responsible for performing an independent audit of our
consolidated financial statements in accordance with auditing standards generally accepted in the
United States and performing timely reviews of the quarterly financial statements in accordance
with SAS No. 100. The Audit Committee’s primary responsibility is to monitor and oversee these
processes, and the systems of internal controls that management and the Board have established.
The Board has determined that each of the members of the audit committee is an “independent
director” as that term is defined in Rule 4200(a)(15) of the Marketplace Rules of NASDAQ.
In connection with these responsibilities, the Audit Committee has reviewed and discussed with
management and the independent registered public accounting firm the fair and complete presentation
of our annual and quarterly financial results for the fiscal year ended March 31, 2008. In
addition, the Audit Committee has discussed with the independent registered public accounting firm
the matters required by Statement of Auditing Standards No. 61, Communication with Audit
Committees.
The Audit Committee has also received the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees, and has discussed with the independent
registered public accounting firm that firm’s independence from us and our management. In
addition, the Audit Committee has considered whether non-audit services by the independent
registered public accounting firm are compatible with the independence requirements of Board
Standard No. 1. The Audit Committee has concluded that the independent registered public
accounting firm is independent from us and our management.
The Audit Committee discussed with our independent registered public accounting firm the
overall scope and plans for their audit. The Audit Committee met with the independent registered
public accounting firm, with and without management present, to discuss the results of their
examination, the evaluations of our internal controls, and the overall quality of our financial
reporting.
Based on the Audit Committee’s discussions with management and the independent registered
public accounting firm, and the Audit Committee’s review of the representations of management and
the independent registered public accounting firm, the Audit Committee recommended to the Board
that the audited consolidated financial statements be included in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2008, as filed with the Securities and Exchange Commission on
June 30, 2008. The Audit Committee and the Board also have approved and recommended the selection
of our independent registered public accounting firm for the fiscal year ending March 31, 2009.
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NOMINATIONS AND GOVERNANCE COMMITTEE REPORT
The Nominations and Governance Committee is comprised of two independent directors and
operates under a written charter approved by the Board of Directors. The charter was reviewed and
approved, with no changes made, at a Board meeting in March 2008. There are no specific minimum
qualifications required to be met by a director nominee recommended for a position on the Board,
nor are there any specific qualities or skills that are necessary for one or more of the members of
our Board to possess, other than as are necessary to meet any requirements under the rules and
regulations applicable to us. The Nominating and Governance Committee considers a potential
candidate’s experience, areas of expertise, and other factors relative to the overall composition
of the Board.
The Nominating and Governance Committee considers director candidates that are incumbents,
candidates suggested by members of the Board, as well as suggestions from management and
stockholders. Although it has not previously done so, the Committee may also retain a third-party
executive search firm to identify candidates. The Committee received an unsolicited resume for a
Board candidate and reviewed and discussed it at a meeting of the Committee. The Committee
determined to not recommend this potential candidate for election to the Board at this time. The
process for identifying and evaluating nominees for director, including nominees recommended by
stockholders, involves reviewing potentially eligible candidates, conducting background and
reference checks, interviewing the candidate and others (as schedules permit), meeting to consider
and approve the candidate and, as appropriate, preparing and presenting to the full Board an
analysis with regard to particular recommended candidates. The Committee endeavors to identify
director nominees who have the highest personal and professional integrity, have demonstrated
exceptional ability and judgment, and, together with other director nominees and members, are
expected to serve the long-term interest of our stockholders and contribute to our overall
corporate goals.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Program. The Compensation Committee is responsible for
establishing, implementing, and monitoring management’s adherence to our compensation program. The
Compensation Committee oversees the compensation that is paid to our executive officers to ensure
that their compensation is fair, reasonable and competitive. In the event of newly created
positions or specific retention concerns, industry market research for salary and benefits would be
used to ensure fair compensation consistency. In accordance with the rules of the Securities
Exchange Commission, the executive officers referenced in this report include the principal
executive officer, principal financial officer, and the three other most highly compensated
executive officers whose total compensation exceeded $100,000; however Image has only two
additional executive officers in addition to the principal executive officer and principal
financial officer (considered the “Named Executive Officers”).
