8-K

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 2, 2009

EDCI HOLDINGS, INC.

 (Exact name of registrant as specified in its charter)

Delaware	001-34015		26-2694280
(State or other Jurisdiction of Incorporation)	(Commission File Number)		(IRS Employer Identification No.)
1755 Broadway, 4th Floor  New York, New York		10019
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 333-8400

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02.  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

      Following the  September 19, 2008, termination of Mr. Jordan M. Copland’s (“Mr. Copland”) employment as Chief Executive Officer of Entertainment Distribution Company, Inc., the wholly owned subsidiary of the Registrant, (the “Company”), a)  Mr. Clarke H. Bailey (“Mr. Bailey”), already Chairman of the Boards of Directors of both the Company and its operating subsidiary, Entertainment Distribution Company, LLC (“EDC”), assumed the role of Interim CEO of the Company and EDC; and b)  Mr. Robert L. Chapman, Jr. (“Mr. Chapman”), already a member of the Company’s Board of Directors (the “Company Board”) but not EDC’s Board of Directors (the “EDC Board”), and advisor to the owner of the largest ownership block of the Company, became more actively involved in the governance function embedded within their duties of loyalty and due care to the Company.

     Following this elevation in oversight of EDC’s operations by Messrs. Bailey and Chapman, Messrs. Bailey and Chapman became increasingly concerned regarding the performance of Mr. Thomas Costabile (“Mr. Costabile”) in his role as EDC Chief Operating Officer (or “principal operating officer” using Securities and Exchange Commission parlance).  Such performance concerns were conveyed to Mr. Costabile verbally (both telephonically and in person), and documented in writing, by both Mr. Bailey and Mr. Chapman, including a November 20, 2008 written correspondence sent by Mr. Bailey to Mr. Costabile in which, among other matters, Mr. Bailey responded to Mr. Costabile’s inquiry as to whether Mr. Bailey “want[ed] [Mr. Costabile] to quit [his] job” by stating, “ I [“Mr. Bailey”] need to know whether you can successfully and honestly discharge your duties.”   Please see Exhibit 99.1 hereto.

     Concerns regarding Mr. Costabile’s performance were conveyed by Messrs. Bailey and Chapman to the EDC Board, including a November 21, 2008 written correspondence from Mr. Chapman to Mr. Bailey in which Mr. Chapman stated Mr. Chapman’s view that Mr. Chapman was “confident that Mr. Costabile has been negligent (if not patently fraudulent) in performing his assigned duties,” and asked the EDC Board “to consider seriously whether Mr. Costabile’s termination is reasonable and proper in light of the facts as we now know them..”  Please see Exhibit 99.2 hereto.  All members of the EDC Board who responded to Mr. Chapman’s November 21, 2008 written correspondence (cited above) concurred with Mr. Chapman’s recommendation from such written correspondence.

     On November 25, 2008, Mr. Costabile sent written correspondence, in response to Mr. Bailey’s November 20, 2008 written correspondence to Mr. Costabile (cited above), in which, among other matters,  Mr. Costabile a) claimed to confirm his “100% commit[ment] to EDC LLC … and [his] working with the team to ensure the successful completion of the [Sony DADC] transaction”; b) attempted to explain a matter regarding claims for expense reimbursement that had been questioned by Mr. Bailey, as Interim CEO supervising Mr. Costabile since September 2008 (see above); c) claimed to be “ready to meet” Mr. Bailey the next business day, November 26, 2008, to discuss related matters; and d) did not make any reference to any potential diminution, material or otherwise, of his functions, authority, duties, and responsibilites as EDC Chief Operating Officer as a result of the prospective Sony DADC transaction.  Please see Exhibit 99.3 hereto.

     On December 1, 2008, Mr. Bailey sent written correspondence, in response to Mr. Costabile’s November 25, 2008 written correspondence to Mr. Bailey (cited above), in which, among other matters, Mr. Bailey cited a) Mr. Baileys views regarding various purported omissions and inaccuracies in Mr. Costabile’s November 25, 2008 correspondence (cited above); and b) “numerous instances where [Mr. Bailey believed that Mr. Costabile had] been negligent in completing [Mr. Costabile’s] duties and/or mislead [Mr. Bailey] about the status of those duties.”  Please see Exhibit 99.4 hereto.

     On December 12, 2008, Mr. Chapman sent Mr. Costabile written correspondence in which Mr. Chapman, among other matters, conveyed a) a critical review of Mr. Costabile’s performance at the December 9, 2008 meeting of the Company Board; b) Mr. Chapman’s “strong view that [Mr. Costabile was] not performing [his] COO duties satisfactorily, and this view appear[ed] to be shared by both [Mr. Costabile’s] boss [Mr. Bailey] and [Mr. Costabile’s] peers (Michael W. Klinger, Richard A. Friedman and Matthew K. Behrent)”; and c) Mr. Chapman’s advice to Mr. Costabile to “rectify this situation immediately.”  Please see Exhibit 99.5 hereto.

