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):  May 7, 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)

(212) 333-8400

(Registrant’s telephone number, including area code)

Not Applicable

 (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.

EDCI Holdings, Inc. (the "Company" or “EDCI”) has received requests from several of its shareholders for updates on activities related to the past employment by the Company of Mr. Michael W. Klinger (“Mr. Klinger”), previously the Company’s Chief Financial Officer (“CFO”), and the status of related events surrounding Mr. Klinger’s separation from the Company.  In order to comply with Securities and Exchange Commission Regulation Fair Disclosure (“Regulation FD”), the Company hereby is responding to such inquires via SEC Form 8-K.  Entertainment Distribution Company, LLC (“EDC LLC”) is the Company’s majority owned subsidiary that provides CD and DVD replication and logistics services.

As detailed in the background compilation below, the Company is providing the following update:  a) On May 6, EDCI, EDC LLC and EDC LLC’s subsidiary Entertainment Distribution Company (USA) LLC (“EDC USA”) submitted a  statement of position  (the “EDCI EEOC Statement of Position”) in rebuttal of a Notice of Charge of Discrimination received from the U.S. Equal Employment Opportunity Commission (“EEOC”) on April 30, 2009 involving a Charge of Discrimination (the “MWK EEOC Discrimination Charge”) by Mr. Klinger.   In the MWK EEOC Discrimination Charge, Mr. Klinger makes what the Company strongly asserts are baseless, meritless allegations  that he was the victim of age discrimination and retaliation; b) on April 30, 2009 and May 1, 2009, the Company received correspondence from Mr. Klinger relating to his apparent concern over the timing of the Company’s completion of certain administrative activities required as a result of Mr. Klinger’s separation from the Company; and c) on May 5, 2009, the Company provided correspondence to  Mr. Klinger’s attorney with additional analysis supporting prior evidence exhibiting significant discrepancies between Mr. Klinger’s vacation days (during the 2H2008) as self reported vs. vacation days listed in his Company Microsoft Outlook calendar or E-mail or days where security records indicate Mr. Klinger’s security access card was not used to enter Mr. Klinger’s workplace.

On October 2, 2008, Mr. Thomas Costabile (“Mr. Costabile”), EDC LLC’s and EDC USA’s President-Chief Operating Officer, sent written correspondence to Michael Boldt of Ice Miller, LLP (external counsel advising EDC LLC and EDC USA on EDC USA’s Severance Pay Policy (the “Severance Pay Policy”)) ("Mr. Boldt"), with a copy to Mr. Klinger, stating "Mike & I will call your office at 2:00 pm today. We would like to finalize the ERISA Severance plan."  See Exhibit 99.1 hereto. 

On October 2, 2008, following Mr. Costabile's written correspondence to Mr. Boldt immediately above and certain additional communications, Mr. Boldt sent written correspondence to Mr. Costabile and Mr. Klinger noting "Attached is a copy of the draft with yellow highlights over the changes.  Please advise if this is correct based on our earlier conversation."  See Exhibit 99.2 hereto.  One of the highlighted changes to the Severance Pay Policy is the title of the party who is authorized to amend the policy in accordance with Section 7.1,  was modified to read "President."  As a result, 7.1 states:  "7.1    EDC may amend, terminate, suspend, withdraw or modify the Policy, in whole or in part, at any time, by a written instrument signed by the President of EDC."

On October 2, 2008, following Mr. Boldt's written correspondence immediately above and certain additional communications, Mr. Costabile sent written correspondence to Mr. Boldt, with copy to Mr. Klinger, stating "Thanks again. I have no additional comments. Subject to Mike's concurrence, please finalize."  See Exhibit 99.3.

On October 2, 2008, in response to Mr. Costabile’s written correspondence immediately above, Mr. Klinger sent written correspondence to Mr. Costabile and Mr. Boldt stating, "I read the document and am fine with proceeding."  See Exhibit 99.4.

On October 2, 2008, in response to Mr. Klinger's written correspondence immediately above, Mr. Boldt sent written correspondence to Mr. Klinger and Mr. Costabile stating "Based on the exchange or e-mails, I have prepared a final version and it is attached as a PDF.  Please advise if you also need a Word version."  See Exhibit 99.5.

On October 2, 2008, following Mr. Boldt's written correspondence immediately above, Mr. Costabile sent written correspondence to Mr. Clarke  Bailey (“Mr. Bailey”), at that time Chairman and Interim Chief Executive Officer of EDCI and Chairman of EDC LLC, with copy to Mr. Klinger, stating "Attached is a suggested Severance Policy for consideration and adoption by EDC (USA) LLC. This policy was prepared by our Indiana labor counsel in accordance with ERISA guidelines and is consistent with the severance calculation we previously discussed with the Board of Directors. I respectfully recommend adoption by the EDC LLC Board of Directors. Let me know how you would like to proceed."  See Exhibit 99.6.

On October 3, 2008, Mr. Bailey sent written correspondence to the Board of Directors of EDC LLC recommending the approval of the Severance Pay Policy, and attaching a) the Severance Pay Policy as approved by Mr. Costabile and Mr. Klinger and b) a written consent to be executed by the Board of Directors of EDC LLC, approving the adoption of the Severance Pay Policy by EDC USA, EDC LLC's wholly-owned subsidiary.  See Exhibit 99.7.   The written consents of the Board of Directors of EDC LLC consenting to and approving the adoption of the Severance Pay Policy by EDC USA effective as of October 3, 2008 is attached as Exhibit 99.8.  The written consent of the sole member of EDC USA, executed by Mr. Costabile, consenting to and approving the adoption by EDC USA of the Severance Pay Policy effective as of October 3, 2008, is attached as Exhibit 99.9.

1

On October 3, 2008, Mr. Costabile forwarded Mr. Bailey's October 3, 2008 written correspondence to the Board of Directors, including attachments, to Mr. Klinger, with copy to Richard A. Friedman, Vice President, Audit and Compliance of EDCI ("Mr. Friedman").  See Exhibit 99.10 hereto.

On October 3, 2008, as previously filed with the Securities and Exchange Commission,  EDCI and Mr. Klinger entered into an employment agreement (the “MWK CFO Employment Agreement”) defining certain terms and conditions of Mr. Klinger’s employment CFO and Treasurer of the Company.  The MWK CFO Employment Agreement provides that either the termination of Mr. Klinger’s employment by the Company with “cause” (“Cause,” as defined therein), or resignation without “good reason” (“Good Reason,” as defined therein), shall result in the termination of Mr. Klinger’s employment by the Company without severance payments.  Please see Exhibit 99.11 hereto.

On October 31, 2008, EDC USA mailed notices of termination, which notices included the amount of severance pay such employees would be entitled to upon their termination, calculated in accordance with the Severance Pay Policy approved by EDC LLC and EDC USA and analysis prepared and reviewed by Mr. Klinger and Mr. Costabile, to approximately 420 employees of EDC USA.

On December 25, 2008, Mr. Klinger bound the Company to five retention bonus awards (“MWK Unauthorized Retention Bonuses") that differed from the retention payment amounts approved by the Company’s Compensation Committee on December 8, 2008.  Mr. Klinger himself submitted the request for approval of those payments to the Company's Compensation Committee on December 7, 2008.  The Company believes the MWK Unauthorized Retention Bonuses, in isolation, may constitute grounds for termination of Mr. Klinger's employment by the Company with Cause, and together with the Double Severance Payments, may demonstrate a pattern and practice of willful and deliberate violations of the Company's policies.  The MWK Unauthorized Retention Bonuses were discovered on April 21, 2009, after the termination of Mr. Klinger’s employment by the Company.

As a result of the January 2, 2009, assumption by Mr. Robert L. Chapman, Jr. (“Mr. Chapman”) of the role of CEO of the Company and EDC LLC, Mr. Chapman came into a position of active oversight and supervision of the Company’s senior executives, including Mr. Klinger.

On January 8, 2009, EDC LLC and Company management held two separate telephonic meetings, labeled the “EDC Operations/Finance Weekly Review/Cleanup” and “EDCI Management Weekly Review/Cleanup” conference calls.  At no point during these meetings did Mr. Klinger make any mention of any severance compensation that had been awarded to any Employees of the Company or EDC LLC.

On January 24, 2009, during an in-person meeting of the Company’s Chairman, Clarke H. Bailey (“Mr. Bailey”) and the Company’s senior management including Mr. Klinger, Mr. Klinger personally was reminded of the importance of his ceasing to fail to communicate immediately information that reasonably could be considered material to the Company’s decision makers, including Mr. Chapman.  During this same meeting, the Company’s actual and offered payment of severance to past and current employees of the Company and EDC LLC was discussed and debated actively.  At no point during this meeting did Mr. Klinger make any mention of any severance compensation that had been awarded to any Employees of the Company or EDC LLC.

On March 9, 2009, Mr. Chapman sent written correspondence to Mr. Klinger related to Mr. Chapman’s concern regarding Mr. Klinger’s performance deficiencies as the Company’s CFO, specifically citing Mr. Klinger’s unacceptable preparation of a presentation for the Company’s Audit Committee. See Exhibit 99.12 hereto

On March 13, 2009, Mr. Chapman sent written correspondence to Mr. Klinger, in which Mr. Chapman cited his concern over Mr. Klinger’s confirmed non-communication with a senior finance executive of EDC LLC for over one week.  This senior finance executive, at Mr. Klinger’s own request, had his direct, “solid” line of upward organizational reporting redirected to Mr. Klinger on February 11, 2009.  Mr. Chapman conveyed to Mr. Klinger in this written correspondence that “this modus operandi of extremely weak communications cannot continue.  It must end at once, as your continuance of exhibiting weak compliance with your fiduciary duty of due care puts EDC, and EDCI, at serious risk.”  See Exhibit 99.13 hereto. 

On March 13, 2009, Mr. Chapman sent written correspondence to Mr. Klinger, citing Mr. Chapman’s and Mr. Bailey’s concerns regarding Mr. Klinger’s “imprecise, loose, tardy, and at times non-existent business communications".  On March 13, 2009, Mr. Klinger sent written correspondence to Mr. Chapman, in response to Mr. Chapman’s March 13, 2009, correspondence, in which Mr. Klinger acknowledged receipt of Mr. Chapman’s March 13, 2009 correspondence.  See Exhibit 99.14 hereto. 

2

On March 13, 2009, following Mr. Chapman’s written correspondences to Mr. Klinger on such date (see above), Mr. Chapman and Mr. Klinger engaged in a telephone conversation regarding Mr. Klinger’s unsatisfactory performance as the Company’s CFO.  Mr. Chapman indicated to Mr. Klinger that the Company’s Chairman of the Board of Directors, Mr. Bailey, would be calling Mr. Klinger to engage in a conversation on the same matter.

On March 14, 2009, Mr. Chapman and Mr. Bailey engaged in a telephone conversation regarding Mr. Klinger’s unsatisfactory performance as the Company’s CFO.

On March 14, 2009, following a conversation in which Mr. Klinger committed to improving his performance as the Company's CFO, Mr. Chapman sent written correspondence to Mr. Klinger conveying a critical review of Mr. Klinger’s continued “deportment,” despite the conversation between Mr. Chapman and Mr. Klinger of the prior day (see above).  See Exhibit 99.15 hereto.

On March 14, 2009, Mr. Chapman discovered that on January 8, 2009, the same date of the EDC LLC and Company management conference calls (see above), Mr. Klinger, without proper authorization, and without any prior or post-notification to Mr. Chapman, had bound legally Entertainment Distribution Company (USA) LLC (“EDC USA”) to severance payments in violation of the explicit financial limitations of EDC USA’s Severance Pay Policy dated just three months earlier in October 2008 (see Exhibit 99.16 hereto).  EDC USA is a wholly-owned subsidiary of EDC LLC.  The Severance Pay Policy provides that eligible employees may receive severance of one week of pay for each complete year of service up to a maximum of 10 weeks’ pay.  Modifications to the Plan may only be made by a written instrument signed by the President of EDC USA, a requisite that at no time has been met.  However, despite the Severance Pay Policy’s financial limitation of 10 weeks’ pay and the unmet governance requirement of EDC President’s signature to any modification of that limitation, Mr. Klinger legally bound EDC USA to make severance payments of twenty weeks’ pay to 12 employees, which caused EDC USA to incur an unauthorized and thus improper severance expense of approximately $176,000. (the “Double Severance Payments”).    See Exhibit 99.17 hereto.

In March and April 2009, the Company investigated thoroughly Mr. Klinger’s actions (the “Klinger Investigation”) in connection with the Double Severance Payments and other matters.  As part of the Klinger Investigation, on March 16, 2009, Mr. Chapman sent written correspondence to Mr. Klinger summarizing the related discoveries to that date, noting in particular that the Double Severance Payments were a material breach of the Plan by Mr. Klinger.  See Exhibit 99.18 hereto. 

On March 17, 2009, Mr. Klinger sent written correspondence to Mr. Chapman confirming various conclusions of the Klinger Investigation, acknowledging that his own “actions were wrong.”   See Exhibit 99.19 hereto. 

On March 18, 2009, Mr. Chapman sent written correspondence to Mr. Klinger in which Mr. Chapman identified a second specific occurrence of Mr. Klinger’s own written reference to the Double Severance Payments as related to “severance” vs. “retention,” the latter of which Mr. Klinger initially had attempted to use as justification for his binding of EDC USA, contrary to the Severance Pay Policy, to make the Double Severance Payments (an obviously flawed justification as retention compensation also requires Compensation Committee approval).  The first such discovered instance of Mr. Klinger’s own written reference to the Double Severance Payments as “severance” was in Mr. Klinger’s December 9, 2008 E-mail to a senior EDC USA employee in which Mr. Klinger identified the Double Severance Payments as “20 weeks of severance.”  Following Mr. Chapman’s March 18, 2009 written correspondence referenced above, Mr. Klinger ceased his attempts to utilize the defense that he had believed the Double Severance Payments were retention compensation, authorized or otherwise.  See Exhibit 99.20 herein.

On March 18, 2009, Mr. Chapman sent written correspondence to Mr. Klinger regarding Mr. Chapman’s concern related to Mr. Klinger’s continuing performance deficiencies as the Company’s CFO, citing Mr. Klinger’s March 18, 2009, unacceptable performance in connection with the improper completion of an important presentation related to the Blackburn-Hannover Consolidation Feasibility Study.  See Exhibit 99.21 hereto.

On March 24, 2009, Mr. Chapman sent written correspondence to Mr. Klinger citing his concerns over how Mr. Klinger, as the Company’s CFO who claimed to have reviewed very recently EDC LLC’s most recent amended credit agreement, could not respond to Mr. Chapman with an accurate answer to the question of what was the rate of interest EDC LLC was paying to EDC LLC’s creditor per such credit agreement.  Mr. Chapman noted that such information in question, along with a credit facility’s maturities/expirations, is “considered the most basic of any loan agreement, whether it be a residential mortgage or corporate term loan.”  See Exhibit 99.22 hereto.

3

On March 24, 2009, Mr. Chapman sent written correspondence to Mr. Klinger, Michael D. Nixon and Kyle E. Blue formalizing Mr. Chapman’s decision to create an Office of the CFO.  In such email, Mr. Chapman stated that the duties of each member of the Office of the CFO will be “nearly identical” to those each individual had been performing prior the time of the creation of said office.  On March 24, 2009, Mr. Klinger sent written correspondence, in response to Mr. Chapman’s March 24, 2009 written correspondence (see above), a) acknowledging receipt of this correspondence and b) that in no way or form disputed the assertion made by Mr. Chapman regarding these “nearly identical duties.”  See Exhibit 99.23 hereto.  

In March and April 2009, during communications related to Mr. Klinger’s performance as the Company’s CFO, Mr. Chapman informed Mr. Klinger, and Klinger acknowledged that Mr. Klinger’s improper conduct in connection with the Double Severance Payments provided the Company with sufficient grounds for the termination of Mr. Klinger’s employment by the Company with Cause.

On April 4, 2009, in line with the terms of the MWK CFO Employment Agreement, Mr. Chapman conducted a telephonic review of Mr. Klinger’s first six months’ pay and performance as the Company’s CFO (the “MWK Six Months Review.”)  During the MWK Six Months Review, Mr. Chapman reiterated that the Company had sufficient grounds for the termination of Mr. Klinger’s employment by the Company with Cause as a result of the Double Severance Payments, and also identified other significant deficiencies in Mr. Klinger’s performance. Mr. Klinger and the Company thereafter began negotiations for a separation of his employment from the Company.  In connection with such negotiations, Mr. Klinger explicitly requested as particular consideration to his benefit the Company’s agreement not to terminate his employment by the Company with Cause, based on the Double Severance Payments. 

On April 9, 2009, Mr. Chapman sent Mr. Klinger written correspondence defining key terms of a Separation Agreement (the “Proposed Separation Agreement”) that had been negotiated and agreed to verbally between the Company and Mr. Klinger on that date.  A material term of the Proposed Separation Agreement, as sought by Mr. Klinger, was the Company’s agreement not to terminate Mr. Klinger’s employment by the Company with Cause, based on the Double Severance Payments.    See Exhibit 99.24 hereto. 

On April 9, 2009, Mr. Klinger sent Mr. Chapman written correspondence, in response to Mr. Chapman’s written correspondence dated April 9, 2009, indicating that Mr. Klinger had reviewed such written correspondence and confirmed that the terms detailed in the Proposed Separation Agreement were “as agreed.”  See Exhibit 99.25 hereto.  On April 9, 2009, Mr. Chapman sent Mr. Klinger written correspondence, in response to Mr. Klinger’s most recent written correspondence dated April 9, 2009 (see Exhibit 99.25 hereto), thanking Mr. Klinger for confirming agreement to the terms of the Proposed Separation Agreement.  See Exhibit 99.26 hereto. 

On April 13, 2009, despite the fact that the Company and Mr. Klinger had agreed, in writing on April 9, 2009(see Exhibits 99.24 – 99.26)   to the terms of the Proposed Separation Agreement, which required only formal legal documentation be completed through the weekend of April 10-12, 2009, Mr. Klinger unexpectedly rescinded his agreement to the terms of the Proposed Separation Agreement before such agreement could become finalized.  Instead, Mr. Klinger E-mailed a letter dated April 13, 2009 (the “MWK Termination for Good Reason Letter”), to the Company’s Board of Directors, in which he baselessly asserted his right to resign for Good Reason if certain changes were not made by the Company within thirty days.  The Company believes that the MWK Termination for Good Reason Letter a) was constructed and delivered in order to attempt to preempt the termination of his employment by the Company with Cause, and b) calls into question whether the Proposed Separation Agreement was negotiated by Mr. Klinger in good faith.  See Exhibit 99.27 hereto.

On April 13, 2009, the Company served written notice to Mr. Klinger of the termination of Mr. Klinger’s employment by the Company with Cause, subject to approval by the Company’s Board of Directors.  See Exhibit 99.28 hereto.

On April 14, 2009, the Company’s Board of Directors approved the termination of Mr. Klinger’s employment by the Company with Cause.  The Board of Directors also considered, among other factors, six additional specific examples of deficiencies in Mr. Klinger’s work performance in the 1Q2009 alone, such deficiencies having been communicated previously by Mr. Chapman to the Company’s Compensation Committee in written correspondence on March 27, 2009, as follows:

1)  Severance Pay Policy Violation;

2)  March 2009 Board Meeting Preparation Disorganization;

3)  Blackburn – Hannover Consolidation Feasibility Study Disorganization;

4)  EDC LLC Credit Agreement Ignorance;

5)  EDC LLC Creditor Mis-Communication;

6)  EDCI 4Q2008 Investor Conference Call Script Ghost-writing;

7)  EDC LLC Financial Statement Ignorance.

4

See Exhibit 99.29 hereto. The Company’s Board of Directors sent written correspondence to Mr. Klinger notifying him of its unanimous vote to terminate his employment by the Company on April 14, 2009.  See Exhibit 99.30 hereto. 

On April 14, 2009, concurrent with its approval of the termination of Mr. Klinger's employment by the Company with Cause, the Company’s Board of Directors authorized Mr. Chapman, with the assistance of Matthew K. Behrent, to continue to consider a reasonable, negotiated legal settlement with Mr. Klinger.  No progress regarding such settlement was achieved by April 17, 2009, nor has been achieved since that date.

On April 17, 2009, the Company, EDC LLC and EDC USA as plaintiffs, filed a legal complaint against Mr. Klinger as defendant, in the United States District Court for the Southern District of New York (the “The Klinger ERISA Complaint”; Case #: 1:09-cv-03880-BSJ).  The Klinger ERISA Complaint seeks:  a) a declaratory judgment that, pursuant to the MWK CFO Employment Agreement, the circumstances of the termination of Mr. Klinger’s employment constitute Cause and, in the alternative, that Mr. Klinger resigned without Good Reason, as a result of which the Company may terminate Mr. Klinger’s employment by the Company with Cause; b) recovery for the loss occasioned by the breach of fiduciary duty perpetrated by Mr. Klinger in connection with the Double Severance Payments; c) attorney’s fees and related costs and d) such other relief as the Court deems appropriate.  See Exhibit 99.31 hereto. 

On April 22, 2009, the Company filed a Form 8-K (the “April 22 MWK Termination With Cause 8-K) pursuant to Item 5.02 describing certain events in connection with the April 14, 2009, decision by the Board of Directors to terminate Mr. Klinger’s employment by the Company with Cause (as defined below). 

On April 24, 2009, given that a significant portion of Mr. Klinger’s claims for compensation relate to entitled vacation days that Mr. Klinger claims not to have utilized, the Company commenced a comprehensive review of the vacation days actually taken by Mr. Klinger, versus those he self-reported  to the Company (for tracking purposes). This preliminary analysis, conducted for the 2H2008, indicates there are numerous days where Mr. Klinger did not self-report a vacation day, despite a combination of at least two of the following occurring on each applicable day:  a) security records indicate Mr. Klinger’s security access card was not used to access Mr. Klinger’s workplace at any point during those days; b) Mr. Klinger’s Company Microsoft Office Outlook calendar had those days  marked as “Vacation” or those days were marked within a period marked as traveling out of state other than for business; c) Mr. Klinger’s Company Microsoft Office E-mails demark those days for vacation based on specific events, with such events also listed on Mr. Klinger’s Company Microsoft Office Outlook calendar; and/or d) Mr. Klinger’s Company Microsoft Office E-mails confirm he was on vacation on those days.  The Company has requested, by written correspondence to Mr. Klinger’s counsel on April 28, 2009 (see Exhibit 99.32 hereto), that Mr. Klinger resubmit his correct vacation day usage with suitable backup, or provide some other proposal for a potential resolution of the disparities identified above.  The Company is expanding its review to include an analysis of Mr. Klinger’s office and cell phone records, and Company Microsoft Office E-mails, extending such review into all periods of Mr. Klinger’s employment.

On April 30, 2009, the Company filed a Form 8-K in accordance with Regulation FD describing various discoveries of the ongoing  Klinger Investigation including but not limited to the following: a) additional acts whereby Mr. Klinger bound the Company to unauthorized employee compensation payments; b) a series of written communications to and from Mr. Klinger, written in October 2008, confirming that Mr. Klinger not only was aware of EDC LLC subsidiary EDC USA’s approved and enforceable Severance Pay Policy, but personally reviewed and approved, in his capacity as the Company’s CFO, the Severance Pay Policy before it was reviewed and approved, by signed written consent, by EDC LLC's Board of Directors, EDC USA’s Chairman & Interim Chief Executive Officer -- Mr. Bailey, and EDC USA’s President-Chief Operating Officer -- Mr. Costabile; and c) preliminary results of an analysis exposing significant discrepancies between Mr. Klinger’s vacation days (during the 2H2008) as self-reported  to the Company (for tracking purposes) vs. vacation days listed in his Company Microsoft Outlook calendar or E-mail and days where security records indicate Mr. Klinger’s security access card was not used to enter Mr. Klinger’s workplace.

On April 30, 2009 and May 1, 2009, the Company received correspondence from Mr. Klinger relating to his apparent concern over the timing of the Company’s completion of certain administrative activities required as a result of Mr. Klinger’s separation from the Company.  Such correspondence is attached as Exhibit 99.33 hereto.

5

On May 5, 2009, the Company provided correspondence to  Mr. Klinger’s attorney with additional analysis supporting prior evidence exposing significant discrepancies between Mr. Klinger’s vacation days (during the 2H2008) as self reported vs. vacation days listed in his Company Microsoft Outlook calendar or E-mail or days where security records indicate Mr. Klinger’s security access card was not used to enter Mr. Klinger’s workplace.  The Company also continued to make itself available for discussions of this issue (which offers have still not been accepted by Mr. Klinger’s counsel).  See Exhibit 99.34 hereto.

On May 6, EDCI, EDC LLC and EDC USA submitted the EDCI EEOC Statement of Position in rebuttal of the MWK EEOC Discrimination Charge received from the EEOC on April 30, 2009 (see Exhibit 99.35 hereto) involving a Charge of Discrimination by Mr. Klinger alleging that he was the victim of age discrimination and retaliation, which allegations the Company believes are entirely baseless and without merit.  The Statement of Position contains a detailed response to the spurious charges and is attached as Exhibit 99.36 hereto.

The Klinger Investigation into the above improprieties by Mr. Klinger in his capacity as the Company’s CFO remains ongoing.  The Company expects to make further disclosures on Form 8-K updating the Company’s shareholders on developments related to this matter.

Item 9.01.	Financial Statements and Exhibits.
(d)	Exhibits
99.1	Written correspondence from Thomas Costabile to Michael Boldt dated 10/02/2008
99.2	Written correspondence from Michael Boldt to Thomas Costabile and Michael W. Klinger dated 10/02/2008
99.3	Written correspondence from Thomas Costabile to Michael Boldt dated 10/02/2008
99.4	Written correspondence from Michael W. Klinger to Michael Boldt and Thomas Costabile dated 10/02/2008
99.5	Written correspondence from Michael Boldt to Thomas Costabile and Michael W. Klinger dated 10/02/2008
99.6	Written correspondence from Thomas Costabile to Clarke Bailey dated 10/02/2008
99.7	Written correspondence from Clarke Bailey to EDC LLC Board of Directors dated 10/03/2008
99.8	EDC LLC Signed Severance Policy by the EDC LLC Board of Directors
99.9	EDC LLC Signed Severance Policy by Thomas Costabile
99.10	Written correspondence from Thomas Costabile to Michael W. Klinger dated 10/03/2008
99.11	Michael W. Klinger Employment Agreement dated 10/03/2008
99.12	Written correspondence from Robert L. Chapman, Jr.  to Michael W. Klinger dated 03/09/2009
99.13	Written correspondence from Robert L. Chapman, Jr.  to Michael W. Klinger dated 03/13/2009
99.14	Written correspondence from Robert L. Chapman, Jr.  to Michael W. Klinger dated 03/13/2009
99.15	Written correspondence from Robert L. Chapman, Jr.  to Michael W. Klinger dated 03/14/2009
99.16	EDC LLC Severance Pay Policy dated 10/03/2008
99.17	EDC Michael W. Klinger signed second retention letter dated 01/08/2009
99.18	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 03/16/2009
99.19	Written correspondence from Michael W. Klinger to Robert L. Chapman, Jr. dated 03/17/2009
99.20	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 03/18/2009
99.21	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 03/18/2009
99.22	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 03/24/2009
99.23	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 03/24/2009
99.24	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 04/09/2009
99.25	Written correspondence from Michael W. Klinger to Robert L. Chapman, Jr. dated 04/09/2009
99.26	Written correspondence from Robert L. Chapman, Jr. to Michael W. Klinger dated 04/09/2009
99.27	Written correspondence from Michael W. Klinger to the Company’s Board of Directors dated 04/13/2009
99.28	Written correspondence from the Company to Michael W. Klinger dated 04/13/2009
99.29	Written correspondence from Robert L. Chapman, Jr. to the Company’s Compensation Committee dated 03/27/2009
99.30	Written correspondence from the Board of Directors of the Company to Michael W. Klinger dated 04/14/2009

99.31  Complaint filed in the United States District Court by the Company, EDC LLC and EDC USA against Michael W. Klinger dated 04/17/2009

99.32  Written correspondence from the Company to Michael W. Klinger's counsel dated 04/28/2009

99.33  Written correspondence from Michael W. Klinger to the Company dated 04/30/2009 and 05/01/2009

99.34  Written correspondence from the Company to Michael W. Klinger's counsel dated 05/05/2009

99.35  EEOC Notice of Change of Discrimination by Michael W. Klinger dated 04/29/2009

99.36  Statement of Position by the Company, EDC LLC and EDC USA in rebuttal of the Charge of Discrimination by Michael W. Klinger dated 05/06/2009

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: May 7, 2009	By:	/s/ Robert L. Chapman, Jr.
		Robert L. Chapman, Jr.
		Chief Executive Officer

6 

EX-99.1

EXHIBIT 99.1

From: Costabile, Tom

Sent: Thursday, October 02, 2008 1:37 PM

To: 'Boldt, Michael'

Cc: Klinger, Mike

Subject: Conference Call

Mike,

Mike & I will call your office at 2:00 pm today. We would like to finalize the ERISA Severance plan.