Compensation Program Objectives. Our goal is to maximize stockholder value over the
long term by implementing programs designed to enable us to attract, retain and motivate the best
possible key employees to operate and manage the Company at all levels. We offer a contributory
401(k) plan and provide health, life and disability insurance to full-time employees.
The compensation packages contain the following components for each of the Named Executive
Officers:
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Base Salary. A Named Executive Officer’s base salary is determined by an assessment
of his sustained performance against individual job responsibilities, including, where appropriate,
the impact of his performance on our business results, current salary in relation to the salary
range designated for the job, experience and mastery, and potential for advancement. In general,
employment agreements with our Named Executive Officers provide that base salary will increase five
percent annually. In fiscal 2008, other than the annual five percent raise, no other increases in
base salary were made.
Bonuses. The criteria for calculating performance-based bonuses for our Named
Executive Officers are set annually by the Compensation Committee. Annual bonuses, if any, are
equal to 10% of consolidated pretax earnings adjusted to add back noncash amortization expense of
restricted stock units and warrants, thereby establishing a direct link between incentive bonuses
and our financial performance. An individual Named Executive Officer’s annual cash bonus is a
percentage of the bonus pool determined by such person’s job level. Actual cash bonuses are
determined by applying a formula based on our achievement of consolidated pretax earnings, as
adjusted, to each executive officer’s job level. Our principal executive officer has generally
received a higher percentage than the other Named Executive Officers, and the Named Executive
Officers have generally received a higher percentage of the pool than other members of management.
Specific bonus amounts proposed for each officer are prepared by our executive management team and
are presented by our principal executive officer to the Compensation Committee for their approval.
Our Named Executive Officers did not earn financial performance-based bonuses in fiscal 2008 as
described in the Summary Compensation Table.
The specific performance criteria and targets used to determine the bonuses and restricted
stock unit accelerated vesting are subject to change annually at the Compensation Committee’s
discretion to adjust for changes in our business, competitive conditions, changes in our
capitalization, performance and needs. Our Named Executive Officers are eligible for cash bonuses
as incentive short-term compensation, based on our financial performance relative to annually
determined performance targets. The cash bonus target for fiscal 2008 was based on a percentage
formula relative to 10% of consolidated pretax earnings, adjusted to add back noncash amortization
expense of restricted stock units and warrants. Bonus criteria are subject to change annually at
the discretion of the Compensation Committee. Our Named Executive Officers did not earn financial
performance-based bonuses in fiscal 2008.
Option Grants. The Compensation Committee views any option grant portion of the Named
Executive Officer compensation packages as a special form of long-term incentive compensation to be
awarded on a limited and non-regular basis. The objective of these awards is to advance the
longer-term interests of both us and our stockholders, and to complement incentives tied to annual
performance. These awards provide rewards to Named Executive Officers based upon the creation of
incremental stockholder value and the attainment of long-term financial goals. Stock options
produce value to our Named Executive Officers only if the price of our stock appreciates, thereby
directly linking the interests of our Named Executive Officers with those of our stockholders.
When granted, stock options are priced at or above the fair market value of our common stock
on the date of grant. Awards of stock options are determined based on the Compensation Committee’s
subjective determination of the amount of awards necessary, as a supplement to a Named Executive
Officer’s base salary and performance-based bonus, to retain and motivate said Named Executive
Officer. In fiscal 2008, there were no options granted to our Named Executive Officers by the
Compensation Committee.
