Details Emerge Over New Frontier Media's Firing of CEO
BOULDER, Colo. — New Frontier Media's recent firing of its chief executive was preceded by the belief that he and another board director at the company were planning to sell the adult transactional TV service to an investment company that made a hostile takeover bid.
The revelation of the internal fissures at the company came way of two letters filed with the Securities and Exchange Commission on Thursday — one from David Nicholas, a former director who resigned last week after a "fundamental disagreement" with fellow board members, and another from the board of directors.
New Frontier Media last month said that CEO Michael Weiner, who had led the company since 2004, had been terminated but provided no other details.
After receiving buyout offers from investment company Longkloof Ltd. and adult entertainment conglomerate Manwin, New Frontier Media formed a "special committee" consisting of independent board members. Channel Islands-based Longkloof already owns 15.9 percent of New Frontier Media.
That committee included Nicholas, who was kicked off the panel after only a month after it was formed.
Nicholas, in his resignation letter, said that his ideas over the direction of the company weren't receptive with the committee and that the discharge of Weiner "made it impossible for me to continue to serve as a director."
"[Weiner's firing] was in my view a coup d'etat carefully orchestrated by the members of the special committee to silence opposition," Nicholas said.
Nicholas outlined four areas of concern that compelled him to resign — compensation of committee members was excessive, that the litigation with Longkloof was costly and unnecessary, that he was excluded from the strategic review process and that senior management and Weiner were shut out of the strategic review process.
"With my resignation, it is my hope that I have impressed upon shareholders an urgent need to question your true independence and closely monitor your future actions, including your decision to be the only director nominees up for election at the upcoming annual meeting of shareholders," Nicholas wrote. "This board cries out for the addition of truly independent directors to serve as representatives of the shareholders."
In response to Nicholas' letter of resignation, board members said they removed him from the committee because he could not be "trusted to provide the special committee with your independent and unbiased judgment."
"Specifically, we believe you had a clear conflict of interest in acting as 'proxy' on the special committee for [Weiner] and seeking to advance Michael's agenda," board members wrote in the letter filed with the SEC. "It became clear very early on in the special committee's deliberations that you were committed to advancing Michael's frequently stated and unambiguous preference for selling the company to the Longkloof/Rothstein investor group even if such a transaction would not maximize value for our shareholders."
Board members said that they believed Weiner and Nicholas to be in cahoots with Longkloof, while also alleging that Weiner and Adam Rothstein, who leads Longkloof's investment group, were friends and business associates.
"It became clear very early on in the Special Committee’s deliberations that you were committed to advancing Michael’s frequently stated and unambiguous preference for selling the company to the Longkloof / Rothstein investor group even if such a transaction would not maximize value for our shareholders," the board said. "Our concerns that your and Michael’s interests may be aligned with Longkloof and Mr. Rothstein were confirmed when Longkloof, in connection with its publicly announced unsolicited offer to acquire the company, announced its intention to initiate a proxy contest against the company and we learned that Longkloof had invited you and Michael to participate in their proxy contest and serve as nominees on their slate.
"Such proxy contest, if successful, would have enabled Longkloof to take control of the company without being required to acquire all shares of the company [other than the shares held by Longkloof] at a price that maximized value for all shareholders."
New Frontier Media sells adult video-on-demand and pay-per-view content through satellite, cable and hotel networks. Offerings include Penthouse TV premium channel and The Erotic Networks, which include Xtsy, Juicy and VaVoom.
XBIZ calls for additional comment from New Frontier Media's current management went unreturned at post time.