Image Entertainment, BTP accuse each other of contract breach as merger deal stalls

By Lisa Kerner

Charlotte, N.C., Jan. 25 - Image Entertainment, Inc. notified BTP Acquisition Co., LLC, an affiliate of David Bergstein, that BTP is in breach of their merger agreement.

The merger is slated to close on Feb. 1.

In addition, Image notified CT1 Holdings that CT1 is in breach of their output distribution agreement, dated Dec. 7, a company news release stated.

Image said BTP has failed or refused to provide Image with information regarding the financing needed for BTP to complete the merger as required in the agreement.

Image's board of directors is evaluating all available options, including termination of the merger agreement and collection of the $4.2 million business interruption fee.

BTP notified Image that it believes Image is in breach of the merger agreement, which would excuse BTP from closing the deal.

CT1, another affiliate of David Bergstein and the parent company of Capitol Films and ThinkFilm, also notified Image that it believes Image is in breach of the output distribution agreement. In addition, CT1 revoked the authority to distribute its programming under the agreement.

On Jan. 24, Image filed a lawsuit in the Los Angeles County Superior Court against CT1, BTP and ThinkFilm regarding the breach of contract under the output distribution agreement.

"In exchange for the $3 million deposited by BTP in a trust account and the execution of the output distribution agreement with CT1 Holdings, Image granted numerous requests by BTP to extend the closing date to allow BTP the time to finalize the required financing for the merger," an Image spokesman said in the release.

"If BTP can demonstrate to our satisfaction that it has the ability to finance the transaction, Image is ready to close," the spokesman added.

BTP demanded the return of the $3 million, according to a schedule 13D filing with the Securities and Exchange Commission.

In the filing, BTP claimed that Image failed to obtain approvals from its existing lender for $60 million of debt to fund the cash consideration payable when the merger closes.

Image has also failed to provide BTP with any material assurances that it "can or will cure its breaches and satisfy the conditions to the consummation of the merger," BTP said.

It was previously reported that the closing of BTP's acquisition of Image had been extended to Feb. 1 from Jan. 14.

As part of the extension, BTP agreed to deposit $1 million with Image in addition to the $2 million deposited by BTP in December, a prior news release stated.

In March 2007, BTP agreed to acquire Image for $4.40 per share in a cash transaction valued at $132 million, including debt.

Image Entertainment is an independent licensee, producer and distributor of home entertainment programming in North America based in Chatsworth, Calif.

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