Restricted Stock Unit Grants. The Compensation Committee has the ability to authorize
grants of restricted stock units (“RSUs”) to our Named Executive Officers. In January 2007, we
granted 10,000 RSUs to Jeffrey Fink, our then-Chief Marketing Officer, as an incentive to join us. The
RSUs were to vest over three years (3,300 shares on January 22, 2008, 3,300 shares on January 22,
2009, and 3,400 shares on January 22, 2010). However, Mr. Fink was terminated in June 2007 and as
a result the RSUs were forfeited prior to vesting.
Retirement, Perquisites and Other Benefits. Our Named Executive Officers receive
medical, dental, life and short and long-term disability insurance, 401(k) plan participation,
vacation and reimbursement for reasonable business expenses. Mr. Greenwald also receives personal
life insurance premium payments and reimbursements for medical expenses not covered by medical
insurance, an unaccountable personal expense allowance, and use of a company car. Messrs.
Borshell, Framer and Fink each received a monthly car allowance for fiscal year 2008. Messrs.
Borshell, Framer, Bromiley and Eiberg each receive a monthly car allowance for fiscal year 2009.
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Compensation of Chief Executive Officer. The compensation of our Chief Executive
Officer results from his participation in the same compensation programs as our other Named
Executive Officers. The Compensation Committee applied the principles outlined above in
establishing Mr. Greenwald’s compensation, in the same manner as they were applied to our other
Named Executive Officers.
Section 162(m) Policy. To the extent reasonably practicable and within the
Compensation Committee’s control, the Compensation Committee prefers to limit compensation in
ordinary circumstances to that which is deductible by us under Section 162(m) of the Internal
Revenue Code. During fiscal year 2008, all compensation paid to our Named Executive Officers was
within the Section 162(m) limit. Any existing grants of RSUs, however, are not considered
performance-based for these purposes and are included as compensation for these purposes only when
they vest. Accordingly, to the extent that the value of shares vesting in any future year under
RSU awards, when combined with salary, allowances and other non-exempt compensation, exceeds
$1,000,000, the excess would not be deductible. The Compensation Committee does not expect
non-exempt compensation to exceed the applicable limit for fiscal year 2009.
Compensation of Non-Employee Directors. Non-employee directors are each compensated
for meeting attendance at the rate of $2,000 for each meeting of the Board or a committee of the
Board where in-person attendance is expected, and $500 for each Board or committee meeting where
telephonic attendance is expected. In addition, non-employee directors are reimbursed for
reasonable travel expenses to attend Board or committee meetings. As of March 28, 2008, the Board
increased the fees paid to non-employee directors to $40,000 annually (paid quarterly), $2,000 for
each meeting of the Board or a committee of the Board where in-person attendance is expected, and
$1,000 for each Board or committee meeting where telephonic attendance is expected. For the
current fiscal year, we estimate we will have four in-person meetings and between ten and fifteen
telephonic meetings each year, resulting in approximately $58,000 to $63,000 in compensation per
non-employee director, including the annual fee. For fiscal 2008, we compensated our Audit
Committee Chairman $2,500 per quarter. The new annual fee has replaced this fee for the current
fiscal year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION (1)
Our Compensation Committee is composed entirely of independent directors. The Compensation
Committee reviews with the full Board all aspects of the compensation packages for each of our
executive officers. The Compensation Committee, and from time to time the full Board, approves
compensation packages and any amendments thereto. Executive officers who are also directors do not
participate in deliberations or decisions involving their own compensation. The Compensation
Committee administers our 1998 Incentive Plan, 2004 Incentive Compensation Plan and other employee
benefit plans. This report addresses the Compensation Committee’s objectives and its actions and
decisions with respect to compensation for the 2008 fiscal year. The Compensation Committee
determines the compensation of the Chief Executive Officer and other executive officers of the
Company.
The Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K, which precedes this report (see
“Compensation Discussion and Analysis” above). Based on such review and discussion, the
Compensation Committee recommended to our Board that the Compensation Discussion and Analysis
section be included in this Form 10-K/A for the fiscal year ended March 31, 2008.
