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Employment Agreement - Image Entertainment Inc. and David Borshell

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                             EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this
                                 ---------

1st day of July, 1994, by and between IMAGE ENTERTAINMENT INC., a California
corporation ("Image"), and DAVID BORSHELL, an individual ("Executive").
              -----                                        ---------

                                   RECITALS

     A.   Image is engaged in the business of licensing, manufacturing,
          promoting, marketing and selling laserdisc format programming.

     B.   Executive has unique experience with respect to sales and marketing,
          management and other aspects of the business of Image.

     C.   Executive desires to render to Image, on an exclusive basis,
          Executive's professional services with respect to Executive's
          experience and abilities, and Image desires to secure, on an exclusive
          basis, Executive's services, on the terms and conditions set forth
          below.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:

1.   TERM OF AGREEMENT.

     Except as otherwise expressly set forth herein, this Agreement shall remain
     in full force and effect for a 2-year term commencing on the date hereof
     and ending on June 30, 1996 (the "Term"); provided, however, that unless
                                       ----    --------  -------

     Executive receives written notice on or before June 30, 1995 that this
     Agreement will not be renewed at June 30, 1996 the Term will automatically
     extend to June 30, 1997.  In the event of any additional extensions, Image
     must give Executive at least 1 year's prior written notice if the Term will
     not be further extended.

2.   ENGAGEMENT.

     Subject to the terms and conditions contained herein, Image hereby engages
     the services of Executive (the "Services") and Executive hereby accepts
                                     --------

     such engagement and agrees to render Executive's Services to Image for the
     Term.  Executive shall report directly to the President of Image and shall
     have the title of "SR. VICE PRESIDENT OF OPERATIONS."

     a.   EXTENT OF SERVICES AND DUTIES.  Executive shall perform such duties,
          compatible with Executive's position as an "Officer" (as defined
          below) and as a majority of the Board of Directors of Image may
          reasonably require.  In rendering Services to Image, Executive shall
          use Executive's best efforts and ability to maintain, further and
          promote the interests and welfare of Image. For purposes of this
          Agreement "Officer" shall include any person similarly designated as
                     -------

          an "Officer" in that person's Employment Agreement with Image.
<PAGE>

     b.   EXCLUSIVE ENGAGEMENT.  Executive hereby acknowledges and agrees that
          the engagement of Executive by Image under this Agreement is exclusive
          and that during the Term hereof Executive shall not, directly or
          indirectly, whether for compensation or otherwise, engage in any
          business that is competitive with the business of Image, or render any
          services of a business, commercial or professional nature to any other
          person or organization that is a competitor of Image or in a business
          similar to that of Image, without the prior written consent of Image.

3.   COMPENSATION.

     a.   BASE SALARY.  Image hereby agrees to pay Executive for Services to be
          rendered hereunder, including all services to be rendered as an Image
          director, a minimum annual base salary of $87,140 for each year of the
          Term, payable in equal biweekly installments or as otherwise provided
          in accordance with Image's regular Officer compensation procedures in
          effect from time to time ("Base Salary").
                                     -----------

     b.   BONUS COMPENSATION.  Executive shall receive such bonus compensation
          equal to 5/8% of "Pre-Tax Profits" (as defined in Exhibit A), if any,
          as shall be payable to Executive in accordance with the terms and
          conditions of that certain Bonus Plan for Officers, attached hereto
          and incorporated herein by this reference as Exhibit A.  Image may
          modify the Bonus Plan from time-to-time and, so long as such
          modifications are of general applicability to all participants in such
          program, all such modifications shall be applicable to Executive
          hereunder ("Bonus Compensation").
                      ------------------

4.   STOCK OPTIONS.

     In addition to Base Salary and Bonus Compensation, Image may grant stock
     options to Executive in such form and amounts, and at such time or times,
     as Image's Board of Directors (or, if applicable, Image's stock option plan
     administrators) shall determine.  If this Agreement is terminated early
     "Without "Cause" under Subparagraph 12(b) or due to a "Change In Control"
     under Paragraph 13, all unvested options granted to Executive will
     immediately vest.  Further, unless this Agreement is terminated early for
     Cause under Subparagraph 12(a), all vested options granted to Executive
     shall be exercisable for the longest period permissible under the grant
     after employment ceases.