Thanks,

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

825 Eighth Avenue, 23rd Floor

New York, NY 10019

212-333-8483

Tom.costabile@edcllc.com

EX-99.2

EXHIBIT 99.2

From: Boldt, Michael

Sent: Thursday, October 02, 2008 3:29 PM

To: Costabile, Tom; Klinger, Mike

Subject: Revised Severance Policy

Tom and Mike,

Attached is a copy of the draft with yellow highlights over the changes.  Please advise if this is correct based on our earlier conversation.

Mike Boldt

Ice Miller LLP

One American Square

Suite 2900

Indianapolis, IN 46282

Ph: 317-236-2327

Fax: 317-592-4614

Cell: 317-509-6754

E-mail: michael.boldt@icemiller.com

SEVERANCE PAY POLICY

FOR

ENTERTAINMENT DISTRIBUTION COMPANY (USA) LLC

[Kings Mountain Plant]

1.0   PURPOSE

1.1   This Severance Pay Policy is intended to provide on a discretionary basis severance benefits to eligible employees of Entertainment Distribution Company (USA) LLC ("EDC") under the limited circumstances set forth below.  The Policy is totally discretionary, and EDC reserves the right to grant or deny severance benefits on a case by case basis, depending on the circumstances of each case.

2.0   DEFINITIONS

2.1   "EDC" means Entertainment Distribution Company (USA) LLC

2.2   "Eligible Employee" means a full-time non-exempt and exempt common law employee of EDC classified as Fixed and/or SG&A Labor at its Kings Mountain plant (other than an individual classified as "Variable Labor" and/or an individual whose terms and conditions of employment are subject to collective bargaining), as classified by EDC in its sole discretion regardless of how a court may later classify such employee, excluding in any case any person under an employment contract.

2.3   "Participant" means any Eligible Employee who has been granted severance pay benefits.

2.4   "Policy" means this Severance Pay Policy for Entertainment Distribution Company (USA) LLC.

3.0   ELIGIBILITY

3.1   This Policy applies to any Eligible Employee except any employee who is a party to a previously agreed to severance or termination agreement.

3.2   An Eligible Employee shall become a Participant only after being granted severance pay benefits by EDC.  No Eligible Employee shall be eligible to receive a benefit of any type under the Policy until after becoming such a Participant.

4.0   PAYMENT CIRCUMSTANCES

4.1   There is no right or entitlement to benefits under the Policy; however, EDC will consider granting severance pay as set forth in Section 5.1 in the following circumstances, as determined by EDC in its sole discretion:

(a)   A permanent reduction in work force in a job location or department;

(b)   The discontinuance of an operation in a job location or department;

(c)   Loss of employment due to a sale of a division or corporation to another company, except in the case of an offer of employment under 4.2 below; or

(d)   A location closing; or

(e)   The elimination of a job or position.

4.2   Under no circumstance will severance pay be considered in any of the following circumstances, as determined by EDC in its sole discretion:

(a)   The termination is related to job performance;

(b)   Termination of employment by reason of death or disability;

(c)   If the employee resigns, quits or abandons his or her job;

(d)   If the employee is offered employment on a reasonably similar basis, as determined by EDC in its sole discretion, by a successor employer or by a company who is buying, acquiring or otherwise gaining control of the division or corporation for which the employee was employed prior to the sale;

(e)   If the operations are limited or interrupted by occurrences beyond EDC's control such as an act of war, fire, flood, terrorist action, or other disaster; or

(f)   If operations are limited or interrupted by strikes, work stoppages, work slowdowns or civil disturbance.

5.0   SEVERANCE PAY

5.1   Subject to the Eligible Employee signing any release offered by EDC, an Eligible Employee who has been awarded severance pay under Section 4.1 shall receive severance pay in an amount and manner to be determined by EDC in its sole discretion using the following guidelines:

One (1) week of base pay for each complete year of service (based on most recent date of hire) as an Eligible Employee, up to a maximum of 10 weeks' pay.

5.2   Severance is normally payable on a periodic basis (normal payroll period); however, EDC reserves the right to make a lump sum payment.  COBRA premiums at the Eligible Employee's election may be paid from the severance pay in accordance with any flexible benefit plan of EDC.

6.0   CLAIMS PROCEDURE

6.1   EDC shall have full discretion and final authority to make any determination under the Policy, including determining whether to grant or deny severance benefits and interpreting the Policy.

6.2   An employee who has not been granted benefits under this Policy and who believes that he is entitled to any benefits under this Policy or an Eligible Employee who has any claim under this Policy, shall present such claim in writing to EDC within sixty (60) days following the act giving rise to such claim.  EDC shall within a reasonable time provide adequate notice in writing to any claimant as to the decision on any such claim.  If such claim has been denied, in whole or in part, such notice shall set forth:  (i) the specific reasons for such denial; (ii) specific reference to any pertinent provisions of the Policy on which denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the Policy’s review procedure.  Such notice shall be written in a manner calculated to be understood by the claimant.  Within sixty (60) days after receipt by the claimant of notification of denial, the claimant shall have to present a written appeal to EDC.  If such appeal is not filed within said sixty (60) day period, the decision of EDC shall be final and binding.  EDC shall act as a fiduciary in making a full and fair review of such denial.  The claimant or his duly authorized representative may review any Policy documents which are pertinent to the claim and may submit issues and comments to EDC in writing.  A decision by EDC shall be made promptly, and in any event not later than sixty (60) days after its receipt of the appeal; provided, however, if EDC decides a hearing at which the claimant or his duly authorized representative may be present is necessary, and such a hearing is held, such decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the appeal.  Any such decision of EDC shall be in writing and provide adequate notice to the claimant setting forth the specific reasons for any denial and written in a manner calculated to be understood by the claimant.  Any such decision by EDC shall be final, unless the claimant files a legal action within twelve (12) months after such decision of EDC.

7.0   AMENDMENT AND TERMINATION

7.1   EDC may amend, terminate, suspend, withdraw or modify the Policy, in whole or in part, at any time, by a written instrument signed by the President of EDC.

8.0   POLICY FUNDING

8.1   The benefits under the Policy are paid solely from the general assets of EDC for whom the Participant was employed.

9.0   NO VESTING

9.1   There is no right, entitlement or vesting to any benefits under the Policy.  The granting of severance benefits under the Policy is in the sole discretion of EDC.

10.0   MISCELLANEOUS

10.1   EDC shall be the administrator for the Policy with authority to control and manage the operation and administration of the Policy.  EDC, as administrator, shall be the named fiduciary of the Policy.  For purposes of filing suit, the agent for service of legal process is EDC.  Any action of EDC required under the Policy shall be made by and through the President of EDC.

10.2   To the extent permitted under ERISA, each fiduciary under the Policy shall be responsible for the specific duties assigned under the Policy and shall not be directly or indirectly responsible for the duties assigned to another fiduciary.  Any person or group of persons may serve in more than one fiduciary capacity with respect to the Policy.

10.3   Neither the establishment nor the maintenance of the Policy nor any amendment thereof nor any act or omission under the Policy or resulting from the operation of the Policy shall be construed:

(a)   as conferring upon any Eligible Employee or any other person a right or claim against EDC, except to the extent that such right or claim shall be specifically expressed and provided in the Policy or as provided under ERISA;

(b)   as creating any responsibility or liability of EDC for the validity or effect of the Policy;

(c)   as a contract or agreement between EDC and any Eligible Employee or any other person;

(d)   as being consideration, or an inducement or a condition of employment of any Eligible Employee or any other person, or as affecting or restricting in any manner or to any extent whatsoever the rights or obligations of EDC or any Eligible Employee or any other person to continue or terminate the employment relationship at any time; or

(e)   as giving any Eligible Employee the right to be retained in the service of EDC or to interfere with the right of EDC to discharge any Eligible Employee or any other person at any time.

10.4   Any notice given under the Policy shall be sufficient if given to EDC, when addressed to its principal business office, or if given to an Eligible Employee, when addressed to the Eligible Employee at his address as it appears in the records of EDC or any other Participating Employer.

10.5   Any payment to any Eligible Employee shall, to the extent thereof, be in full satisfaction of the claim of such Eligible Employee being paid thereby, and EDC may condition payment thereof on delivery by the Eligible Employee of a duly executed receipt and release in such form as may be determined by EDC.

10.6   This Policy document shall constitute the only legally governing document for the Policy.  No statement or other communication shall amend or modify any provision of the Policy.

The undersigned duly authorized officer of EDC executes this Policy as of this __________ day of ___________________, 2008, and certifies that the foregoing is a true and complete copy of the Policy as approved and adopted by the President of EDC.

ENTERTAINMENT DISTRIBUTION COMPANY (USA) LLC

By: ______________________________________

Title: _____________________________________

EX-99.3

EXHIBIT 99.3

From: Costabile, Tom

To: 'michael.boldt@icemiller.com'

Cc: Klinger, Mike

Sent: Thursday, October 02, 2008 5:30 PM

Subject: Re: Follow up Re: 4.2(d)

Mike,

Thanks again. I have no additional comments. Subject to Mike's concurrence, please finalize.

Thanks & regards,

Tommy

From: Boldt, Michael

To: Costabile, Tom

Cc: Klinger, Mike

Sent: Thu Oct 02 16:20:37 2008

Subject: Follow up Re: 4.2(d)

Tom,

I spoke to Jim. The language "on a reasonably similar basis, as determined by EDC in it sole discretion" in 4.2(d) is optional. It can be deleted if you want to do so.

Mike

********************************************************************

CIRCULAR 230 DISCLOSURE: Except to the extent that this advice concerns the qualification of any qualified plan, to ensure compliance with U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments, is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein.

CONFIDENTIALITY NOTICE:

This E-mail and any attachments are confidential and may be protected by legal privilege. If you are not the intended recipient, be aware that any disclosure, copying, distribution, or use of this E-mail or any attachment is prohibited. If you have received this E-mail in error, please notify us immediately by returning it to the sender and delete this copy from your system. Thank you.

ICE MILLER LLP

EX-99.4

EXHIBIT 99.4

From: Klinger, Mike

Sent: Thursday, October 02, 2008 6:07 PM

To: Costabile, Tom; Boldt, Michael

Subject: RE: Follow up Re: 4.2(d)

I read the document and am fine with proceeding.

Thanks.

Mike Klinger

EVP and CFO and Treasurer

EDCI Holdings, Inc.

(317) 596-0410 (o)

(317) 809-6160 (m)

Mike.Klinger@edcllc.com

From: Costabile, Tom

Sent: Thursday, October 02, 2008 5:30 PM

To: 'michael.boldt@icemiller.com'

Cc: Klinger, Mike

Subject: Re: Follow up Re: 4.2(d)

Mike,

Thanks again. I have no additional comments. Subject to Mike's concurrence, please finalize.

Thanks & regards,

Tommy

From: Boldt, Michael

To: Costabile, Tom

Cc: Klinger, Mike

Sent: Thu Oct 02 16:20:37 2008

Subject: Follow up Re: 4.2(d)

Tom,

I spoke to Jim. The language "on a reasonably similar basis, as determined by EDC in it sole discretion" in 4.2(d) is optional. It can be deleted if you want to do so.

Mike

********************************************************************CIRCULAR 230 DISCLOSURE: Except to the extent that this advice concerns the qualification of any qualified plan, to ensure compliance with U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments, is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein. CONFIDENTIALITY NOTICE:This E-mail and any attachments are confidential and may be protected by legal privilege. If you are not the intended recipient, be aware that any disclosure, copying, distribution, or use of this E-mail or any attachment is prohibited. If you have received this E-mail in error, please notify us immediately by returning it to the sender and delete this copy from your system. Thank you.ICE MILLER LLP

EX-99.5

EXHIBIT 99.5

From: Boldt, Michael

Sent: Thursday, October 02, 2008 6:17 PM

To: Klinger, Mike; Costabile, Tom

Subject: RE: Follow up Re: 4.2(d)

Based on the exchange of e-mails, I have prepared a final version and it is attached as a PDF. Please advise if you also need a Word version

Mike Boldt

Ice Miller LLP

One American Square

Suite 2900

Indianapolis, IN 46282

Ph: 317-236-2327

Fax: 317-592-4614

Cell: 317-509-6754

From: Klinger, Mike [mailto:Mike.Klinger@edcllc.com]

Sent: Thursday, October 02, 2008 6:07 PM

To: Costabile, Tom; Boldt, Michael

Subject: RE: Follow up Re: 4.2(d)

I read the document and am fine with proceeding.

Thanks.

Mike Klinger

EVP and CFO and Treasurer

EDCI Holdings, Inc.

(317) 596-0410 (o)

(317) 809-6160 (m)

Mike.Klinger@edcllc.com

From: Costabile, Tom

Sent: Thursday, October 02, 2008 5:30 PM

To: 'michael.boldt@icemiller.com'

Cc: Klinger, Mike

Subject: Re: Follow up Re: 4.2(d)

Mike,

Thanks again. I have no additional comments. Subject to Mike's concurrence, please finalize.

Thanks & regards,

Tommy

From: Boldt, Michael

To: Costabile, Tom

Cc: Klinger, Mike

Sent: Thu Oct 02 16:20:37 2008

Subject: Follow up Re: 4.2(d)

Tom,

I spoke to Jim. The language "on a reasonably similar basis, as determined by EDC in it sole discretion" in 4.2(d) is optional. It can be deleted if you want to do so.

Mike

********************************************************************CIRCULAR 230 DISCLOSURE: Except to the extent that this advice concerns the qualification of any qualified plan, to ensure compliance with U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments, is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein. CONFIDENTIALITY NOTICE:This E-mail and any attachments are confidential and may be protected by legal privilege. If you are not the intended recipient, be aware that any disclosure, copying, distribution, or use of this E-mail or any attachment is prohibited. If you have received this E-mail in error, please notify us immediately by returning it to the sender and delete this copy from your system. Thank you.ICE MILLER LLP

EX-99.6

EXHIBIT 99.6

From: Costabile, Tom

Sent: Thursday, October 02, 2008 6:56 PM

To: Bailey, Clarke

Cc: Klinger, Mike

Subject: Proposed Severance Policy

Clarke,

Attached is a suggested Severance Policy for consideration and adoption by EDC(USA) LLC. This policy was prepared by our Indiana labor counsel in accordance with ERISA guidelines and is consistent with the severance calculation we previously discussed with the Board of Directors. I respectfully recommend adoption by the EDC LLC Board of Directors. Let me know how you would like to proceed.

Thanks,

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

825 Eighth Avenue, 23rd Floor

New York, NY 10019

212-333-8483

Tom.costabile@edcllc.com

EX-99.7

EXHIBIT 99.7

From: Bailey, Clarke

Sent: Friday, October 03, 2008 10:04 AM

To: Cliff Bickell; Donald Bates; Horace Sibley; Peter Gilson; Ray Ardizzone; Skip Speaks; Costabile, Tom

Cc: Kerin Williamson

Subject: Adoption of Severance Policy for EDC (USA) LLC

Gentlemen,

We have been advised by counsel that we should codify our severance guidelines into a policy that is consistent with ERISA guidelines.  The economics of this policy are identical to those we shared with the board in the presentation of Project Sapphire at the meeting in Gastonia, NC. Attached is the policy along with a written resolution to approve it.  If you have any questions, please call either me or Tom Costabile.  Otherwise please execute the written resolution and fax a copy to 212-333-8455 and mail the original to Kerin Williamson. 

Thanks for the help.

All the best,

Clarke

______________________________________________

Chairman

Entertainment Distribution Company

ENTERTAINMENT DISTRIBUTION COMPANY, LLC

The undersigned, pursuant to Sections 5.5 and 5.9(c) of the Limited Liability Company Agreement of ENTERTAINMENT DISTRIBUTION COMPANY, LLC, a Delaware limited liability company (the “Company”), and being all the members of the Board of Directors of the Company do hereby consent to and approve:

1.   The adoption, by the Company’s wholly-owned subsidiary, Entertainment Distribution Company (USA), LLC (“EDC USA”), of the Severance Pay Policy, substantially in the form attached hereto as Exhibit A.

2.   All actions taken by officers and employees of the Company and EDC USA necessary to effectuate and implement the resolution set forth in paragraph 1 above.

IN WITNESS WHEREOF, the undersigned has executed this unanimous written consent effective as of October ____, 2008.

____________________________________

Ramon D. Ardizzone

____________________________________

Clarke H. Bailey

____________________________________

Donald S. Bates

____________________________________

Cliff O. Bickell

____________________________________

Thomas Costabile

____________________________________

Peter W. Gilson

____________________________________

Horace H. Sibley

____________________________________

Howard W. Speaks

EX-99.8

EXHIBIT 99.8

EX-99.9

EXHIBIT 99.9

EX-99.10

EXHIBIT 99.10

From: Costabile, Tom

Sent: Friday, October 03, 2008 10:07 AM

To: Klinger, Mike; Friedman, Richard

Subject: FW: Adoption of Severance Policy for EDC (USA) LLC

Gentlemen,

Thanks,

Tommy

_____________________________________________

Thomas Costabile

President and Chief Operating Officer

Entertainment Distribution Company

825 Eighth Avenue, 23rd Floor

New York, NY 10019

212-333-8483

Tom.costabile@edcllc.com

The information contained in this electronic mail transmission is intended only for the use of the individual or entity named in this transmission. If you are not the intended recipient of this transmission, you are hereby notified that any disclosure, copying or distribution of the contents of this transmission is strictly prohibited and that you should delete the contents of this transmission from your system immediately.

From: Bailey, Clarke

Sent: Friday, October 03, 2008 10:04 AM

To: Cliff Bickell; Donald Bates; Horace Sibley; Peter Gilson; Ray Ardizzone; Skip Speaks; tom.costabile@edcllc.com

Cc: Kerin Williamson

Subject: Adoption of Severance Policy for EDC (USA) LLC

Gentlemen,

We have been advised by counsel that we should codify our severance guidelines into a policy that is consistent with ERISA guidelines.  The economics of this policy are identical to those we shared with the board in the presentation of Project Sapphire at the meeting in Gastonia, NC. Attached is the policy along with a written resolution to approve it.  If you have any questions, please call either me or Tom Costabile.  Otherwise please execute the written resolution and fax a copy to 212-333-8455 and mail the original to Kerin Williamson. 

Thanks for the help.

All the best,

Clarke

______________________________________________

Chairman

Entertainment Distribution Company

EX-99.11

EXHIBIT 99.11

October 3, 2008

Mr. Michael W. Klinger

22420 Crooked Creek Road

Cicero, IN  46034

Dear Mike,

This letter confirms certain terms and conditions of your continued employment in consideration of your new title and duties effective September 19, 2008, in the position of Executive Vice President and Chief Financial Officer and Treasurer of EDCI Holdings, Inc. (The “Company”) and supersedes any prior offer letter or other agreement regarding your employment by the Company or any of its subsidiaries. This position is located in or near Fishers, Indiana and reports directly to the Chief Executive Officer and/or Chairman of the Board of Directors of the Company.  You are responsible for financial planning and analysis, accounting, SEC reporting and matters related to treasury, tax, information technology, risk management, procurement, payroll and investor relations, as well as such duties and services as normally are associated with such position, which may be assigned to you from time to time.

Your base compensation will be $20,800 per month (the “Base Salary”), which shall be paid in bi-weekly installments in accordance with the Company’s normal payroll practices.  Your Base Salary and performance will be reviewed after your initial six months in this position and thereafter on an annual basis each year.  Your Base Salary may be increased (but not decreased) in the manner determined by the Company in consultation with the Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board.

You will be eligible to participate in the Company’s bonus plans or programs as shall be established by the Board upon recommendations from management of the Company from time to time for senior executives of the Company.  In addition, you will be eligible to receive discretionary bonus awards as the Board may determine in its sole discretion from time to time.

During the term of your employment, you will be entitled to four (4) weeks of vacation in each calendar year at such times as shall be mutually convenient to you and the Company.  Your vacation will be prorated for each partial calendar year during the term of your employment.

During the term of your employment, you will receive a monthly car allowance of $400, which will cover local driving and parking expenses incurred in connection with the performance of your duties hereunder.

During the term of your employment, you may participate in all retirement plans, life, medical/dental insurance plans and disability insurance plans of the Company, as in effect from time to time, to the extent that you qualify under the eligibility requirements of each plan or program.  Details of our current benefits plan have previously been provided to you.

You will continue to be entitled to a “stay bonus”, previously provided in your letter agreement dated November 26, 2007, of $60,000 payable in a lump sum if you remain employed by the Company through October 31, 2008 or, in the event a Change in Control (as defined below) occurs prior to October 31, 2008, you remain employed by the Company or any successor to the Company following a Change in Control, through the 90 day anniversary of any such Change in Control.  If earned, the Company will pay you the stay bonus within two days after October 31, 2008 or two days after the 90 day anniversary of a Change in Control, as applicable.

In the event your employment is terminated by the Company without Cause (as defined below) or by you with Good Reason (as defined below), the Company will pay you, subject to the limitations set forth below, a lump sum severance payment equal to the amount of your Base Salary in effect on such termination date multiplied by 12.   You also shall be entitled to receive the sum of (1) your accrued but unpaid Base Salary through the date of such termination, plus (2) your accrued but unpaid vacation pay through such date of termination, plus (3) if you are then participating in the Company’s annual bonus plan, a pro-rated annual bonus for the bonus year in which you are terminated, which shall be calculated and paid in accordance with the Company’s normal practices at the end of such bonus year,  provided  that you have been employed by the Company for at least six months of such bonus year, plus (4) any other compensation payments or benefits which have accrued and are payable in connection with such termination. In addition, the Company shall continue to provide medical and dental benefits to you and your dependents for a period of 12 months following such date of termination at the same levels of coverage and in the same manner as such benefits are available to you and your dependents immediately prior to such Change in Control.  Your right to continue medical and dental coverage under the Consolidated Omnibus Budget Reconciliation Act of 1995 (“COBRA”) shall begin after the expiration of the one-year period described in the foregoing sentence.

If a Change in Control (as defined below) occurs and if your employment is terminated within six months after such Change in Control for any reason other than Cause (as defined below), the Company shall pay you, within 10 days after such termination, in cash or equivalent, a lump sum severance benefit equal to your Base Salary in effect on such termination date multiplied by 12.  You also shall be entitled to receive the sum of (1) your accrued but unpaid Base Salary through the date of such termination, plus (2) your accrued but unpaid vacation pay through such date of termination, plus (3) if you are then participating in the Company’s annual bonus plan, a pro-rated annual bonus for the bonus year in which you are terminated, which shall be calculated and paid in accordance with the Company’s normal practices at the end of such bonus year,  provided  that you have been employed by the Company for at least six months of such bonus year, plus (4) any other compensation payments or benefits which have accrued and are payable in connection with such termination.  In addition, the Company shall continue to provide medical and dental benefits to you and your dependents for a period of 12 months following such date of termination at the same levels of coverage and in the same manner as such benefits are available to you and your dependents immediately prior to such Change in Control.  Your right to continue medical and dental coverage under COBRA shall begin after the expiration of the one-year period described in the foregoing sentence.

Notwithstanding the foregoing, if any benefit or amount payable to you under this letter on account of your termination of employment constitutes “nonqualified deferred compensation” (“Deferred Compensation”) within the meaning of Section 409A of the Internal Revenue Code (“409A”), payment of such Deferred Compensation shall commence when you incur a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h) (“Separation from Service”).  However, if you are a “specified employee” within the meaning of 409A at the time of your Separation from Service, any Deferred Compensation payable to you under this letter on account of your termination of employment shall be delayed until the first day of the seventh month following your Separation from Service (the “409A Suspension Period”).  Within 14 calendar days after the end of the 409A Suspension Period, the Company shall pay to you a lump sum payment in cash equal to any payments (including interest on any such payments, at an interest rate of not less than the average prime interest rate, as published in the Wall Street Journal, over the 409A Suspension Period) that the Company would otherwise have been required to provide under this letter but for the imposition of the 409A Suspension Period.  Thereafter, you shall receive any remaining payments due under this letter in accordance with its terms as if there had not been any suspension period beforehand.

For purposes of this letter agreement:

(1)           “Cause” means (1) your resignation, except for Good Reason, from the office of Chief Financial Officer of the Company; (2) dishonesty or fraud on the part of the employee which is intended to result in the employee’s substantial personal enrichment at the expense of the Company or its affiliates; (3) a material violation of the employee’s responsibilities as an executive of the Company or its subsidiaries which is willful and deliberate; or (4) the conviction (after the exhaustion of all appeals) of the employee of a felony involving moral turpitude or the entry of a plea of nolo contendere for such a felony;  provided , that in no event shall “Cause” include (i) any personal or policy disagreement between the employee and the Company or any member of the board of directors of the Company or (ii) any action taken by the employee in connection with the employee’s duties if the employee acted in good faith and in a manner the employee reasonably believed to be in the best interest of the Company and had no reasonable cause to believe the employee’s conduct was unlawful.

(2)           “Change in Control” means any of the following: (a) the acquisition, directly or indirectly after the date of this letter agreement, in one or a series of transactions, of 25% or more of the Company’s common stock by any “person” as that term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; (b) the consummation of a merger, consolidation, share exchange or similar transaction of the Company with any other corporation, entity or group, as a result of which the holders of the voting capital stock of the Company immediately prior to such merger, consolidation, share exchange or similar transaction, as a group, would receive less than 50% of the voting capital stock of the surviving or resulting corporation; (c) the consummation of an agreement providing for the sale or transfer (other than as security for obligations of the Company) of all or substantially all of the assets of the Company; or (d) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or pursuant to a negotiated settlement with any such Person to avoid the threat of any such contest or solicitation.  Notwithstanding the above, in no event shall the liquidation of the Company or declaration or payment by the Company of a material dividend be deemed to constitute a Change in Control.