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Summary Compensation Table for Fiscal Years 2007 and 2008
The following table sets forth compensation paid to our Named Executive Officers for fiscal
years 2007 and 2008, which ended on March 31, 2007 and 2008, respectively:
Fiscal year 2007 includes:
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Employment Agreements
We entered into employment agreements with each of the Named Executive Officers. Mr. Fink’s
employment was terminated in June 2007. The agreements with Messrs. Greenwald, Borshell and Framer
expired on March 31, 2008. Mr. Greenwald retired as President and Chief Executive Officer on March
31, 2008 and has remained Chairman of the Board. New letter agreements were entered into with
Messrs. Borshell, Framer, Eiberg and Bromiley as of
April 1, 2008, each for a term of one year. The
terms are summarized below.
Fiscal 2008 Agreements:
Term. Each of the agreements with Messrs. Greenwald, Borshell and Framer is for three
years, with two one-year extensions, beginning April 1, 2004. In October 2005, the Compensation
Committee and our Board voted to extend each of these agreements for one year through March 31,
2008. On April 1, 2008, the Board of Directors entered into employment letter agreements with each
of the four current executive officers, Messrs. Borshell, Framer, Bromiley and Eiberg. See “Fiscal
2009 Agreements” below. The Agreement with Mr. Fink was for slightly more than 14 months,
commencing January 22, 2007, and ending March 31, 2008, with automatic annual renewals unless
notice is given by either party by December 31 of any year, or within 60 days after the
consummation of a change of control. Mr. Fink’s employment was terminated in June 2007.
Base Salary. Base salaries for the fiscal year ended March 31, 2008, for Messrs.
Greenwald, Borshell and Framer were $613,144, $318,275 and $300,259, respectively. Mr. Greenwald
had an annual unaccountable personal expense allowance of $100,616. Base salary for Mr. Fink was
$22,917 per month, which would have increased to $27,083 per month upon the earlier of August 1,
2007, or 30 days after the consummation of a change of control.
Cash Bonus. The Named Executive Officers are eligible for cash bonuses as incentive
short-term compensation, based on our financial performance relative to annually determined
performance targets. The cash bonus target for fiscal 2008 was based on a percentage formula
relative to 10% of consolidated pretax earnings, adjusted to add back noncash amortization expense
of RSUs and warrants. Bonus criteria are subject to change annually at the discretion of the
Compensation Committee. The Named Executive Officers did not earn financial performance-based
bonuses in fiscal 2008.
Stock-Based Awards. The Named Executive Officers are eligible for stock-based grants
as the Board or Compensation Committee determines.
Severance. Severance following death, disability or expiration of the term consists
of base salary, expense allowance and insurance continuation for six months, and a pro rata portion
of any bonus payable for the longer of six months or that part of the fiscal year occurring prior
to expiration.
Termination. If employment is terminated without cause or an officer resigns for good
reason, the officer will continue to receive all compensation, rights and benefits under the
agreement through the expiration of the term, plus the severance benefits described above. If an
officer is terminated due to a change in control, such officer will receive all compensation and
benefits under the agreement for the longer of one year or the remaining term, plus the severance
benefits described above. If an officer is terminated for cause, no severance, bonus or other
compensation is due or payable. In general, all unvested options and RSUs will immediately vest if
employment is terminated without cause or the executive resigns for good reason following a change
of control.
Fringe Benefits. The Named Executive Officers receive medical, dental, life and short
and long-term disability insurance, 401(k) plan participation, vacation and reimbursement for
reasonable business expenses. Mr. Greenwald also receives personal life insurance premium payments
and reimbursements for medical expenses not covered by
medical insurance, an unaccountable personal expense allowance, and use of a company car. Messrs.
Borshell, Framer and Fink each receive a monthly car allowance.
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Change of Control Provisions. The Named Executive Officers each have change of
control provisions in their employment agreements that provide for protection in the event of an
early termination following a change of control. In any such case, they would receive all of the
compensation, rights and benefits they would normally be entitled to under their respective
agreement for the longer of the remainder of the term, or one year following the early termination.