5.   FRINGE BENEFITS.

     a.   Image agrees to provide Executive with fringe benefits including but
          not limited to the medical, dental and life insurance, expense
          allowance and vacation time described below:

          i.    MEDICAL, DENTAL, LIFE & LONG-TERM DISABILITY INSURANCE. Image
                shall purchase (or, if applicable, maintain) during the Term
                medical, dental and life insurance for Executive,
<PAGE>

                and provide coverage under the medical and dental policies for
                Executive's direct dependent beneficiaries (e.g., spouse and
                minor children), on terms no less favorable than the terms and
                conditions in effect as of the date hereof and at all times at
                least equal to that received by any other Officer (collectively
                "Insurance").
                ----------

          ii.   BUSINESS/TRAVEL EXPENSES. Executive shall be reimbursed in full
                for all reasonable and actual out-of-pocket business and travel
                expenses incurred in the performance of Executive's Services, on
                terms and at all times at least equal to that received by any
                other Officer, provided Executive shall first present an
                itemized account of such expenditures together with supporting
                vouchers.

          iii.  VACATION TIME. Executive is entitled to 4 weeks of paid vacation
                time per year of the Term. Any unused vacation time will
                continue to accrue throughout the Term and will not be subject
                to any offset, reduction, deduction or maximum accrual
                limitation of any kind.

6.   SEVERANCE.

     Upon expiration of the Term, Executive shall be entitled to receive:

     a.   Base Salary continuation for a period of 6 months; and

     b.   a prorated portion of Bonus Compensation, if any, otherwise payable
          pursuant to Subparagraph 3(b) for 6 months or any partial fiscal year
          that has occurred prior to the expiration of the Term, whichever is
          greater; and

     c.   Insurance continuation for a period of 6 months.

7.   WITHHOLDING.

     There shall be deducted from all compensation payable to Executive
     hereunder (except Paragraph 5(b)(ii) compensation), such sums, including
     without limitation, social security, income tax withholding and
     unemployment insurance, as Image is by law obligated to deduct.

8.   CONFIDENTIALITY.

     In consideration of the payments to be received hereunder, Executive agrees
as follows:

     a.   That during the Term of this Agreement he will have access to and
          become acquainted with various "Trade Secrets" (as defined below) and
          proprietary information of Image. Except as Executive's duties may
          require or as Image may otherwise consent to in writing, Executive
          will not at any time disclose or use to the detriment of Image or the
          sole benefit of Executive, either directly or indirectly, and either
          during or subsequent to theTerm hereof, any information, knowledge or
          data he receives in
<PAGE>

          confidence or acquires from Image or which relates to the Trade
          Secrets of Image.  For purposes of this Agreement "Trade Secrets"
                                                             -------------

          shall include, but not be limited to:

          i.    Financial information, such as Image's earnings, assets, debts,
                prices, pricing structure, volumes of purchases or sales or
                other financial data, whether relating to Image generally, or to
                particular products, services, geographic areas, or time
                periods;

          ii.   Supply and service information, such as goods and services,
                supplier's names or addresses, terms of supply or service
                contracts, or of particular transactions, or related information
                about potential suppliers, to the extent that such information
                is not generally known to the public, and to the extent that the
                combination of suppliers or use of a particular supplier, though
                generally known or available, yields advantages to Image, the
                details of which are not generally known;

          iii.  Marketing information, such as details about ongoing or proposed
                marketing programs or agreements by or on behalf of Image, sales
                forecasts or results of marketing efforts or information about
                impending transactions;

          iv.   Licensing or Distribution information, such as details about
                ongoing or proposed negotiations or agreements by or on behalf
                of Image, terms and details of such negotiations or agreements
                or results of licensing or distribution efforts or information
                about impending transactions; or,

          v.    Customer information, such as any compilation of past, existing
                or prospective customers, customers' proposals or agreements
                between customers and status of customers accounts or credit, or
                related information about actual or prospective customers.

