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8-K - EDCI HOLDINGS 8-K DATED JULY 7, 2010 - EDCI HOLDINGS, INC. | edci8-k_070710.htm |
EXHIBIT
99.1
EDCI
Holdings, Inc. Announces Second Dissolution Distribution Payment Amount and
Date, Provides Updated Range of Total Estimated Dissolution
Proceeds
NEW YORK,
July 7 /PRNewswire-FirstCall/ -- EDCI Holdings, Inc. (Nasdaq: EDCI) ("the
Company" or "EDCI"), today announced updated information regarding a
contemplated second liquidating distribution to its shareholders in accordance
with its Plan of Dissolution, as well as an updated range of total estimated
distributions to be made in connection with its ongoing
dissolution.
With
regard to the range of estimated distributions, as previously disclosed in
EDCI's definitive proxy statement filed with the Securities and Exchange
Commission on November 16, 2009 (the "Proxy Statement") and further updated
since then, the Board of Directors has determined to upwardly revise the
aggregate proceeds available for a second dissolution distribution and
contemplated reverse stock split transaction to $14.5 million compared to the
previously disclosed amount of approximately $10.0 million. The primary
drivers of the increase in aggregate proceeds available were the release of
certain tax related contingency reserves due to the expiration of the statutes
of limitations encumbering these reserves and the settlement of certain
contingent liabilities for amounts lower than what were originally reserved for.
Further, the Board of Directors has determined to no longer pursue the
contemplated tender offer and to instead use the full amount EDCI's proceeds
available for a second dissolution distribution and contemplated reverse stock
split transaction.
Of the
$14.5 million of dissolution proceeds estimated to now be available, the
Company's Board of Directors expects to approve a second dissolution
distribution payment that is currently estimated to be $10.5 million, or
approximately $1.56 per share of EDCI's common stock.
The remaining $4.0 million of dissolution proceeds available are currently
reserved to implement a reverse stock split, as such a transaction may require
cashing out a significant percentage of EDCI shareholders of record, although
neither the aggregate nor per-share amount for such a cash-out payment has been
determined. EDCI intends to structure the reverse stock split in a manner
in which EDCI's shareholders will be reduced from its current level of
approximately 1,300 down to fewer than 200, at which point EDCI will be able to
deregister its shares of common stock under the Securities Exchange Act of 1934,
which will lower EDCI's costs during the dissolution process. The Board of
Directors has established a special committee of independent directors (the
"Special Committee") to determine the advisability and fairness of the terms and
conditions of the reverse split. Further, the Special Committee is being
advised by the investment banking firm of Coady Diemar Partners, LLC, including
with respect to the fairness of the price to be paid to shareholders who are
cashed-out in the reverse split. In order to effectuate a reverse split,
the approval of EDCI's shareholders is required. EDCI is currently
preparing proxy materials and anticipates filing a preliminary proxy statement
with the Securities and Exchange Commission ("SEC") in late July 2010 and
intends to hold a special meeting of EDCI's shareholders during the fourth
quarter of 2010.
The
second dissolution distribution that is currently estimated at approximately
$10.5 million will be paid on or about July 30, 2010, which could change based
on the Special Committee's deliberations with respect to the reverse split.
Any of the $14.5 million not reserved for the reverse split (which as
noted, is currently estimated at up to $4.0 million) would be either distributed
pro-rata to shareholders as part of a further dissolution payment if not
reasonably required for the reverse split, or distributed pro-rata to
shareholders after consummation of the reverse split to the extent that such
amounts are not ultimately used in connection with the reverse
split.
Following
the utilization of the $14.5 million, EDCI anticipates having remaining cash of
approximately $15.5 million, which will be used to satisfy remaining operating
reserves and known and unknown contingency obligations. As these reserves
and obligations are satisfied, additional dissolution distributions may be made.
