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Image rejects Lionsgate nominees

VANCOUVER (CP) _ A prominent shareholder advisory firm has recommended DVD company Image Entertainment (NASDAQ:DISK) shareholders reject five of six dissident nominees to its board of directors put forward by Lionsgate Entertainment Corp. (NASDAQ:LGF), saying they lacked enough industry experience to warrant support.

The only dissident nominee that Institutional Shareholder Services recommended was Duke Bristow, an economist and corporate governance expert at the University of California in Los Angeles.

"The presence of Duke Bristow on the Image board would likely prove beneficial to long-term shareholders value," ISS wrote in a report.

Lionsgate, which it holds a 19 per cent stake in Image, launched a proxy fight earlier this month to replace the Image board after what it called its "abysmal" financial performance.

Though ISS did not support the full dissident slate of candidates, it didn’t let Image management off the hook. It said the company had taken recent steps to disenfranchise shareholders and adversely effect shareholder rights.

Image signed a 10-year deal with Relativity Media to distribute the company’s movies on all home video and digital formats in exchange for 3.4 million shares of the company, making it one of Image’s largest shareholders.

"It is clear that Image has underperformed recently and appears to be hanging most of its hopes on the Relativity transaction and the monetization of its digital rights," ISS said.

"Because both of these strategies have not yet generated quantifiable results, shareholders must be willing to have faith in the incumbents’ vision. Any vision, however, is arguably better than no vision, which is what Lionsgate has offered to date."

Shareholders will vote Oct. 10 at the company’s annual meeting.

Last year, Image refused an offer to swap 0.38 to 0.42 of a Lionsgate share for each Image share, saying the offer undervalued the company. Lionsgate then made a fully financed cash buyout offer of US$4 a share that it renewed in July.

ISS said that shareholders may be "understandably anxious that if elected the dissidents may use their new found board power to ‘stack the deck’ in favour of the sponsor’s bid, regardless of whether such a bid is in the best interests of shareholders."

Lionsgate vice-chairman Michael Burns urged shareholders vote for all its nominees.

"Unlike the current conflicted and entrenched Board, our independent nominees will act in the best interests of all stockholders, including fairly reviewing any credible offer to acquire Image," Burns said in a statement.

"We believe our candidates have the integrity, leadership and experience necessary to make a substantial and necessary positive impact on Image’s management and board of directors."

ISS noted that Image Investors Co., controlled by Metromedia Co. chairman John Kluge and his partner Stuart Subotnick, hold a 28 per cent stake in Image and have held it for many years.

"If market speculation that IIC will support the incumbents is true, then the incumbents have a head start towards victory."

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