Image Entertainment defaults on 8.875% senior convertible due 2011

By Devika Patel

Knoxville, Tenn., Dec. 15 - Image Entertainment, Inc. said it has defaulted on its $15.7 million 8.875% senior convertible note due 2011 for failing to make a $4.07 million installment payment.

On Dec. 9, the investor notified the company it would require the payment on Dec. 11. On Dec. 11, the company and investor agreed to amend the note to change the installment payment due date to Dec. 14.

The company was unable to make the payment on that date, resulting in a default. The investor may now put all or any part of the note. In addition, the note will now accrue interest at a default rate of 12% per annum and the company must pay a 15% late charge on the installment amount.

The default also results in a cross-default under the company's loan and security agreement with Wachovia and its replication agreement with Arvato Digital Services. As a result of these cross-defaults, both Wachovia and Arvato may accelerate the amounts owed to them. Also, the company must pay a default interest rate premium of 2% per annum higher than the current borrowing rate of 4% per annum.

The company said it does not have the funds it needs to repay its obligations. Unless it is able to negotiate an amendment, forbearance or waiver with these creditors, the company does not expect it will be able to cure the defaults, which would have a material adverse effect on its liquidity, business, results of operations and financial condition and on its ability to continue as a going concern and it may have to file for protection under Chapter 11. Image Entertainment said it will continue to explore strategic alternatives.

Image Entertainment is a Chatsworth, Calif., licensee and distributor of entertainment programming.

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