(3)           “Good Reason” means the occurrence of any of the following events provided you (A) notify the Board in writing within 90 days following the initial occurrence of the events that are alleged to constitute good reason and specifying the events that are alleged to constitute good reason and (B) terminate your employment within 90 days of the date of your notice if the Company does not cure said events within 30 days after the date of your notice: (i) any material breach by the Company of the terms of this letter agreement or any material diminution by the Company of your authority, duties or responsibilities with the Company as specified in the first paragraph of this letter agreement; (ii) any relocation of your principal office to a location which is more than 25 miles from the Company’s Fishers, Indiana facility; or (iii) any request by the Company for you to report to someone other than the Company’s Chief Executive Officer or the Chairman of the Company’s Board of Directors, except where such request is specifically approved by you.

No representation, promise or inducement has been made by the Company or you that is not embodied in this letter agreement.

This letter agreement may not be modified or amended in any way unless in writing signed by each of the parties hereto.

Please confirm the terms and conditions set forth herein by countersigning this letter in the space provided below.

Sincerely,

/s/ Clarke Bailey    

Clarke Bailey

Chairman of the Board

Accepted by:	/s/ Michael W. Klinger	Date:  October 3, 2008
	Michael W. Klinger

EX-99.12

EXHIBIT 99.12

From: Robert L. Chapman, Jr.

Sent: Monday, March 09, 2009 9:04 PM

To: 'Michael W. Klinger

Subject: EDCI Holdings (EDCI): Board of Directors Meeting 03/09-10/2009: Audit Committee Finance Work Unacceptable

March 9, 2009

MWK,

The goal for full implementation of my PowerPoint guidelines, as articulated repeatedly for the past 3-4 weeks, was not obtained in the Audit Committee presentation. Outside of the multiple errors (typographical and otherwise), omissions (operating income and operating margin % not in the 4Q2008 nor FY2008 slides until I caught the omission), and aesthetics (sloppy presentation was ubiquitous), your and MDN’s lack of anything near mastery of the 4Q2008 and FY2008 absolute and relative (Y/Y and Q/Q) numbers was unacceptable. Seemingly, only KEB displayed confidence in his understanding of the numbers, their derivation and meaning.

I am hoping the finance team’s section of the Board Book and related presentation is far improved tomorrow.

RLCjr

EX-99.13

EXHIBIT 99.13

From: Robert L. Chapman, Jr.

Sent: Friday, March 13, 2009 8:07 AM

To: 'Michael W. Klinger

Cc: 'Michael Kosemund' 'Clarke H. Bailey' 'Roger J. Morgan'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Michael Kosemund Non-Communication with Supervisor

March 13, 2009

MWK,

I was shocked to learn today that you had not spoken with EDC GmbH MD of Finance Michael Kosemund (“M-K”), who began reporting to you directly on February 11, 2009 (see below), in over one week (since Thursday, March 5, 2009 per your WLM IM to be earlier today, and follow up conversation confirming that; you stated you had WLM IM’d him on Friday, March 6, 2009).  Moreover, even earlier today, hours passed since my communicating my concern over this lack of communication and your finally contacting M-K (after my fifth WLM IM asking  you about this subject, finally concluding with my WLM IM, "WHY HAVE YOU NOT CALLED HIM TODAY?" at 10:50 a.m. EST/4:50 p.m. CET. )

This lapse in communication is puzzling to me in light of the following events clearly requiring close communication between EDC GmbH's MD of Finance and EDC's CFO: 

1) 03/09/2009 Audit Committee meeting

2) 03/10/2009 EDC Board Meeting

3) 03/10-13/2009:  EDC Ltd./Blackburn - GmbH/Hannover Consolidation Feasibility Study Presentation III Preparation

4) 03/13/2009:  EDC Ltd./Blackburn - GmbH/Hannover Consolidation Feasibility Study Presentation III

RJM has informed me today that this week, M-K (who has communicated that he is too ill with the flu to assist EDC in the EDC Ltd./Blackburn - GmbH/Hannover Consolidation Feasibility Study for 03/13/2009 presentation; since cancelled) has called UID daily.  However, neither you nor M-K have called each other on these dates.  How is this possible given the reporting lines re-defined in February? 

What also is puzzling is as I am typing this E-mail at 8:00 a.m. PST, I see that you have now given me a new "story" to explain M-K's absence:  " I just talked to M-K.  At issue is a hearing problem that has reoccurred [sic].  His doctor recommended [sic] 2 weeks and he is taking less.  He was just returning from the doctor when I called."  Again, a) how is it that you are so unaware of the status of your top EDC GmbH subordinate and b) that EDC's CEO (RLCjr) has to be the one to get you to communicate with this individual?

This modus operandi of extremely weak communications cannot continue.  It must end at once, as your continuance of exhibiting weak compliance with your fiduciary duty of due care puts EDC, and EDCI, at serious risk.

RLCjr

cc:        KEB/CHB/RJM

EX-99.14

EXHIBIT 99.14

From: Robert L. Chapman, Jr.

Sent: Friday, March 13, 2009 8:47 AM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Poor Communications: Blackburn-Hannover Assumptions

March 13, 2009

MWK,

Thank you for taking the time to talk to me about this matter today. I will have more feedback for you on a solution sometime next week.

RLCjr

___________

From: Klinger, Mike

Sent: Friday, March 13, 2009 8:44 AM

To: Robert L. Chapman, Jr.

Cc: 'Clarke H. Bailey'

Subject: RE: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Poor Communications: Blackburn-Hannover Assumptions

March 13, 2009

RLCjr

I confirm receipt of this email.

MWK

From: Robert L. Chapman, Jr.

Sent: Friday, March 13, 2009 8:43 AM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Poor Communications: Blackburn-Hannover Assumptions

March 13, 2009

MWK,

As you have been informed by both me and EDCI Chairman Clarke Bailey ("CHB"), of our concerns (in CHB and my professional capacities at EDCI and EDC) regarding your imprecise, loose, tardy and at times non-existent business communications in your position as EDCI and EDC Chief Financial Officer. Today's volume assumption miscommunication (see below) on what may be the most important strategic feasibility study ever conducted for, and communicated to the Board of, EDC is merely the most recent of an extensive string of communication-related problems cited to you regarding your work performance. These communications-related performance problems persist in both your verbal and written communications, including in the latter category your unacceptable presentation to the EDC Audit Committee at this week's meeting thereof (my concerns on that subject were E-mailed to you earlier this week).

I remain perplexed as to how you could have a) been involved in EDC GmbH's Finance Director (M-K)'s involvement in assembling the data for the Blackburn-Hannover Consolidation Feasibility Study (the "B-H Feasibility Study"), b) been involved in the EDC Blackburn Ltd. Finance Director (IKSC)'s involvement in assembling the data for the B-H Feasibility Study; c) been involved in EDC EVP-Intl. Operations (RJM)'s involvement in assembling the data for the B-H Feasibility Study; d) attended and participated in the EDC/EDCI Board of Directors meeting 03/10/2009 that dealt heavily in discussing the data for the B-H Feasibility Study AND also have allowed someone else to realize that RJM/BKW/M-K (when working)/IKSC were using a 10% volume decline assumption vs. your using 15% with EDCI's auditors Ernst & Young for the EDCI 2008 Form 10-K assumption on asset impairment. As a result of this "miscommunication," I have been forced to cancel today's EDC Blackburn-Hannover Consolidation Feasibility Study III Conference call (set for 10:30 a.m. EST), and inform three directors of the EDC Board (two of whom had planned to participate on that call) of the reason for doing so. Making matters worse is that EDCI had communicated on 03/11/2009 to its auditors at Ernst & Young [confidential information redacted], that such internal call on the B-H Feasibility Study would be concluded today.

The danger of such a lack of due care to EDC and EDCI's operations is serious, and as EDC/EDCI CEO I cannot continue to allow this to perpetuate as a result. Please confirm receipt of this E-mail message, and then call me to discuss at your earliest convenience.

RLCjr

cc: CHB

EX-99.15

EXHIBIT 99.15

From: Robert L. Chapman, Jr.

Sent: Saturday, March 14, 2009 9:45 AM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Poor Communications: Chairman Conversation

March 14, 2009

MWK,

I continue to be dismayed by your deportment as EDCI/EDC Chief Financial Officer, even following our frank discussion yesterday during which you vowed to improve your performance.  Today, EDCI/EDC Chairman Clarke Bailey (CHB) informed me that the following occurred, again after you and I spoke on the subject, when he called you to discuss your performance problems:

MWK Answers Phone, “What now?”:  The impertinence, lack of professionalism and accountability that is embedded within your answering CHB’s call in such a fashion is astounding.  CHB is the Chairman of two Boards of Directors that govern, and essentially permit, your employment with EDCI and EDC.  To treat his call, benevolently intended to help you to not perpetuate your performance problem, with such a greeting shall not be acceptable in the future.

MWK Blaming RJM for Blackburn-Hannover Assumption Inconsistency:  Let me be clear:  “I remain perplexed as to how you could have a) been involved in EDC GmbH's Finance Director (M-K)'s involvement in assembling the data for the Blackburn-Hannover Consolidation Feasibility Study (the "B-H Feasibility Study"), b) been involved in the EDC Blackburn Ltd. Finance Director (IKSC)'s involvement in assembling the data for the B-H Feasibility Study; c) been involved in EDC EVP-Intl. Operations (RJM)'s involvement in assembling the data for the B-H Feasibility Study; d) attended and participated in the EDC/EDCI Board of Directors meeting 03/10/2009 that dealt heavily in discussing the data for the B-H Feasibility Study AND also have allowed someone else to realize that RJM/BKW/M-K (when working)/IKSC were using a 10% volume decline assumption vs. your using 15% with EDCI's auditors Ernst & Young for the EDCI 2008 Form 10-K assumption on asset impairment.”  Moreover, had you not failed to converse with your #1 subordinate, M-K, for over a week, maybe that too would have assisted your issues.

In conclusion, a lack of accountability and respect for the EDCI/EDC Board of Directors shall not be tolerated.

Please confirm receipt of this E-mail.

RLCjr

EX-99.16

EXHIBIT 99.16

EX-99.17

EXHIBIT 99.17

EX-99.18

EXHIBIT 99.18

From: Robert L. Chapman, Jr.

Sent: Monday, March 16, 2009 8:45 PM

To: Klinger, Mike

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

MWK,

Based on my detailed investigation of the matter of your deportment, as EDC/EDCI CFO, relating to the signing and request to RAF to deliver on January 8, 2009 letters notifying 12 EDC King Mtn. employees of their prospectively receiving severance consisting of 20 weeks’ salary (explicitly defined as “20 weeks of severance” by your own EM of 12/09/2008 attached hereto as “EDC LFW-MWK 20 Weeks’ Severance EMs 12-09-2008.pdf”) totaling over $176,000, I believe we have a major breach by you of EDC’s Severance Pay Policy approved by EDC’s Board on 10/03/2008. Moreover, your failure to either a) inform me of or b) obtain approval from me for, these unauthorized 10 additional weeks of severance, despite a) my being EDC’s senior most executive on 01/02/2009 through the present and b) your being aware on 01/06/2009 that Tom Costabile had both resigned from EDC and was not reporting to duty after 01/06/2009, is a clear breach of the communications policy of both EDC and EDCI. As a result, you and I need to talk about a solution to this matter, particularly in light of your responses to my questions (highlighted in red colored text below).

For the record, you, in RAF’s presence, acknowledged the following chronicle of events to be accurate in its entirety:

09/03/2008: EDC and Sony DADC Sign Letter of Intent: EDC agrees to sell to Sony DADC various assets relating to EDC-UMG contract for $25 million. EDC’s Kings Mountain facility would be shutdown should such agreement between EDC-Sony be consummated.

10/2008 – 12/2008: RLCjr Professional Engagement with EDC/EDCI Escalates: Following termination of EDC/EDCI CFO Jordan Copland in 09/2008, RLCjr becomes engaged nearly daily in various operational and Sony-DADC related matters; in the process, scrutiny by RLCjr of EDC President/COO Tom Costabile escalates, with CHB/RLCjr/MKB/MWK/RAF all having detailed and extensive discussions, nearly daily, regarding the performance problems of TC.

10/03/2008: EDC Severance Pay Policy with Maximum 10 Weeks’ Pay Approved by EDC BoD: EDC Compensation Committee authorizes Severance Pay Policy (to be applied to Kings Mountain should shutdown occur in line with EDC-Sony asset purchase agreement) that allows, per its Section 5.1, for any EDC “Eligible Employee signing any release offered by EDC, who has been awarded severance pay under Section 4.1 [location closing circumstance] shall receive severance pay in an amount and manner to be determined by EDC in its sole discretion using the following guidelines: One (1) week of base pay for each complete year of service (based on most recent date of hire) as an Eligible Employee, up to a maximum 10 weeks’ pay [emphasis added], with such plan allowing, per its Section 7.1, for EDC President (TC on that date) “amend, terminate, suspend, withdraw, or modify the Policy, in whole or in part, at any time, by a written instrument signed by the President of EDC.”

10/31/2008: EDC and Sony DADC Sign Asset Purchase Agreement: Agreement involves the shutdown of EDC’s Kings Mountain CD/DVD manufacturing facility, which will lead to severance payments that are a) calculated using the Severance Pay Policy of 10/03/2008 and b) communicated on 10/31/2008 via WARN letters mailed by RAF on that date.

11/2008 – 12/2008: EDC President/COO TC Verbally Notifies 11 Kings Mtn. Employees Unauthorized 20 Weeks’ Severance Payment: Per purported (TC unavailable) conversation between TC and MWK, TC verbally notified 12 recipients (not Bridget Callahan nor Terri McNunis; see below) of re: Unauthorized 20 Weeks’ Severance Payments.

12/09/2008: EDC President/COO TC Asks CFO MWK If TC Fired: On the date of the closed session of the EDC and EDCI Board meetings in Orlando, FL, TC inquires of MWK as to whether or not the EDC Board had determined, in such closed session, to terminate TC’s employment.

12/15/2008: EDC President/COO TC Directs RAF re: 20 Weeks Severance Payments to 8 Kings Mtn. Employees w/o Proper Authorization: EDC President (TC on that date), via E-mail to RAF (cc’ing MWK) and thus without proper authorization and clearly outside the EDC Severance Pay Policy guidelines (see 10/03/2008 note above), gives notification of 20 weeks’ severance pay, for 8 Kings Mtn. employees. RLCjr is not notified by RAF or MWK of this unauthorized payment decision being made by TC until 03/14/2009 (see below).

12/15/2008: EDC CFO MWK Directs RAF re: 20 Weeks Severance Payments to 4 Additional Kings Mtn. Employees w/o Proper Authorization: EDC CFO, communicated by TC via spreadsheet attached to EM of that date, without proper authorization and clearly outside the EDC Severance Pay Policy guidelines (see 10/03/2008 note above), doubles the severance for 4 Kings Mtn. Employees to 20 weeks pay, for 4 Kings Mtn. employees. RLCjr is not notified of this unauthorized payment decision being made by TC until 03/14/2009 (see below). On 03/16/2009, MWK confirmed, in RAF presence, that he did in fact add those four employees b/c “in October or early 11/2008 the W-B manager left, and to encourage her not to leave TC increased McNunis’s salary and agreed to pay $2,500. As for Terry Smith (manager of printed materials), Jack Jackson and Randall Hendrick (supervisors of printed materials), MWK states that in 12/2008 as part of group of MWK/TC, MWK/TC made decision for extra 10 weeks’ severance. MWK, when asked who authorized MWK/TC to grant, “I felt I had the authority to make that decision b/c I was told had to ensure printed materials transfer obligation to Sony DADC in TSA was not breached, and the extra 10 weeks’ severance would ensure that they would not leave. If you are working and getting 20 weeks payment, you are not going to risk losing 20 weeks’ severance due to not doing your job.”

12/31/2008: EDC and Sony DADC Consummate APA: deal closed on that date.

11/2008 - 12/2008: TC Directs 2nd Lewis Whiteside re: 20 Weeks Severance Payment to Kings Mtn. Employee Bridget Callahan w/o Proper Authorization: After MWK notified TC of MWK concern that EDC Kings Mtn. had exposure on payroll processing b/c supervisor (Lisa Morris) went to Sony, and Yolanda Kelly not capable of doing Kings Mtn. payroll. TC responded to LFW to tell BC she would get 20 weeks’ severance. At some point after TC’s direction above, RAF is informed to add BC to the list of 20 Weeks’ Severance Payments recipients.

01/02/2009: EDC President TC Resigns: EDC President TC resigns his position via certified mail dated 01/02/2009 but mail received 01/06/2009 by CHB; on this date EDC no longer had a President reporting for duty (except for 01/06/2009 partial day during which TC was in EDC NYC office).

01/02/2009: RLCjr Becomes Senior-Most EDC Executive: EDC CEO Robert L. Chapman, Jr. (“RLCjr”) appointed into such position, making RLCjr the senior most EDC executive.

01/06/2009: EDC Senior Executives Learn of EDC President TC’s Resignation: EDC Chairman (CHB), CEO (RLCjr), CFO (MWK), EVP: Corporate Development (MKB), and VP - Audit and Compliance (RAF) all receive verbal and written notification that EDC President TC has submitted his letter of resignation, and are given explicit script on how to describe to others TC’s absence.

10/31/2008 – 01/08/2009: RAF Volunteered to Write Letters to Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment: Following RAF’s 10/2008 Microsoft Office Word “mail merging” of WARN letters to Kings Mtn. employees, RAF decided to draft the 01/08/2009 letters to Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment.

01/07/2009: EDC CFO MWK EM’s RAF List of 12 Names (not Bridget Callahan) To Receive Letters re: 20 Weeks Severance: MWK sends list of 12 employees and dollar amounts for second lot of 10 weeks’ severance.

01/07-08/2009: RAF Writes Letter to 12 Kings Mtn. Employees re: Unauthorized 2nd Lump Sum: such letterslabel such 2nd lump sum as payment “as an indication of EDC’s commitment to one of its most valuable and essential employees. On 03/16/2009, MWK confirmed, in RAF presence, that “RAF writes better than I do, so he [RAF] wrote them. Richard wrote the other letters pushing back the termination date.” On 03/16/2009, RAF confirmed, in MWK presence, “I’d been doing the mail merge, so I did the mail merge.”

01/08/2009: EDC CFO MWK EM’s to RAF MWK-signed, scanned Letters to 12 Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment: EDC and EDCI CFO MWK signs and request delivery to 12 Kings Mtn. employees of their prospective receipt of 2nd lump sum payments (taking total severance to 20 weeks) without a) checking/verifying as to whether such 20 weeks total severance payments were properly authorized by a party authorized to order such payments; b) checking/verifying with EDC CEO RLCjr whether RLCjr either is aware of, much less approves, such unauthorized 2nd 10 weeks’ severance payment. On 03/16/2009, in RAF presence, MWK refuted this, stating, “TC told the 12 recipients that they would be getting a retention bonus, and the time he had the authority to do that b/c he was President.” RLCjr asked, “How do you know that TC had that authority?” MWK responded, “TC was President of EDC LLC.” RLCjr confirmed, “SO, that is how you knew that TC had that authority?” MWK responded, “Yeah, that’s right.” MWK, however, in RAF presence, did agree with b) above.

01/08/2009: EDC Chairman Told That 2nd Payment “Approved”: While EDC Chairman CHB conducting EDC-Sony DADC TSA-related tasks at King Mtn. facility, CHB is asked by RAF to “hand out” several 01/08/2009-dated and MWK-signed letters re: 20 weeks’ severance, stating that the letters were for Kings Mtn. employees for “the 2nd payment.” CHB did not read these letters. RAF, in MWK presence, stated “I don’t know” when asked if CHB did read such letters, but stated “I assume he did read them as CHB was standing in people’s office handing them out.”

01/02-03/13/2009: EDC CEO Non-Notification of 2nd Severance Letters: Neither RAF nor MWK makes any notification to EDC CEO RLCjr regarding 2nd Lump Sum Payment; RAF, in MWK presence, stated “I didn’t’ notify you [RLCjr]” and MWK stated, “I would agree.” RLCjr asked for clarification that this means MWK is admitting to not notifying RLCjr, to which MWK answers, “Yes.”

03/14/2009: EDC CEO RLCjr Discovers Letters re: Unauthorized 20 Weeks’ Severance Payment: RAF, in response to EDC CEO RLCjr request for Kings Mtn. executive Fred Van Patton’s compensation level, delivers the first notice of any kind to EDC CEO RLCjr of the Unauthorized 20 Weeks’ Severance Payment Letters; EDC CEO RLCjr begins investigation into the matter immediately.

On 03/16/2009, MWK stated, in RAF presence, “TC, as President/COO of EDC, within the Authorization Matrix, a matrix with employees’ names and respective, dollar amount of signing authority, had authority to increase people’s pay, which would include a retention payout. I believe that a 10/2008 Sapphire presentation to the EDC Board included an amount of severance – a line called ‘severance’ … ‘a line with the word severance on it. That severance line is made up of two elements – the WARN payout plus an additional amount to be determined. ” RLCjr questioned, “SO, Mike, you KNOW that this 10/2008 presentation to the EDC BoD specifically distinguished between two severance payments – WARN payout and another severance payout.” MWK replied, “The presentation was one line, so ‘no’”. RLCjr then responded, “So why then did you tell me that the severance line was made up of two elements if now you are telling me that the presentation severance line did not distinguish between two severance payments?” MWK answered, “The one line is a summary of what is included in the severance calculation.” RLCjr asked, “On 10/31/2008, the date of this EDC BoD presentation, was there a single ‘the’ severance calculation?” RLCjr then made it easier for MWK to understand the question as MWK struggled. “Was there a single calculation that existed somewhere that that you know of that contained two, distinct severance payment numbers that added up to the number represented on the single severance line in the 10/31/2008.” MWK, “Yes, the summary sheet included the 10/31/2008 BoD presentation was backed up by spreadsheets that included the calculation for all the items on that page.” RLCjr then asked, “If there existed this spreadsheet that contained the dollar numbers for the 2nd severance payment that was described in the MWK-signed 01/08/2009 letters, why didn’t those letters got out well before 01/08/2009 and the 10/31/2009 EDC Board meeting?” MWK response, “The 10/31/2008 severance calculation in the spreadsheet did not identify the individuals separately.” RLCjr response, “Then how was that calculation for the 2nd severance payment able to be made?” MWK, after very long silent pause, replied “My impression was that there was an understanding there would be a requirement for a 2nd severance payment to ensure that EDC had a proper shutdown of the KM facility and was able to complete the TSA as required to avoid penalties would be incur.” RLCjr “Why or what caused you to have that understand of this 2nd severance payment – show me what to look at that gave you that understanding.” MWK reply, “I am not positive at this time.” RLCjr answers, “What do you think gave you that impression of an understanding existing as you just described?” MWK replied, “Because that is why we put it into the spreadsheet related to the severance.” RLCjr replied, “That is circular logic. Who put each of the two severance calculations into the spreadsheet that added up to the single line item for severance in the 10/31/2008 EDC BoD presentation?” MWK reply, “I know for sure I did the WARN number, but I don’t remember who entered the 2nd payment calculation.” Then MWK added, “Oh, I remember personally entered that 2nd severance number, but I don’t remember where it came from. I would have to go back and check.” RLCjr reply, “Where do you think the 2nd payment severance number in spreadsheet came from?” MWK, “I didn’t just pull it out of the air. I can’t tell you that. I’m not trying to avoid responsibility.”

At end of 1 hour and 15 minutes with MWK and RAF (35 minutes with RAF alone), RLCjr asked MWK, “IS there anything else you would like to state about this matter?” ; MWK replied, “Not at this time.” RLCjr asked again, “Are you sure you don’t have anything to say in light of this sequence of events that I have chronicled with you, and you have verified as accurate?” MWK replied, “I think there are some holes in your chronicle of events.” RLCjr replied, “Which holes – you have me all night if necessary to get a complete chronicle.” MWK, “I need to prove them, but I was told in 12/2008 when printed materials process was completely in disarray, I had to go to Kings Mtn. and at that point, RAF and I were told to take actions to ensure that the Sony deal does not apart.” RLCjr replied, “Did you interpret that guidance, that you and RAF should be sure that that the Sony deal does not fall apart, gave you authorization to either ignore or expressly/deliberately breach any of EDC or EDCI’s policies?” MWK replied, “No.” RLCjr replied, “What did you do, or what actions did you take, to be ensure that actions you took to ensure that the Sony deal didn’t fall apart did not violate any of EDC’s policies?” MWK replied, after a long silence, “I was working with my working knowledge of the policies that EDC had, along with Richard Friedman, the VP of Compliance.” RLCjr replied, “Have any of the events included in the chronicle of events that I just read to you, from the September 2008 date of the EDC-Sony DADC Letter of Intent to today’s date, fallen into the category of your violating any EDC policy?” MWK reply, “I don’t believe so.” RLCjr replied, “Please let me remind you of the 10/03/2008 event described in sequence to you earlier in this conversation. That 10/03/2008 event was the approval by the EDC Board of a Severance Pay Policy that capitated at a maximum of 10 weeks’ salary the amount of severance that could be paid to an employee in the event of a facility shutdown. Now, let me ask the question again, have any of the events included in the chronicle of events that I just read to you, including the event of 10/03/2008 when the EDC Board approved this Severance Pay Policy, fallen into the category of your violating any EDC policy”; MWK replied, “No, because in your sequence of events above, I believe you said that TC had authority to issue retention bonuses.” RLCjr replied, “That is incorrect. At no time did I state today, or any other day, that TC had the authority to issue retention bonuses.” MWK replied, “I do not believe I did anything incorrectly, and I believe that sums it up.” RLCjr replied, “Mike, I have detailed to you an 10/03/2008 EDC Board approved Severance Pay Policy that stated explicitly that no more than 10 weeks’ severance could be paid to EDC employees due to a facility shutdown. You, in turn, have agreed that you signed and transmitted to RAF for his distribution 01/08/2009 dated letters notifying employees that their severance would double to 20 weeks. Thus, I ask you the following question: ‘Given the Severance Pay Policy limiting severance pay to 20 weeks, do you believe your signing 01/08/2009 letters to 12 EDC Kings Mtn. employees violated this Severance Pay Policy?” MWK responded, “No, it’s retention not severance.” RLCjr replied, “Let me read you an E-mail dated 12/09/2008 and time stamped 11:30 a.m., in which you wrote to Lewis Whiteside, “Each one is to receive a total of 20 weeks of severance if they remain until the end.’ Now, do you have anything else to say?” MWK replied, “I have nothing else to say”. RLCjr asked, “Do you want to tell me why you have nothing else to say?” MWK replied, “Because I would just … no, I think I did not do anything wrong.”

