Image Entertainment (DISK) Amends Convertible Note for Second Time

July 31, 2009 9:26 AM EDT

Late last night, Image Entertainment, Inc. (NASDAQ: DISK) announced today that it had entered into a Second Amendment and Exchange Agreement with the holder of its 7.875% Senior Convertible Note pursuant to which the Company issued an Amended and Restated Secured Convertible Note in exchange for the Original Note. The amendment serves to defer until October 30, 2009 a $4 million principal payment that the holder of the Original Note could have required the Company to pay on July 30, 2009. The amendment further provides that the Installment shall be further deferred until November 30, 2009 if the Company enters into a written agreement with a bona fide purchaser, prior to October 30, 2009, that would result in a change of control of the Company.

Upon the occurrence of a default, the Original Note provided the Holder the right to demand redemption of the Original Note at a price equal to 120% of the sum of the then outstanding principal amount, accrued interest and penalties, and provided for default interest at the rate of 12.0%. In addition, upon a change in control, the Original Note granted to the Holder the right to demand redemption of the Original Note at a price equal to 120% of the sum of the then outstanding principal amount, accrued but unpaid interest and penalties. The New Note eliminates provisions relating to redemption premium in the event of default or a change in control in exchange for increasing the principal amount from $13,000,000 to $15,700,792.60, and increases the interest rate to 8.875%, beginning July 31, 2009. The default interest rate remains 12.0%, should any future event of default occur.

The Exchange Agreement avoids a default and allows the Company and its financial advisor, Houlihan Lokey Howard & Zukin Capital, Inc., to continue the process of evaluating strategic alternatives, including potential financing or sale transactions, without the necessity of funding the Installment on July 30, 2009.

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