In addition, they would receive severance normally payable under such agreement. Each Named
Executive Officer has the right to terminate his employment agreement for “good reason” in the
event an acquiring company takes certain actions detrimental to him, which would allow him to
receive all of the compensation, rights and benefits he would normally be entitled to under his
employment agreement for the remainder of the term. Finally, he would also receive any legal fees
and expenses incurred in the enforcement of the employment agreement after any change of control.
Potential Payments Upon Termination or Change of Control.
The estimated incremental compensation payable to the Named Executive Officers in the event of
the following triggering events, assuming the triggering event occurred on March 31, 2008 (the last
business day of fiscal year 2008), is as follows:
Mr. Borshell
Mr. Framer
Mr. Greenwald retired on March 31, 2008. His retirement compensation consists of (i) payment of
twelve of months of base salary equivalent to $613,144, payable bi-weekly in accordance with the
normal payroll practices of the Company; (ii) continuation of standard executive insurance benefits
for medical, dental and life insurance for twelve months of continuing coverage, at an anticipated
cost of approximately $9,000; (iii) continuing special executive benefits
including additional life and disability insurance and medical expenses for twelve months of
continuing coverage at an anticipated cost of approximately $43,000; (iv) non-accountable personal
expense allowance for twelve months at an estimated cost of $96,000; and (v) continuing use of his
executive car lease for twelve months at an estimated cost of $24,000. The overall value of the
retirement compensation is approximately $785,000.
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Mr. Fink’s employment with us was terminated in June 2007. On March 18, 2008, the Company entered
into a Settlement Agreement and Release of Claims (the “Settlement Agreement”) with Mr. Fink. The
Settlement Agreement provided for a lump sum payment of wages to Mr. Fink of $275,000 and payment
of attorneys fees and costs payable on behalf of Mr. Fink in the amount of $60,000, bringing the
overall settlement value to $335,000.
The foregoing estimations described above (a) do not include bonus amounts or option amounts
because we have not satisfied the financial thresholds necessary to pay such bonuses for the fiscal
year ended March 31, 2008, and (b) include estimated legal fees of $20,000 that are required to be
paid to the Named Executive Officers (except for Mr. Fink) following a change of control. We
exercise the discretion as to whether the estimated payments described above are to be paid in lump
sum payment amounts or in accordance with our standard payment practices. Benefits generally
available to all employees are not included in these estimations. The above calculations are
estimates only; the actual amount of compensation can only be determined at the time of a
triggering event.
Fiscal 2009 Agreements:
Term. Each of the agreements with Messrs. Borshell, Framer, Bromiley and Eiberg is
for one year beginning April 1, 2008.
Base Salary. Base salaries for the fiscal year ending March 31, 2009, for Messrs.
Borshell, Framer, Bromiley and Eiberg are $425,000, $350,000, $350,000 and $250,000, respectively.
Other than the amounts of the base salaries listed above, the terms of the Agreements are
similar to each other, supersede any previous written or oral employment letters or agreements and
include the following general terms and conditions for each officer: (i) an initial employment term
of one year; (ii) payment of base salary payable bi-weekly in accordance with the normal payroll
practices of the Company; (iii) standard executive insurance benefits for medical, dental, life and
disability insurance fully paid by the Company; (iv) car allowance of $12,600 gross, paid
bi-weekly; (v) four weeks of vacation per year; (vi) participation in a Company corporate bonus
plan to be presented to and approved by the Compensation Committee of the Board of Directors; and
(vii) participation in a Company stock-based compensation plan to be presented to and approved by
the Compensation Committee of the Board of Directors. The approval of corporate bonus plan and
stock-based compensation plan are at the sole discretion of the Compensation Committee of the Board
of Directors.