RLCjr then asked RAF back into the room, and asked RAF, “Did you ever get guidance that you should be sure that the Sony deal did not fall apart?” RAF answered, “Yes.” RLCjr replied, “Did you take actions in compliance with the guidance regarding making sure the Sony deal didn’t fall apart.” RAF replied, “Yes.” RLCjr then asked, “Did you interpret that guidance, that you and MWK should be sure that that the Sony deal does not fall apart, gave you authorization to either ignore or expressly/deliberately breach any of EDC or EDCI’s policies?” RAF replied, “No.” RLCjr replied, “What did you do, or what actions did you take, to be sure that actions you took to ensure that the Sony deal didn’t fall apart, did not violate any of EDC’s policies?” RAF answered, “I ensured that the severance amount total for Kings Mtn. were within the amounts that were presented to the Board.” RLCjr replied, “Where these amounts presented to the Board in the 10/31/2008 presentation estimates of severance costs, or definitive, final calculations? RAF replied, “Estimates. Actions that I took relating to severance were done at the direction of the President of EDC, Tom Costabile.” RLCjr replied, “Was TC, still acting as President of EDC on 01/08/2009 when you drafted and EM’s for MWK signature letters doubling severance to 20 weeks?” RAF answered, “No.” RLCjr then asked, “Given that TC was not acting as EDC President on 01/08/2009, but instead the senior most EDC executive was RLCjr as CEO, why did you not either a) seek RLCjr approval of the 20 weeks of severance that 12 EDC Kings Mtn. employees would be receiving as a result of such 01/08/2009 letters, or b) notify RLCjr of the 20 weeks’ severance.” RAF replied, “It was an oversight an error on my part. I should have notified you of the 2nd letter.” RLCjr then asked, “In addition to purportedly ensuring that that the severance amount total for Kings Mtn. was within the total amount that was presented to the EDC Board, did you compare the 20 weeks salary total severance that would be paid to each of the 12 Kings Mtn. employees receiving letters to the EDC Severance Pay Policy that itself limits such severance pay to 10 weeks?” RAF replied, “No, I was unaware of such policy.”

At end of 1 hour and 32 minutes with MWK and RAF, RLCjr asked RAF, “IS there anything else you would like to state about this matter?” RAF replied, “I apologize for not notifying the CEO of the 2nd round of letters.” RLCjr asked RAF what he would do different in hindsight, “A lot of things. I certainly would have questioned the fundamental reason for the 2nd round of 10 weeks’ severance – the risk of those individuals leaving vs. the need. Also, and informing/ensuring you o the first day on the job, since I don’t know what you , to tell you everything that I’m aware of.”

TOTAL INTERVIEW TIME 03/16/2009: 2 HOURS 48 MINUTES

RLCjr

cc: Clarke H. Bailey

Attachments:

EDC TC-to-RAF 2nd KM Retention Pmt EM 12-15-2008.pdf

EDC Sapphire-Sony Board Presentation 10-30-2008.pdf

EDC MWK- to-RAF 2nd KM Retention Pmt EM 01-08-2008.pdf

EDC Sapphire-Sony Cost Summary 02--02-2009.xlsx

EDC MWK-to-CHB & RAF Sapphire-Sony Cost Summary EM 02-02-2009.pdf

EDC Severance Policy Approved 10-3-2008 EDC.pdf

EDC LFW-MWK 20 Weeks’ Severance EMs 12-09-2009.pdf

From: Friedman, Richard

Sent: Monday, March 16, 2009 11:26 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: RE: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

Bob,

I have enclosed several emails relevant to the 2nd payment, including the 12/15/08 email from TC.

The 12/15/08 email from TC identifies 9 employees to receive 2nd payments; however, the 12/27/08 spreadsheet (attached to the 02/02/09 email to CHB and myself) list 12 recipients indicating updates by MWK. I will inquire how/why the other individuals, Eugene Smith, Sherrill Jackson and Randal Hendricks were added to TC’s 12/15/08 list.

I plan to obtain and review the minutes from the October 30, 2008 board meeting.

I am also searching for evidence of why each person was selected for a 2nd payment but so far have not found any email with rationale supporting any of the recipients. I remember discussing with TC during the Nov-Dec time period that if there was going o be a 2nd payment, that the KM benefits manager, Renee Shull, should also be included to support the 401-k audit. That may or may not be why she was on his 12/15/08 list. I am searching for that email too.

Regards,

Richard

From: Robert L. Chapman, Jr.

Sent: Monday, March 16, 2009 8:31 AM

To: 'Richard A. Friedman'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

RAF,

For starters, I want a copy of the 12/15/2008 EM from TC.

RLCjr

From: Friedman, Richard

Sent: Monday, March 16, 2009 7:35 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: RE: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

Bob,

I apologize for the oversight that you, as CEO, were not informed by the former COO, CFO or myself prior to these individuals receiving the 2nd payment letters. It will not happen again.

In response to your question, per interview with MWK on March 15 & 16, 2009, he believed authorization to write the 2nd payment letters were included in the $2.5 million severance approved by the board on October 30, 2008, and from an email from T. Costabile acting as EDCLLC COO on December 15, 2009 specifying recipients of the 2nd letter was additional approval to issue the letters. In addition, he was aware that T. Costabile had verbally communicated the 2nd payment to the recipients in Nov and early Dec 2008..

Based on our discussions, I am reviewing prior communications and actions relevant to the 2nd payment letter and the following describes the sequence of events based on presentations and emails that I have found so far:

· October 30, 2008 – EDC LLC Board Presentation – Project Sapphire: This presentation described the Sony DADC transaction, including on slide 13, “Other Risks”, a line item for severance noting severance costs of up to $2.5 million.

· October 31, 2008 – Employee Notification Letters Sent: Required WARN Letters were sent to affected employees indicating their termination date and a severance payment amount. The total of all severance payments committed at that time was approximately $1.5 million of the $2.5 million

· Nov 15 – Dec 15, 2008 – Recipients of 2nd Payment Informed Verbally by T. Costabile: G. Whited and L. Whiteside stated they were informed by T. Costabile of the 2nd payments during the period Nov 15 through Dec 15, 2008

· December 15, 2008 – Email from T. Costabile: T. Costabile sent RAF & MWK email designating specific individuals to receive a 2nd payment and the amounts

· January 9, 2009 – Email from MWK to RAF: This email included signed letters from MWK to designated employees for 2nd payment

· January 10, 2009 – 2nd Pmt Letters Delivered by CHB & RAF: L. Whiteside confirmed that designated employees, including himself, were given 2nd payment letters signed by MWK on Jan 9, 2009, and delivered by CHB and RAF while onsite, totaling approximately $177,000

· February 2, 2009 – Email from MWK to CHB & RAF: MWK sent CHB & RAF an email including an attachment describing Sapphire Deal Analysis including various shutdown costs for U.S. operations and showed severance costs paid of approximately $2 million

I am continuing to research and review past emails but can conclude the following at this time:

Conclusions:

· The initial Board presentation should have included specific details of severance recipients, amounts and payout dates which would have avoided any future misunderstanding of which payments were authorized

· There should have been no verbal communication of a 2nd payment to employees – especially within weeks of the first letters

· Management should have questioned the risk of KM employees leaving and the actual need of a 2nd payment prior to writing and issuing the letters

· The new CEO should have been informed prior to the issuance of a 2nd payment letter to employees

Again, you should have been informed and it will definitely not happen again.

I will update you with any additional information I find on this issue.

Regards,

Richard

EX-99.19

EXHIBIT 99.19

From: Klinger, Mike

Sent: Tuesday, March 17, 2009 10:18 AM

To: Robert L. Chapman, Jr.

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 17, 2009

RLCjr

I have read the email below. I agree that I failed to notify you of the Rentention Bonus Letters dated 01/08/2009, thus you didn’t approval the issuance of the letters. I recognize that you should have been informed and thus involved prior to the issuance of the letters on 01/08/2009. I made a regretable mistake and for that I am sorry. Overnight and this morning, I have had time to separate facts from expectations. Last night during your interview, I was attempting to explain the curcomstances verses answering your directed questions.

To address my responses to your questionsing listed below in red, I will summarize my comments. Throughout the Sapphire Deal transaction period (August, 2008 to January, 2009) spreadsheets containing the severance calculation also included an estimate for the “second payment”- I agree that this level of detail wasn’t supplied to the Board. I should have questioned the acceptance of this expectation instead of assuming that it was a given. Further, I wrongly accepted, without challenging, the payments could occur if approved by TC. I further accepted, without challenging, verbal and email direction instead of obtaining written documentation. My only other comment related to my responses in red relates to the 12/15/08 commentary: “I felt that I had the authority”….. I would like to add that I discussed the severe issues related to the movement of printed materials with TC and it is under his authority that I was refering to.

In hindsight, my actions were wrong and I should have required written approvals from the Compensation Committee after confiring with either you or T/C and Clarke (prior to January, 2009). I can assure you that I will be a sharper “financial gatekeeper” going forward.

MWK

EX-99.20

EXHIBIT 99.20

From: Robert L. Chapman, Jr.

Sent: Wednesday, March 18, 2009 11:03 PM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized Severance Payment Letters: Klinger Response

March 18, 2009

MWK,

Please note that again, as was also the case in your other 12/09/2008 E-mail to LFW (MWK terminology: “20 weeks of severance”), in your 12/12/2009 E-mail below you termed as “Revised TOTAL SEVERANCE” a total dollar amount of $1.826 million, including as a sub-category of this “Revised TOTAL SEVERANCE,” “Retention Payouts.” Thus, again, you identified all of these dollar amounts going to employees whose employment severance had been determined and communicated to them properly as “severance.”

RLCjr

___________________

From: Klinger, Mike

Sent: Wednesday, March 18, 2009 3:48 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized Severance Payment Letters: Klinger Response- requested email support 2 of 2

March 18, 2009

RLCjr

Find attached the file related to the email below dated December 16, 2008.

MWK

___________

From: Klinger, Mike

Sent: Tuesday, December 16, 2008 2:08 AM

To: Donahue, Tim; Costabile, Tom

Cc: Bailey, Clarke

Subject: Sapphire Cost Comparson Summary Dec 15 2008

Tim / Tom

Pleaser review the attached and let me know if you find any errors.

Regards.

Mike.

__________

From: Klinger, Mike

Sent: Wednesday, March 18, 2009 3:46 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized Severance Payment Letters: Klinger Response- requested email support 1 of 2

March 18, 2009

RLCjr

See below an email from me dated December 12, 2008 in response to your latest request. I will forward another email dated December 16, 2008 that includes a spreadsheet attachment.

MWK.

From: Klinger, Mike

Sent: Friday, December 12, 2008 11:21 PM

To: Bailey, Clarke; Behrent, Matt; Costabile, Tom; Friedman, Richard

Cc: Klinger, Mike

Subject: Quick Est of 09 KM Wages & Benefits and KM Severance

Gentleman and Richard,

I used Tom’s latest schedule of term dates to recalculate the Labor and Severance Costs that will be paid out in 2009 (net of what will be paid by DADC)

Looks like we are over our estimates at this point- Still need to review again before calling it ready. I included only 6 months of facilities costs which is probably optimistic. Each added month would have approximately $200 - $300k until sold.

ROUGH/ DRAFT/NOT TO BE QUOTED

1,548,851	Calculated KM Severance *
100,000	Retention Payouts **
133,000	Corrections to Severance **
45,000	Reno & WB
1,826,851	Revised TOTAL SEVERANCE
4,273,668	2009 Salary & Wages with Revised Term Dates **
(3,462,000)	Est Charge to DADC ***
811,668	EDC KM Estimated Salary & Wages
2,638,519	EDC Estimated Exposure
* per policy- MAX 10 weeks w/ Var 2 weeks
** Based on staffing requirements supplied by TC
*** From TSA Schedule B

2,638,519	Estimated EDC Exposure
1,019,000	Est non-labor costs net of DADC 6 months09
3,657,519	Subtotal
2,000,000	Planned Severance
1,520,000	Sony 8-18 Analysis- Min Facilities Costs
3,520,000	Subtotal
(137,519)	Variance

Mike Klinger

EVP and CFO

EDCI Holdings, Inc.

(317) 596-0410 (o)

(317) 809-6160 (m)

Mike.Klinger@edcllc.com

From: Robert L. Chapman, Jr.

Sent: Tuesday, March 17, 2009 6:33 PM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized Severance Payment Letters: Klinger Response

March 17, 2009

MWK,

First of all, despite the incorrect use of the term “retention bonus letters” to me when these correspondences were first described to me by RAF the morning of 03/14/2009 (and thus that initial subject line), these were “Unauthorized Severance Payment Letters Dated 01/08/2009.” Again, they were not retention bonus letters as I have first been led to believe.

Secondly, please EM me the “spreadsheets containing the severance calculation [that] also included an estimate for the ‘second payment’”. Of course, there should be no modification made by you or any other party to such spreadsheets before you E-mail them to me.

Lastly, please utilize the Spelling check function that is part of the Outlook E-mail program before sending any and all E-mails to any counterparty in the future.

I have informed the EDC Board of Directors of these matters, and will notify you of actions, if any, to be taken as a result.

RLCjr

cc: CHB

From: Klinger, Mike

Sent: Tuesday, March 17, 2009 10:18 AM

To: Robert L. Chapman, Jr.

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 17, 2009

RLCjr

I have read the email below. I agree that I failed to notify you of the Rentention Bonus Letters dated 01/08/2009, thus you didn’t approval the issuance of the letters. I recognize that you should have been informed and thus involved prior to the issuance of the letters on 01/08/2009. I made a regretable mistake and for that I am sorry. Overnight and this morning, I have had time to separate facts from expectations. Last night during your interview, I was attempting to explain the curcomstances verses answering your directed questions.

To address my responses to your questionsing listed below in red, I will summarize my comments. Throughout the Sapphire Deal transaction period (August, 2008 to January, 2009) spreadsheets containing the severance calculation also included an estimate for the “second payment”- I agree that this level of detail wasn’t supplied to the Board. I should have questioned the acceptance of this expectation instead of assuming that it was a given. Further, I wrongly accepted, without challenging, the payments could occur if approved by TC. I further accepted, without challenging, verbal and email direction instead of obtaining written documentation. My only other comment related to my responses in red relates to the 12/15/08 commentary: “I felt that I had the authority”….. I would like to add that I discussed the severe issues related to the movement of printed materials with TC and it is under his authority that I was refering to.

In hindsight, my actions were wrong and I should have required written approvals from the Compensation Committee after confiring with either you or T/C and Clarke (prior to January, 2009). I can assure you that I will be a sharper “financial gatekeeper” going forward.

MWK

From: Robert L. Chapman, Jr.

Sent: Monday, March 16, 2009 8:45 PM

To: Klinger, Mike

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

MWK,

Based on my detailed investigation of the matter of your deportment, as EDC/EDCI CFO, relating to the signing and request to RAF to deliver on January 8, 2009 letters notifying 12 EDC King Mtn. employees of their prospectively receiving severance consisting of 20 weeks’ salary (explicitly defined as “20 weeks of severance” by your own EM of 12/09/2008 attached hereto as “EDC LFW-MWK 20 Weeks’ Severance EMs 12-09-2008.pdf”) totaling over $176,000, I believe we have a major breach by you of EDC’s Severance Pay Policy approved by EDC’s Board on 10/03/2008. Moreover, your failure to either a) inform me of or b) obtain approval from me for, these unauthorized 10 additional weeks of severance, despite a) my being EDC’s senior most executive on 01/02/2009 through the present and b) your being aware on 01/06/2009 that Tom Costabile had both resigned from EDC and was not reporting to duty after 01/06/2009, is a clear breach of the communications policy of both EDC and EDCI. As a result, you and I need to talk about a solution to this matter, particularly in light of your responses to my questions (highlighted in red colored text below).

For the record, you, in RAF’s presence, acknowledged the following chronicle of events to be accurate in its entirety:

09/03/2008: EDC and Sony DADC Sign Letter of Intent: EDC agrees to sell to Sony DADC various assets relating to EDC-UMG contract for $25 million. EDC’s Kings Mountain facility would be shutdown should such agreement between EDC-Sony be consummated.

10/2008 – 12/2008: RLCjr Professional Engagement with EDC/EDCI Escalates: Following termination of EDC/EDCI CFO Jordan Copland in 09/2008, RLCjr becomes engaged nearly daily in various operational and Sony-DADC related matters; in the process, scrutiny by RLCjr of EDC President/COO Tom Costabile escalates, with CHB/RLCjr/MKB/MWK/RAF all having detailed and extensive discussions, nearly daily, regarding the performance problems of TC.

10/03/2008: EDC Severance Pay Policy with Maximum 10 Weeks’ Pay Approved by EDC BoD: EDC Compensation Committee authorizes Severance Pay Policy (to be applied to Kings Mountain should shutdown occur in line with EDC-Sony asset purchase agreement) that allows, per its Section 5.1, for any EDC “Eligible Employee signing any release offered by EDC, who has been awarded severance pay under Section 4.1 [location closing circumstance] shall receive severance pay in an amount and manner to be determined by EDC in its sole discretion using the following guidelines: One (1) week of base pay for each complete year of service (based on most recent date of hire) as an Eligible Employee, up to a maximum 10 weeks’ pay [emphasis added], with such plan allowing, per its Section 7.1, for EDC President (TC on that date) “amend, terminate, suspend, withdraw, or modify the Policy, in whole or in part, at any time, by a written instrument signed by the President of EDC.”

10/31/2008: EDC and Sony DADC Sign Asset Purchase Agreement: Agreement involves the shutdown of EDC’s Kings Mountain CD/DVD manufacturing facility, which will lead to severance payments that are a) calculated using the Severance Pay Policy of 10/03/2008 and b) communicated on 10/31/2008 via WARN letters mailed by RAF on that date.

11/2008 – 12/2008: EDC President/COO TC Verbally Notifies 11 Kings Mtn. Employees Unauthorized 20 Weeks’ Severance Payment: Per purported (TC unavailable) conversation between TC and MWK, TC verbally notified 12 recipients (not Bridget Callahan nor Terri McNunis; see below) of re: Unauthorized 20 Weeks’ Severance Payments.

12/09/2008: EDC President/COO TC Asks CFO MWK If TC Fired: On the date of the closed session of the EDC and EDCI Board meetings in Orlando, FL, TC inquires of MWK as to whether or not the EDC Board had determined, in such closed session, to terminate TC’s employment.

12/15/2008: EDC President/COO TC Directs RAF re: 20 Weeks Severance Payments to 8 Kings Mtn. Employees w/o Proper Authorization: EDC President (TC on that date), via E-mail to RAF (cc’ing MWK) and thus without proper authorization and clearly outside the EDC Severance Pay Policy guidelines (see 10/03/2008 note above), gives notification of 20 weeks’ severance pay, for 8 Kings Mtn. employees. RLCjr is not notified by RAF or MWK of this unauthorized payment decision being made by TC until 03/14/2009 (see below).

12/15/2008: EDC CFO MWK Directs RAF re: 20 Weeks Severance Payments to 4 Additional Kings Mtn. Employees w/o Proper Authorization: EDC CFO, communicated by TC via spreadsheet attached to EM of that date, without proper authorization and clearly outside the EDC Severance Pay Policy guidelines (see 10/03/2008 note above), doubles the severance for 4 Kings Mtn. Employees to 20 weeks pay, for 4 Kings Mtn. employees. RLCjr is not notified of this unauthorized payment decision being made by TC until 03/14/2009 (see below). On 03/16/2009, MWK confirmed, in RAF presence, that he did in fact add those four employees b/c “in October or early 11/2008 the W-B manager left, and to encourage her not to leave TC increased McNunis’s salary and agreed to pay $2,500. As for Terry Smith (manager of printed materials), Jack Jackson and Randall Hendrick (supervisors of printed materials), MWK states that in 12/2008 as part of group of MWK/TC, MWK/TC made decision for extra 10 weeks’ severance. MWK, when asked who authorized MWK/TC to grant, “I felt I had the authority to make that decision b/c I was told had to ensure printed materials transfer obligation to Sony DADC in TSA was not breached, and the extra 10 weeks’ severance would ensure that they would not leave. If you are working and getting 20 weeks payment, you are not going to risk losing 20 weeks’ severance due to not doing your job.”

12/31/2008: EDC and Sony DADC Consummate APA: deal closed on that date.

11/2008 - 12/2008: TC Directs 2nd Lewis Whiteside re: 20 Weeks Severance Payment to Kings Mtn. Employee Bridget Callahan w/o Proper Authorization: After MWK notified TC of MWK concern that EDC Kings Mtn. had exposure on payroll processing b/c supervisor (Lisa Morris) went to Sony, and Yolanda Kelly not capable of doing Kings Mtn. payroll. TC responded to LFW to tell BC she would get 20 weeks’ severance. At some point after TC’s direction above, RAF is informed to add BC to the list of 20 Weeks’ Severance Payments recipients.

01/02/2009: EDC President TC Resigns: EDC President TC resigns his position via certified mail dated 01/02/2009 but mail received 01/06/2009 by CHB; on this date EDC no longer had a President reporting for duty (except for 01/06/2009 partial day during which TC was in EDC NYC office).

01/02/2009: RLCjr Becomes Senior-Most EDC Executive: EDC CEO Robert L. Chapman, Jr. (“RLCjr”) appointed into such position, making RLCjr the senior most EDC executive.

01/06/2009: EDC Senior Executives Learn of EDC President TC’s Resignation: EDC Chairman (CHB), CEO (RLCjr), CFO (MWK), EVP: Corporate Development (MKB), and VP - Audit and Compliance (RAF) all receive verbal and written notification that EDC President TC has submitted his letter of resignation, and are given explicit script on how to describe to others TC’s absence.

10/31/2008 – 01/08/2009: RAF Volunteered to Write Letters to Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment: Following RAF’s 10/2008 Microsoft Office Word “mail merging” of WARN letters to Kings Mtn. employees, RAF decided to draft the 01/08/2009 letters to Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment.

01/07/2009: EDC CFO MWK EM’s RAF List of 12 Names (not Bridget Callahan) To Receive Letters re: 20 Weeks Severance: MWK sends list of 12 employees and dollar amounts for second lot of 10 weeks’ severance.

01/07-08/2009: RAF Writes Letter to 12 Kings Mtn. Employees re: Unauthorized 2nd Lump Sum: such letterslabel such 2nd lump sum as payment “as an indication of EDC’s commitment to one of its most valuable and essential employees. On 03/16/2009, MWK confirmed, in RAF presence, that “RAF writes better than I do, so he [RAF] wrote them. Richard wrote the other letters pushing back the termination date.” On 03/16/2009, RAF confirmed, in MWK presence, “I’d been doing the mail merge, so I did the mail merge.”

01/08/2009: EDC CFO MWK EM’s to RAF MWK-signed, scanned Letters to 12 Kings Mtn. Employees re: Unauthorized 20 Weeks’ Severance Payment: EDC and EDCI CFO MWK signs and request delivery to 12 Kings Mtn. employees of their prospective receipt of 2nd lump sum payments (taking total severance to 20 weeks) without a) checking/verifying as to whether such 20 weeks total severance payments were properly authorized by a party authorized to order such payments; b) checking/verifying with EDC CEO RLCjr whether RLCjr either is aware of, much less approves, such unauthorized 2nd 10 weeks’ severance payment. On 03/16/2009, in RAF presence, MWK refuted this, stating, “TC told the 12 recipients that they would be getting a retention bonus, and the time he had the authority to do that b/c he was President.” RLCjr asked, “How do you know that TC had that authority?” MWK responded, “TC was President of EDC LLC.” RLCjr confirmed, “SO, that is how you knew that TC had that authority?” MWK responded, “Yeah, that’s right.” MWK, however, in RAF presence, did agree with b) above.

01/08/2009: EDC Chairman Told That 2nd Payment “Approved”: While EDC Chairman CHB conducting EDC-Sony DADC TSA-related tasks at King Mtn. facility, CHB is asked by RAF to “hand out” several 01/08/2009-dated and MWK-signed letters re: 20 weeks’ severance, stating that the letters were for Kings Mtn. employees for “the 2nd payment.” CHB did not read these letters. RAF, in MWK presence, stated “I don’t know” when asked if CHB did read such letters, but stated “I assume he did read them as CHB was standing in people’s office handing them out.”

01/02-03/13/2009: EDC CEO Non-Notification of 2nd Severance Letters: Neither RAF nor MWK makes any notification to EDC CEO RLCjr regarding 2nd Lump Sum Payment; RAF, in MWK presence, stated “I didn’t’ notify you [RLCjr]” and MWK stated, “I would agree.” RLCjr asked for clarification that this means MWK is admitting to not notifying RLCjr, to which MWK answers, “Yes.”

03/14/2009: EDC CEO RLCjr Discovers Letters re: Unauthorized 20 Weeks’ Severance Payment: RAF, in response to EDC CEO RLCjr request for Kings Mtn. executive Fred Van Patton’s compensation level, delivers the first notice of any kind to EDC CEO RLCjr of the Unauthorized 20 Weeks’ Severance Payment Letters; EDC CEO RLCjr begins investigation into the matter immediately.

On 03/16/2009, MWK stated, in RAF presence, “TC, as President/COO of EDC, within the Authorization Matrix, a matrix with employees’ names and respective, dollar amount of signing authority, had authority to increase people’s pay, which would include a retention payout. I believe that a 10/2008 Sapphire presentation to the EDC Board included an amount of severance – a line called ‘severance’ … ‘a line with the word severance on it. That severance line is made up of two elements – the WARN payout plus an additional amount to be determined. ” RLCjr questioned, “SO, Mike, you KNOW that this 10/2008 presentation to the EDC BoD specifically distinguished between two severance payments – WARN payout and another severance payout.” MWK replied, “The presentation was one line, so ‘no’”. RLCjr then responded, “So why then did you tell me that the severance line was made up of two elements if now you are telling me that the presentation severance line did not distinguish between two severance payments?” MWK answered, “The one line is a summary of what is included in the severance calculation.” RLCjr asked, “On 10/31/2008, the date of this EDC BoD presentation, was there a single ‘the’ severance calculation?” RLCjr then made it easier for MWK to understand the question as MWK struggled. “Was there a single calculation that existed somewhere that that you know of that contained two, distinct severance payment numbers that added up to the number represented on the single severance line in the 10/31/2008.” MWK, “Yes, the summary sheet included the 10/31/2008 BoD presentation was backed up by spreadsheets that included the calculation for all the items on that page.” RLCjr then asked, “If there existed this spreadsheet that contained the dollar numbers for the 2nd severance payment that was described in the MWK-signed 01/08/2009 letters, why didn’t those letters got out well before 01/08/2009 and the 10/31/2009 EDC Board meeting?” MWK response, “The 10/31/2008 severance calculation in the spreadsheet did not identify the individuals separately.” RLCjr response, “Then how was that calculation for the 2nd severance payment able to be made?” MWK, after very long silent pause, replied “My impression was that there was an understanding there would be a requirement for a 2nd severance payment to ensure that EDC had a proper shutdown of the KM facility and was able to complete the TSA as required to avoid penalties would be incur.” RLCjr “Why or what caused you to have that understand of this 2nd severance payment – show me what to look at that gave you that understanding.” MWK reply, “I am not positive at this time.” RLCjr answers, “What do you think gave you that impression of an understanding existing as you just described?” MWK replied, “Because that is why we put it into the spreadsheet related to the severance.” RLCjr replied, “That is circular logic. Who put each of the two severance calculations into the spreadsheet that added up to the single line item for severance in the 10/31/2008 EDC BoD presentation?” MWK reply, “I know for sure I did the WARN number, but I don’t remember who entered the 2nd payment calculation.” Then MWK added, “Oh, I remember personally entered that 2nd severance number, but I don’t remember where it came from. I would have to go back and check.” RLCjr reply, “Where do you think the 2nd payment severance number in spreadsheet came from?” MWK, “I didn’t just pull it out of the air. I can’t tell you that. I’m not trying to avoid responsibility.”

