January
5, 2009











Mr.
Thomas Costabile


Chief
Operating Officer


Entertainment
Distribution Company, Inc.


1755
Broadway, 4th Floor


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


E-mail:
tom.costabile@edcllc.com





Tom,





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





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





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





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





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





Robert L.
Chapman, Jr.


Chief
Executive Officer


EDCI
Holdings, Inc.


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


Office:
(310) 373-0404


E-Mail
Primary: chapman@chapcap.com


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


cc: CHB