     b.   That all files, records, documents, data information and customer
          lists are special, valuable and unique assets of Image and are
          essential to its continued business success, and that under no
          circumstance during the Term hereof or subsequent thereto will he
          influence or attempt to influence any employee of Image to terminate
          his or her employment with Image to work for any competitor of Image,
          nor shall the Executive solicit, directly or indirectly, any customers
          of Image or disclose or use for the purpose of such solicitation,
          without the prior written consent of Image, any files, records,
          documents, data, information, customer lists or any other proprietary
          information of Image.

     c.   Executive acknowledges that any violation of the terms of this
          Paragraph 8 will constitute a material breach of this Agreement and
          will cause Image immediate and irreparable harm and that the damages
          which Image will suffer may be difficult or impossible to measure.
          Therefore, upon any actual or impending violation of this Paragraph 8,
          Image shall be entitled to the issuance of a
<PAGE>

          restraining order, preliminary and permanent injunction, without bond,
          restraining or enjoining such violation by Executive or any entity or
          person acting in concert with Executive. Such remedy shall be
          additional to and not in limitation of any other remedy which may
          otherwise be available to Image.

9.   INDEMNIFICATION OF EXECUTIVE.

     Image will, to the maximum extent permitted by law, indemnify and hold
     Executive harmless against expenses, including reasonable attorney's fees,
     judgments, fines, settlements and other amounts actually and reasonably
     incurred in connection with any proceeding arising by reason of Executive's
     employment by Image.  Image shall advance to Executive any expenses
     incurred in defending any proceeding to the maximum extent permitted by
     law.  Image will at all times maintain directors' and officers' liability
     insurance ("D&O Insurance"), or have sufficient funds to self-insure, in
                 -------------

     amounts and on terms at least as favorable as the D&O Insurance policy in
     effect on the date hereof.

10.  DEATH.

     In the event of Executive's death, this Agreement will terminate on the
     last day of the calendar month of Executive's death.  In such event,
     Executive's personal representative, heirs or beneficiaries shall be
     entitled to receive:

     a.   Base Salary continuation for a period of 6 months or the expiration of
          the Term, whichever occurs first; and

     b.   a prorated portion of Bonus Compensation, if any, otherwise payable
          pursuant to Subparagraph 3(b) for 6 months or any partial fiscal year
          that has occurred prior to the effective date of termination,
          whichever is greater; and

     c.   dependent Insurance continuation for a period of 6 months or the
          expiration of the Term, whichever occurs first.

11.  PERMANENT DISABILITY/SUSPENSION.

     If, for any reason including physical, mental illness, failure, refusal or
     other inability, Executive does not perform a majority of Executive's usual
     duties for a period of longer than 120 consecutive days, Image's obligation
     to pay Base Salary will be suspended.  If the suspension is reasonably
     anticipated to exceed 180 consecutive days, Image may terminate this
     Agreement effective upon 30 days prior written notice to Executive.  In
     such event, Executive shall be entitled to receive:

     a.   Base Salary continuation for a period of 6 months or the expiration of
          the Term, whichever occurs first; and

     b.   a prorated portion of Bonus Compensation, if any, otherwise payable
          pursuant to Subparagraph 3(b) for 6 months or any partial fiscal year
          that has occurred prior to the effective date of termination,
          whichever is greater; and
<PAGE>

     c.   Insurance continuation for a period of 6 months or the expiration of
          the Term, whichever occurs first.

     Disagreement as to the anticipation of a permanent disability/suspension
     and/or the date such permanent disability/suspension commenced shall be
     settled by the majority decision of 3 neutral arbitrators (or, if
     applicable, licensed physicians) one to be selected by each party to the
     dispute, the two thus appointed shall choose the third, and the three thus
     appointed shall constitute the board of arbitration.  Such board, acting by
     majority vote within 30 days after choosing the third arbitrator, shall
     resolve such disagreement and their decision shall be final and binding on
     Executive, Image and any other person with an interest in the matter.