At end of 1 hour and 15 minutes with MWK and RAF (35 minutes with RAF alone), RLCjr asked MWK, “IS there anything else you would like to state about this matter?” ; MWK replied, “Not at this time.” RLCjr asked again, “Are you sure you don’t have anything to say in light of this sequence of events that I have chronicled with you, and you have verified as accurate?” MWK replied, “I think there are some holes in your chronicle of events.” RLCjr replied, “Which holes – you have me all night if necessary to get a complete chronicle.” MWK, “I need to prove them, but I was told in 12/2008 when printed materials process was completely in disarray, I had to go to Kings Mtn. and at that point, RAF and I were told to take actions to ensure that the Sony deal does not apart.” RLCjr replied, “Did you interpret that guidance, that you and RAF should be sure that that the Sony deal does not fall apart, gave you authorization to either ignore or expressly/deliberately breach any of EDC or EDCI’s policies?” MWK replied, “No.” RLCjr replied, “What did you do, or what actions did you take, to be ensure that actions you took to ensure that the Sony deal didn’t fall apart did not violate any of EDC’s policies?” MWK replied, after a long silence, “I was working with my working knowledge of the policies that EDC had, along with Richard Friedman, the VP of Compliance.” RLCjr replied, “Have any of the events included in the chronicle of events that I just read to you, from the September 2008 date of the EDC-Sony DADC Letter of Intent to today’s date, fallen into the category of your violating any EDC policy?” MWK reply, “I don’t believe so.” RLCjr replied, “Please let me remind you of the 10/03/2008 event described in sequence to you earlier in this conversation. That 10/03/2008 event was the approval by the EDC Board of a Severance Pay Policy that capitated at a maximum of 10 weeks’ salary the amount of severance that could be paid to an employee in the event of a facility shutdown. Now, let me ask the question again, have any of the events included in the chronicle of events that I just read to you, including the event of 10/03/2008 when the EDC Board approved this Severance Pay Policy, fallen into the category of your violating any EDC policy”; MWK replied, “No, because in your sequence of events above, I believe you said that TC had authority to issue retention bonuses.” RLCjr replied, “That is incorrect. At no time did I state today, or any other day, that TC had the authority to issue retention bonuses.” MWK replied, “I do not believe I did anything incorrectly, and I believe that sums it up.” RLCjr replied, “Mike, I have detailed to you an 10/03/2008 EDC Board approved Severance Pay Policy that stated explicitly that no more than 10 weeks’ severance could be paid to EDC employees due to a facility shutdown. You, in turn, have agreed that you signed and transmitted to RAF for his distribution 01/08/2009 dated letters notifying employees that their severance would double to 20 weeks. Thus, I ask you the following question: ‘Given the Severance Pay Policy limiting severance pay to 20 weeks, do you believe your signing 01/08/2009 letters to 12 EDC Kings Mtn. employees violated this Severance Pay Policy?” MWK responded, “No, it’s retention not severance.” RLCjr replied, “Let me read you an E-mail dated 12/09/2008 and time stamped 11:30 a.m., in which you wrote to Lewis Whiteside, “Each one is to receive a total of 20 weeks of severance if they remain until the end.’ Now, do you have anything else to say?” MWK replied, “I have nothing else to say”. RLCjr asked, “Do you want to tell me why you have nothing else to say?” MWK replied, “Because I would just … no, I think I did not do anything wrong.”

RLCjr then asked RAF back into the room, and asked RAF, “Did you ever get guidance that you should be sure that the Sony deal did not fall apart?” RAF answered, “Yes.” RLCjr replied, “Did you take actions in compliance with the guidance regarding making sure the Sony deal didn’t fall apart.” RAF replied, “Yes.” RLCjr then asked, “Did you interpret that guidance, that you and MWK should be sure that that the Sony deal does not fall apart, gave you authorization to either ignore or expressly/deliberately breach any of EDC or EDCI’s policies?” RAF replied, “No.” RLCjr replied, “What did you do, or what actions did you take, to be sure that actions you took to ensure that the Sony deal didn’t fall apart, did not violate any of EDC’s policies?” RAF answered, “I ensured that the severance amount total for Kings Mtn. were within the amounts that were presented to the Board.” RLCjr replied, “Where these amounts presented to the Board in the 10/31/2008 presentation estimates of severance costs, or definitive, final calculations? RAF replied, “Estimates. Actions that I took relating to severance were done at the direction of the President of EDC, Tom Costabile.” RLCjr replied, “Was TC, still acting as President of EDC on 01/08/2009 when you drafted and EM’s for MWK signature letters doubling severance to 20 weeks?” RAF answered, “No.” RLCjr then asked, “Given that TC was not acting as EDC President on 01/08/2009, but instead the senior most EDC executive was RLCjr as CEO, why did you not either a) seek RLCjr approval of the 20 weeks of severance that 12 EDC Kings Mtn. employees would be receiving as a result of such 01/08/2009 letters, or b) notify RLCjr of the 20 weeks’ severance.” RAF replied, “It was an oversight an error on my part. I should have notified you of the 2nd letter.” RLCjr then asked, “In addition to purportedly ensuring that that the severance amount total for Kings Mtn. was within the total amount that was presented to the EDC Board, did you compare the 20 weeks salary total severance that would be paid to each of the 12 Kings Mtn. employees receiving letters to the EDC Severance Pay Policy that itself limits such severance pay to 10 weeks?” RAF replied, “No, I was unaware of such policy.”

At end of 1 hour and 32 minutes with MWK and RAF, RLCjr asked RAF, “IS there anything else you would like to state about this matter?” RAF replied, “I apologize for not notifying the CEO of the 2nd round of letters.” RLCjr asked RAF what he would do different in hindsight, “A lot of things. I certainly would have questioned the fundamental reason for the 2nd round of 10 weeks’ severance – the risk of those individuals leaving vs. the need. Also, and informing/ensuring you o the first day on the job, since I don’t know what you , to tell you everything that I’m aware of.”

TOTAL INTERVIEW TIME 03/16/2009: 2 HOURS 48 MINUTES

RLCjr

cc: Clarke H. Bailey

Attachments:

EDC TC-to-RAF 2nd KM Retention Pmt EM 12-15-2008.pdf

EDC Sapphire-Sony Board Presentation 10-30-2008.pdf

EDC MWK- to-RAF 2nd KM Retention Pmt EM 01-08-2008.pdf

EDC Sapphire-Sony Cost Summary 02--02-2009.xlsx

EDC MWK-to-CHB & RAF Sapphire-Sony Cost Summary EM 02-02-2009.pdf

EDC Severance Policy Approved 10-3-2008 EDC.pdf

EDC LFW-MWK 20 Weeks’ Severance EMs 12-09-2009.pdf

From: Friedman, Richard

Sent: Monday, March 16, 2009 11:26 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: RE: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

Bob,

I have enclosed several emails relevant to the 2nd payment, including the 12/15/08 email from TC.

The 12/15/08 email from TC identifies 9 employees to receive 2nd payments; however, the 12/27/08 spreadsheet (attached to the 02/02/09 email to CHB and myself) list 12 recipients indicating updates by MWK. I will inquire how/why the other individuals, Eugene Smith, Sherrill Jackson and Randal Hendricks were added to TC’s 12/15/08 list.

I plan to obtain and review the minutes from the October 30, 2008 board meeting.

I am also searching for evidence of why each person was selected for a 2nd payment but so far have not found any email with rationale supporting any of the recipients. I remember discussing with TC during the Nov-Dec time period that if there was going o be a 2nd payment, that the KM benefits manager, Renee Shull, should also be included to support the 401-k audit. That may or may not be why she was on his 12/15/08 list. I am searching for that email too.

Regards,

Richard

From: Robert L. Chapman, Jr.

Sent: Monday, March 16, 2009 8:31 AM

To: 'Richard A. Friedman'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

RAF,

For starters, I want a copy of the 12/15/2008 EM from TC.

RLCjr

From: Friedman, Richard

Sent: Monday, March 16, 2009 7:35 AM

To: Robert L. Chapman, Jr.

Cc: Bailey, Clarke

Subject: RE: EDCI Holdings (EDCI): EDC: Personnel: Unauthorized/Notified (by CEO) Retention Bonus Letters Dated 01/08/2009

March 16, 2009

Bob,

I apologize for the oversight that you, as CEO, were not informed by the former COO, CFO or myself prior to these individuals receiving the 2nd payment letters. It will not happen again.

In response to your question, per interview with MWK on March 15 & 16, 2009, he believed authorization to write the 2nd payment letters were included in the $2.5 million severance approved by the board on October 30, 2008, and from an email from T. Costabile acting as EDCLLC COO on December 15, 2009 specifying recipients of the 2nd letter was additional approval to issue the letters. In addition, he was aware that T. Costabile had verbally communicated the 2nd payment to the recipients in Nov and early Dec 2008..

Based on our discussions, I am reviewing prior communications and actions relevant to the 2nd payment letter and the following describes the sequence of events based on presentations and emails that I have found so far:

· October 30, 2008 – EDC LLC Board Presentation – Project Sapphire: This presentation described the Sony DADC transaction, including on slide 13, “Other Risks”, a line item for severance noting severance costs of up to $2.5 million.

· October 31, 2008 – Employee Notification Letters Sent: Required WARN Letters were sent to affected employees indicating their termination date and a severance payment amount. The total of all severance payments committed at that time was approximately $1.5 million of the $2.5 million

· Nov 15 – Dec 15, 2008 – Recipients of 2nd Payment Informed Verbally by T. Costabile: G. Whited and L. Whiteside stated they were informed by T. Costabile of the 2nd payments during the period Nov 15 through Dec 15, 2008

· December 15, 2008 – Email from T. Costabile: T. Costabile sent RAF & MWK email designating specific individuals to receive a 2nd payment and the amounts

· January 9, 2009 – Email from MWK to RAF: This email included signed letters from MWK to designated employees for 2nd payment

· January 10, 2009 – 2nd Pmt Letters Delivered by CHB & RAF: L. Whiteside confirmed that designated employees, including himself, were given 2nd payment letters signed by MWK on Jan 9, 2009, and delivered by CHB and RAF while onsite, totaling approximately $177,000

· February 2, 2009 – Email from MWK to CHB & RAF: MWK sent CHB & RAF an email including an attachment describing Sapphire Deal Analysis including various shutdown costs for U.S. operations and showed severance costs paid of approximately $2 million

I am continuing to research and review past emails but can conclude the following at this time:

Conclusions:

· The initial Board presentation should have included specific details of severance recipients, amounts and payout dates which would have avoided any future misunderstanding of which payments were authorized

· There should have been no verbal communication of a 2nd payment to employees – especially within weeks of the first letters

· Management should have questioned the risk of KM employees leaving and the actual need of a 2nd payment prior to writing and issuing the letters

· The new CEO should have been informed prior to the issuance of a 2nd payment letter to employees

Again, you should have been informed and it will definitely not happen again.

I will update you with any additional information I find on this issue.

Regards,

Richard

EX-99.21

EXHIBIT 99.21

From: Robert L. Chapman, Jr.

Sent: Wednesday, March 18, 2009 3:04 PM

To: 'Michael W. Klinger'

Subject: EDCI Holdings (EDCI): Personnel: Michael Klinger: Consolidation Feasibility Study Performance Problem

March 18, 2009

MWK,

Needless to say, I continue to be concerned by incidents such as those described below.

RLCjr

----------

03/18/2009 4:00 a.m. PST: RLCjr attempts to start call, but MWK/MDN not dialed in. RLCjr WLM’s MWK/MDN, and RJM then called MWK asking him to MWK onto the call; MWK gets on the call at 4:03 a.m. PST, explaining his tardiness with, “I was not looking at the clock.” RLCjr then asks KEB to be sure EDC Chairman gets on the call as well. 4:10 a.m. PST: CHB confirms that he didn’t know call was still on. RLCjr asks, “Which person employed by EDC is responsible for the presentation for this call not being ready on schedule.” RJM responds, “It looks like MWK distributed the wrong presentation file – a PowerPoint presentation. This happened during the early hours of the European morning.” RLCjr asks, “Mike Klinger, is this accurate?” MWK responds, “Yes, this is true.” RJM offers solution that since have all numbers locked down yesterday, just need to get them into the right file. RLCjr suggests that MDN cover getting the PowerPoint up to speed for RJM until MWK’s watch/clock and computer are fixed, and RJM says needs to know how long MDN will require. MDN answers in less than one hour. RJM then says he would like to have the call in four hours, and 8:00 a.m. PST/11:00 a.m. EST should be enough, but CHB asks for certainty. 9:00 a.m./12:00 Noon EST.

03/18/2009 3:16 a.m. PST: RJM EM’s internal conf. call group, writing, “I am sorry to have to inform you that the presentation is not ready. The numbers were finalised yesterday but it appears that something has gone wrong when the numbers have been pulled together in the US overnight. Many numbers it seems are not the final versions and we can not access the linked files to the power point as they are held on the Fishers server. Unfortunately I am unable to get this fixed at this end. It will take a number of hours working with the US finance guys to get this sorted out as the numbers are finalised. I can only suggest that we have the call later today.”

EX-99.22

EXHIBIT 99.22

From: Robert L. Chapman, Jr.

Sent: Tuesday, March 24, 2009 10:38 AM

To: Klinger, Mike

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Lack of Core Wachovia Knowledge

March 24, 2009

Mike,

It was with much concern that I realized this morning that you, as EDCI and EDC CFO, could not respond to me today, the day after you claimed to have reviewed the most recent amended EDC-Wachovia credit agreements, with the answers to the following questions: 1) What is the precise interest rate EDC is paying today on its loans from Wachovia; 2) What is the interest rate benchmark to which the floating interest rate is pegged? 3) What is the spread over that benchmark that EDC must pay?

This information, along with maturities/expirations, is considered the most basic of any loan agreement, whether it be a residential mortgage or corporate term loan. As EDC’s CFO since September 2008, and senior finance officer before that, you have literally been enabled with years to understand not only that basic loan information, but the details of every clause of the loan agreement. I must say that this latest episode has left me a somewhat shaken.

Please get me the exact answers to the basic questions above, and then reply with that information.

RLCjr

cc: CHB

EX-99.23

EXHIBIT 99.23

From: Klinger, Mike

Sent: Tuesday, March 24, 2009 1:20 PM

To: Robert L. Chapman, Jr.

Cc: Clarke H. Bailey; Nixon, Mike; Blue, Kyle

Subject: RE: EDCI Holdings (EDCI): Personnel: Office of the CFO: MWK/KEB/MDN

March 24, 2009

RLCjr

I acknowledge receipt of this email.

MWK

From: Robert L. Chapman, Jr.

Sent: Tuesday, March 24, 2009 1:26 PM

To: 'Michael W. Klinger'; 'Michael D. Nixon'; 'Kyle E. Blue'

Subject: EDCI Holdings (EDCI): Personnel: Office of the CFO: MWK/KEB/MDN

March 24, 2009

MWK/KEB/MDN,

Audit Committee and Board Presentation Preparation & Delivery:  I had a question from MWK as to whether or not KEB would be responsible for Board meeting and Audit Committee Meeting a) presentation and b) delivery.  The answer is “yes,” KEB will have that responsibility and others both inside and outside (e.g., JAL) the office of the CFO should assist KEB’s efforts.  KEB will deliver those presentations to the Audit Committee and Board of Directors.

MWK & MDN Receipt Confirmation:  Please confirm receipt.

RLCjr

From: Robert L. Chapman, Jr.

Sent: Tuesday, March 24, 2009 12:09 PM

To: 'Michael W. Klinger'; 'Michael D. Nixon'; 'Kyle E. Blue'

Cc: Clarke H. Bailey

Subject: EDCI Holdings (EDCI): Personnel: Office of the CFO: MWK/KEB/MDN

March 24, 2009

MWK/KEB/MDN,

I want to thank all three of your for taking the time today to discuss with me my decision, which was subject to those very conversations with you three, to create at EDCI and EDC an “Office of the CFO.”  Such office would have as its members the three of you, with the following nearly-identical duties as you each perform now:

MWK:  CFO of EDCI/EDC, and head of the Office of the CFO:  oversee the entire finance group as a coordinated team that has divided tasks and responsibilities to ensure all internal and external financial and other related reporting, capital markets/creditor matters, and financial analysis are conducted expeditiously and correctly.

KEB:  Sr. Manager, External Reporting, Investor/Creditor Relations:  performing duties currently under KEB’s job description/behavior, but adding to that the idea that KEB is “Mr. Outside,” communicating with EDCI’s owners (in private, and quarterly or other scheduled public conference calls), creditors (e.g., Wachovia), Board of Directors (both EDCI and EDC), and Audit Committee (along with RAF). 

MDN:  Corporate Controller, EDCI:  performing duties currently under MDN’s job description/behavior, but making clear that MDN is “Mr. Inside,” dealing with mastery over all financial statement production and presentation, as well as financial analysis (income statement and balance sheet).

In order to preclude another horrific event like the one involving MWK signing unauthorized “double severance” letters on January 8, 2009, various decisions/actions (such as such a large financial obligation as that one) from the Office of the CFO shall require 2/3 members’ written approval.  Those actions/items shall be determined in consultation with Richard Friedman as EDCI’s SOX expert.

This change is effective immediately.  Recently hired, Jennifer Lohman shall report to the Office of the CFO rather than just the CFO himself.  Please confirm receipt by sending an E-mail reply to me sometime today.

RLCjr

EX-99.24

EXHIBIT 99.24

From: Robert L. Chapman, Jr.

Sent: Thursday, April 09, 2009 11:33 AM

To: 'Michael W. Klinger'

Cc: 'Clarke H. Bailey'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Separation Agreement

April 9, 2009

Mike,

Per our discussion over the past half hour, the terms of a Separation Agreement (subject to your confirmation w/ your family, which you will obtain before responding hereto) between EDCI/MWK and EDC/MWK are as follows:

MWK Transition Period: 04/13/2009 – 06/30/2009

MWK Separation Date: 06/30/2009, on which date MWK shall be laid off so that MWK, wife and two sons continue to have health insurance, paid for entirely (w/o any reimbursement claims to EDCI or EDC) by MWK, under COBRA.

MWK Transition Salary During Transition Period: $125,000 annualized; RAF/AMG to make adjustments downward to payroll system no later than Monday, April 13, 2009 at 5:00 p.m. EST per MWK instructions.

MWK Shall Not be Terminated for “Cause”: EDCI and EDC agreed not to terminate MWK for cause relating to MWK’s unauthorized binding of EDC to over $176,000 in improper severance payments.

MWK Shall Not Receive Any Sony Transaction-Related Bonus: Subject to finalization of EDCI Compensation Committee determination, MWK shall not receive a Sony Transaction-Related (or other) bonus.

MWK Shall Not Receive Any Severance/Vacation/Other Payments/Benefits: MWK agrees that he shall not be entitled to, nor shall he request or otherwise seek, any severance payment or other payments associated with the section of the MWK CFO Employment Letter (as these payments and benefits would not be available to MWK if he were terminated for “Cause”) or otherwise as follows:

“In the event your employment is terminated by the Company without Cause (as defined below) or by you with Good Reason (as defined below), the Company will pay you, subject to the limitations set forth below, a lump sum severance payment equal to the amount of your Base Salary in effect on such termination date multiplied by 12. You also shall be entitled to receive the sum of (1) your accrued but unpaid Base Salary through the date of such termination, plus (2) your accrued but unpaid vacation pay through such date of termination, plus (3) if you are then participating in the Company’s annual bonus plan, a pro-rated annual bonus for the bonus year in which you are terminated, which shall be calculated and paid in accordance with the Company’s normal practices at the end of such bonus year, provided that you have been employed by the Company for at least six months of such bonus year, plus (4) any other compensation payments or benefits which have accrued and are payable in connection with such termination. In addition, the Company shall continue to provide medical and dental benefits to you and your dependents for a period of 12 months following such date of termination at the same levels of coverage and in the same manner as such benefits are available to you and your dependents immediately prior to such Change in Control. Your right to continue medical and dental coverage under the Consolidated Omnibus Budget Reconciliation Act of 1995 (“COBRA”) shall begin after the expiration of the one-year period described in the foregoing sentence.”

.

MWK Non-Compete Restrictions All Lifted: MWK and all prospective employers of MWK shall not be bound by any restrictions or non-compete provisions.

MWK & EDCI/EDC to Sign Mutual Release of Claims: all parties shall release each other from all existing or future claims, or rights to assert claims, of any kind related to MWK/EDCI-EDC employment.

Please respond to me in writing (following your having done so verbally) that we the terms of the agreement above are acceptable.

RLCjr

EX-99.25

EXHIBIT 99.25

From: Klinger, Mike

Sent: Thursday, April 09, 2009 3:11 PM

To: Robert L. Chapman, Jr.

Cc: 'Clarke H. Bailey'

Subject: RE: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Separation Agreement

Bob,

I have read your summation of discussion today and confirm that the points listed below are as agreed.

Mike

EX-99.26

EXHIBIT 99.26

From: Robert L. Chapman, Jr.

Sent: Thursday, April 09, 2009 3:30 PM

To: 'Michael W. Klinger'

Subject: EDCI Holdings (EDCI): Personnel: CFO Michael Klinger: Separation Agreement

April 9, 2009

Mike,

Thank you for accepting EDCI/EDC’s offer as described below in my 11:33 a.m. PST E-mail. I shall have the MWK Separation Agreement documented immediately, with the goal of both our signatures obtained before 12:00 Noon PST/3:00 p.m. EST tomorrow, Friday, April 10, 2009.

RLCjr

EX-99.27

EXHIBIT 99.27

To: Board of Directors, EDCI Holdings, Inc.

From: Michael W. Klinger, Chief Financial Officer

Date: April 13, 2009

I am writing today pursuant to my October 3, 2008, Letter Agreement with EDCI Holdings, Inc. (“Company”) to provide notice to the Board of Directors of recent events which qualify as “Good Reason” for me to terminate my employment following the applicable notice period and receive the severance pay and benefits provided for in my Letter Agreement.

In the past 90 days, the following events have occurred, each of which independently constitutes Good Reason for me to terminate my employment 90 days from now, unless the Company cures these breaches:

• On or about March 8, 2009, Chief Executive Officer Robert L. Chapman, Jr., ordered that Kyle E. Blue, a Senior Manager reporting to me, would take over my responsibility for preparing presentations to the Board of Directors and Audit Committee of the Board of Directors.  These are important responsibilities which, in my experience at the Company, had always been responsibilities of the Chief Financial Officer.

• Since on or about March 10, 2009, the Company has owed me a Transaction Bonus payment in the amount of $25,000.00 because of my role in closing the Sony deal. As of today’s date, this Transaction Bonus has not been paid.

• On or about March 24, 2009, Mr. Chapman reorganized the Office of Chief Financial Officer without my input or consent.  As part of this forced reorganization, certain material duties and responsibilities of the CFO were reassigned to my subordinate employees, Kyle Blue and Mike Nixon. My prior duties and responsibilities which were reassigned include, but are not limited to, external reporting, investor/creditor relations, and controller functions. These are important responsibilities which, in my experience at the Company, had always been responsibilities of the Chief Financial Officer.

• On or about March 31, 2009, Mr. Chapman ordered that I was no longer to participate on the Q4 2008 Investor Conference Call on behalf of the Company.  After the third draft of the script and agenda for the March 31, 2009, Q4 2008 Investor Call, Mr. Chapman removed my name from the script and replaced me with my subordinate, Kyle Blue.  In my experience at the Company, participation in quarterly investor calls had always been a key responsibility of the Chief Financial Officer.

• In connection with removing me from the script for the Q4 2008 Investor Conference Call, Mr. Chapman assigned me the role of “fact checker” by asking me to personally review and verify the financial data included in the script and associated press release.  In my experience at the Company, the role of “fact checker” had not been handled by the CFO position.

• On or about April 13, 2009, Mr. Chapman excluded me from participation in follow up investor calls with key investors to further discuss the Q4 2008 financial data.  Again, Mr. Chapman included my subordinate, Kyle Blue, in my place.  Throughout my tenure as Chief Financial Officer at the Company, I had routinely handled such calls myself, including during the first quarter of 2009.  In my experience at the Company, participation in follow up investor calls had always been a key responsibility of the Chief Financial Officer.

• On or about March 10, 2009, Mr. Chapman notified me that I was no longer authorized to communicate directly with the Company’s outside auditors, Ernst & Young. Throughout my tenure as Chief Financial Officer at the Company, I had routinely handled such communications myself, including during the first quarter of 2009 up to the date of Mr. Chapman’s notification. In my experience at the Company, communications with the Company’s outside auditors had always been a key responsibility of the Chief Financial Officer.

• On or about March 10, 2009, Mr. Chapman notified me that I was no longer authorized to communicate with Wachovia Bank on behalf of the Company.  Throughout my tenure as Chief Financial Officer at the Company, I had routinely handled such communications myself, including during the first quarter of 2009 up to the date of Mr. Chapman’s notification.  In my experience at the Company, communications with the Company’s bankers had always been a key responsibility of the Chief Financial Officer.

• On or about March 10, 2009, Mr. Chapman began communicating directly with my subordinate employees without my knowledge or consent concerning matters which had previously fallen within my job duties and responsibilities. For example, Mr. Chapman instructed my subordinate to go out and find new outside auditors for the Company.  Throughout my tenure as Chief Financial Officer at the Company, I had routinely handled outside auditors, including during the first quarter of 2009 up to the date of Mr. Chapman’s notification. In my experience at the Company, the selection of the Company’s outside auditors had always been a key responsibility of the Chief Financial Officer.

• On or about March 10, 2009, Mr. Chapman began communicating directly with my subordinate employees without my knowledge or consent

concerning matters which had previously fallen within my job duties and responsibilities. Another example includes Mr. Chapman instructing my subordinate to research and identify sites for relocation of the Fishers, Indiana offices. Throughout my tenure as Chief Financial Officer at the Company, I had routinely handled research and decision making concerning office space and other significant procurements.  In my experience at the Company, the selection and negotiation of lease terms for the Company’s office space had always been a key responsibility of the Chief Financial Officer.

•On or about the end of February 2009, Mr. Chapman began excluding me from Company conference calls addressing financial planning and analysis, accounting, SEC reporting, and matters related to treasury, tax, information technology, risk management, procurement, and investor relations. Throughout my tenure as Chief Financial Officer at the Company, I had routinely participated in these types of calls.  In my experience at the Company, financial planning and analysis, accounting, SEC reporting, and matters related to treasury, tax, information technology, risk management, procurement, and investor relations had always been a key responsibility of the Chief Financial Officer or Chief Operating Officer.

•Since March 31, 2009, Mr. Chapman has not processed my expense reports seeking reimbursement for expenses incurred in the course and scope of my employment.  The Company now owes me approximately $10,000.00 in expense reimbursements.

•On or about April 4, 2009, I requested vacation time off for spring break. Mr. Chapman would not authorize my requested vacation time unless two of my subordinates agreed to allow me this vacation time.

These specific events constitute material breaches by the Company of my Letter Agreement dated October 3, 2008.  These specific events further constitute material diminutions by the Company of my authority, duties, and responsibilities with the Company as specified in my Letter Agreement.  Pursuant to my Letter Agreement with the Company, I am providing the Board of Directors with written notice of the events which constitute “Good Reason”, and am further providing notice that, unless the Company cures these events within thirty (30) days of today’s date, I intend to terminate from employment within ninety (90) days of today’s date.

EX-99.28

EXHIBIT 99.28

April 13, 2009

VIA HAND DELIVERY WITH COPY BY EMAIL

Mr. Michael W. Klinger

22420 Crooked Creek Road

Cicero, IN 46034

Re: Notice of Termination of Employment for Cause

Mr. Klinger,

EDCI Holdings, Inc. (“EDCI”) hereby provides you written notice of termination of your employment by EDCI for Cause, subject to approval by EDCI’s Board of Directors, pursuant to the agreement dated October 3, 2008 between EDCI and you (the “MWK CFO Employment Letter”).  Defined terms have the meaning set forth in the MWK CFO Employment Letter unless otherwise noted.