     On December 15, 2008, Mr. Costabile sent written correspondence, in response to Mr. Chapman’s December 12, 2008 written correspondence to Mr. Costabile (cited above),  in which Mr. Costabile acknowledged receipt of Mr. Chapman’s December 12, 2008 correspondence and conveyed Mr. Costabile’s intention to “discuss a plan with [Mr. Bailey] tomorrow morning to rectify the situation.”  Please see Exhibit 99.6 hereto.

     On December 16, 2008, Mr. Chapman sent Mr. Costabile written correspondence in which Mr. Chapman, among other matters, conveyed Mr. Chapman’s a) understanding “that [Mr. Costabile] met with [Mr. Bailey] today and suggested a ‘transition plan’ involving the conclusion of [Mr. Costabile’s] employment with EDC, and [Mr. Costabile’s] intent to communicate with EDC Board members about this matter as well”; b) views that “neither a future transition plan nor [Mr. Costabile’s] communicating with EDC’s Board directly addresses [Mr. Costabile’s] current performance deficiencies while [Mr. Costabile] remains a highly compensated executive of EDC”; and c) Mr. Chapman’s “opinion that [Mr. Costabile’s] seemingly lax approach to fulfilling [Mr. Costabile’s] duties as EDC’s COO, a highly compensated position, could be construed as negligent.”  Please see Exhibit 99.7 hereto.

     During the balance of the 4Q2008, Mr. Bailey continued to engage in discussions with a) Mr. Costabile regarding Mr. Costabile’s potential, prospective separation from the Company, and b) Mr. Chapman regarding Mr. Chapman’s views that Mr. Costabile should be terminated for “cause” in line with the terms of Mr. Costabile’s employment contract.

     On December 31, 2008, on schedule in line with EDC’s internally and externally communicated plans, EDC closed its definitive asset purchase agreement for the sale of EDC’s distribution operations located in Fishers, Indiana, U.S. supply agreements with Universal Music Group, the equipment located in its Fishers, Indiana distribution facility and certain manufacturing equipment located in its Kings Mountain, North Carolina facility, as well as the transfer of U.S. customer relationships to Sony DADC US Inc. ("Sony DADC") for $26.0 million in cash and other consideration (the “Sony DADC Transaction.”)

     On January 2, 2009, despite Mr. Costabile’s a) written confirmation to Mr. Chapman on December 31, 2008 of Mr. Costabile’s own travel arrangements for a January 2009 EDC business trip to Europe with Messrs. Bailey and Chapman, b) written correspondence to Mr. Bailey on December 31, 2008 of Mr. Costabile’s self defined “List of Tasks 2009” (please see Exhibit 99.8 hereto); and c) prior to Janauary 2, 2009, failure to deliver any verbal or written communication to Mr. Bailey, Mr. Chapman or any other member of the Company Board or EDC Board that Mr. Costabile believed that the Sony DADC Transaction could result in a diminution, material or otherwise, of Mr. Costabile’s functions, authority, duties, and responsibilities as EDC Chief Operating Officer, Mr. Costabile sent by certified USPS mail to Mr. Bailey a written correspondence (the “Costabile Resignation Letter”) dated January 2, 2009 (and received by Mr. Bailey on January 6, 2009) in which Mr. Costabile stated, among other matters, a) “Pursuant to Sections 8, 2 (b) (3) and (3) (1) (2), [Mr. Costabile was] terminating [his] employment with Glenayre and EDC immediately for “Good Reason” due to the sale of certain US assets of EDC, LLC and EDC (USA) LLC to SonyDADC [sic] effective December 31, 2008, said sale resulting in a material diminution by Glenayre and EDC of [Mr. Costabile’s] functions, authority, duties and responsibilities”; and b) Mr. Costabile’s intent to instruct his attorney to contact Mr. Bailey directly to implement those payments and benefits purportedly “due to Mr. Costabile as provided in Section 3 (l) of the Letter Agreement.”  Please see Exhibit 99.9 hereto.

     On January 5, 2009, before Mr. Bailey had received on January 6, 2009 Mr. Costabile’s January 2, 2009 mailed letter terminating immediately his own employment with EDC, but following Mr. Costabile’s failure to meet with Mr. Bailey on January 5, 2009 to continue to engage in discussions with Mr. Bailey regarding Mr. Costabile’s potential, prospective separation from the Company, Mr. Chapman sent Mr. Costabile written correspondence in which Mr. Chapman, among other matters, conveyed Mr. Chapman’s a) being “astounded by [Mr. Costabile’s] seeming lack of commitment to [Mr. Costabile’s] employer, EDC, and as collateral damage [Mr. Costabile’s] co-workers and EDCI’s owners”; and b) view “that it would be adjudicated that [Mr. Costabile has] been negligent in performing [aforementioned] duties, and that certain other actions by “Mr. Costabile] would be construed as clear violations of code and conduct.”  Please see Exhibit 99.10 hereto.

