Charges fly in Image-BTP deal

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Several legal roadblocks have emerged to the merger of independent DVD supplier Image Entertainment and investor group BTP Acquisition Co.

A default notice was issued last week against Image by BTP, which claimed Image had breached the agreement by failing to follow through with a $60 million acquisition debt-financing plan that was agreed upon in June.

Thursday, Image responded by filing a notice with the Securities and Exchange Commission, claiming BTP, led by financier David Bergstein, breached its July 27 merger agreement with the company by refusing to turn over financing information necessary to complete the merger.

Image also notified Bergstein's CT1 Holdings, the parent company of ThinkFilm and Capitol Films, that it was in breach of its distribution agreement.

Along with the SEC filings, Image filed suit in Los Angeles Superior Court Thursday against the BTP companies, alleging breach of contract. On Friday, it lost a bid for a temporary restraining order against the companies to stop them from doing business with shared third party clients, including distributors and vendors.

In response to the lawsuit, BTP claims the legal action cancels Image's distribution agreement with CT1, which provided that if Image sued CT1, the agreement would automatically terminate.

The dispute has arisen less than a year after BTP announced the acquisition of the Chatsworth, Calif.-based Image for about $132 million. The sale price included the assumption of a $9 million replication advance and the repayment of about $24 million in debt.

Since its July agreement, Image has filed several extensions on the acquisition closing date in order to allow BTP additional time to finalize its financing, according to the SEC filings. Most recently, Image extended it to Feb. 1.

"We are very disappointed that after granting these extensions, BTP has refused a week before the scheduled closing date to provide us with the status and availability of the financing," Image said in a statement. "If BTP can demonstrate to our satisfaction that is has the ability to finance the transaction, Image is ready to close. If not, we have no choice but to exercise our rights under the merger agreement, seek collection of the $4.2 business interruption fee and pursue all other available remedies."

BTP countered stating, "At all times, CT1, BTP and their affiliates have been in full compliance with all of their agreements with Image, and have performed all actions required of them, including payment of all monies dues."
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