The grounds for such termination for Cause are primarily your willful, deliberate and unauthorized binding, in writing, of Entertainment Distribution Company, LLC (“EDC LLC”) to over $176,000 in improper and unauthorized severance payments – double the approved amounts for the subject employees (the “Double Severance Payments”) – in addition to other specific occurrences of material violations of your responsibilities.  As you know, Section 5.1 of the Severance Pay Policy for Entertainment Distribution Company (USA) LLC (“EDC USA”), adopted by the Board of Directors of EDC LLC on October 3, 2008 and applicable to all employees of EDC USA, provides for severance of one week of base pay for each complete year of service up to a maximum of 10 weeks’ pay.  Your willful and deliberate binding of EDC LLC to $176,000 of improper and unauthorized severance based on 20 weeks’ pay (all of which payments were acknowledged by you as “severance” in several emails you forwarded to me) for each of the subject employees in violation of that policy was clearly a material violation of your responsibilities as an executive of EDCI and its subsidiaries.

Not only never did you dispute or contest that those grossly negligent Double Severance Payments constituted grounds for termination of your employment by EDCI for Cause, instead you acknowledged that those actions were sufficient grounds for termination of your employment by EDCI for Cause and even negotiated for EDCI’s waiver of its right to terminate you for Cause as a result of such Double Severance Payments as a material element of consideration in connection with the separation agreement that you agreed to with EDCI via your email of April 9, 2009 at 3:11 PM EDT (the “Separation Agreement”).

Regarding your letter of April 13, 2009 (received via email at 2:13 PM EDT) (the “MWK April 13 Letter”) purporting to provide notice to EDCI’s Board of Directors of “recent events which qualify as ‘Good Reason’ for [you] to terminate [your] employment following the applicable notice period and receive the severance pay and benefits provided for in [the MWK CFO Employment Letter]”, it is clear that you have fabricated the claims in that letter in an attempt to pre-empt EDCI’s pre-existing, undisputed and acknowledged right to terminate you for Cause.  Although the MWK April 13 Letter was received by me at 4:13AM local time in Australia, 17 hours ahead of my normal pacific standard time,

upon being notified of it I immediately cancelled part of my vacation and reviewed thoroughly the MWK April 13 Letter with legal counsel.  As a result of that review, EDCI determined that each of the claims you allege independently constitute Good Reason is either invalid, baseless, spurious and / or immaterial – by your own descriptions – and thus none of such claims constitute valid grounds for termination by you of your employment for Good Reason.

EDCI has scheduled a meeting of its Board of Directors on Tuesday, April 14, 2009 to approve EDCI’s termination of your employment for Cause.  As a result, until you receive any communication to the contrary from me, you are not to report to work or communicate with any employees, customers, vendors, agents, representatives, investors, or creditors of EDCI, EDC LLC or any of their respective subsidiaries or affiliates, except for the communication of timely or urgent matters to me, and are to hold all corporate property in your possession intact – including making no deletions or otherwise destroying any files, emails or other documents existing in any physical or digital format that are in your possession or subject to your control.

Obviously, the Separation Agreement has been breached by your actions and EDCI is therefore released from any obligations it may have under such Separation Agreement.  EDCI also reserves all rights it may have in connection with the MWK CFO Employment Agreement, the Separation Agreement and the MWK April 13 Letter.

Regards,

Signed on behalf of:

Robert L. Chapman, Jr.

Chief Executive Officer

By Matthew K. Behrent

EVP Corporate Development

EX-99.29

EXHIBIT 99.29

From: Robert L. Chapman, Jr.

Sent: Friday, March 27, 2009 5:12 AM

To: 'Howard W. Speaks Jr.'; 'Donald S. Bates'; 'Peter W. Gilson'

Subject: EDCI Holdings (EDCI): EDC: Personnel: Klinger Sony-related Compensation

March 27, 2009

EDCI Compensation Committee,

Thank you for taking the time to consider the very important issue of MWK’s $25,000 Sony-related bonus.

I cannot emphasize enough the demoralizing effect that will occur in Fishers amongst our truly valuable remaining members of the Office of the CFO should MWK’s $25,000 bonus remain intact. In fact, I predict that one or both of them leaves the firm within months should this occur, as they realize the two of them are carrying 95% of the weight of the finance group, despite being paid 50% of MWK’s salary (forgetting the bonus).

Please keep in mind the following, and also read if you have the time the red text interview from March 16, 2009 below. Also please do not contact MWK on this matter until after EDCI has completed filing its year-end 2008 documents; to contact him earlier may be very unwise.

1) Severance Pay Policy Violation (costing EDC over $176,000 in unnecessary, unauthorized severance pay @ 200% maximum amount/head);

2) March 2009 Board Meeting Preparation Disorganization (including EM’ing RJM 01/2009 BoD Meeting Minutes);

3) Blackburn – Hannover Consolidation Feasibility Study Disorganization (forcing MWK team week of all nighters);

4) EDC Credit Agreement Ignorance (thought loan interest rate was 100% higher than actual rate);

5) EDC Creditor Mis-Communication (i.e., Wachovia repercussions vis-à-vis Consolidation Plan and Intangible Writeoff);

6) EDCI 4Q2008 Investor Conference Call Script Ghost-writing by MDN (w/o MWK Review)’

7) EDC Financial Statement Ignorance (told RLCjr that EDC 4Q2008 gross margin % was 40% vs. 19% reality)

RLCjr

EX-99.30

EXHIBIT 99.30

April 14, 2009

VIA EMAIL AND OVERNIGHT DELIVERY                                                                                                

Mr. Michael W. Klinger

22420 Crooked Creek Road

Cicero, IN 46034

Re: Board of Director Approval of Termination of Employment for Cause

Mr. Klinger,

The Board of Directors of EDCI Holdings, Inc. (“EDCI”) hereby provides you written notice of its  approval of the immediate termination of your employment by EDCI for Cause in accordance with, and for the reasons set forth in, the letter of April 13, 2009 (attached hereto as Exhibit A) from EDCI’s Chief Executive Officer, Mr. Robert L. Chapman, Jr.  Defined terms have the meaning set forth in the letter agreement dated October 3, 2008 between EDCI and you.

You are directed, in accordance with EDCI policies that you have previously agreed to, to make arrangements with Kyle E. Blue for the return of all property of EDCI (or any of its subsidiaries or affiliates) in your possession within 24 hours of receipt of this letter.  Such property includes, without limitation, any computers, telephones, pagers, other electronic devices, documents of any kind (whether physical or digital), access badges, keys, equipment, credit cards, or ID badges.  You are also reminded that you remain bound by various obligations, including obligations of confidentiality, as a result of your prior employment, either expressly or as a result of fiduciary or other duties, and that EDCI will vigorously enforce any breaches of such obligations.

Regards,

____________________

Signed on behalf of:

Clarke H. Bailey

Chairman of the Board of Directors

By Matthew K. Behrent

EVP Corporate Development

EX-99.31

EXHIBIT 99.31

John Houston Pope

Allen B. Roberts

Raymond T. Mak

EPSTEIN BECKER & GREEN, P.C.

250 Park Avenue 

New York, New York 10177-1211

Phone: (212) 351-4500

Fax: (212) 878-8741

Attorneys for Plaintiffs

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

 EDCI HOLDINGS, INC., ENTERTAINMENT      Case No. 09 Civ. 3880 (BSJ)

 DISTRIBUTION COMPANY, LLC, and       

 and ENTERTAINMENT DISTRIBUTION 

 COMPANY (USA) LLC,

     Plaintiffs,

 -against-

MICHAEL W. KLINGER,

     Defendant.          

Plaintiffs, EDCI Holdings, Inc. (“EDCI”), Entertainment Distribution Company, LLC (“EDC LLC”), and Entertainment Distribution Company (USA) LLC (“EDC USA”), hereby allege as their Complaint against Defendant Michael W. Klinger (“Klinger”) as follows:

NATURE OF ACTION

     1.     This action arises under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq., and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02.  It seeks relief in two forms: (1) a declaration of rights arising out of the termination of Defendant’s employment, over which a real and substantial controversy has arisen; and (2) recovery for losses occasioned by Defendant’s participation in breaches of fiduciary duty in the course of administering the Severance Pay Policy for

Entertainment Distribution Company (USA) LLC (the “Policy” or the “Plan”), an employee welfare benefits plan governed by ERISA.

JURISDICTION & VENUE

2. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 because this is a civil action arising under the laws of the United States and pursuant to 29 U.S.C. § 1132(e)(1), which provides for jurisdiction over actions brought under Title I of ERISA. The Court additionally has jurisdiction pursuant to 28 U.S.C. § 1332, because this is a civil action between the citizens of different states with an amount in controversy exceeding $75,000, and pursuant to 28 U.S.C. § 1367 for any claims which lack an independent jurisdictional basis but which are related to the claims properly before this Court.

3. This Court has personal jurisdiction over the Defendant, and venue is proper in this District, because the Plan is administered from this District and the breach took place in this District, and because 29 U.S.C. § 1132(e)(2) authorizes the bringing of an action of this type in the District where a plan is administered or where the breach took place, with authority for nationwide service of process to secure the attendance of Defendant in such a District.

PARTIES

4. EDCI is a Delaware corporation with its principal place of business in New York, New York.

5. EDC LLC is a Delaware Limited Liability Company with its principal place of business in New York, New York.

6. EDC USA is a Delaware Limited Liability Company with its principal place of business in New York, New York.

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7. EDCI, indirectly through certain subsidiaries, owns 97.99% of the Limited Liability Company units of EDC LLC.  EDC LLC is the sole member of EDC USA.

8. Klinger is, upon information and belief, a citizen of the State of Indiana. He was, until on or about April 14, 2009, an officer and employee of EDCI, EDC LLC and EDC USA.

FACTUAL ALLEGATIONS

Klinger’s Employment

9. EDCI is a holding company which, together with its wholly owned and controlled majority owned subsidiaries, is seeking to enhance stockholder value by pursuing acquisition opportunities while continuing to oversee its majority investment in EDC LLC, a business that provides CD and DVD replication and logistics services through its wholly-owned subsidiary EDC USA in the United States, and through certain other wholly-owned subsidiaries in Western Europe.

10. The market for EDC LLC’s products are in a secular decline.  As a result, EDC USA is engaged in restructurings that include facility closings and the lay-off of personnel. In this environment corporate executives knew that preservation of cash had paramount importance.

11. Klinger was appointed Executive Vice President and Chief Financial Officer (“CFO”) and Treasurer of EDCI commencing on September 19, 2008.  His responsibilities included acting as the most senior financial officer for all of EDCI’s wholly-owned and majority-owned subsidiaries, including EDC LLC and EDC USA.

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      12. On October 3, 2008, EDCI and Klinger entered into a "Letter Agreement" (the "Agreement") confirming certain terms and conditions of Klinger's continued employment. 

A copy of the Agreement is annexed hereto as Exhibit 1 and incorporated by this reference thereto.

13. The Agreement provides that the termination of Klinger’s employment by EDCI without Cause, a defined term, or by Klinger with Good Reason, also a defined term, will entitle Klinger to contractual severance payments.  Conversely, termination with Cause and resignation without Good Reason leave Klinger without any entitlement to such payments.

14. On or about March 15, 2009, Robert L. Chapman, Jr. (“Chapman”), the Chief Executive Officer of EDCI and EDC LLC, discovered that Klinger had authorized – and legally bound EDC USA to – severance payments under the Plan contrary to its terms, a clear material violation of Klinger’s responsibilities as an executive of EDCI and its subsidiaries which caused EDC USA to incur an excess expenditure of approximately $176,000 (the “Double Severance Payments”).  (The details of Klinger’s misconduct are set forth infra paragraphs 25 to 26 and 33 to 36.)

15. EDCI investigated Klinger’s actions in connection with the unauthorized Double Severance Payments, to which he ultimately admitted his guilt in writing. Chapman informed Klinger that his conduct entitled EDCI to terminate Klinger’s employment for Cause and Klinger acknowledged that EDCI had sufficient grounds for termination of Klinger’s employment for Cause.

16. On or about April 2, 2009, Chapman conducted a six month review of Klinger’s performance, in which Chapman discussed EDCI’s concern with the breach of trust

      involved in the Double Severance Payment, and identified other significant deficiencies in Klinger’s performance. During that review session, Chapman reiterated that EDCI

      had grounds for termination of Klinger’s employment for Cause.  

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Klinger and EDCI thereafter began negotiations for a separation of his employment, and in connection with the negotiations, Klinger requested a mutual separation that would

      spare him from having his termination branded as one for Cause.

17. EDCI and Klinger reached agreement as to the key terms of a mutual separation on Thursday April 9, 2009.  A key element of  consideration that Klinger negotiated for in such agreement was EDCI’s waiver of its right to terminate Klinger for Cause as a result of the Double Severance Payments.

18. While EDCI believed the parties had reached a mutually satisfactory agreement concerning the termination of Klinger’s employment and was working with Klinger on final documentation thereof  through the weekend, on Monday, April 13, Klinger repudiated that solution before it could be consummated.  Instead, he sent a letter dated April 13, 2009, to EDCI’s Board of Directors in which he asserted his right to resign for Good Reason if certain changes were not made within thirty days.  His letter asserted, in substance, that EDCI was in material breach of the Agreement. Plaintiffs dispute that Klinger had Good Reason to resign and contest each of the assertions set forth in his April 13th letter as either invalid, baseless, spurious or immaterial – by Klinger’s own descriptions.

19. On that same date, April 13, 2009, EDCI issued to Klinger notice of termination of Klinger’s employment for Cause subject to the approval of the Board of Directors. Upon information and belief, Klinger received that notice on the morning of April 14th. The Board approved such termination on April 14, 2009.

     20. Klinger’s employment terminated as of April 14th.

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Klinger’s Breach of Fiduciary Duty

21. EDC USA adopted the Plan on or about October 3, 2008.  A copy of the Plan is annexed hereto as Exhibit 2 and incorporated by this reference thereto.

22. EDC USA is the administrator and named fiduciary of the Plan.  Individual officers of EDC USA become fiduciaries when they actually exercise discretion under the Plan.

23. Klinger became a fiduciary under the Plan when he actually exercised discretion under the Plan, as described infra paragraphs 25 to 26.

24. The Plan provides severance benefits to employees who have lost their employment under certain circumstances.  An Eligible Employee may receive severance of “One (1) week of base pay for each complete year of service (based on most recent date of hire) as an Eligible Employee, up to a maximum of 10 weeks’ pay.” (Section 5.1, emphasis added).

25. In or about December 2008, Klinger joined with and participated in a breach of fiduciary duty committed by the then-President of EDC USA to bind EDC USA to the payment of additional severance for certain employees operating out of EDC USA’s North Carolina manufacturing facility, conferring a total of twenty weeks of severance on those employees, rather than the ten week maximum authorized by the Plan. While the then-President identified only eight employees for this illegal enhanced benefit, Klinger, on his own, added another four employees.  Klinger later confessed to the misconduct and his responsibility for it, saying that he felt he “had the authority to make that decision” on his own.  His actions and statements constitute acknowledged fiduciary status under the Plan.

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26. On January 8, 2009, Klinger signed and requested delivery of letters that bound EDC USA to the payment of the illegally enhanced severance for those twelve employees.

COUNT I

Declaratory Judgment

27. Plaintiffs repeat and incorporate the allegations set forth in the foregoing paragraphs as if fully set forth herein.

28. A real and substantial controversy exists between the parties concerning the meaning of the Agreement and the rights of Plaintiffs thereunder.

29. Plaintiffs are left with uncertainty about the status of their rights with respect to Klinger and need the assistance of the Court to settle the controversy between the parties. If Plaintiffs are correct, that Klinger committed acts that constitute Cause for termination, Klinger is entitled to no severance payments; if Klinger is correct, that he validly tendered his resignation for Good Reason and was not subject to termination for Cause, he may be entitled to substantial severance payments.  Alternatively, if Klinger offered his resignation for reasons not constituting Good Reason under the Agreement and Plaintiffs did not otherwise have Cause, Plaintiffs have grounds to terminate Klinger for Cause as a result of his resignation other than for Good Reason.

30. Accordingly, Plaintiffs seek a declaration of rights under the Agreement specifying that the circumstances of the termination of Klinger’s employment constitute Cause under the Agreement and, in the alternative, that Klinger resigned without Good Reason, as a result of which Plaintiffs may terminate Klinger for Cause.

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COUNT II

Breach of Fiduciary Duty

31. Plaintiffs repeat and incorporate the allegations sent forth in the foregoing paragraphs as if fully set forth herein.

32. Under ERISA § 404(a)(1)(D), a fiduciary must discharge his duties in accordance with the documents and instruments governing a plan.

33. Payment of benefits to participants in excess of an express maximum specified by a plan constitutes a breach of fiduciary duty.

34. Klinger authorized, participated in, and executed binding agreements providing for the payment of benefits in excess of the express maximum specified in the Plan to twelve employees.

35. As a result of Klinger’s actions, EDC USA became bound to pay, and paid, severance in the aggregate of approximately $176,000 in excess of the maximum authorized for those employees under the Plan.

36. EDC USA has no practical remedy to recover the overpayments to which Klinger legally bound EDC USA.  Participants under the Plan will be required to execute a release of claims in exchange for the benefits they receive.  Any attempt to undo the committed overpayments authorized by Klinger, by trying to renegotiate those overpayments with the participants, could result in litigation against EDC USA and jeopardize the ability to obtain the releases and expose EDC USA to excessive risk.

37. EDC USA funds benefits for the Plan from its general assets.  EDC USA suffered the loss that Klinger’s breach of fiduciary duty caused and is entitled to recovery of that loss as appropriate relief under ERISA § 502(a)(2).

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PRAYER FOR RELIEF

WHEREFORE, Plaintiffs demand judgment against Defendant on each Count of the Complaint and the following relief:

A. A declaration of rights under the Agreement specifying that the circumstances of the termination of Klinger’s employment constitute Cause under the Agreement

and, in the alternative, that Klinger resigned without Good Reason, as a result of which Plaintiffs may terminate Klinger for Cause.

B. Recovery for the loss occasioned by the breach of fiduciary duty perpetrated by Defendant in an amount to be determined at trial.

C. The expenses and costs involved in the prosecution of this action, including attorney’s fees under 29 U.S.C. § 1132(g)(1).

D. Such other, further relief as the Court deems appropriate.

Dated: New York, New York                 Respectfully submitted,  

April 17, 2009

EPSTEIN BECKER & GREEN, P.C.

           < font id="TAB2" style="LETTER-SPACING: 9pt">        By:

           < font id="TAB2" style="LETTER-SPACING: 9pt">         John Houston Pope

           < font id="TAB2" style="LETTER-SPACING: 9pt">            Allen B. Roberts

           < font id="TAB2" style="LETTER-SPACING: 9pt">            Raymond T. Mak

           < font id="TAB2" style="LETTER-SPACING: 9pt">          250 Park Avenue

           < font id="TAB2" style="LETTER-SPACING: 9pt">             New York, New York 10177-1211

           < font id="TAB2" style="LETTER-SPACING: 9pt">                Phone: (212) 351-4500

           < font id="TAB2" style="LETTER-SPACING: 9pt">           Fax: (212) 878-8741

                         Attorneys for Plaintiffs

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EXHIBIT 1

October 3, 2008

Mr. Michael W. Klinger

22420 Crooked Creek Road

Cicero, IN  46034

Dear Mike,

This letter confirms certain terms and conditions of your continued employment in consideration of your new title and duties effective September 19, 2008, in the position of Executive Vice President and Chief Financial Officer and Treasurer of EDCI Holdings, Inc. (The “Company”) and supersedes any prior offer letter or other agreement regarding your employment by the Company or any of its subsidiaries. This position is located in or near Fishers, Indiana and reports directly to the Chief Executive Officer and/or Chairman of the Board of Directors of the Company.  You are responsible for financial planning and analysis, accounting, SEC reporting and matters related to treasury, tax, information technology, risk management, procurement, payroll and investor relations, as well as such duties and services as normally are associated with such position, which may be assigned to you from time to time.

Your base compensation will be $20,800 per month (the “Base Salary”), which shall be paid in bi-weekly installments in accordance with the Company’s normal payroll practices.  Your Base Salary and performance will be reviewed after your initial six months in this position and thereafter on an annual basis each year.  Your Base Salary may be increased (but not decreased) in the manner determined by the Company in consultation with the Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board.

You will be eligible to participate in the Company’s bonus plans or programs as shall be established by the Board upon recommendations from management of the Company from time to time for senior executives of the Company.  In addition, you will be eligible to receive discretionary bonus awards as the Board may determine in its sole discretion from time to time.

During the term of your employment, you will be entitled to four (4) weeks of vacation in each calendar year at such times as shall be mutually convenient to you and the Company.  Your vacation will be prorated for each partial calendar year during the term of your employment.

During the term of your employment, you will receive a monthly car allowance of $400, which will cover local driving and parking expenses incurred in connection with the performance of your duties hereunder.

During the term of your employment, you may participate in all retirement plans, life, medical/dental insurance plans and disability insurance plans of the Company, as in effect from time to time, to the extent that you qualify under the eligibility requirements of each plan or program.  Details of our current benefits plan have previously been provided to you.

You will continue to be entitled to a “stay bonus”, previously provided in your letter agreement dated November 26, 2007, of $60,000 payable in a lump sum if you remain employed by the Company through October 31, 2008 or, in the event a Change in Control (as defined below) occurs prior to October 31, 2008, you remain employed by the Company or any successor to the Company following a Change in Control, through the 90 day anniversary of any such Change in Control.  If earned, the Company will pay you the stay bonus within two days after October 31, 2008 or two days after the 90 day anniversary of a Change in Control, as applicable.

In the event your employment is terminated by the Company without Cause (as defined below) or by you with Good Reason (as defined below), the Company will pay you, subject to the limitations set forth below, a lump sum severance payment equal to the amount of your Base Salary in effect on such termination date multiplied by 12.   You also shall be entitled to receive the sum of (1) your accrued but unpaid Base Salary through the date of such termination, plus (2) your accrued but unpaid vacation pay through such date of termination, plus (3) if you are then participating in the Company’s annual bonus plan, a pro-rated annual bonus for the bonus year in which you are terminated, which shall be calculated and paid in accordance with the Company’s normal practices at the end of such bonus year,  provided  that you have been employed by the Company for at least six months of such bonus year, plus (4) any other compensation payments or benefits which have accrued and are payable in connection with such termination. In addition, the Company shall continue to provide medical and dental benefits to you and your dependents for a period of 12 months following such date of termination at the same levels of coverage and in the same manner as such benefits are available to you and your dependents immediately prior to such Change in Control.  Your right to continue medical and dental coverage under the Consolidated Omnibus Budget Reconciliation Act of 1995 (“COBRA”) shall begin after the expiration of the one-year period described in the foregoing sentence.

If a Change in Control (as defined below) occurs and if your employment is terminated within six months after such Change in Control for any reason other than Cause (as defined below), the Company shall pay you, within 10 days after such termination, in cash or equivalent, a lump sum severance benefit equal to your Base Salary in effect on such termination date multiplied by 12.  You also shall be entitled to receive the sum of (1) your accrued but unpaid Base Salary through the date of such termination, plus (2) your accrued but unpaid vacation pay through such date of termination, plus (3) if you are then participating in the Company’s annual bonus plan, a pro-rated annual bonus for the bonus year in which you are terminated, which shall be calculated and paid in accordance with the Company’s normal practices at the end of such bonus year,  provided  that you have been employed by the Company for at least six months of such bonus year, plus (4) any other compensation payments or benefits which have accrued and are payable in connection with such termination.  In addition, the Company shall continue to provide medical and dental benefits to you and your dependents for a period of 12 months following such date of termination at the same levels of coverage and in the same manner as such benefits are available to you and your dependents immediately prior to such Change in Control.  Your right to continue medical and dental coverage under COBRA shall begin after the expiration of the one-year period described in the foregoing sentence.

Notwithstanding the foregoing, if any benefit or amount payable to you under this letter on account of your termination of employment constitutes “nonqualified deferred compensation” (“Deferred Compensation”) within the meaning of Section 409A of the Internal Revenue Code (“409A”), payment of such Deferred Compensation shall commence when you incur a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h) (“Separation from Service”).  However, if you are a “specified employee” within the meaning of 409A at the time of your Separation from Service, any Deferred Compensation payable to you under this letter on account of your termination of employment shall be delayed until the first day of the seventh month following your Separation from Service (the “409A Suspension Period”).  Within 14 calendar days after the end of the 409A Suspension Period, the Company shall pay to you a lump sum payment in cash equal to any payments (including interest on any such payments, at an interest rate of not less than the average prime interest rate, as published in the Wall Street Journal, over the 409A Suspension Period) that the Company would otherwise have been required to provide under this letter but for the imposition of the 409A Suspension Period.  Thereafter, you shall receive any remaining payments due under this letter in accordance with its terms as if there had not been any suspension period beforehand.

For purposes of this letter agreement:

(1)           “Cause” means (1) your resignation, except for Good Reason, from the office of Chief Financial Officer of the Company; (2) dishonesty or fraud on the part of the employee which is intended to result in the employee’s substantial personal enrichment at the expense of the Company or its affiliates; (3) a material violation of the employee’s responsibilities as an executive of the Company or its subsidiaries which is willful and deliberate; or (4) the conviction (after the exhaustion of all appeals) of the employee of a felony involving moral turpitude or the entry of a plea of nolo contendere for such a felony;  provided , that in no event shall “Cause” include (i) any personal or policy disagreement between the employee and the Company or any member of the board of directors of the Company or (ii) any action taken by the employee in connection with the employee’s duties if the employee acted in good faith and in a manner the employee reasonably believed to be in the best interest of the Company and had no reasonable cause to believe the employee’s conduct was unlawful.

(2)           “Change in Control” means any of the following: (a) the acquisition, directly or indirectly after the date of this letter agreement, in one or a series of transactions, of 25% or more of the Company’s common stock by any “person” as that term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; (b) the consummation of a merger, consolidation, share exchange or similar transaction of the Company with any other corporation, entity or group, as a result of which the holders of the voting capital stock of the Company immediately prior to such merger, consolidation, share exchange or similar transaction, as a group, would receive less than 50% of the voting capital stock of the surviving or resulting corporation; (c) the consummation of an agreement providing for the sale or transfer (other than as security for obligations of the Company) of all or substantially all of the assets of the Company; or (d) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or pursuant to a negotiated settlement with any such Person to avoid the threat of any such contest or solicitation.  Notwithstanding the above, in no event shall the liquidation of the Company or declaration or payment by the Company of a material dividend be deemed to constitute a Change in Control.

(3)           “Good Reason” means the occurrence of any of the following events provided you (A) notify the Board in writing within 90 days following the initial occurrence of the events that are alleged to constitute good reason and specifying the events that are alleged to constitute good reason and (B) terminate your employment within 90 days of the date of your notice if the Company does not cure said events within 30 days after the date of your notice: (i) any material breach by the Company of the terms of this letter agreement or any material diminution by the Company of your authority, duties or responsibilities with the Company as specified in the first paragraph of this letter agreement; (ii) any relocation of your principal office to a location which is more than 25 miles from the Company’s Fishers, Indiana facility; or (iii) any request by the Company for you to report to someone other than the Company’s Chief Executive Officer or the Chairman of the Company’s Board of Directors, except where such request is specifically approved by you.

No representation, promise or inducement has been made by the Company or you that is not embodied in this letter agreement.

This letter agreement may not be modified or amended in any way unless in writing signed by each of the parties hereto.