     On January 6, 2009, before Mr. Bailey had received the Costabile Resignation Letter, a) Mr. Costabile participated in several proprietary EDC conference calls unrelated to Mr. Costabile’s employment status, and b) Messrs. Costabile, Bailey and Chapman subsequently engaged in discussions and detailed negotiations regarding Mr. Costabile’s potential, prospective separation from the Company.  However, following Mr. Bailey’s receipt of the Costabile Resignation Letter, Mr. Chapman, who had been appointed Chief Executive Officer of both the Company and EDC, sent and immediately thereafter read verbatim to Mr. Costabile written correspondence, written by Mr. Chapman, in which Mr. Chapman, among other matters, cited a) EDC’s views that Mr. Costabile had “engaged in gross negligence and by doing so have breached [Mr. Costabile’s] employment agreement dated May 9, 2005”; b) Mr. Costabile’s utilization on January 6, 2009, of “EDC’s corporate offices and particip[ation] in several proprietary corporate conference calls despite having sent a letter dated January 2, 2009 resigning “immediately”; and c) orders to Mr. Costabile to “cease and desist in unlawful acts and remove [himself] from EDC’s offices immediately.”  Please see Exhibit 99.11 hereto.

     On January 7, 2009, Serling Rooks & Ferrara LLP (“SRF”), legal counsel to Mr. Costabile, sent written correspondence dated January 6, 2009 to Mr. Chapman in which SRF, among other matters, a) disputed various of Mr. Chapman’s claims made in Mr. Chapman’s January 6, 2009 correspondence to Mr. Costabile (cited above); and b) stated “it is obvious that the parties wish to terminate this relationship.”  Please see Exhibit 99.12 hereto.

     On January 9, 2009, Littler Mendelson P.C. (“Littler”), outside counsel to the Company and EDC, sent written correspondence to SRF in which Littler, among other matters, a) disputed various claims made by SRF in its January 6, 2009 correspondence to Mr. Chapman (cited above); b) disputed Mr. Costabile’s claim to  having contractually provided “good reason” to terminate his own employment immediately on January 2, 2009; c) stated “EDC has additional Cause to terminate Mr. Costabile’s employment under the Agreement,” warning that “if this untenable situation is not resolved shortly, it is anticipated that the Company’s Board will inform Mr. Costabile that he will be terminated for Cause pursuant to subparagraphs (1) (2) and/or (4) of  Section 3(l) of the Agreement.”  Please see Exhibit 99.13 hereto.

     On January 12, 2009, SRF sent written correspondence to Littler that, among other matters, disputed various claims made in Littler’s January 9, 2009 correspondence to SRF (cited above).  Please see Exhibit 99.14 hereto.

     On January 14, 2009, the EDC Board sent written correspondence to Mr. Costabile that, among other matters, a) disputed various claims made in SRF’s January 12, 2009 correspondence to Littler (cited above); b) provided Mr. Costabile until the close of business on January 20, 2009 to “provide written evidence of remedy” for asserted Costabile contractual employment breaches as follows - -- “resignation without good reason,” “acts of dishonesty and fraud,” and “material violation of responsibilities.”  Please see Exhibit 99.15 hereto.

     On January 19, 2009, Mr. Costabile met with Mr. Matthew K. Behrent, the Company’s Executive Vice President of Corporate Development, to engage in discussions related to prior negotiations between the Company and Mr. Costabile regarding a potential settlement agreement between the parties.

     On January 20, 2009, Mr. Costabile sent written correspondence to the EDC Board that, among other matters, a) disputed various claims made in the EDC Board’s January 14, 2009 correspondence to Mr. Costabile (cited above), b) provided no written evidence of remedy for asserted Costabile employment contract breaches (cited above).  Please see Exhibit 99.16 hereto.

     On January 20, 2009, the EDC Board met to consider any and all possible and prospective efforts by Mr. Costabile to remedy causes for his termination asserted by EDC Board's January 14, 2009 correspondence to Mr. Costabile (cited above).  At the conclusion of such board meeting, the EDC board passed a resolution to terminate Mr. Costabile for “cause” following, and subject to, the passing of an unspecified, reasonable period of time during which EDC was unsuccessful in reaching a definitive settlement agreement with Mr. Costabile.  As of the date of this filing, the EDC Board has not terminated Mr. Costabile for “cause” as such settlement discussions and negotiations remain ongoing.