12.  TERMINATION.

     a.   "CAUSE."  In the event of "Cause" (as defined below), Image may
          terminate this Agreement at any time effective upon delivery of
          written notice to Executive.  In such event, all of Image's
          obligations hereunder will immediately terminate without further
          liability.  Moreover, Executive shall not be entitled to receive any
          severance, fringe benefits, compensation or other such rights, nor
          shall Executive be entitled to receive a pro-rata portion of Bonus
          Compensation otherwise payable pursuant to Subparagraph 3(b).  For
          purposes of this Agreement "Cause" shall include, but is not limited
                                      -----

          to:

          i.    Executive's (i) fraud, felonious conduct or dishonesty or (ii)
                willful misconduct or gross negligence in the performance of
                Executive's duties hereunder; provided, however, that bona fide
                                              --------  -------

                disagreements or disputes as to expense reimbursement shall not
                be deemed fraud or felonious conduct or Executive's breach of
                any material provision of this Agreement; or

          ii.   Executive's breach of any material provision of this Agreement
                or any other material agreement between Image and Executive.

     b.   "WITHOUT CAUSE."  Notwithstanding anything contained herein to the
          contrary, in the event this Agreement is terminated prior to
          expiration of the Term for any reason other than pursuant to
          Paragraphs 10 or 11 or for Cause, this Agreement shall be deemed to
          have been terminated "Without Cause" and Executive shall be entitled
          to receive all of the compensation, rights and benefits described in
          Paragraphs 3, 4 and 5 through the expiration of the Term and the
          severance described in Paragraph 6, as if this Agreement were in full
          force.

13.  CHANGE IN CONTROL.

     Notwithstanding anything contained herein to the contrary, the terms and
     conditions of this Paragraph 13 shall control following a "Change In
     Control" (as defined below).
<PAGE>

     a.   TERMINATION.  In the event this Agreement is terminated prior to
          expiration of the Term for any reason other than pursuant to
          Paragraphs 10 or 11 or for Cause following a Change In Control,
          Executive shall be entitled to receive all of the compensation, rights
          and benefits described in Paragraphs 3, 4 and 5 for a period of 1 year
          following the effective date of termination or through the expiration
          of the Term, whichever is longer, and the severance described in
          Paragraph 6, as if this Agreement were in full force. If any other
          Officer's options are acquired pursuant to a Change In Control,
          Executive's options will be acquired on terms and at all times at
          least equal to any other Officer. Executive must receive 30 days prior
          written notice of termination regardless of the reason for
          termination.

     b.   "CHANGE IN CONTROL."  For purposes of this Agreement "Change In
                                                                ---------
          Control" shall mean and be deemed to have occurred on the earliest of
          -------

          the following dates:

          i.    the date, pursuant to Section 13(d) of the Act and the rules
                promulgated thereunder, a person shall have acquired beneficial
                ownership of more than 45% of the Voting Stock;

          ii.   the date the persons who were members of the Board at the
                beginning of any 24-month period shall cease to constitute a
                majority of the Board, unless the election, or the nomination
                for election by Image's shareholders, of each new director was
                approved by two-thirds of the members of the Board then in
                office who were in office at the beginning of the 24-month
                period; or

          iii.  the date Image's shareholders shall approve a definitive
                agreement (a) to merge or consolidate Image with or into another
                corporation, unless the holders of Image's capital stock
                immediately before such merger or consolidation will,
                immediately following such merger or consolidation, hold as a
                group on a fully-diluted basis the ability to elect at least a
                majority of the directors of the surviving corporation (assuming
                cumulative voting, if applicable), or (b) to sell or otherwise
                dispose of all or substantially all the assets of Image.

     c.   EXECUTIVE'S RIGHT TO TERMINATE FOR GOOD REASON.  During the Term,
          Executive shall be entitled to terminate Executive's employment with
          Image for "Good Reason" (as defined below) following a Change In
          Control.  For purposes of this Agreement "Good Reason" shall mean any
          of the following events which occurs without Executive's express
          written consent:

          i.    the assignment of any duties inconsistent with Executive's
                status as an Officer or a substantial alteration in the nature
                or status of Executive's responsibilities from those in effect
                immediately prior to a Change In Control other than any such
                alteration primarily attributable to the fact that Image may no
                longer be a public company;
<PAGE>

