TERMINATION AND EXCHANGE AGREEMENT

        This Termination and Exchange Agreement ("Agreement") is entered into on March 24, 2003, effective as of March 14, 2003, between Image Entertainment, Inc., a California corporation (collectively with its subsidiaries, as the context requires, "Company") and Image Investors Co., a Delaware corporation ("Investor").

        WHEREAS, Company and Investor entered into a Credit Agreement as of September 29, 1997 (as amended, the "Credit Agreement"), pursuant to which Investor loaned Five Million Dollars ($5,000,000) to Company, as evidenced by a Convertible Subordinated Promissory Note ("Note") for $5,000,000 dated as of October 29, 1997;

        WHEREAS, the outstanding balance due on the Note as of the date hereof is Two Million Five Hundred Fifty Thousand Dollars ($2,550,000), plus accrued interest thereon at a rate of Nine and One Quarter Percent (9.25%) from December 31, 2002 (collectively, the "Note Balance");

        WHEREAS, the parties have agreed to terminate the Credit Agreement as of the date hereof, and that Company will pay off the Note in full, as provided herein;

        WHEREAS, Company is issuing and selling shares of its common stock, no par value ("Common Stock"), and a warrant to issue Common Stock (the "Warrant") to Investor subject to the terms and conditions set forth herein; and

        WHEREAS, the shares of Common Stock and the Warrant being purchased by Investor hereunder ("Securities") are being issued in a private placement without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on one or more exemptions from the registration requirements under the Act;

        NOW THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

        1.    Note Payoff and Sale of Shares.

                1.1    Share Purchase. Upon the basis of the representations, warranties and covenants, and subject to the terms and conditions set forth in this Agreement, Investor agrees to purchase, and Company agrees to sell, issue and deliver to Investor, Five Hundred Sixty-Seven Thousand Five Hundred Sixty-Eight (567,568) shares of Common Stock (the "Shares") at a price of One Dollar and Eighty-Five Cents ($1.85) per Share, for a total purchase price ("Purchase Price") of One Million Fifty Thousand Dollars ($1,050,000). Payment of the Purchase Price shall be made by deducting the full amount of the Purchase Price from the remaining balance due on the Note as of the date of this Agreement.

                1.2    Cash Payment. On March 24, 2003, Image will pay Investor by wire transfer or other immediately available funds an amount equal to the Note Balance less the Purchase Price, i.e. One Million Five Hundred Fifty-Three Thousand Six Hundred Thirty-Seven Dollars and Thirty-Three Cents ($1,553,637.33).

                1.3    Warrant. As further consideration for the transactions provided for herein, Company will execute and deliver to Investor a Warrant in the form attached hereto as Exhibit A ("Warrant") to purchase up to One Hundred Thousand (100,000) shares of Common Stock at an exercise price of Two Dollars and Four Cents ($2.04) per share.

                1.4    Delivery of Certificates.

                        (a)    Closing. The closing of the transactions contemplated hereby ("Closing") will take place as soon as practicable after execution of this Agreement, and in any event by March 31, 2003, at such time and place as Investor and Company mutually agree.

                        (b)    Deliveries By Company. At Closing, and as conditions to the obligation of Investor to make the deliveries set forth in Section 1.4(c) below, Company will deliver to Investor: (i) a stock certificate or certificates evidencing the number of Shares to be purchased by Investor hereunder, (ii) an original of the Warrant fully executed by Company, (iii) an opinion of counsel to Company (which may be Company's inside counsel) as set forth on Exhibit 1.4(b) hereto; (iv) an original of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit B, executed by Company, and (v) all other documents, instruments and writings required to be delivered by Company to Investor hereunder or otherwise required in connection herewith.

                        (c)    Deliveries By Investor. At Closing, and as conditions to the obligation of Company to make the deliveries set forth in Section 1.4(b) above, Investor will deliver to Company: (i) the original Note, marked canceled and paid in full, (ii) an original of the Registration Rights Agreement executed by Company, and (iii) all other documents, instruments and writings required to be delivered by Company to Investor hereunder or otherwise required in connection herewith.

        2.    Representations and Warranties of Company. Company represents and warrants to Investor that, except as described in Company's reports (the "Reports") filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"):

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