     During January 2009, Littler and SRF engaged in discussions and detailed negotiations towards reaching a settlement agreement between the parties.  However, given a) the entire month of January 2009 had passed without reaching such settlement agreement; b) the requirements of Item 5.02 (b) of Form 8-K (http://www.sec.gov/divisions/corpfin/form8kfaq.htm), and c) continuing inquiries regarding uncertainty underlying Mr. Costabile’s absence from his Chief Operating Officer duties, the Company determined that full disclosure of the circumstances surrounding Mr. Costabile’s employment status should be made no later than the first business day of February 2009.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	November 20, 2008, written correspondence from Clarke H. Bailey to Thomas Costabile
99.2	November 21, 2008, written correspondence from Robert L. Chapman, Jr. to Thomas Costabile
99.3	November 25, 2008, written correspondence from Thomas Costabile to Clarke H. Bailey
99.4	December 1, 2008, written correspondence from Clarke H. Bailey to Thomas Costabile
99.5	December 12, 2008 written correspondence from Robert L. Chapman, Jr. to Thomas Costabile
99.6	December 15, 2008, written correspondence from Thomas Costabile to Robert L. Chapman, Jr.
99.7	December 16, 2008, written correspondence from Robert L. Chapman, Jr. to Thomas Costabile
99.8	December 31, 2008 written correspondence from Thomas Costabile to Clarke H. Bailey
99.9	January 2, 2009, Thomas Costabile Letter of Resignation
99.10	January 5, 2009, written correspondence from Robert L. Chapman, Jr. to Thomas Costabile
99.11	January 6, 2009, written correspondence from Robert L. Chapman, Jr. to Thomas Costabile
99.12	January 6, 2009, written correspondence from Serling Rooks & Ferrara LLP to Robert L. Chapman, Jr.
99.13	January 9, 2009, written correspondence from Littler Mendelson P.C. to Serling Rooks & Ferrara LLP
99.14	January 12, 2009, written correspondence from Serling Rooks & Ferrara LLP to Littler Mendelson P.C.
99.15	January 14, 2009, written correspondence from EDC Board to Thomas Costabile
99.16	January 20, 2009, written correspondence from Thomas Costabile to EDC Board

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.  

	EDCI HOLDINGS, INC.
Date: February 2, 2009	By:	/s/ Robert L. Chapman, Jr.
		Robert L. Chapman, Jr. Chief Executive Officer

EX-99.1

          
60;             & #160;                                                                                                                                                                                                                                                                                                                
60;                                                                                                                                               

                                                                                                                                                    & #160;                                                                                                                      Exhibit 99.1

From: Bailey, Clarke 

Sent: Thursday, November 20, 2008 6:07 PM

To: tom.costabile@edcllc.com

Subject: Highly Confidential: Follow Up

Tommy,

As a follow up to our conversation this afternoon, I thought that I would summarize my concerns and clarify a few issues.  Suffice it to say the last several days have been very disappointing.  Your performance yesterday during the Operations review meeting was unacceptable.  During that meeting you informed us that the latest view for the units to be manufactured in the month of December had slipped to 11 mm but could not tell us how that related to the forecast for the same month.  As you know, if we do not achieve our forecast we are at risk of violating the escrow covenant contained in the Amendment to the Loan Agreement.  Not closing the Sapphire transaction would be disastrous for EDC LLC.  Therefore it is critical that we know where we stand at all times with regard to this important metric, something you were unable to do.

I along with all members of the senior team also have grave reservations about your lack of performance regarding the tasks listed on the Sapphire Time and Responsibility Schedule.  During our call today it was apparent that many tasks did not have definitive deadlines, you were unaware of the status of the items and the plan to achieve many tasks was unclear or not defined at all. In addition you reported to the team that no task on the IT roadmaps were behind schedule.  I asked that you send me the IT roadmaps which you did.  In a follow up conversation I ask you how one would know if the items were completed and the answer you gave me were the ones with the check marks.  When I pointed out that several items with due dates well before today did not have checkmarks, you told me that you were only guessing.  It is difficult for me to work with a team member who guesses and does not give accurate answers. Finally, the time to review your list took one and half hours, when it should have taken less than 30 minutes.

In addition, I am very concerned about your lack of honesty beginning with the numerous personal items contained on your expense reports. Of greatest concern is the storage facility that contains mostly personal items for you and Jim Caparro which EDC has been paying for close to three and a half years, along your false yet vehement denial of statements made to Mike Klinger last night. These are not isolated, but only recent events

In response to your question as to whether I want you to quit your job, I need to know whether you can successfully and honestly discharge your duties.  On numerous occasions you have indicated to members of the senior management that you have several job offers at substantially more than your current compensation.  Obviously, the lack of 100% commitment to EDC LLC is troubling.  You agreed to seek counsel from your wife and lawyer before responding to me next week.

Once again the successful completion of the Sapphire transaction is paramount in eliminating close to two thirds of EDC LLC debt, solving the issue of the US operations reporting losses in 2009 and prolonging the life of the European Operations.  The team is working hard and accomplishing tasks to ensure that this transaction occurs and I need to know that you are willing to do the same.  I look forward to our conversation next week.

Clarke

___________________________

Chairman and Interim CEO

EX-99.2

                                                                                                                                                     0;                                                                                                                     Exhibit 99.2

From: Robert L. Chapman, Jr.

Sent: Friday, November 21, 2008 8:42 AM

To: 'Bailey, Clarke'

Subject: EDCI Holdings (EDCI): EDC: COO Costabile Termination?

November 21, 2008

Mr. Clarke H. Bailey

Chairman & Interim CEO

EDCI Holdings, Inc.

