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
      & WB1,826,851
              Revised
      TOTAL SEVERANCE4,273,668
              2009
      Salary & Wages with Revised Term Dates **(3,462,000)
              Est
      Charge to DADC ***811,668
              EDC
      KM Estimated Salary & Wages2,638,519
              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 Exposure1,019,000
              Est
      non-labor costs net of DADC 6 months093,657,519
              Subtotal2,000,000
              Planned
      Severance1,520,000
              Sony
      8-18 Analysis- Min Facilities Costs3,520,000
              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 2ndLewis 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 2ndLump 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
2ndPayment “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 2ndSeverance 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
2ndPayment 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 – 2ndPmt 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 2ndpayment
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