The Agreements provide for standard severance and termination provisions. If the officer is
terminated without cause, the officer would be entitled to receive base salary and benefits through
the end of the remaining employment term plus six months; if the officer is terminated for cause
the obligations of the Company with respect to salary and benefits would immediately terminate.
Grants of Plan-Based Awards for Fiscal Year 2008
There were no stock option grants in fiscal 2008 as part of an incentive bonus plan.
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Outstanding Equity Awards at Fiscal Year End 2008
All equity awards reported in the table below were granted under the 1998 Incentive Plan or
2004 Incentive Compensation Plan. The table below generally sets forth the number of outstanding
equity awards that have not been earned or vested or that have not been exercised by the Named
Executive Officers as of March 31, 2008:
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Option Exercises and Stock Vested in Fiscal Year 2008 (1)
There were no exercises of stock options or SARS or vesting of stock awards by the Named
Executive Officers during fiscal year 2008.
Director Compensation for Fiscal Year 2008
The following table sets forth information regarding the compensation of our non-employee
directors in fiscal year 2008:
Compensation Committee Interlocks and Insider Participation
None.
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The following table sets forth certain information as of July 11, 2008, with respect to the
beneficial ownership of shares of our common stock owned by (i) each person, who, to our knowledge
based on Schedules 13G or 13D filed with the SEC, is the beneficial owner of more than 5% of our
outstanding common stock, (ii) each person who is currently a director, (iii) each Named Executive
Officer, and (iv) all of our current directors and executive officers as a group. Unless indicated
otherwise below, the person or entity listed has sole voting and dispositive power with respect to
the shares that are deemed beneficially owned by such person or entity.
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Change in Control
For a discussion of the terminated merger transaction, please refer to “Item 7. Management’s
Discussion and Analysis of Financial Conditions and Results of Operations — Recent Events” and
other information regarding the terminated merger transaction included in the 2008 Form 10-K.
Equity Compensation Plans
The following table sets forth certain information as of March 31, 2008 with respect to our
equity compensation plans (including individual compensation arrangements) under which our equity
securities are authorized for issuance, aggregated by (i) all compensation plans previously
approved by our security holders, and (ii) all compensation plans not previously approved by our
security holders:
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Stock Performance Graph
The graph below compares our cumulative total return, the NASDAQ Composite Index and our
selected peer group for the five-year period ended March 31, 2008. The peer group consists of
Handleman Company, Trans World Entertainment Corporation, Navarre Corporation, Lions Gate
Entertainment Corp. and Genius Products, Inc. The graph assumes an initial investment in us of
$100 on March 31, 2003, in the NASDAQ U.S. Market Index, and in the peer group. The graph also
assumes reinvestment of dividends, if any. The stockholder return shown on the graph below should
not be considered indicative of future stockholder returns, and we will not make or endorse any
predictions of future stockholder returns.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG IMAGE ENTERTAINMENT, INC., THE NASDAQ COMPOSITE INDEX, AND OUR PEER GROUP 
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Our
policy on related-party transactions is included in our revised Code of Conduct, which has
been reviewed and approved by the Board effective as of June 19, 2007. Our policy states that each
executive officer, director or nominee for director will disclose to the Audit Committee of the
Board the following information regarding a related-person transaction for review, approval or
ratification by the Audit Committee: (i) the name of the
related-person (as defined by Item 404(a)
of Regulation S-K under the Exchange Act), and if he or she is an immediate family member of an
executive officer, director or nominee for director, the nature of such relationship; (ii) the
related-person’s interest in the transaction; (iii) the approximate dollar value of the amount
involved in the transaction; (iv) the approximate dollar value of the amount of the
related-person’s interest in the transaction; and (v) in the case of indebtedness, the largest
total amount of principal outstanding since the beginning of our last fiscal year, the amount of
principal outstanding as of the latest practicable date, the amount of principal paid since the
beginning of our last fiscal year, and the rate or amount of interest payable on the indebtedness.