1755 Broadway, 4th Floor

New York, NY  10019

Office:  (212) 331-2760

E-mail:  clarke.bailey@edcllc.com

Clarke,

As a director of, and managing member of the investment advisor managing funds with the largest (13%) ownership stake in, EDCI Holdings, Inc. (EDCI), I appreciate the opportunity you have given me to participate in the Operations and Staff meetings to better understand and solve the macroeconomic, industry and internal management and operational issues facing EDCI and its CD/DVD business, EDC LLC (EDC).  The fact that the senior management team finds itself in a position where it must manage EDC during a difficult economic and industry downturn, combined with the need to strictly shepherd the EDC/Sony DADC asset purchase agreement to consummation, is obviously formidable.

Particularly given the circumstances described above, both EDCI and EDC simply have no choice but to be managed by capable, responsible, honest individuals.  Having participated in several weeks of both Operations and Staff meetings, I must state that I strongly believe that Tom Costabile, EDC Chief Operating Officer, appears neither capable, responsible nor honest.   From the standpoint of capability, Mr. Costabile seems to be lacking the skill set that one must believe is required to perform the duties expected of him as EDC COO.  This has been exhibited by Mr. Costabile’s seeming incapability to marshal the Sony closing tasks assigned to him, even after repeated reminders by both you as EDCI Chairman/CEO and me as the representative of EDCI’s largest ownership block.  From the standpoint of responsibility, Mr. Costabile does not seem to be keeping close track of EDC’s proximate monthly volume projections as they compare to current volume output; this event regarding 12/2008 volume projections (i.e., not being known by Mr. Costabile this past Wednesday (11/19/2008)), even after repeated inquiries from you and me, was shocking.  As far as Mr. Costabile’s integrity is concerned, he has shown a pattern of giving both you and me answers to our questions that do not seem to resemble the truth, whether it be the status of his oversight of EDC and the related Sony DADC transaction, or basic expense reimbursement matters.

In conclusion, I am increasingly confident that Mr. Costabile has been negligent (if not patently fraudulent) in performing his assigned duties that relate to his nearly $500,000/year compensation.  I ask the EDCI Board of Directors to consider seriously whether Mr. Costabile’s termination is reasonable and proper in light of the facts as we now know them.

Robert L. Chapman, Jr.

Managing Member

Chapman Capital L.L.C.

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

Mailing Address:

1007 N. Sepulveda Blvd. #129

Manhattan Beach, CA  90267

Office: (310) 373-0404

Facsimile:  (310) 373-0443

E-Mail: chapman@chapcap.com

Web:  http://www.hedgefunds.com

EX-99.3

                                                                                                                                                                                                                                                                          Exhibit 99.3

From: Costabile, Tom

To: Bailey, Clarke

Sent: Tue Nov 25 19:06:07 2008

Subject: RE: Highly Confidential: Follow Up

Clarke,

I have read your email of November 20, 2008 and confirm that I am 100% committed to EDC LLC and my working with the team to ensure the successful completion of the Sapphire transaction. Last week was a very challenging week, which was compounded by the physical move of our offices.  I will ensure that I am fully informed and focused  concerning all material matters and will continue to access the latest financial data and the details of the IT roadmaps enabling me to report relevant information in a timely and accurate manner.

Regarding the storage locker and contents, I have emptied the locker and closed the account. There were 4 file boxes of old EDC files which I delivered to your office. I recycled a box of old EDC stationary, a box of old EDC envelopes and a box of EDC holiday cards. There was also a box with an old HP scanner and a box with the projector, both of which I have brought into the office. The other contents of the locker were 2 file boxes with my files from Warner and Sony. Some of this data was used to develop the original EDC strategy. Also in the locker were the pictures from my office on the 23 floor of 825 Eighth Avenue. I recycled the files from Warner and Sony and most of the pictures. As discussed, I paid for the storage fees for September, October and November.

I know and trust that you recognize the importance of our working together in a cooperative and positive Manner and with your guidance I look forward to our bringing the Sapphire transaction to a successful conclusion.

I am ready to meet on Wednesday at your convenience.

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

1755 Broadway, 4th Floor

New York, NY 10019

212-331-2770

Tom.costabile@edcllc.com

EX-99.4

 Exhibit 99.4

From: Bailey, Clarke

Sent: Monday, December 01, 2008 2:46 PM

To: Costabile, Tom

Cc: hsib@aol.com; cobickell@gmail.com; pwg-pametriver@comcast.net

Subject: RE: Highly Confidential: Follow Up

Tom,

Thank you for your email dated November 25, 2008.  Unfortunately you failed to address several important questions from my email of November 20, 2008 and there are also several inaccuracies in your response. The most important question that I asked was whether you could perform your duties and do so honestly.  There are numerous instances where you have been negligent in completing your duties and/or have mislead me about the status of those duties.  As you know just last week, I was forced to reassign the Transition Services Agreement to Matt Behrent given the lack of any progress.  The list of uncompleted tasks is long and would include such items as the lease for 1755 Broadway, Section V of the board book, IT transition report and the finalization of the 2009 budget.