          ii.   a reduction by Image in Base Salary, except for across-the-board
                salary reductions similarly affecting all Officers and any
                subsidiaries and all executives of any person, firm or entity in
                control of Image;

          iii.  the relocation of Image's principal executive offices to a
                location more than 35 miles from the current locale or Image's
                requiring Executive to be based anywhere other than Image's
                principal executive offices except for required travel on
                Image's business to an extent substantially consistent with
                Executive's present travel obligations;

          iv.   the failure by Image to continue in effect without material
                change any compensation or benefit plan in which Executive is
                entitled to participate, or the failure by Image to continue
                Executive's participation therein, or the taking of any action
                by Image which would directly or indirectly materially reduce
                any of the benefits of such plans enjoyed by Executive at the
                time of the Change In Control, or the failure by Image to
                provide Executive with the number of paid vacation days to which
                Executive is entitled hereunder, or the taking of any other
                action by Image which materially adversely changes the
                conditions or perquisites of Executive's employment;

          v.    the failure of Image to obtain a satisfactory agreement from any
                successor to assume and agree to perform the Services
                contemplated by this Agreement;

          vi.   any purported termination of employment which is not effected
                pursuant to Subparagraph 13(a), any such purported termination
                shall not be effective for purposes of this Agreement;

          vii.  the failure of Image to maintain adequate D&O insurance coverage
                pursuant to the terms of this Agreement; or

          viii. the breach by Image of any material term of this Agreement.

     d.   LEGAL FEES AND EXPENSES.  If Executive is terminated following a
          Change In Control and Executive shall incur any legal fees or expenses
          as a result of (i) seeking to obtain or enforce any right or benefit
          provided by this Agreement or (ii) a claim of wrongful discharge or
          breach of this Agreement, Image agrees to pay or reimburse Executive
          for such fees and expenses; provided, however, that any claims giving
                                      --------  -------

          rise to such fees or expenses must be made in good faith and for good
          cause. In the event there is a dispute regarding Executive's good
          faith or the merits of Executive's claim, and it is determined by the
          court that the claim lacked merit or was made in bad faith, Executive
          shall not be entitled to recover any fees and expenses including,
          reasonable attorneys' fees under the terms of this Agreement and
          Executive shall be limited to recover such fees and expenses, if any,
          as the court shall determine.
<PAGE>

14.  GENERAL PROVISIONS.

     a.   SUCCESSORS AND ASSIGNS.  This Agreement is binding upon and shall
          inure to the benefit of the parties hereto, and any of their heirs,
          legatees, devisees, personal representatives, assigns and successors
          in interest of every kind and nature whatsoever.  The parties hereto
          agree that Executive's services are personal and that this Agreement
          is executed with respect thereto.  Executive shall have no right to
          sell, transfer or assign this Agreement in any manner whatsoever.

     b.   ENTIRE UNDERSTANDING.  This Agreement, and the Exhibits hereto,
          constitute the entire understanding and agreement between the parties
          with respect to the subject matter hereof; supersedes (I) any and all
          prior and preliminary discussions, and (ii) any and all prior written
          or oral and any and all contemporaneous written or oral agreements,
          understandings and negotiations between the parties; including but not
          limited to prior written or oral employment agreements and severance
          agreements, and, there are no warranties, representations or other
          agreements between the parties in connection with the subject matter
          hereof except as set forth or referred to herein.  This Agreement
          shall not be modified, amended or altered except by an instrument in
          writing executed by the parties hereto.

     c.   SEVERABILITY.  In case one or more of the provisions contained in this
          Agreement (or any portion of any such provision) shall for any reason
          be held invalid, illegal or unenforceable in any respect, such
          invalidity, illegality or unenforceability shall not affect any other
          provision of this Agreement (or any portion of any such provision),
          but this Agreement shall be construed as if such invalid, illegal or
          unenforceable provision (or portion thereof) had never been contained
          herein.

     d.   WAIVER.  The failure by Image, at any time, to require performance by
          Executive of any of the provisions hereof, shall not be deemed a
          waiver of any kind nor shall it in any way affect Image's rights
          thereafter to enforce the same.

