Image fights for BTP distribution agreement
By Susanne Ault -- Video Business, 1/28/2008
JAN. 28 | UPDATED: BTP Acquisition Co.’s purchase of Image Entertainment appears close to collapse, with each party claiming the other is in breach of the merger agreement.
Image’s board of directors is exploring terminating the merger, most recently anticipated to close Feb. 1, complaining that BTP is not transparent about its finances and is in breach of contract. In turn, BTP believes Image is in breach of contract for reneging on a promise to secure $60 million from its lender that would go toward consummating the merger.
Image has filed a breach of contract lawsuit in Los Angeles Superior Court in an attempt to enforce an output agreement for Image distribution of BTP’s Capitol Films and ThinkFilm product.
In the suit filed on Jan. 24, Image is seeking an injunction that would enable it to keep operating under the current output deal, signed in December. Additionally, Image is suing BTP and ThinkFilm/Capitol parent CT1 Holdings for breach of contract on the distribution agreement.
BTP and CT1 said that on Jan. 25 , Image was denied the injunction, which Image had hoped would stop the two companies from disrupting ThinkFilm/Capitol product flow to retail. Image is crying foul over CT1 telling its post-production facility and disc replicator to no longer provide Image with access to masters for DVD distribution.
The next hearing is scheduled for Feb. 28.
Undeterred by the initial injunction ruling, Image CEO Marty Greenwald wrote a letter, dated Jan. 28, to BTP and CT1 owner David Bergstein still hoping to reinstate the CT1 output agreement. Image was due to generate $30 million from its pact with CT1, according to Greenwald.
However, BTP affiliate CT1 is contending that Image is the one at fault, having failed to come up with $1 million as an initial payment for certain transfers of assets to Image.
Additionally, on Jan. 29, CT1 sent a letter that insists Image is overstating the value of the two’s distribution agreement, as it is limited to a two-year timeframe and excludes several product categories. CT1 also doubts Image’s solvency in delivering advance payments totaling up to $5 million or more, which is apparently needed to secure distribution of each ThinkFilm title, per the output agreement.
Citing Image’s behavior and objections to the output pact’s terms, CT1 is refusing to distribute content through the DVD supplier.
However, Greenwald said in the Jan. 28 letter that it’s especially important for the CT1 pact to be upheld because Image accepted it as assurance that BTP was still committed to the merger. BTP also has given Image millions in a trust as additional security that it intended to complete the transaction.
Greenwald says employees have already been hired and 150,000 units of product have been transferred in connection with the CT1 deal.
“[This] will cause [retailers] to refuse to deal with either of us and may permanently destroy the value of the ThinkFilm brand,” said Greenwald. “Therefore, your actions not only fail to mitigate your purported damages, they actually exacerbate them.”
Greenwald indicates that Image and BTP can still salvage their original business objectives and states that Image still hopes to close the merger on Feb. 1.
However, BTP and CT1’s Bergstein is not backing down in contending Image is in breach of contract.
In the most recent Jan. 29 documentation from CT1, Bergstein orders Image to cease and desist dealing with the company’s product on many fronts, including employment of ThinkFilm staff and sale of any CT1 units.
By CT1’s accounting, Image has misappropriated in excess of $10 million in working with the distribution agreement against the stated terms of the deal.
Bergstein indicates that if his demands are not met, he and his colleagues will continue to inform retail accounts that Image is at fault in the distribution agreement.