You state that the week of November 17th was challenging and infer that the movement of our offices somehow got in the way of your completing your responsibilities. Since being appointed the Interim CEO on September 19th, I have witnessed on numerous occasions your inability to get the job done.  In addition, I have serious concerns about your knowledge of and focus on the operations of EDC LLC.  Just last Wednesday, you reported that UMG’s demand for CDs in the US for the first quarter of next year would be 35 mm units, but were unable to tell me how that compared to the first quarter of 2008.

The issue of the storage unit is very problematic and once again involved dishonest responses.  When first confronted about the unit, you told me that there were 40 boxes stored in the unit, 30 of which belonged to Jim Capparro.  You went on to explain that you had terminated the lease and would be moving the contents out over the weekend.  I asked to be given access to the unit and you denied my request.  It was only after a conversation with the Chairman of the Governance Committee that you were willing to allow me access. However, that never happened because you had left the office.  On Wednesday you confirmed that no boxes were delivered to Jim Capparo.  I have had a chance to examine the contents of the four boxes you delivered to my office and the overwhelming majority of the documents do not belong to EDC.  Instead they should be the property of Apollo.  Sadly, EDC has been paying over $200 per month for almost 3.5 years.

I have and am prepared to work with you, but unfortunately you have not performed to date and have been dishonest in your dealings with me.

I am available to discuss this situation in more detail.

Clarke

EX-99.5

                                                                                                                                                     0;                                                                                                                     Exhibit 99.5

From: Robert L. Chapman, Jr.

Sent: Friday, December 12, 2008 9:20 AM

To: 'tom.costabile@edcllc.com'

Cc: 'Clarke H. Bailey (clarke.bailey@edcih.com)'

Subject: EDCI Holdings (EDCI): EDC: Personnel/Management: COO Costabile: BoD Performance

December 12, 2008

Tom,

Having returned to Los Angeles following the EDCI Board Meeting of 12/09/2008, I feel the need to review your performance at such meeting.  In general, I was disappointed with both your level of participation/contribution to the meeting, and the usefulness of any such minimal contribution.  You are EDC’s Chief Operating Officer, yet your grasp of and control over EDC's operations appears to be lax at best and non-existent (at times) at worst.

At times, I or other Board members asked you questions about operating metrics (e.g., unit volume, revenue or margin levels or changes and the reason(s) therefore), but you did not provide answers.  You instead, often seemingly instinctively, had a tendency to either a) deflect the question/analysis to Michael Klinger (MWK), EDC's CFO despite the fact that you should have been reviewing and analyzing the data with MWK before the Board meeting or b) state that you didn't have the answer "off the top of your head."  This deportment conveys anything but a command of EDC's operations.

In addition, the Industry section of the presentation that you prepared (before CHB's improvement) was inadequate.  Initially, you copied/pasted various graphs and other items from an industry data book.  Only after CHB and I expressed our concerns did you include information regarding worsening retailer (e.g., Best Buy) commitments (floor space) to CD sales, in addition to pricing declines/risks.  Again, this deportment conveys anything but the required command of EDC's operations.

As I sat next to you, as did MWK,  I was able to get a better sense for the possible reason for your apparent lack of command over EDC's operations.  For much of the meeting time that was focused on EDC, again over which you are COO, I witnessed you reading various E-mails and other files rather than engaging the meeting's attendees as EDC's COO.   100% focus on the meeting itself, particularly given the relatively fragile state in which EDC finds itself, should have been an obvious choice for you.   If this lack of focus on EDC transcends just Board meetings (i.e., into your day-to-day habits), it may explain much of your apparent performance deficiencies.

Your unacceptable behavior forces MWK, Richard A. Friedman (RAF), Clarke H. Bailey (CHB) and Matthew K. Behrent (MKB), as well as myself, essentially to make contributions that the Board expects of, and for which it is paying highly to, you.  EDC is paying you near a half a million dollars annualized base compensation to perform properly all the duties of EDC's COO position, rather than rely on others to do your job for you.  Again, it is my strong view that you are not performing your COO duties satisfactorily, and this view appears to be shared by both your boss (CHB) and your peers (MWK, RAF and MKB).

I firmly advise you, as an EDCI Board member and managing member to Chapman Capital L.L.C. with its own Funds' 13% ownership, once again (per other communications from me and CHB), to rectify this situation immediately.

Robert L. Chapman, Jr.

Managing Member

Chapman Capital L.L.C.

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

Mailing Address:

1007 N. Sepulveda Blvd. #129

Manhattan Beach, CA  90267

Office: (310) 373-0404

Facsimile:  (310) 373-0443

E-Mail: chapman@chapcap.com

Web:  http://www.hedgefunds.com

EX-99.6

                                                                                                                                                     0;                                                                                                                        Exhibit 99.6

From: Costabile, Tom [mailto:Tom.costabile@edcllc.com]

Sent: Monday, December 15, 2008 5:39 PM

To: Robert L. Chapman, Jr.

Cc: clarke.bailey@edcih.com

Subject: RE: EDCI Holdings (EDCI): EDC: Personnel/Management: COO Costabile: BoD Performance

Bob,

I acknowledge receipt of your email dated December 12, 2008. I will discuss a plan with Clarke tomorrow morning to rectify the situation.