Please confirm the terms and conditions set forth herein by countersigning this letter in the space provided below.

Sincerely,

/s/ Clarke Bailey    

Clarke Bailey

Chairman of the Board

Accepted by:	/s/ Michael W. Klinger	Date:  October 3, 2008
	Michael W. Klinger

EXHIBIT 2

EX-99.32

EXHIBIT 99.32

From: John Houston Pope 

Sent: Tuesday, April 28, 2009 9:52 PM

To: kathleen@delaneylaw.net

Subject: Fw: Please Forward to Mr. Klinger's Counsel

Please see below.

John Houston Pope | Bio

(212) 351-4641 (direct) | (212) 878-8741 (fax)

JHPope@ebglaw.com

EPSTEINBECKERGREEN

250 Park Avenue | New York, NY 10177

(212) 351-4500 (main) | www.ebglaw.comThink Green. Please consider the environment before you print this message. Thank you.

From: Behrent, Matt

To: John Houston Pope

Sent: Tue Apr 28 21:13:28 2009

Subject: Please Forward to Mr. Klinger's Counsel

April 28, 2009

John,

Please forward this message to Mr. Klinger's Counsel.

Matthew Behrent

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

April 28, 2009

Kathleen A. DeLaney

DeLaney & DeLaney LLC

3646 N. Washington Blvd.

Indianapolis, IN 46205

Tel: 317-920-0400 Main

Tel: 317-920-0500 Direct

Fax: 317-920-0404

kathleen@delaneylaw.net

www.delaneylaw.net

Kathleen,

Given that a significant portion of Michael W. Klinger's ("Mr. Klinger") claims for compensation relate to entitled vacation days that Mr. Klinger claims not to have utilized, Plaintiffs commenced on April 24, 2009 a comprehensive review of the vacation days actually taken by Mr. Klinger, versus those he self-reported to the Plaintiffs (for tracking purposes). As you may know, your client was in the position of self-reporting his vacation and working in a location that was remote from his direct superiors. Based on our preliminary analysis of computer records of Mr. Klinger’s use of his security card to enter the Fishers’ facility, a review of Mr. Klinger’s own notes on his Microsoft Outlook calendar, and emails listing planned and actual vacations, we note the following preliminary conclusions based only on a review of days in the second half of 2008:

1. For allof 2008, Mr. Klinger specifically reported two vacation days (August 8 and 11, 2008) and three “Personal Time Days” (May 9, 22 and 23 , 2008). Mr. Klinger separately noted in an email to Ann Gaffney, requesting the number of vacation days taken in 2008, that he had taken “5 days” in 2008, but he has not provided specifically on what days those additional 3 days of vacations were taken (assuming the "5 days" was not meant to include the three "Personal Time Days"). We have assumed for this analysis, to provide the benefit of the doubt to Mr. Klinger, that all of those 5 days of vacation were taken in the second half 0f 2008, the period we have analyzed so far.

2. In the second half of 2008, Plaintiffs have identified 12 days where Mr. Klinger marked entire days in his Outlook Calendar as “Vacation” (or in December 2008, were within a period his calendar indicated he had travelled to Florida) and where computer records indicate Mr. Klinger’s security card was not used to access the Fishers’ facility at any point during those days. (See Exhibit A) Based on this analysis, Mr. Klinger appears to have failed to properly self-report 7 days of vacation (12 identified days less the assumption that all 5 vacation days self-reported in 2008 occurred in the second half of 2008) during this six month period, or said differently, Mr. Klinger appears to have self-reported only 42% of his actual vacation days taken during this period.

3. In the second half of 2008, Plaintiffs have identified an additional 6 days (June 6 and June 9-13, 2008) that Mr. Klinger identified as a planned vacation in a May 21, 2008 email. Mr. Klinger also listed 5 of those days as “Summer Camp” in his Outlook Calendar (June 9-13, 2008). Further, in a June 6, 2008 email, Mr. Klinger stated “I’m off on vacation thru next week.” (See Exhibit B). Based on this analysis, and together with the vacation days Mr. Klinger appears to have failed to self-report in paragraph 2, above, Mr. Klinger appears to have failed to properly self-report a total of 13 days of vacation during this six month period (18 identified days less the assumption that all 5 vacation days self-reported in 2008 occurred in the second half of 2008) during this six month period, or said differently, Mr. Klinger appears to have self-reported only 28% of his actual vacation days taken during this period.

4. In the second half of 2008, Plaintiffs have identified an additional 18 days where computer records indicate Mr. Klinger’s security card was not used to access the Fishers’ facility at any point during the day and where Mr. Klinger’s absence was not explained by business travel or holidays or included in Paragraphs 2 or 3 above. (See Exhibit C) Unlike the analysis in Paragraphs 2 and 3, we note that for these days there is currently no further corroborating evidence in addition to the lack of security card "swipes."

We are expanding this review (in particular, seeking corroboration for the days with no "swipes" listed in Paragraph 4) to include an analysis of Mr. Klinger’s office and cell phone records, and all of his Microsoft Office E-mails, and extending the analysis into all periods of Mr. Klinger’s employment, including by subpoena to Universal Music Group. We will also pursue discovery of related personal records of Mr. Klinger to further corroborate that analysis.

We note that we reserve all legal rights, including those we may have to dispute both the actual vacation days taken by Mr. Klinger, his legal entitlement to the payment of any accrued vacation as a result of Plaintiffs’ justifiable termination of Mr. Klinger’s employment with Cause, and whether Mr. Klinger’s failure to properly record his vacations may also constitute acts of dishonesty or fraud resulting in personal enrichment that could constitute further grounds for termination of Mr. Klinger’s employment with Cause.

I encourage your client to resubmit his correct vacation day usage with suitable backup, at a minimum for his employment since May 31, 2005. Alternatively, if you or your client have any other proposal for a potential resolution of the disparities between Mr. Klinger’s self-reported vacation days and his actual vacation days, I encourage you to let us know.

Regards,

Matthew Behrent

__________________________________________

Matthew K. Behrent

EVP, Corporate Development, Legal Counsel

EDCI Holdings, Inc.

1755 Broadway, 4th Fl.

New York, NY 10019

EX-99.33

EXHIBIT 99.33

April 30, 2009

Matt Behrent

Executive Vice President, Corporate Development EDCI Holdings, Inc.

1755 Broadway, 4th Fl. New York, NY 10019

RE: EDCI Holdings, Inc. et al. v. Michael Klinger

Dear Matt:

It has come to my attention that I am still listed as Executive Vice President, Chief Financial Officer and Treasurer on EDC LLC's web site.  Please remove my name from this web site immediately.  As you are well aware, I have not held those positions since April 14, 2009.

I would also like to point out to you that, by virtue of the termination of my employment, I am not responsible for any actions that EDC LLC, or any of its parents, subsidiaries or affiliates, has taken or will take since I was placed on leave pending termination on April 13, 2009.

Sincerely,

Michael W. Klinger

Cc:John Houston Pope

May 1, 2009

By Electronic Mail Message

Matt Behrent

Executive Vice President, Corporate Development EDCI Holdings, Inc.

1755 Broadway, 4th Fl. New York, NY 10019

RE: EDCI Holdings, Inc. et al. v. Michael Klinger

Dear Matt:

Yesterday I received a check from EDCI for an FSA reimbursement, dated April 24, 2009.  As you can see from the enclosed copy of the check, a copy of my electronic signature appears on the check, even though it was written several days after the termination of my employment.  I am writing today to request that EDCI Holdings, Inc., and its subsidiaries and affiliates, along with any of their respective banking institutions, payroll vendors, or other agents immediately cease misappropriating my signature for unauthorized use.

Please remove my name and signature from all checks written to anyone by EDCI Holdings, Inc., and its subsidiaries and affiliates.  In addition, please take all necessary stepsto ensure that all copies of my electronic signature are deleted from the electronic records of EDCI Holdings, Inc., and its subsidiaries and affiliates, along with any of their respective banking institutions, payroll vendors, or other agents.

Sincerely,

Michael W. Klinger

Enc.

Cc: John Houston Pope

EX-99.34

EXHIBIT 99.34

 EDCI HOLDINGS, INC.

Matthew K. Behrent

EVP Corporate Development & Legal Counsel

May 5, 2009

By Electronic Mail

Kathleen A. DeLaney

DeLaney & DeLaney LLC

3646 N. Washington Blvd.

Indianapolis, IN 46205

Tel: 317-920-0400 Main

Tel: 317-920-0500 Direct

Fax: 317-920-0404

kathleen@delaneylaw.net

www.delaneylaw.net

Re: EDCI Holdings, Inc., Entertainment Distribution Company, LLC, Entertainment Distribution Company (USA) LLC (together, the “Plaintiffs”) v. Michael Klinger

Kathleen,

In light of the discrepancies Plaintiffs identified to you in their correspondence of April 28, 2009 (the "First Klinger Vacation Discrepancy Analysis") between the vacation days actually taken by Mr. Klinger, versus those he self-reported to (for tracking purposes), Plaintiffs once again write to encourage your client to resubmit his correct vacation day usage with suitable backup, at a minimum for his employment since May 31, 2005.

If you are concerned about any prejudice to your client's future litigation position from discussing this issue, Plaintiffs are amenable to treating such communications as settlement communications (under Rule 408 of the Federal and Indiana rules of evidence) and would agree to treat the discussions as confidential.  Our concern is to see if the parties can reach an agreement on the amount of unused vacation compensation, if any, due to Mr. Klinger.

Plaintiffs continue to assert Mr. Klinger has no legal entitlement to the payment of any accrued vacation as a result of Plaintiffs’ justifiable termination of Mr. Klinger’s employment with Cause.  However, to the extent you intend to argue your client is entitled to accrued vacation, we note that due to the significant discrepancies and the continued silence by you and your client, Plaintiffs are simply left with no way to evaluate whether your client has in fact accrued any vacation, regardless of his right to be compensated for it.  Following extensive communications with regulators, it is clear to Plaintiffs that their only recourse is to continue to request corrected vacation information from your client.  Regardless, we are confident any Court would place great weight on all of Plaintiffs’ good faith efforts to analyze, discuss and potentially resolve this matter, especially in light of the ample evidence we have provided, and the fact that Mr. Klinger - unlike an average employee - was a highly-compensation, “C” level executive who self-reported his vacation.

Please also let your client know that on Monday, May 5, 2009, a check in the amount of $9,407.20 was mailed to him as a reimbursement for the combined expenses report you forwarded to Mr. Pope on April 27, 2009.  The reimbursed amount differs slightly from the total

EDCI Holdings, Inc. – 1755 Broadway, 4th Floor – New York, NY 10019 – 212.331.2762

Ms. Kathleen A. Delaney

May 5, 2009

Page 2 of 3

amount submitted by Mr. Klinger for reimbursement of $9,598.88 (a difference of $191.68).  The difference relates primarily  to one item which Mr. Klinger submitted for reimbursement when in fact the amount was charged to a corporate card that was directly paid by Plaintiffs.  This amount was for $201.68 and the receipt that Mr. Klinger submitted was dated January 22, 2009.  It was part of an expense report dated March 30, 2009. The remaining $10 difference was due to an error made by Mr. Klinger when completing one of his expense reports - he brought forward a cab fare expense of $64 whereas the detail support equaled $74.  If Mr. Klinger disagrees with these exceptions, please let us know.

Plaintiffs are also providing you with copies of additional emails of Mr. Klinger that further corroborate that Mr. Klinger appears to have failed to properly report his actual vacation day usage. As in the First Klinger Vacation Discrepancy Analysis, these emails relate only to vacations that appear improperly reported in the second half of 2008.

 1.Exhibit A. In an email dated June 2, 2008 at 11:08AM, Mr. Friedman informs Mr. Klinger that "I'm using your office today".  Mr. Klinger responds by email that

                      same day at 11:20AM, "Enjoy It."  Later that day, at 4:00PM, Mr. Klinger replies to a request for assistance from a colleague by noting "I'll be back in the office

                      Tue AM.  Is that soon enough?" June 2, 2008 was listed as a scheduled vacation - "Off Monday June 2 - my annual physical and tests" - in the email from Mike

 Klinger dated May 21, 2008 that was included in Exhibit B of the First Klinger Vacation Discrepancy Analysis (the "Klinger Planned Vacation Email"). June 2, 2008

                      was not listed as a corroborated day in the First Klinger Vacation Discrepancy Analysis, and is thus an additional day of vacation that Mr. Klinger appears to

have failed to properly self report.

 2.    Exhibit B. In an email dated Friday, June 6, 2008 - that is a follow up to the prior email chain included in Exhibit B to the First Klinger Vacation Discrepancy

                    Analysis, where Mr. Klinger stated "I'm off on vacation thru next week", Mr. Klinger clarifies that he is not only on vacation through the following week, but "will               

                    be camping with the Boy Scouts out in the wilderness until next Sunday, so probably will be out of pocket until then." (Emphasis added) This email thus provides

                    further corroboration to the 6 day vacation from June 6, 2008 to June 13, 2008 identified in the First Klinger Vacation Discrepancy Analysis, in addition to the

                    explicit listing of 5 of those days as "Summer Camp" in Mr. Klinger Microsoft Outlook Calendar and the listing of all 6 of those days as a scheduled

                    vacation - - "Off for BSA Summer Camp (6/6 - 6/13)" - in the "Klinger Planned Vacation Email.

3.Exhibit C. In an email dated July 3, 2008 from Mr. Klinger to Sherry Neaver, Mr. Klinger notes "Elaine and I are taking off next week (actually starting this afternoon)

                    with the hopes of getting things done around the house".  In an email dated July 7, 2008, at 8:44AM to Tom Costabile, Mr. Klinger notes “I am out in the pasture

                    doing things you can't even imagine.” In an email dated July 7, 2008, at 11:55AM to Elaine Breen, Mr. Klinger notes "Sam just got up.  I'm on the way to take

                    a shower."  Later in the day, at 12:14PM, Mr. Klinger responds to the question "What are your immediate plans?" from Elaine Breen by replying "Heading to

                    Frys and eating." These emails thus provide even further corroboration to Mr. Klinger's 5 day vacation from July 7, 2008 to July 11, 2008 identified in the

                    First Klinger Vacation Discrepancy Analysis, in addition to the lack of any security card swipes on each of those days, the explicit listing of those days

                    as "Vacation" in Mr. Klinger's Microsoft Outlook Calendar and the

EDCI Holdings, Inc. – 1755 Broadway, 4th Floor – New York, NY 10019

Ms. Kathleen A. Delaney

May 5, 2009

Page 3 of 3

                    listing of all 5 of those days as a scheduled vacation - "Family Vacation - - not the Grand Canyon July 7 - 11" - in the Klinger Planned Vacation Email. The

                    July 3, 2008 email also indicates that another day not included in the First Klinger Vacation Discrepancy Analysis - July 3, 2008 - was at best only a half day of work.  

                    Insofar as July 2 also a day with no security card swipes, it is possible phone records may confirm this was in fact another full day that Mr. Klinger failed to report.

 4.     Exhibit D. In an email dated July 15, 2008, Mr. Klinger replies to an email from Tom Costabile requesting a meeting on Thursday by stating “Friday would

                     be much better for me. We have our Poultry show on Thurs and Friday is the Rabbit show- I would be most needed to help with the poultry.”  In an email dated

                     July 17, 2008, Mr. Klinger informs various associates that the "4H Poultry Show is this morning so will be in after lunch."  This email thus provides a third corroboration

                     to Mr. Klinger's vacation on Thursday, July 17 identified in the First Klinger Vacation Discrepancy Analysis, in addition to the lack of any security card

                     swipes and the explicit listing of that day as "4H Fair" in Mr. Klinger's Microsoft Outlook Calendar. At best, Mr. Klinger failed to report a half day of

                     vacation on this day, but given the lack of any security card swipes that day, and the fact Mr. Klinger did not send any outgoing emails that day between

                     12:02PM EDT and 6:48PM EDT, it appears likely Mr. Klinger in fact took the entire day.  Further, on the Monday, July 21, 2008 following the three days listed in

                     Mr. Klinger's calendar as "4H Fair", Mr. Klinger replies to an email that was sent the prior Thursday, July 17, 2008 by noting "Been out for a few days,

                     so just read your email."  (Emphasis added).

Plaintiffs remind you that we are expanding this review to include an analysis of Mr. Klinger’s office and cell phone records, and all of his Microsoft Office E-mails, and extending the analysis into all periods of Mr. Klinger’s employment, including by subpoena to Universal Music Group. Plaintiffs will also pursue discovery of related personal records of Mr. Klinger to further corroborate that analysis.

Plaintiffs note they reserve all legal rights, including those we may have to dispute both the actual vacation days taken by Mr. Klinger, his legal entitlement to the payment of any accrued vacation as a result of Plaintiffs’ justifiable termination of Mr. Klinger’s employment with Cause, and whether Mr. Klinger’s failure to properly record his vacations may also constitute acts of dishonesty or fraud resulting in personal enrichment that could constitute further grounds for termination of Mr. Klinger’s employment with Cause.

Regards,

Matthew Behrent

Executive Vice President, Corporate Development & Legal Counsel

On behalf of the Plaintiffs

EDCI Holdings, Inc. – 1755 Broadway, 4th Floor – New York, NY 10019

EX-99.35

EXHIBIT 99.35

EX-99.36

EXHIBIT 99.36

May 6, 2009

Via Overnight Mail

Ms. Marlea J. Applegate

Acting Supervisor

U.S. Equal Employment Opportunity Commission

Indianapolis District Office

101 West Ohio Street

Suite 1900

Indianapolis, IN  46204

  Re: Klinger v. EDCI Holdings, Inc., et al.

EEOC Charge No. 470-2009-02372

Dear Ms. Applegate:

This firm represents respondents EDCI Holdings, Inc., (“EDCI”), Entertainment Distribution Company, LLC (“EDC LLC”), and Entertainment Distribution (USA) LLC (“EDC USA”) (collectively, “Respondents”) in the referenced matter.  Respondents submit this Position Statement in opposition to the Charge of Discrimination filed on or about April 23, 2009 by Mr. Michael Klinger (the “Charge”).1

EDCI, together with its subsidiaries, is a multi-national company that is seeking to enhance stockholder value by pursuing acquisition opportunities, while continuing to oversee its majority investment in EDC LLC, which provides CD and DVD replication and logistics services through EDC USA in the United States, and through other subsidiaries in Western Europe.  Because the market for EDC LLC’s products are in a secular decline, EDC USA is engaged in restructurings that include facility closings and personnel lay-offs. In the aggregate, Respondents employed over 1,100 employees on December 31, 2008.

In the Charge, Klinger, the former Chief Financial Officer (“CFO”) for EDCI Holdings, Inc., alleges that he was the victim of age discrimination and retaliation.  Klinger’s charges are briefly summarized below:

1 For the Commission’s convenience, a copy of Klinger’s Charge is attached as Exhibit A.  EDCI does not waive any claims and defenses that are not specifically set forth herein, and reserves the right to assert such claims and defenses at a later date as may be necessary.

Ms. Marlea J. Applegate

May 6, 2009

Page 2

I.           Klinger claims Respondents terminated his employment, withheld severance pay and benefits owed to him, and curtailed his responsibilities and duties because of his age and in retaliation for his complaints of age discrimination.

II.           Klinger claims, as the basis for the alleged retaliation, that he complained to “the person responsible for human resources functions” and to unnamed “multiple management level employees” that the Respondents were getting rid of older and higher paid employees.

III.             Klinger claims that his termination was part of a recent pattern in which the Respondents have terminated older employees with contractual rights to severance pay and benefits, and have wrongfully withheld payment of severance pay and benefits to those older employees, while younger workers subject to termination have received severance pay and benefits.

Klinger’s charges of discrimination and retaliation are entirely without merit.  Respondents address each of these charges with particularity below.

In fact, this is not a case about discrimination.  Rather, it is about Klinger’s attempt to retaliate against EDCI for terminating his employment with “Cause” and filing a federal complaint against him.  EDCI terminated Klinger’s employment with Cause (as defined in the Klinger CFO Employment Agreement discussed below) on April 14, 2009.  EDCI  commenced a federal action against Klinger on April 17, 2009, for, among other things, his breaches of his fiduciary duty to Respondents (the “Klinger ERISA Complaint”) and a declaratory judgment that, pursuant to the Klinger CFO Employment Agreement, the circumstances of the termination of Klinger’s employment constitute Cause.  A copy of the Klinger ERISA Complaint is attached as Exhibit B.  A courtesy copy of the complaint was provided to Klinger’s counsel on April 17, 2009.  A copy of the complaint also was left at Klinger’s home address on April 21.2  Two days later, Klinger filed the present Charge of Discrimination.

Klinger’s filing of the Charge is simply his opening salvo in his attempt to retaliate against Respondents, and transform what is an ordinary employment dispute, essentially a contract interpretation issue, into a complaint of discrimination.  Klinger’s after-the-fact accusations of discrimination and retaliation are nothing more than transparent attempts to gain the upper hand, and fire back at Respondents.  Indeed, as set forth fully below, there is no evidence of any kind to support Klinger’s baseless accusations, and the Charge should be dismissed in its entirety.

2 Personal service on Klinger was accomplished on April 23, 2009.

Ms. Marlea J. Applegate

May 6, 2009

Page 3

I.   Klinger Was Not the Victim of Discrimination or Retaliation

Klinger claims Respondents terminated his employment, withheld severance pay and benefits owed to him, and curtailed his responsibilities and duties because of his age and in retaliation for his complaints of age discrimination.

A.   Klinger’s Employment History with Respondents Demonstrates a Record of Promotions and Increased Responsibility

Klinger was an employee of Respondents for less than 4 years.  EDCI acquired the assets constituting EDC LLC on May 31, 2005 from Universal Music Group.  In the United States, the acquisition was made through EDC LLC and EDC USA, both newly formed limited liability companies.  EDC USA’s sole member is EDC LLC.  EDCI indirectly owns 98% of EDC LLC’s limited liability units.

In Klinger’s first 2 ½ years as an employee, Respondents raised his salary  from $109,600 to $180,000 – hardly the actions of an employer with any discriminatory animus.

●   In connection with the May 31, 2005 acquisition, Klinger became an employee of EDC USA with the title of Director, Business Operations, reporting to the Chief Operating Officer (“COO”) and CFO of EDC LLC.  Klinger’s annual salary at that time (May 2005) was $109,600.

●   Effective September 5, 2005, Klinger received a 7% merit salary increase which brought his salary to $117,270.

●   Then, effective October 31, 2005, Klinger received a further 28% salary increase, to an annual salary of $150,000, in connection with his promotion to Vice President of Finance of EDC USA.

●   On December 28, 2008, Klinger received a further 20% salary increase, which brought his annual salary to $180,000.  At the same time, Klinger was provided the contractual right to a $60,000 “stay bonus” if he remained an employee through October 31, 2008.

Klinger’s final promotion was the most important in terms of responsibilities and compensation, and is further evidence of the lack of any discriminatory animus.

●   Klinger was appointed Executive Vice President, CFO and Treasurer of EDCI commencing on September 19, 2008.  His responsibilities included acting as the most senior financial officer for all of EDCI’s wholly-owned and majority-owned subsidiaries, including EDC LLC and EDC USA.

Ms. Marlea J. Applegate

May 6, 2009

Page 4

●   An October 3, 2008 “Letter Agreement” between EDCI and Klinger (the “Klinger CFO Employment Agreement”) provided Klinger with a further 39% increase in annual salary to $250,000.A copy of the Klinger CFO Employment Agreement is attached as Exhibit C.

●   Klinger was also provided with certain contractual severance rights.  The Klinger CFO Employment Agreement provided that the termination of Klinger’s employment by EDCI without Cause, or by Klinger with “Good Reason” (as defined below), would entitle Klinger to contractual severance payments equal to his base annual salary plus certain other benefits.  Conversely, the termination of Klinger’s employment by EDCI with Cause, or his resignation without Good Reason, would leave Klinger without any entitlement to such payments.

Mr. Robert L. Chapman, Jr. (at that time a Board Member of EDCI) was a strong proponent of Klinger’s promotion to CFO based on his observations of Klinger’s performance up until that time.

Between March 2006 and November 2008, respondents gave Klinger $148,500 in discretionary and contractual bonuses, again demonstrating the complete absence of any discriminatory animus towards him.  These included: a discretionary bonus of $23,000 in March 2006; a discretionary bonus of $45,500 in April 2007; a discretionary bonus of $20,000 in March 2008; and the payment of the contractual $60,000 “stay bonus” in November 2008.

Klinger’s accusations of age discrimination are belied by the facts above.  In particular, Klinger’s most significant promotion, to Executive Vice President, CFO and Treasurer of EDCI, in September 2008, occurred when Klinger was already 49 years old - - , the same age he was when his employment was terminated seven months later.3  It completely belies logic and common sense to believe that EDCI would promote Klinger at the age of 49, and then terminate his employment seven months later because of his age, which, of course, still was 49.  Such a conclusion would be absurd.  It also is completely erroneous, and unsupported by any evidence whatsoever

B.   Klinger’s Employment Was Terminated by EDCI With Cause Based on a Variety of Performance Deficiencies  Identified in Q1 2009

EDCI publicly filed with the Securities and Exchange Commission (the “SEC”) a comprehensive chronology of the events leading to Klinger’s Termination of employment with Cause.

●   As a public company subject to disclosure requirements pursuant to the Securities Exchange Act of 1934, EDCI publicly filed on April 22, 2009 a comprehensive chronology of the events leading up to EDCI’s determination to terminate Mr. Klinger’s employment with Cause.

3 According to the Charge, Klinger’s date of birth is May 9, 1959.

Ms. Marlea J. Applegate

May 6, 2009

Page 5

●   The initial filing was made in accordance with Item 5.02 of Form 8-K (“Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers”).

●   As EDCI received requests from various of its shareholders for updates on discoveries obtained as a result of an ongoing investigation into Klinger’s past employment (the "Klinger Investigation"), in order to comply with SEC Regulation Fair Disclosure (“Regulation FD”), EDCI responded to such inquiries via an additional Form 8-K on April 30, 2009.

Respondents respectfully request that the EEOC review the body of the EDCI’s April 30, 2009 8-K.  The 8-K provides a comprehensive history of the legitimate, and entirely non-discriminatory grounds for EDCI’s termination of Klinger’s employment with Cause.

●   EDCI has invested significant internal resources in the Klinger Investigation and communicating the results of that investigation to its investors and the SEC, and believes that the comprehensive summary of events will also provide the EEOC with the information it requires in connection with its investigation.

●   A copy of the body of the April 30, 2009 Form 8-K (which includes the text of the April 23 filing) is attached as Exhibit D (the “Klinger Termination With Cause 8-K”).

The Klinger Termination With Cause 8-K also includes extensive exhibits further supporting respondents actions that may be conveniently accessed over the Internet.  The following links will provide direct access to the Index of the Klinger Termination With Cause 8-K that will allow the EEOC easy direct access to any specific exhibits it wishes to review that are referenced in the body of the Klinger Termination With Cause 8-K:

●   Shortcut Link: http://tinyurl.com/ce2bcs (this link redirects directly to the SEC website)

●   Alternatively, the EEOC may access all of EDCI’s filings at:

 http://www.sec.gov/edgar/searchedgar/companysearch.html

And entering as the Company Name “EDCI Holdings”, or the Ticker Symbol “EDCI”.

