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Suit Challenges Image Acquisition

16 Apr, 2007 By: Erik Gruenwedel

An Image Entertainment shareholder is seeking class-action status for a lawsuit filed last week aimed at blocking the pending sale of the Chatsworth, Calif.-based distributor to an investor group.

Last month, Image entered into a definitive agreement with BTP Acquisition Co. LLC, an investor group led by film financier and producer David Bergstein, to be acquired for $95 million in cash, including assumption of a $9 million replication advance from Sonopress LLC, and the repayment of about $24 million of debt.

Shareholders must still approve the $132 million, or $4.40 per share, deal.

The suit, filed April 10 by shareholder Cindy Henzel in Los Angeles Superior Court, alleges that Image's board of directors breached their fiduciary duties of “due care, good faith and loyalty by failing to maximize stockholder value and by creating deterrents to third party offers,” according to a regulatory filing.

The complaint said the proposed sale of Image to BTP represented an effort by board members to “aggrandize” their own financial positions at the expense of shareholders.

The suit also seeks to rescind terms of the merger agreement that include a so-called “no shop” provision that precludes Image from obtaining a superior acquisition offer; and payment of a $4.2 million “termination fee” to BTP (should the deal dissolve) that allegedly exceeds Image's available cash by $2.2 million.

In a statement, Image said it believes the claims in the lawsuit are without merit and intends to vigorously defend it.

Analyst Ali Mogharabi with B. Riley & Co. in Los Angeles said he wasn't sure how the plaintiff was negatively impacted since the BTP offer represented a 35% premium on Image's 30-day average stock price ended March 29.

“It's actually higher than what Lionsgate had offered,” said Mogharabi.

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