The following is an updated estimate of the range of operating reserves
and liability and contingency reserves of EDCI (excluding any potential
distribution from EDC, which are discussed below) based on recent developments
and analysis:
Low Range of Net Proceeds
|
High Range of Net Proceeds
|
|||
Cash
& Cash Equivalents as of June 30, 2010
|
$
29,400
|
$
29,400
|
||
Investment
in Auction Rate Security
|
500
|
1,000
|
||
Total
Estimated Assets as of June 30, 2010
|
29,900
|
30,400
|
||
Compensation
and Benefits Costs
|
(2,584)
|
(636)
|
||
Professional
Fees (legal, tax, accounting, other)
|
(939)
|
(575)
|
||
Insurance
|
(120)
|
(30)
|
||
Other
operating expenses
|
(2,417)
|
(535)
|
||
Total
Estimated Operating Expenses
|
(6,060)
|
(1,776)
|
||
Total
Estimated Liabilities and Reserves
|
(9,287)
|
(1,185)
|
||
Estimated
Cash to be Distributed to Stockholders
|
14,553
|
27,439
|
||
Shares
Outstanding
|
6,730
|
6,730
|
||
Estimated
Cash Per Share to be Distributed to Stockholders
|
$
2.16
|
$
4.08
|
||
Taking in
to account the $21.0 million, or $3.12 per share, of proceeds that were
distributed in EDCI's initial dissolution distribution on February 1, 2010, EDCI
now estimates the range of ultimate per share distributions to be between $5.28
and $7.20, compared to a per share range of between $4.31 and $7.01 as
disclosed in the Proxy Statement.
The
operating reserves included in the low range of estimated proceeds assumes EDCI
remains subject to all SEC and public company expenses throughout the three year
dissolution period and that EDCI is unable to recoup certain shared service
expenses from EDC. These two assumptions are the primary drivers of the
disparity in the low and high range operating reserve estimates. Upon
consummation of a reverse split and EDCI's de-registration, we would expect to
distribute the amounts currently reserved for the costs of remaining public
promptly to shareholders, which are estimated to be approximately $1.3
million.
In
addition to the $14.5 million to be paid out pursuant to the contemplated
dissolution distribution and reverse stock split, and the $15.5 million
remaining at EDCI, recent developments and analysis indicate there may also be
cash available for distribution from Entertainment Distribution Company, LLC
("EDC") to EDCI over time and subject to various contingencies. In our
Proxy Statement relating to the Plan of Dissolution, EDCI did not include any
potential distributions from EDC as part of the estimated dissolution proceeds
due to the uncertainty of the value of EDCI's investment in EDC at that time.
However, certain developments have occurred subsequent to the filing of
our Proxy Statement which has increased EDCI's confidence in its ability to
ultimately obtain value from its investment in EDC. None of this potentially
available cash from EDC has been included in either the low range or high range
of estimated proceeds per the table above. The components and circumstances
related to EDCI's updated assessment of its ability to obtain value from its
investment in EDC are as follows:
●
|
EDC
has exceeded its original expectations in regards to managing the sale of
its Entertainment Distribution Company (USA) LLC ("EDC USA") subsidiary in
December 2009 and the related wind down of EDC's U.S. operations, which
has positioned EDC to realize distributions related to the liquidation
value of certain net assets which remain post-sale. EDC currently
expects that EDC USA will distribute approximately $7.6 million of
liquidating proceeds up to EDC, of which the majority is related to EDC's
estimate of net proceeds which EDC expects to receive upon the sale of EDC
USA's Kings Mountain Facility and other remaining cash left at EDC USA
after the settlement of certain contingencies which are currently reserved
for. The aforementioned net proceeds related to the Kings Mountain
Facility is net of two years of estimated carrying costs as, based on
current market conditions in the region in which the Kings Mountain
facility is located, it is possible that any distributions related to
proceeds realized from the sale of this asset will not occur until later
in the dissolution process.
|
●
|
EDC
has effectively managed the shutdown of its Blackburn, UK manufacturing
operation ("EDC Blackburn") such that EDC expects to ultimately obtain up
to $4.4 million in liquidating distributions from EDC Blackburn as part of
the liquidation. On June 3, 2010, EDC Blackburn made an initial
liquidation distribution of $3.2 million to EDC and expects that the
remaining estimated liquidating proceeds of approximately $1.2 million
will be distributed to EDC upon the settlement of all remaining
liabilities, the receipt of certain tax refunds and the completion of the
liquidation process. We expect those amounts would be distributed
from EDC Blackburn to EDC within 12
months.
|
●
|
EDC
notes that its Hannover, Germany operation ("EDC GmbH") remains cash flow
positive and that EDC GmbH management continues to develop and negotiate a
restructuring plan which could position EDC GmbH to be more competitive.