Ms. Marlea J. Applegate

May 6, 2009

Page 6

●   If the EEOC would prefer a complete hard copy of the Klinger Termination With Cause 8-K together with all exhibits, please contact Matthew Behrent, (“Mr. Behrent”) Executive Vice President, Corporate Development and Legal Counsel of EDCI and EDC LLC at 212.331.2762, or by email at matt.behrent@edcih.com .

A summary of the key events leading to and supporting the termination of Klinger’s employment by EDCI (an action that was expressly approved by EDCI’s Board of Directors) on April 14, 2009 is presented below.  Exhibits in this section refer to the Exhibits of the Klinger Termination With Cause 8-K that may be accessed as set forth in the prior paragraph.

Klinger legally bound EDC USA to make severance payments of twenty weeks’ pay to 12 employees, which caused EDC USA to incur an unauthorized and thus improper severance expense of approximately $176,000 (the “Double Severance Payments”).

●   Mr. Chapman discovers the Double Severance Payments.  On March 14, 2009, Mr. Chapman discovered that, on January 8, 2009, Klinger, without proper authorization, had legally bound EDC USA to severance payments in violation of the explicit financial limitations of EDC USA’s Severance Pay Policy (the “Severance Pay Policy”) (See Klinger Termination With Cause 8-K Exhibit 99.8) dated just three months earlier on October 3, 2008.

●   The Double Severance Payments violate the terms of the Severance Pay Policy.  The Severance Pay Policy provides that eligible employees may receive severance of one week of pay for each complete year of service, to a maximum of 10 weeks’ pay.  Section 7.1 provides that modifications to the Severance Pay Policy may only be made by a written instrument signed by the President of EDC USA, a requisite that Klinger failed to satisfy.

●   Klinger personally reviewed and approved the Severance Pay Policy, in his capacity as the Respondents’ CFO, yet he nonetheless violated its express terms.  Following the termination of Klinger’s employment, Respondents discovered a series of written communications confirming this.  See Klinger Termination With Cause 8-K Exhibit 99.1 to 99.11, and the related body of the 8-K.

Klinger acknowledged his “actions were wrong” with regard to the Double Severance Payments.

●   Respondents immediately and thoroughly investigated Klinger’s actions.  In March and April 2009, the Respondents thoroughly investigated Klinger’s actions (the “Klinger Investigation”) in connection with the Double Severance Payments and other matters.

Ms. Marlea J. Applegate

May 6, 2009

Page 7

●   Respondents promptly communicated the results of their investigation to Klinger.  As part of the Klinger Investigation, on March 16, 2009, Mr. Chapman sent written correspondence to Klinger summarizing the discoveries related to the Klinger Investigation into the Double Severance Payments to that date, noting in particular that the Double Severance Payments were a material breach of the Severance Pay Policy Plan by Klinger.  See Klinger Termination With Cause 8-K Exhibit 99.18.

●   On March 17, 2009, Klinger sent written correspondence to Mr. Chapman, in which he confirmed various conclusions of the Klinger Investigation, and acknowledged that his own “actions were wrong.”  See Klinger Termination With Cause 8-K Exhibit 99.19.

Because of the Double Severance Payments and other significant deficiencies in Klinger’s job performance, the Respondents attempted to negotiate a separation agreement with him.

●   Six Month Review and Commencement of Separation Negotiations.  On April 4, 2009, in line with the terms of the Klinger CFO Employment Agreement, Mr. Chapman conducted a telephonic review of Klinger’s first six months’ pay and performance as EDCI’s CFO (the “MWK Six Months Review”).  During the MWK Six Months Review, Mr. Chapman reiterated that EDCI had sufficient grounds to terminate Klinger’s employment EDCI with Cause as a result of the Double Severance Payments, and also identified other significant deficiencies in Klinger’s performance.  Klinger and the Respondents thereafter began negotiations for a separation of his employment from the Respondents.  In connection with such negotiations, Klinger explicitly requested, as particular consideration to his benefit Respondents’ agreement not to terminate his employment with Cause, based on the Double Severance Payments.

●   Initial agreement is Reached.  On April 9, 2009, Mr. Chapman sent Klinger written correspondence defining key terms of a Separation Agreement (the “Proposed Separation Agreement”) that had been negotiated and agreed to verbally between the Respondents and Mr. Klinger on that date.  A material term of the Proposed Separation Agreement, as sought by Klinger, was the Respondents’ agreement not to terminate Mr. Klinger’s employment with Cause, based on the Double Severance Payments.

●   Klinger Confirms his Agreement by Email.  On April 9, 2009, Mr. Klinger sent Mr. Chapman written correspondence, in response to Mr. Chapman’s written correspondence dated April 9, 2009, indicating that Mr. Klinger had reviewed such written correspondence, and confirmed that the terms detailed in the Proposed Separation Agreement were “as agreed.”  See Klinger Termination With Cause 8-K Exhibit 99.25.

Ms. Marlea J. Applegate

May 6, 2009

Page 8

Certainly, if there were any discriminatory animus towards Klinger, EDCI would not have agreed to waive its rights or to ease the way for Klinger to leave employment with the Respondents in good standing.  It would simply have terminated him for cause, as it was legitimately entitled to do.  Yet, in a demonstration of the truth of the adage that “no good deed goes unpunished,” EDCI’s agreement to give Klinger special consideration has been met with his current unfounded, never complained of, and spurious accusations of discrimination and retaliation.  In fact, Klinger is the only party engaging in acts of retaliation.

Klinger repudiates the Separation Agreement.  While EDCI believed the parties had reached a mutually satisfactory agreement concerning the termination of Klinger’s employment and was working with Klinger on final documentation thereof through the weekend, on Monday, April 13, Klinger repudiated the agreement before it could be consummated.

Klinger provides notice of his resignation for Good Reason.  Klinger sent a letter, dated April 13, 2009, to EDCI’s Board of Directors in which he baselessly asserted his right to resign for Good Reason (pursuant to the Klinger CFO Employment Agreement), if certain changes were not made within thirty days.  Klinger’s letter (See Klinger Termination With Cause 8-K Exhibit 99.27) asserted, in substance, that EDCI was in material breach of the Employment Agreement.  Notably, Klinger did not complain in his letter that he had been discriminated or retaliated against in any way, as a result of his age, or otherwise. He merely asserted that Mr. Chapman had changed his duties and responsibilities in various ways that allegedly breached the Employment Agreement.  Respondents have reviewed Klinger’s claims, and determined them to be invalid, baseless, spurious, or immaterial – by Klinger’s own descriptions – and thus they do not constitute valid grounds for Klinger to terminate his employment for Good Reason.

EDCI’s Board of Directors Terminates Klinger With Cause.  As a result of Klinger’s unsatisfactory job performance, and Klinger’s unwillingness to enter into a mutually acceptable separation agreement, EDCI had no choice but to terminate Klinger’s employment, which it did immediately.  On April 13, 2009, EDCI issued to Klinger a notice of the termination of his employment with Cause, subject to the approval of its Board of Directors.  See Klinger Termination With Cause 8-K Exhibit 99.28.  The Board approved the termination of Klinger’s employment with Cause, on April 14, 2009, based on the Double Severance Payments and six additional specific examples of deficiencies in Mr. Klinger’s work performance, as a result of which Klinger was not entitled to any severance payments or other benefits.  See Klinger Termination With Cause 8-K Exhibit 99.29 and 99.30.

Ms. Marlea J. Applegate

May 6, 2009

Page 9

C.   Klinger Misstates the Facts in Claiming that Mr. Chapman Began to Curtail His Responsibilities and Duties, Limited His Communications and Reorganized the Office of the Chief Financial Officer In a Manner That Took Important Responsibilities Away From Him

Klinger states that, soon after he began reporting to Mr. Chapman on or about January 8, 2009 (in actuality, Mr. Chapman assumed the position of CEO of EDCI and EDC LLC on January 2, 2009), Mr. Chapman began to curtail Klinger’s responsibilities and duties, and exclude him from meetings and decision making, and limit his communications with bankers, outside auditors and investors.  Klinger further states that, on March 24, 2009, Mr. Chapman reorganized the Office of the CFO without Klinger’s input or consent, took important responsibilities away from Klinger and assigned them to his subordinate employees.

Again, the detailed chronology set forth in the Klinger Termination With Cause 8-K belies this spurious claim.  Instead, the record shows that Mr. Chapman and Mr. Bailey had extensive communications with Mr. Klinger throughout 2009 related to his performance and offered him many opportunities to improve his performance, and assistance in so doing.

In particular, Mr. Klinger simply misstates the facts with regard to Mr. Chapman’s decision to create an Office of the CFO.

●   The Creation of an Office of the CFO did not materially change any of Klinger’s responsibilities.  On March 24, 2009, Mr. Chapman sent written correspondence to Klinger, Michael D. Nixon, Corporate Controller for EDCI and Kyle E. Blue, Senior Manager, External Reporting and Investor Relations of EDCI, formalizing Mr. Chapman’s decision to create an Office of the CFO comprised of those three individuals. In the email, Mr. Chapman stated that the duties of each member of the Office of the CFO would be “nearly identical” to those each individual had been performing prior the time of the creation of the Office.  See Klinger Termination With Cause 8-K Exhibit 99.23.

●   Mr. Chapman’s decision was made after and subject to conversations with Klinger.  Mr. Chapman’s email also stated that Mr. Chapman’s decision was made after conversations with all three of the members of the Office of the CFO, and further notes Mr. Chapman’s decision was “subject to those very conversations with you three.” See Klinger Termination With Cause 8-K Exhibit 99.23.

●   The email also specifically stated that Klinger’s responsibilities would be as follows: “CFO of EDCI/EDC, and head of the Office of the CFO:  oversee the entire finance group as a coordinated team that has divided tasks and responsibilities to ensure all internal and external financial and other related reporting, capital markets/creditor matters, and financial analysis are conducted expeditiously and correctly.” See Klinger Termination With Cause 8-K Exhibit 99.23.

Ms. Marlea J. Applegate

May 6, 2009

Page 10

●   Mr. Klinger acknowledged and in no way or form disputed the above assertions.  On March 24, 2009, Mr. Klinger sent written correspondence, in response to Mr. Chapman’s March 24, 2009 written correspondence (see above), a) acknowledging receipt of this correspondence and b) that in no way or form disputed the assertion made by Mr. Chapman regarding these “nearly identical duties.”  See Klinger Termination With Cause 8-K Exhibit 99.23

II.   During His Employment, Klinger Never Complained About Discrimination

Klinger claims, as the basis for the alleged retaliation, that he complained to “the person responsible for human resources functions” and to unnamed “multiple management level employees” that the Respondents “were obviously getting rid of older and higher paid employees” and that Mr. Klinger “articulated this complaint repeatedly and to multiple management level employees of” the Respondents.

A.   EDCI Has Affidavits from the “Person Responsible for Human Resources Functions” Cited By Mr. Klinger and the 12 other Most Senior Management Level Employees of the Respondents Denying any Knowledge of the Above Claim

Mr. Klinger’s assertion that he made these complaints is simply false, further supporting Respondents’ view that the Charge of Discrimination is nothing more than an after-the-fact collection of baseless accusations of discrimination and retaliation. In fact, Klinger’s claim that he complained to management is unsupported by any evidence.  Therefore, the Company could not have retaliated against Klinger for any protected activity.

Exhibit E includes Affidavits from the following Directors and Employees of the Respondents, each stating that Mr. Klinger never articulated, or otherwise communicated, the above complaint to them.

i. Clarke H. Bailey, Chairman of the Board of Directors of EDCI and EDC LLC and the Chairman and Interim Chief Executive Officer of EDC USA

ii. Robert L. Chapman, Jr., Chief Executive Officer of EDCI and EDC LLC

iii. Matthew K. Behrent, EVP Corporate Development and Legal Counsel for EDCI and EDC LLC

iv. Roger J. Morgan, Executive Vice President of International Operations of EDC LLC (employed directly by EDC LLC’s Glenayre Electronics (UK) Ltd. Subsidiary)

Ms. Marlea J. Applegate

May 6, 2009

Page 11

v. Richard A. Friedman, EDCI’s Vice President for Audit and Compliance, who also was responsible for human resources functions in the US for the Respondents since 4Q2009

vi. Michael D. Nixon, Corporate Controller for EDCI

vii. Kyle E. Blue, Senior Manager, External Reporting and Investor Relations of EDCI

viii. Michael Kosemund, Managing Director Finance & Administration for Entertainment Distribution Company GmbH, EDC LLC's Germany subsidiary

ix. Dr. Bodo Wiechmann, Managing Director Factory for Entertainment Distribution Company GmbH, EDC LLC's German subsidiary

x. Yorck Köhn, Managing Director Logistics for Entertainment Distribution Company GmbH, EDC LLC’s German subsidiary

xi. Uwe Ilgenfritz-Donné, Managing Director Human Resources and Business and Legal Affairs for Entertainment Distribution Company GmbH, EDC LLC’s German subsidiary

xii. Andrew Mark Lloyd Jones, Managing Director of EDC Blackburn Limited, EDC LLC’s U.K. Subsidiary

xiii. Ian Kenneth Sumner Clark, Finance Director of EDC Blackburn Limited, EDC LLC’s U.K. Subsidiary

B.   Klinger’s Failure to Avail Himself Of EDCI’s Complaint Procedures, At Any Time During His Employment, Casts Serious Doubt On The Truthfulness of His Claims, and Defeats Them As A Matter Of Law

The unequivocal evidence is that EDCI always treated Klinger fairly and lawfully, and in compliance with its policies and procedures, including its equal employment opportunity policy, which is provided to all employees and strictly prohibits all forms of harassment, discrimination and retaliation on any basis.

●   The policy, entitled “Positive Work Environment,” is contained within EDCI’s employee handbook, “Standards of Business Conduct.”  Relevant excerpts are attached as Exhibit F.  The Positive Work Environment policy prohibits, among other things, discrimination on the basis of race, national origin, color, religion, sex, sexual preference, marital status, disability, veteran status, age, or any other protected category.  Exhibit F at 15, 19.  The policy also strictly prohibits unlawful harassment of any kind, including sexual harassment and slurs or jokes based on any protected class.  Id.

Ms. Marlea J. Applegate

May 6, 2009

Page 12

●   The policy establishes a complaint and investigation procedure, and makes clear that the Respondents will investigate all complaints promptly and confidentially, and take all appropriate responsive measures, up to and including the termination of the employment of the perpetrator.  Id at 18-19.Finally, the policy prohibits retaliation against any employee who complains about discrimination, harassment or retaliation.  Id. At 19.

Klinger signed acknowledgements of the Standards of Business Conduct on February 28, 2007 and February 2, 2009, copies of which are attached as Exhibit G.  All members of the Respondents’ Board of Directors, all officers and all senior managers are required to sign an acknowledgment form indicated their understanding of these policies, and their agreement to comply with them in all respects.

Klinger failed to avail himself of any of the proscribed complaint procedures.  Pursuant to the complaint procedure, Klinger could have complained about any alleged discrimination or retaliation to his immediate supervisors, Mr. Bailey or Mr. Chapman; and to Mr. Richard Friedman, EDCI’s Vice President for Audit and Compliance, who also has been responsible for human resources functions in the US for the Respondents since 4Q2009; or, to the Hotline (which is monitored by Mr. Friedman).  As the affidavits set forth above attest,. Klinger did not make any such complaints.

Klinger’s failure to avail himself of EDCI’s complaint procedures (which he acknowledged in writing) at any time during his employment, casts serious doubt on the truthfulness of his claims, and defeats them as a matter of law.  See, e.g., Faragher v. City of Boca Raton, 118 S. Ct. 2275, 2292 (1998); Burlington Indus., Inc. v. Ellerth, 118 S. Ct. 2257, 2270 (1998); Fierro v. Saks Fifth Avenue, 13 F.Supp.2d 481, 491 (S.D.N.Y. 1998) (the rule set forth by the United States Supreme Court in Faragher and Burlington requires a Title VII plaintiff to “at least make reasonable efforts to seek redress for any perceived harassment through the employer before initiating a lawsuit in federal court”).

Klinger’s silence is telling: even though he knew of the complaint procedures, he did not complain of any discrimination against older and higher-paid employees (which he now claims was a “pattern” with the Respondents) when it allegedly occurred because, in fact, it did not occur.  It was only after Klinger’s employment was terminated, and the Respondents initiated its federal lawsuit against him, that Klinger decided to retaliate by creating after-the-fact accusations of discrimination and retaliation, and filing this baseless Charge.

Ms. Marlea J. Applegate

May 6, 2009

Page 13

III.   There is No Evidence of Any Age Based Discrimination (Recent or Otherwise) by the Respondents – Respondents’ Decisions to Terminate or Reward Employees Are Based Solely on Performance and Other Legitimate Business Reasons

Klinger claims that his termination was part of a recent pattern in which the Respondents have terminated older employees with contractual rights to severance pay and benefits, but has wrongfully withheld payment of severance pay and benefits to those older employees.  He further claims: “While the company has been firing older workers and withholding severance pay and benefits, younger workers subject to termination have received severance pay and benefits”

This allegation is groundless.  Instead, the recent record – since September, 2008, when Mr. Klinger was promoted to CFO – demonstrates clearly that the Respondents have terminated employees without any consideration of age, either due to:

●   Cause or other performance deficiencies;

●   the closure of facilities or the elimination of positions; AND

●   To realign extended notice provisions in certain executive contracts based on the declining nature of EDC LLC’s business

At the same time, Respondents have rewarded performance, again without any consideration of age.

Immediately prior to Klinger’s promotion to CFO of EDCI on September 19, 2008, Respondents terminated the prior CFO based on his performance.  As stated in the 8-K accompanying that termination:  “On September 19, 2008, a) Mr. Copland’s employment with Entertainment Distribution Company, Inc., the wholly owned subsidiary of the Registrant, (the “Company”) was terminated effective immediately following a September 19, 2008 meeting of the Company’s Board of Directors, such meeting scheduled September 18, 2008 with the explicit purpose of determining whether to terminate Mr. Copland based on his performance; and b) Mr. Copland submitted a letter indicating his resignation from the Company.”  See Exhibit H hereto.  Again, performance, not age, was the sole factor considered by Respondents in that termination, and Mr. Copland made no mention of age discrimination in his purported resignation letter.At that time, Mr. Copland was 46.

Respondents paid contractual severance to employees subject to a mass layoff in accordance with the Severance Pay Policy, without any regard to age.

●   EDC LLC is in the business of manufacturing and distributing compact discs – primarily for music customers – an industry that has been facing serious economic challenges since early 2007.  Many of EDC LLC’s peers have gone out of business.  As a result, Respondents have spent two years struggling to find solutions that best benefit their employees, customers and shareholders.  The result of this was that, in a transaction that closed on December 31, 2008, EDC LLC and EDC USA sold substantially all of their assets to Sony DADC (the “Sony Transaction”).  While the Sony Transaction regrettably led to the loss of approximately 420 jobs, it also meant the continuation of approximately 300 jobs assumed by Sony DADC as a result of the sale and the ability of EDC USA to pay severance above and beyond the WARN Act notice provisions for those employees who did lose their jobs.  As a result of the Sony Transaction, EDC USA has no further operations, closed its North Carolina manufacturing facility, and laid off all of that facilities’ employees.  Out of approximately 420 employees provided notice of termination in connection with the Sony Transaction, EDC USA paid severance to all of the approximately 418 employees who met the conditions for receiving the severance, with an average age of 46 years, in accordance with the Severance Pay Policy described above.

Ms. Marlea J. Applegate

May 6, 2009

Page 14

●   Out of the 420 employees terminated in accordance with the Sony Transaction,  19 were employees with ages of 29 or lower, including four with ages 21 or lower.

●   Out of the 420 employees terminated in accordance with the Sony Transaction, the average age of the 12 employees who received the Double Severance Payments to which Klinger had legally bound EDC USA without proper authorization were older than the overall average. The average age of the 12 employees that received the Double Severance Payments was 54 years.

●   Out of the 420 employees terminated in accordance with the Sony Transaction, one employee did not receive his contractual severance payments as his employment was terminated prior to his scheduled layoff.  The grounds for termination, as communicated by Mr. Chapman to this employee in an email dated February 26, 2009 (see Exhibit I, hereto), was breach of due care related to this employee’s reckless and false communications to certain employees of EDC LLC’s United Kingdom operations.  Mr. Lewis F. Whiteside, EDC Kings Mountain Director of Human Resources, agreed with the termination.  This employee was 46.  Again, performance, not age, was the sole factor considered by Respondents in that termination

●   Out of the 420 employees terminated in accordance with the Sony Transaction, one employee did not receive her contractual severance payments as she sought, without any right, additional severance payments above those provided for in the Severance Pay Policy. This employee was 48.  After EDC USA refused her request for additional severance this employee then filed, in December 2008, an EEOC charge for discrimination alleging that EDC USA discriminated and retaliated against her because of her sex in violation of Title VII of the Civil Rights Act of 1964 and New York State law.  It is interesting to note that her charge made no mention of any age-related discrimination.  EDC USA has filed a position statement in response to that charge, and believes that charge is wholly without merit, as her position was simply eliminated in connection with the Sony Transaction.

Ms. Marlea J. Applegate

May 6, 2009

Page 15

●   Respondents present the above facts specifically to refute Klinger’s claims that “while the company has been firing older workers and withholding severance pay and benefits, younger workers subject to termination have received severance pay and benefits.”  The facts of the layoffs resulting from the Sony Transaction show that Respondents honored their contractual severance obligations to all of the affected employees, regardless of age, who met the conditions for receiving the severance.  Further, Respondents complied with the obligations Klinger had legally bound them to (albeit without proper authorization), without regard to age.  It is particularly ironic, in light of Klinger’s allegations, that the average age of the employees who so benefited is older than the overall averages..

In January 2009, Respondents terminated Thomas Costabile (“Mr. Costabile”), EDC LLC’s President and Chief Operating Officer, with “cause” under Mr. Costabile’s employment contract.  As with Klinger, a comprehensive chronology of the events leading to Costabile’s termination was publicly filed with the SEC on February 2, 2009 and can be accessed by the EEOC via this shortcut link: http://tinyurl.com/c6cb9t (this link redirects directly to the SEC website).  Similar to Mr. Klinger, Mr. Costabile also alleged that he had grounds to terminate his employment – and receive severance in accordance with his employment agreement.  Mr. Costabile was 55 at the time of his separation.  Mr. Costabile and the Respondents ultimately signed a separation agreement and general release of claims on February 9, 2009, following weeks of discussions and detailed negotiations, during which time Mr. Costabile never raised any issues of age-related discrimination.  Again, performance, not age, was the sole factor considered by Respondents in that termination.

Respondents have sought to realign extended termination notice provisions in certain executive contracts based on the declining nature of EDC LLC’s business.  EDC LLC’s business, the manufacturing and distribution of music CDs and DVDs, is an industry in secular decline, with a rate of decline that cannot be predicted.  As a result, EDC LLC has been engaged in restructurings that include facility closings and personnel lay-offs, and will most likely need to continue downsizing its operations and its employee base as the industry continues to decline.  Respondents also believe in the importance of linking compensation to performance.  Certain executives of EDC LLC’s European subsidiaries had contracts that required 9 month or 12 month notice periods prior to their termination by EDC LLC without cause.  These long notice periods clearly limited EDC LLC’s ability to respond to future industry declines.  Accordingly, EDC LLC has sought to maintain its flexibility in responding to such declines by serving termination notices – the employer’s express right under the contracts – to those executives.  Those executives continue to work for EDC LLC’s European subsidiaries, and Respondents have commenced discussions with those executives with regard to new terms of employment to commence upon the expiration of the notice period.

Ms. Marlea J. Applegate

May 6, 2009

Page 16

●   In January 2009, Respondents provided such notice of termination to Mr. Roger J. Morgan, (“Mr. Morgan”), EDC LLC’s Executive Vice President of International Operations.  Mr. Morgan is 44.  As described above, Respondents provided such notice to maintain its flexibility in responding to future industry decline rates, not based on age.  Respondents further note that, in Mr. Morgan’s affidavit (See Exhibit E above), Mr. Morgan specifically notes that while Mr. Klinger “did converse with me regarding the notices of termination of employment issued to the four EDC GmbH Managing Directors [Described below] and myself”, “Age was not mentioned in the discussions that took place.” (emphasis added)

●   In March 2009, Respondents provided similar notices of termination to the four most senior employees (the “Managing Directors”) of EDC LLC’s German operations.  In considering these notices, EDCI’s Compensation Committee expressly considered a) the fact that such employees’ salaries had been increasing while core measures of profitability of the operations they manage had been decreasing and b) the disparity between the salaries of the Managing Directors and the salaries of their top managers in their departments.See Exhibit J hereto.  One of the four Managing Directors is 46, the other three are 54.  Again, Respondents made decisions on compensation and continued employment based on performance and the need to maintain flexibility in a declining industry, not age, and clearly abided by their contractual commitments in doing so.

 Respondents have continued to reward performance, again without any consideration of age.

●   On December 15, 2008, Mr. Friedman, age 55, received a 10% raise, from $156,000 to $172,000 per year.  The increase was provided in connection with his prior work and taking on new responsibilities.

●   On March 10, 2009, Mr. Bailey’s 2009 salary was set at $250,000 per year, a decrease from his salary as Interim Chief Executive Officer of EDCI, but a 9% increase from his prior salary as non-executive Chairman.  The increase was provided in connection with Mr. Bailey returning to his position as non-executive Chairman of EDCI, EDC LLC and EDC USA, and in recognition of his continued involvement. Mr. Bailey is 54.

Ms. Marlea J. Applegate

May 6, 2009

Page 17

●   In April, 2009, Mr. Friedman and Mr. Bailey were also the only recipients of performance bonuses for their efforts in connection with the Sony Transaction.  Mr. Friedman received $10,000, and Mr. Bailey received $50,000.  Mr. Behrent, who was also heavily involved in the Sony Transaction, age 38, did not receive any such bonus.

Finally, Klinger claims that Respondents “effectively replaced me with a twenty-eight year old former subordinate employee” – this statement is simply untrue. As described above in Section I.C., the formalization of the creation of the Officer of the CFO left Mr. Klinger, along with Mr. Blue and Mr. Nixon, with “nearly-identical duties” as they already performed.   Finally, it is worth noting that neither Mr. Nixon or Mr. Blue is twenty-eight, the age of the “former subordinate” Klinger claims Respondents effectively replaced him with.  In fact, Mr. Blue is 30, and Mr. Nixon is 44.

IV.   Conclusion

Klinger’s conclusory allegation that the Respondents discriminated against him because of his age or in retaliation for his complaints of age discrimination is an after-the-fact accusation without factual support.  In contrast, Respondents have provided extensive factual support supporting their counter-arguments that:

●   Respondents had legitimate, non-discriminatory grounds for terminating Mr. Klinger’s employment, including with Cause in connection with the Double Severance Payments and other identified deficiencies in Mr. Klinger’s work performance.

●   Respondents have no knowledge of any complaints made by Mr. Klinger related to age discrimination.

●   Klinger’s failure to avail himself of EDCI’s complaint procedures (which he acknowledged in writing) at any time during his employment, casts serious doubt on the truthfulness of his claims, and defeats them as a matter of law

●   There is no evidence of any age based discrimination (recent or otherwise) by the Respondents – respondents decisions to terminate or reward employees are based solely on performance and other legitimate business reasons

Ms. Marlea J. Applegate

May 6, 2009

Page 18

The evidence described above is overwhelming that, at all times, EDCI treated Klinger fairly and lawfully.  Accordingly, Klinger’s Charge should be dismissed in its entirety, and a finding of no probable cause issued.

Respectfully,

/s/ Ann L. Moscow

Ann L. Moscow

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