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

1755 Broadway, 4th Floor

New York, NY 10019

212-331-2770

Tom.costabile@edcllc.com

EX-99.7

                                                                                                                                                     0;                                                                                                                     Exhibit 99.7

From: Robert L. Chapman, Jr.

Sent: Tuesday, December 16, 2008 8:27 AM

To: 'tom.costabile@edcllc.com'

Cc: 'Clarke H. Bailey (clarke.bailey@edcih.com)'

Subject: EDCI Holdings (EDCI): EDC: Personnel/Management: COO Costabile

December 16, 2008

TC,

I understand that you met with CHB today and suggested a “transition plan” involving the conclusion of your employment with EDC.  I also understand that you intend to communicate with EDC Board members about this matter as well.  Both of these actions should prove to be helpful in your decision making on how you handle any “transition.”

However, neither a future transition plan nor your communicating with EDC’s Board directly addresses your current performance deficiencies while you remain a highly compensated executive of EDC, as exhibited at the 12/09/2008 Board meeting (see E-mail below) and at various other times.  Such other times may include your apparent failure in May 2006 to meet the one year contractual deadline (of May 2006) to contest formally in writing the EDC/UMG “prevailing practice” calculation/standard for “service levels”.  It appears that you indicated to the EDC Board that such formal contesting of the prevailing standard had occurred by the stated deadline, though at this point there appears to be no record of your having done so.  This apparent failure seems to have compromised a block of business equating to 30% of UMGI’s business with EDC, subject to the Key Failure Notice’s standing following prospective negotiations that shall occur between EDC and UMGI.

I must say that it is my opinion that your seemingly lax approach to fulfilling your duties as EDC’s COO, a highly compensated position, could be construed as negligent.  As I am sure you are aware, EDC’s CEO has a duty to reduce/eliminate negligence amongst EDC’s employee/management ranks.  Fiduciaries simply have no other choice when it comes to negligent management.

It is my understanding that EDC has provided you with all necessary means to fulfill your duties as its COO.  However, it appears that you have chosen to adopt a management approach that has proven to lack effectiveness and productivity.  Making matters worse is that you appear to have misrepresented at times to EDC’s Board (and me as an EDCI director and representative of EDCI’s largest ownership block) that you were accomplishing, effectively and productively, your assigned duties.  This is of highest concern to me in my capacities described above.

RLCjr

EX-99.8

                                                                                                                                                     0;                                                                                                                     Exhibit 99.8

From: Costabile, Tom

To: Bailey, Clarke

Sent: Wed Dec 31 15:34:20 2008

Subject: List of Tasks

Clarke,

Attached is a list of tasks for 2009. Let’s discuss on Monday.

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

1755 Broadway, 4th Floor

New York, NY 10019

212-331-2770

Tom.costabile@edcllc.com

Thomas Costabile

List of Tasks 2009

(as of December 31, 2008)

Manage EDC European Operations

Coordinate with UMG & UMGI regarding:

Withdrawal of purported claim of a Key Failure

Sale of EDC International Operations

Manage the Kings Mountain facility ramp down focused on ensuring:

       Production commitments

       Relocation of component parts

       Decommissioning of equipment

       Sale of remaining equipment

       Sale of the facility and/or decommissioning

       Cataloging and packaging of company documents

Manage the restructuring of the EDC IT systems

       Closure of US Operations at Kings Mountain, NC, Reno, NV & Wilkes-Barre, PA

       Cut over and set up of new US systems

Manage the decommissioning and closure of the Reno, NV and Wilkes-Barre, PA warehouses

Coordinate resolution of complaint filed by Philips in the US

Coordinate revisions and/or closure of Operating licenses for MPEG-LA, Philips, Environmental, State and local permits

EX-99.9

                                                                                                                                                                                         
60;                                                                                Exhibit 99.9

EX-99.10

                                                                                                                                                     0;                                                                                                                   Exhibit 99.10

January 5, 2009

Mr. Thomas Costabile

Chief Operating Officer

Entertainment Distribution Company, Inc.

1755 Broadway, 4th Floor

New York, NY  10019
Office:  (212) 331-2770

E-mail: tom.costabile@edcllc.com

Tom,

Today you were scheduled to meet with EDCI Holdings, Inc. (“EDCI”) Chairman Clarke H. Bailey (“CHB”; see confirmatory E-mail below).  In addition, today was the first business week following the 12/31/2008 consummated sale of Entertainment Distribution Company (“EDC”)’s U.S. operations to Sony DADC <http://biz.yahoo.com/prnews/090105/ny55220.html?.v=1> , with its attendant delivery of transition services (per the Transition Services Agreement that accompanies the Asset Purchase Agreement).  Sunday night, instead of preparing either to get to work implementing the TSA in Kings Mountain or meet with EDCI Chairman Bailey, you notified various EDCI/EDCI executives of your prospectively being absent from work on this key work day.

