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Image CEO: Lionsgate Has Made Us 'Unprofitable'

2 Oct, 2006 By: Erik Gruenwedel

In blunt letter Oct. 2 to its shareholders, Image Entertainment chairman and CEO Martin Greenwald claimed repeated attacks from mini-major Lionsgate (Image's second-largest shareholder) have turned the Chatsworth, Calif.-based distributor into an unprofitable business in fiscal 2006.

Image and Santa Monica, Calif.-based Lionsgate are embroiled in a contentious battle for Image's board of director elections scheduled for Oct. 10.

Lionsgate —which twice unsuccessfully tried to acquire Image — has submitted a slate of six candidates to the seven-person board, while Image urges re-election of the current board, including Greenwald.

In the letter, Greenwald said Image, which posted more than $5 million in net earnings in fiscal 2005, has allegedly been told by numerous content suppliers that it will not be offered “new front-line programming” due to concerns the product could ultimately fall under the control of Lionsgate.

“We have been forced by Lionsgate's antics to incur over [$500,000] in excess fees for lawyers, investment bankers, proxy solicitors, additional board and committee meetings and other advisors,” Greenwald wrote.

The CEO said Lionsgate's board slate, if elected, could sell Image for less than it is worth. Greenwald cited a recent report from Institutional Shareholder Services (ISS), which advises shareholders on proxy and regulatory issues, that claimed that Lionsgate's board slate could “stack the deck” in favor of the mini-major's bid.

In its report, ISS recommended “Do Not Vote” status for Image's current board and withheld recommendation for Lionsgate's entire slate, with the exception of Dr. Duke Bristow, a UCLA economics professor with a history of corporate governance research experience.

“Whatever Lionsgate may claim, it appears the real purpose of its competing slate of paid nominees may be to insure that its inadequate $4-[per-share] offer is accepted, thus allowing Lionsgate to acquire our company without paying fair value to all shareholders,” Greenwald wrote.

The CEO said Lionsgate could even attempt to acquire Image for less than $4 per share should its candidates prevail in the elections. Image shares held at $3.51 in mid-afternoon trading.

Lionsgate was quick to respond, saying Image should focus on its shrinking margins, lower profits and bloated overhead, rather than looking for a scapegoat.

“Image Entertainment's attempt to blame Lionsgate's proxy challenge for its unprofitability is one of the most disingenuous and irresponsible excuses for poor corporate performance that a company has ever given its shareholders,” said Lionsgate representative Peter Wilkes. “Their other allegations are equally specious and lacking in credibility. Lionsgate's objective is to elect a truly independent slate of directors that will be committed to maximizing value for all Image shareholders and will be focused on results rather than excuses.”

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