Image calls off BTP merger

By Marcy Magiera -- Video Business, 2/5/2008

FEB. 5 | Image Entertainment said today that it will not merge with BTP Acquisition Co. and demanded payment of $4.2 million in business interruption compensation due to the failed merger agreement.

At the same time, the indie distributor said it will continue to try to enforce an output agreement giving it rights to distribute titles from BTP’s ThinkFilm and Capitol Films units.

BTP sent a letter to Image on Feb. 6, claiming that BTP actually moved to dissolve the the merger first, prior to Image's Feb. 5 announcement. Additionally, BTP said that Image was not entitled to dismantle the merger at all per the agreement terms. By that reasoning, BTP is contesting paying the $4.2 million, and is in fact owed $1.5 million as its own termination fee from Image.

However, certain sources close to the case disputed that interpretation. Sources say BTP is hoping to get out of paying the interruption compensation by falsely asserting leadership over calling off the merger.

Image had no comment regarding the varying analysis. Inquiries to BTP attorneys were not returned.

The deal has been headed south for some weeks, with Image and BTP each accusing the other of breach of contract.

“The Image Entertainment board of directors has determined that the company is best served by terminating the merger agreement and the constraints it imposes on Image," an Image spokesman said in a statement. "Image granted numerous requests made by BTP to extend the closing date to allow BTP the time to finalize the required financing for the merger. We are very disappointed that despite Image’s willingness to close the merger and enormous patience, BTP was either unable or unwilling to finance the transaction. … In addition, our termination of the merger agreement in no way affects our rights under the output distribution agreement, as specifically indicated and addressed in that agreement. Image remains in full compliance with the distribution agreement and intends to fully enforce its rights under that agreement.”

Image late last month 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. ThinkFilm's In the Shadow of the Moon, which Image was scheduled to distribute on Feb. 12, has been put on hold because the outpt deal is now in limbo pending the next scheduled Feb. 28 court hearing. Grossing about $1 million theatrically in the U.S., In the Shadow of the Moon features Buzz Aldrin among other legendary astronauts chronicling their space travels.

However, BTP contends that Image is the one in breach, having failed to come up with the agreed upon initial payments for certain transfers of assets to Image.

BTP previously deposited $3 million in trust in case of the failure of the merger, and Image is ordering the funds to be released. It also wants BTP to provide the remaining $1.2 million in cash.

Image also amended its shareholder rights plan to decrease the stock ownership threshold for an “acquiring person” from 30% to 15%, with exceptions for certain existing shareholders.

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