     e.   NOTICES.  All notices, requests, demands and other communications
          provided for by this Agreement shall be in writing and shall be deemed
          to have been given 24 hours after deposit there of for mailing at any
          general or branch United States Post Office, enclosed in a registered
          or certified postpaid envelope and addressed as follows:

          To Image:         IMAGE ENTERTAINMENT, INC.
                            9333 Oso Avenue

                            Chatsworth, CA  91311

                            Attn:  General Counsel

          To Executive:     DAVID BORSHELL

                            679 Washington Blvd.

<PAGE>

                         Los Angeles, CA 90292

          The parties hereto may designate a different place at which notice
          shall be given; provided, however, that any such notice of change of
          address shall be effective only upon receipt.

     f.   GOOD FAITH.  The parties hereto shall perform, fulfill and discharge
          their duties and obligations hereunder in a reasonable manner in good
          faith.

     g.   GOVERNING LAW.  This Agreement and all rights, obligations and
          liabilities arising hereunder shall be construed and enforced in
          accordance with the laws of the State of California.

     h.   ATTORNEYS' FEES.  In the event it becomes necessary to commence any
          proceeding or action to enforce the provisions of this Agreement, the
          court before whom the same shall be tried may award the prevailing
          party all costs and expenses thereof, including without limitation,
          reasonable attorney's fees, the usual, customary and lawfully
          recoverable court costs, and all other expenses in connection
          therewith.

     i.   ADVICE OF COUNSEL.  The parties represent and warrant that in
          executing this Agreement, they have each had the opportunity to obtain
          independent financial, legal, tax and other appropriate advice, and
          are not relying upon any other party (or the attorneys or other agents
          of such other party) for any such advice

     j.   SUBJECT HEADINGS AND DEFINED TERMS.  Subject headings and choice of
          defined terms are included for convenience only and shall not be
          deemed part of this Agreement.

     k.   CUMULATIVE RIGHTS AND REMEDIES.  The rights and remedies provided for
          in this Agreement shall be cumulative; resort to one right or remedy
          shall not preclude resort to another or to any other right or remedy
          provided for by law or in equity.

     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.

                              "Image":

                               -----

                              IMAGE ENTERTAINMENT, INC.,

                              a California corporation

                              By:/s/ MARTIN W. GREENWALD

                                 ---------------------------------------
                                   MARTIN W. GREENWALD, President

                              "Executive":

                               ---------

                              /s/ DAVID BORSHELL

                              ------------------------------------------

<PAGE>

                         DAVID BORSHELL, an individual
<PAGE>

                              EXHIBIT A to David Borshell's Employment Agreement

--------------------------------------------------------------------------------
                                    OFFICER

                            BONUS COMPENSATION PLAN
--------------------------------------------------------------------------------

 .    OBJECTIVES OF THE PLAN.  In addition to Base Salary and stock options, to
     provide Officer incentive compensation based upon Image's operating
     profits.

 .    "PRE-TAX PROFIT" PERCENTAGE.  The incentive compensation plan is designed
     to provide Officers with a bonus based on Image's "Pre-Tax Profits," as
     defined on the attached.  The actual amount earned pursuant to the Plan
     shall be based upon audited fiscal year end numbers and determined using
     the calculation method attached.  Concurrent with the payment of Bonus
     Compensation, Image shall deliver to Executive a detailed statement setting
     forth the numbers and method of calculation.

 .    PAYMENT.  Bonus Compensation, if any, for the applicable fiscal year will
     be paid, using best efforts, at the earliest practicable date following
     completion of Image's annual audit, as conducted by Image's independent
     certified public accountants, and the filing of Image's Annual Report on
     Form 10-K for that fiscal year.

 .    AUDIT RIGHTS.  Executive shall be entitled to audit, at Executive's own
     expense, Image's records in order to verify any Bonus Compensation
     statement rendered hereunder.  Any such audit shall be conducted by a
     certified public accountant upon reasonable notice to Image and during
     Image's normal business hours.  Any statement not questioned by Executive
     in writing within 3 years from the date of such statement shall be deemed
     final and conclusive.  In the event an audit reveals a discrepancy of 5% or
     more, Image shall bear the full cost of the audit and pay Executive
     interest on any underage at the highest rate permitted by law.