I am astounded by your seeming lack of commitment to your employer, EDC, and as collateral damage your co-workers and EDCI’s owners.  I cannot understand why you would not have been in either a) Kings Mountain Sunday in preparation for this week’s management needs there or b) EDCI/EDC headquarters meeting with Chairman Bailey, as scheduled.  As for “weather” changing flight plans, I anticipate discovering that there were ample opportunities for you to get to either Kings Mountain or EDCI HQ today via a major international airport servicing NYC with multiple daily flights, or Kings Mountain via connecting flights.  However, I also anticipate discovering that you simply chose, voluntarily, not to make the effort to catch one of these flights so that you could perform your duties as EDC COO.

Your recent performance, combined with reported past under/non-performance by you and other related matters, give me cause to question whether you have been satisfying the terms of your employment agreement dated May 2005.  I am of the view that it would be adjudicated that you have been negligent in performing such duties, and that certain other actions by you would be construed as clear violations of code and conduct.  Discovery actions of your past four year’s deportment, including an expense reimbursement and direct-charge expense audit, in your executive role has a reasonable probability of supporting such assertions.

At 6:01 a.m. PST/9:01 a.m. PST today, following your asking EDCI CFO Michael W. Klinger (“MWK”) as to the results and his attendance of the EDCI 01/02/2009 Board meeting, MWK conveyed to you my reasonable request that you call me at once as I wanted to discuss that development with you.  You determined not to call me as instructed.  I left you a voice mail message earlier on Sunday to call me regarding my appointment, but you did not return my call at that time either.   Any potential claim that you may offer that you either a) haven’t received these requests to call me or b) have been unable to do so lacks any credibility and defies reason/logic/evidence.

I strongly recommend that you call me at the earliest possible moment so that we may engage in a dialog at once.

Robert L. Chapman, Jr.

Chief Executive Officer

EDCI Holdings, Inc.

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

Office: (310) 373-0404

E-Mail Primary: chapman@chapcap.com

E-Mail Secondary: robert.chapman@edcih.com

cc: CHB

EX-99.11

                                                                                                                                                     0;                                                                                                                    Exhibit 99.11

From: Robert L. Chapman, Jr.

Sent: Tuesday, January 06, 2009 12:12 PM

To: 'tom.costabile@edcllc.com'

Cc: 'Bailey, Clarke'

Subject: EDCI Holdings (EDCI): Personnel: Costabile: Separation & Consultancy Agreements

January 6, 2009

Mr. Thomas Costabile

Chief Operating Officer

Entertainment Distribution Company, Inc.

1755 Broadway, 4th Floor

New York, NY  10019

Office:  (212) 331-2770

E-mail: tom.costabile@edcllc.com

Mr. Costabile,

As you have been made aware both in writing and verbally both in 2008 and 2009, EDC has documented its views that you have engaged in gross negligence and by doing so have breached your employment agreement dated May 9, 2005 “TC Employment Agreement.”  In addition, EDC has evidence that you have misappropriated corporate assets for your personal benefit, possibly constituting act(s) of embezzlement (http://www.lectlaw.com/def/e005.htm).  I repeat:  in 2008 and also this year, you were notified of EDC’s views regarding gross negligence and misappropriation.  Clearly, you have attempted to “beat EDC to the punch” by submitting, with invalid “good reason,” letter of resignation dated January 2, 2009, that was received today by EDCI Chairman Clarke Bailey, well after you were notified of EDC’s substantiated claims of gross negligence and misappropriation.  To the contrary, per the TC Employment Agreement, EDC does have cause to terminate your employment immediately.

In addition, today you utilized EDC’s corporate offices and participated in several proprietary corporate conference calls despite having sent a letter dated January 2, 2009 resigning “immediately” (i.e., you ceased to be an executive, based on an invalid claim of “good reason” on January 2, 2009).  As only you alone (i.e., EDC had not received any written or verbal notification from you before or at the time of these conference calls) were aware that by your own January 2, 2009 resignation, itself never communicated in another fashion to EDC/EDCI outside of the letter received today after the conference calls had concluded, you no longer were an employee of EDC at the time you participated in two proprietary conference calls and by doing so potentially engaged in various unlawful acts.

As a result of the above, you are ordered to a) cease and desist in unlawful acts, and b) remove yourself from EDC’s offices immediately. This matter shall be turned over to Littler Mendelson by the close of today’s business.

Robert L. Chapman, Jr.

Chief Executive Officer

EDCI Holdings, Inc.

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

Office: (310) 373-0404 x 200

E-Mail Primary: chapman@chapcap.com

E-Mail Secondary: robert.chapman@edcih.com

EX-99.12

                                                                                                                                                                    0;                                                                                                  Exhibit 99.12

EX-99.13

                                                                                                                                                                    0;                                                                                                    Exhibit 99.13

EX-99.14

                                                                                                                                                                    0;                                                                                                     Exhibit 99.14

EX-99.15

                                                                                                                                                                    0;                                                                                                                                     Exhibit 99.15

EX-99.16

                                                                                                                                                                    0;                                                                                                     Exhibit 99.16