On June 22, EDC GmbH repaid a $3.7 million note to EDC and EDC GmbH
is exploring the potential of making future nominal dividends from EDC
GmbH to EDC, subject to the future operating performance of EDC GmbH and
compliance with German legal and tax considerations, as well as taking
into consideration any reserves EDC may need to take should its current
assumptions as to those eventualities be incorrect.
|
EDCI
reminds investors that in addition to the conditions set forth above there are
several obstacles to overcome in order for EDC to receive those distributions
from its subsidiaries, and in turn for EDC to distribute the approximately $15.7
million, or $2.33 per share, (which excludes any potential dividend from EDC
GmbH) of proceeds to EDCI as detailed above. In particular, any distribution of
cash from EDC to EDCI is subject to certain security obligations covering
indemnity obligations resulting from the sale of EDC's U.S. assets in December
2009, as a result of which any, proceeds obtained by EDCI from EDC must be held
as cash collateral until at least January 1, 2012 (and later to the extent a
claim is filed during that period) to satisfy those indemnification obligations.
However, on June 30, 2010, EDC's indemnity obligations with regard to many
of the representations and warranties related to that sale have ceased, and EDC
will only be responsible for indemnifying the purchaser for a breach of
fundamental representations (EDC's proper organization and authority to sell the
assets); taxes; employment benefits and labor matters; fraudulent conveyance;
post-closing covenants and excluded liabilities; and environmental matters. In
addition, similar to EDCI, EDC may need to establish its own contingency
reserves for contingent liabilities before making such distributions to EDCI, or
obtain indemnification from EDCI for any such contingencies.
EDCI
expects that the proxy related to the reverse split will contain additional
detail about the risks related to the above listed possible distributions, as
well as the risks and other factors considered by the Special Committee, with
the assistance of its financial advisor, in considering the present value of
such possible distributions for the purpose of providing a reasonable per-share
price to the shareholders that would be cashed-out in connection with the
reverse split.
About
EDCI Holdings, Inc.
EDCI
Holdings, Inc. (Nasdaq: EDCI) is engaged in carrying-out its Plan of Complete
Liquidation and Dissolution ("Plan of Dissolution") that was approved by EDCI's
shareholders on January 7, 2010. EDCI is also the majority equity-holder of
Entertainment Distribution Company, LLC ("EDC"), a European provider of supply
chain services to the optical disc market. For more information, please visit
www.edcih.com.
Cautionary
Statement About Forward Looking Statements
This
press release contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements include, without
limitation, statements regarding the timing of certain actions contemplated by
the Plan of Dissolution. When used in this press release, the words
"will," "expects," or "intends to" and other similar expressions are intended to
identify such forward-looking statements. Forward-looking statements are
based on the opinions, expectations, forecasts, assumptions and estimates of
management at the time the statements are made and are subject to risks and
uncertainties that could cause actual results or the level of activity,
performance or achievements expressed or implied by such statements to differ
materially from our expectations of future results, level of activity,
performance or achievements expressed or implied by those statements. Such
differences may be caused by factors such as, but not limited to, EDCI's ability
to sell or monetize its assets in a timely manner or at all pursuant to its Plan
of Dissolution; EDCI's ability to settle, make reasonable provision for, or
otherwise resolve its liabilities and obligations; a change in economic
conditions; the risks associated with EDCI's dependence on Universal Music
Group's cooperation
regarding any transaction involving EDC; and our Board of Director's ability to
abandon or delay the implementation of the plan of dissolution. More
information about these and other important factors that could affect our
business and financial results is included in the "Risk Factors" section of our
quarterly report on Form 10-Q we filed with the Securities and Exchange
Commission ("SEC") on October 30, 2009 and the proxy statement we filed with the
SEC on November 16, 2009, as well as EDCI's other filings with the SEC. EDCI
undertakes no obligation to publicly update or revise any forward-looking
statements.
CONTACT:
Matthew K. Behrent, Executive Vice President of Corporate Development,
+1-646-201-9549, or Kyle E. Blue, Treasurer, +1-317-348-1940. Web site:
www.edcih.com