 .    DISPUTES.  Disagreement as to the computation of Bonus Compensation and/or
     any numbers used in such computation shall be settled by the majority
     decision of 3 certified public accountants, one to be selected by each
     party to the dispute, the two thus appointed shall choose the third, and
     the three thus appointed shall constitute the board of arbitration.  Such
     board, acting by majority vote within 30 days after choosing the third
     arbitrator, shall resolve such disagreement and their decision shall be
     final and binding on Executive, Image and any other person with an interest
     in the matter.

 .    PRORATION OF BONUS COMPENSATION.  For any partial fiscal year for which
     Executive is entitled to receive Bonus Compensation, the proration shall be
     determined by multiplying total Net Profits for the fiscal year within
     which such partial fiscal year occurs by (a) the decimal equivalent of the
     applicable percentage bonus and by (b) a number equal to the number of
     months during any such partial fiscal year in which Executive was employed
     by Image (or, if applicable, such longer period as is set forth in the
     Employment Agreement), divided by 12.

<PAGE>

                                AMENDMENT #1 TO
                    EMPLOYMENT AGREEMENT DATED JULY 1, 1994

      Reference is made to that certain Employment Agreement dated as of July 1,
1994 (the "Agreement"), by and between Image Entertainment, Inc., a California
           ---------

corporation ("Image"), and David Borshell, an individual ("Borshell").  All
              -----                                        --------

defined terms not defined herein will have the meanings set forth in the
Agreement.

1.    EFFECTIVE DATE.  All of the terms and conditions of this Amendment will be
      applicable commencing on and effective as of September 1, 1994 (the
      "Effective Date").
       --------------

2.    EXECUTIVE OFFICER STATUS & TITLE.  Paragraph 2 of the Agreement is amended
      to the following extent:

      a.    Borshell's status will be increased from an "Officer" to an
            "Executive Officer," such that all references to "Officer" in the
            Agreement will hereinafter automatically be "Executive Officer,"
            except as set forth in Paragraph 4(a) below; and,

      b.    Borshell's title will "Sr. Vice President of Operations, Sales &
            Marketing," subject to the approval of the Company's Board of
            Directors.

3.    BASE SALARY.  "Base Salary," in Paragraph 3(a) of the Agreement is hereby
                     -----------

      increased from $87,140 to $100,000.

4.    FRINGE BENEFITS.  Borshell's fringe benefits will be amended as follows:

      a.    "Insurance," in Paragraph 5(a)(i) of the Agreement will be upgraded
             ---------

            to that of an Executive Officer as of July 1, 1995; and,

      b.    "Vacation," in Paragraph 5(a)(iii) of the Agreement is hereby
             --------

            increased from 3 to 4 weeks.

5.    GENERAL PROVISIONS.

      a.    Headings.  Article and paragraph headings, as used in this
            --------

            Amendment, are for convenience only and are not a part hereof, and
            will not be used to interpret any provision of this Amendment or the
            Agreement.

      b.    Integration.  The parties hereby acknowledge and agree that the
            -----------

            Agreement as amended hereby constitutes the entire agreement between
            the parties with respect to the subject matter hereof.

      c.    Severability.  In the event that any provision of the Agreement as
            ------------

            amended hereby will be held invalid or unenforceable, such provision
            will be severable from, and such invalidity or unenforceability will
            not be construed to have any effect on, the remaining provisions of
            the Agreement.
<PAGE>

      d.    Ratification and Confirmation of Agreement.  Except as set forth
            ------------------------------------------

            herein to the contrary, the Agreement is hereby ratified and
            affirmed; provided, however, that in the event of any
                      --------  -------

            inconsistencies, the terms, conditions and definitions set forth
            herein will control.

      IN WITNESS WHEREOF, each of the parties has executed and entered into this
Amendment as of the Effective Date set forth above.

IMAGE ENTERTAINMENT, INC.                    DAVID BORSHELL

/s/ MARTIN W. GREENWALD                      /s/ DAVID BORSHELL
-----------------------------------          -----------------------------------
Martin W.  Greenwald, President              David Borshell, an individual