The
Audit Committee’s decision whether or not to approve or ratify
the related-party
transaction is made in light of its determination as to whether consummation of the transaction is
believed by the Audit Committee to not be or have been contrary to our best interests. The Audit
Committee may take into account the effect of a director’s
related-person transaction on such
person’s status as an independent member of our Board and eligibility to serve on Board committees
under SEC and stock exchange rules.
Gary Haber, a member of our Board of Directors and principal of Haber Corporation, manages
artists, some of which are among Image’s content providers. Haber Corporation receives fees from
certain of these content providers based upon a percentage of royalty
payments paid to such content providers by Image.
Image’s royalty payments to these content suppliers are based upon a contractual percentage of net
revenues derived from the distribution of the content suppliers’ entertainment programming. The
royalties paid to these content suppliers in consideration for the distribution of their content,
in the opinion of management, is fair and reasonable, and is on terms no less favorable than terms generally
available to other third-party content suppliers under the same or similar circumstances.
Dale Borshell, the mother of David Borshell, our President, is a travel agent at Travel
Syndicate. For many years, we have used Travel Syndicate nearly exclusively for our corporate
travel needs. We paid Travel Syndicate approximately $17,000 for travel services during fiscal
2008. The fees paid to Travel Syndicate for travel services were, in the opinion of management,
fair and reasonable, and as favorable to us as those which could have been obtained through or from
unrelated third parties.
David Coriat, a member of our Board, currently serves as Executive Vice President of Slaight
Communications. Slaight Communcations (formerly Standard Broadcasting Corporation Limited, once
the largest privately owned mulit-media company in Canada and then-owner of our exclusive content
distributor in Canada) currently holds 1,542,283 shares of our common stock.
Director Independence
For a discussion of the independence of our directors, please see Item 10. “Directors,
Executive Officers and Corporate Governance” above.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Registered Public Accounting Firm. BDO Seidman, LLP has been our independent
registered public accounting firm since October 2004. There were no disagreements between us and
BDO Seidman, LLP in the preparation of this report.
Principal Accountant Fees and Services. The following table summarizes the aggregate fees for
professional services provided by BDO Seidman LLP related to the fiscal years ended March 31, 2008
and 2007:
Audit Fees. Consisted of fees billed for professional services rendered for: (i) the audit of
our consolidated financial statements; (ii) the review of interim consolidated financial statements
for our quarterly filings; and (iii) any services that are normally provided by our principal
accountant in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. There were no audit-related fees during the fiscal year ended March 31,
2008.
Tax Fees. BDO Seidman, LLP does not perform professional services for tax compliance, tax
advice or tax planning for us.
All Other Fees. Consisted of fees for professional services related to the terminated merger
transaction.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm. Our Audit Committee’s policy is to pre-approve the
audit and non-audit services provided by the independent registered public accounting firm, in
order to assure that the provision of such services does not impair the auditor’s independence.
Our Audit Committee believes that the combination of general pre-approval of certain types of
services and specific pre-approval of other services will result in an effective and efficient
procedure to pre-approve services performed by the independent registered public accounting firm.
Unless a type of service to be provided by the independent registered public accounting firm has
received general pre-approval, it will require specific pre-approval by the Audit Committee. In
determining whether to grant general or specific pre-approval, our Audit Committee will consider
whether such services are consistent with the applicable rules and regulations on auditor
independence. The term of any pre-approval is 12 months from the date of pre-approval, unless the
Audit Committee specifically provides for a different period. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. With respect to each proposed pre-approved
service, the independent registered public accounting firm is required to provide to the Audit
Committee detailed back-up documentation regarding the specific services to be provided.
All of the fees paid to BDO Seidman, LLP in fiscal 2008 and 2007 were pre-approved by the
Audit Committee. Our Audit Committee has considered whether the provision of services other than
those described above under the heading of “Audit Fees” are compatible with maintaining the
independence of BDO Seidman, LLP.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
(c) Exhibits:
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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EXHIBIT INDEX
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