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 28, 2009, EDCI, EDC LLC and Entertainment
Distribution Company (USA) LLC (“EDC USA”) filed a memorandum of law (the
“Memorandum of Law Opposing Klinger’s Motion to Dismiss”) in opposition to Mr.
Klinger’s May 11, 2009 Motion to Dismiss or Transfer Venue (defined below) which
was filed in response to EDCI et. al.’s April
17, 2009 Klinger New York ERISA Complaint (defined below). The
Memorandum of Law Opposing Klinger’s Motion to Dismiss seeks an order denying
Klinger’s Motion to Dismiss or Transfer Venue and an order enjoining Mr. Klinger
from continuing prosecution of the Klinger Indiana Counter-Suit (defined below)
on the grounds that Mr. Klinger is appropriately subject to personal
jurisdiction in New York and New York is a proper and convenient venue; b) On
May 28, 2009, EDCI, EDC LLC and EDC USA, together with Entertainment
Distribution Company, Inc. (“EDC Inc.”) filed a motion in response (the “EDCI
Indiana Motion to Stay”) to Mr. Klinger's May 8, 2009 Klinger Indiana
Counter-Suit. The EDCI Indiana Motion to Stay seeks an order staying all
proceedings related to the Klinger Indiana Counter-Suit until a ruling issues
related to the motions pending in the Klinger New York ERISA
Complaint.
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.
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 as 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.
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.
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.
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 complaint in
the United States District Court for the Southern District of New York (the “The
Klinger New York ERISA Complaint”; Case #: 1:09-cv-03880-BSJ).. The
Klinger New York 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
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 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”) (see Exhibit 99.35 hereto) 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.
On May 7,
2009, the Company filed a Form 8-K in accordance with Regulation FD providing
the following update: a) On May 6, 2009 the Company, EDC LLC and EDC
USA submitted the EDCI EEOC Statement of Position in rebuttal of the MWK EEOC
Discrimination Charge; b) on April 30, 2009 and May 1, 2009, the Company
received the correspondence from Mr. Klinger described above; and c) on May 5,
2009, the Company provided Mr. Klinger’s attorney the correspondence and
analysis described above.
On May 8,
2009, Mr. Klinger filed a complaint and demand for jury trial against the
Company, EDC Inc., EDC LLC, EDC LLC’s subsidiary EDC USA and Mr. Chapman,
CEO of EDCI and EDC LLC, in the United States District Court for the
Southern District of Indiana (the “Klinger Indiana Counter-Suit”; Case #
1:09-cv-0579-WTL). The Klinger Indiana Counter-Suit seeks: i)
compensatory damages for breach of the MWK CFO Employment Agreement; ii)
damages, including liquidated damages and attorney fees under certain Indiana
statutes resulting from any unpaid wages and compensation due and payable to
Klinger upon his termination, which Klinger alleges includes salary, vacation
pay for accrued and unused vacation days, bonuses, and severance pay; (iii)
damages for defamation Klinger alleges resulted from statements made in the
Company’s Form 8-Ks filed on April 22, 2009 and April 30, 2009 and (iv) related
interest, cost and attorney fees as permitted by law. See Exhibit
99.37 hereto.
On May
11, 2009, Mr. Klinger filed a motion in response (the “Klinger Motion to Dismiss
Or Transfer Venue”) to the Klinger New York ERISA
Complaint. The Klinger Motion to Dismiss Or Transfer
Venue seeks to dismiss the Klinger New York ERISA Complaint for lack of personal
jurisdiction and improper venue, or in the alternative to transfer venue to the
United States District Court for the Southern District of Indiana (the Court in
which Klinger filed the Klinger Indiana Counter-Suit). The Klinger
Motion to Dismiss Or Transfer Venue, together with a Memorandum of Law in
Support of the Klinger Motion to Dismiss Or Transfer Venue and an Affidavit of
Klinger related to the Klinger Motion to Dismiss Or Transfer Venue are attached
as Exhibit 99.38 hereto.
The
Company believes the Klinger Indiana Counter-Suit and the Klinger Motion to
Dismiss Or Transfer Venue have no merit and intends to vigorously defend or
oppose both matters.
On May
12, 2009, the Company filed a Form 8-K in accordance with Regulation FD
providing the following update: a) On May 8, 2009, Mr. Klinger filed
the Klinger Indiana Counter Suit and b) on May 11, 2009, Mr. Klinger filed the
Klinger Motion to Dismiss or Transfer Venue.
On May
28, 2009, EDCI, EDC LLC and EDC USA filed the Memorandum of Law Opposing
Klinger’s Motion to Dismiss in opposition to Mr. Klinger’s May 11, 2009 Motion
to Dismiss or Transfer Venue which was filed in response to EDCI et. al.’s April
17, 2009 Klinger New York ERISA Complaint. The Memorandum of Law
Opposing Klinger’s Motion to Dismiss seeks an order denying Klinger’s Motion to
Dismiss or Transfer Venue and an order enjoining Mr. Klinger from continuing
prosecution of the Klinger Indiana Counter-Suit (defined below) on the grounds
that Mr. Klinger is appropriately subject to personal jurisdiction in New York
and New York is a proper and convenient venue The Memorandum of Law
Opposing Klinger’s Motion to Dismiss, together with a Declaration of Matthew K.
Behrent related thereto are attached as Exhibit 99.39 hereto.
On May
28, 2009, EDCI, EDC LLC and EDC USA, together with EDC Inc. filed the EDCI
Indiana Motion to Stay in response to Mr. Klinger's May 8, 2009 Klinger Indiana
Counter-Suit. The EDCI Indiana Motion to Stay seeks an order staying all
proceedings related to the Klinger Indiana Counter-Suit until a ruling issues
related to the motions pending in the New York Klinger ERISA
Complaint. The EDCI Indiana Motion to Stay, together with a related
memorandum of law in support thereof are attached as Exhibit 99.40
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
|
|
99.37
|
Complaint
filed in the United States District Court by Michael W. Klinger against
the Company, EDC Inc., EDC LLC, EDC USA and Robert L. Chapman, Jr. dated
05/08/2009
|
|
99.38
|
Motion
to Dismiss or Transfer Venue in response to the Klinger New York ERISA
Complaint and related Memorandum of Law and Affidavit filed by Michael W.
Klinger dated 05/11/2009
|
|
99.39
|
Memorandum
of Law Opposing Klinger’s Motion to Dismiss and related declaration of
Matthew K. Behrent filed by EDCI et. al. on May 28,
2009
|
|
99.40
|
EDCI
Indiana Motion to Stay and related Memorandum of Law filed by EDCI et. al. on May 28,
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:
June 1, 2009
|
By:
|
/s/
Robert L. Chapman, Jr.
|
|
|
|
|
Robert
L. Chapman, Jr.
|
|
|
|
|
Chief
Executive Officer
|
|
7