BOULDER, Colo.—New Frontier Media filed a motion Friday seeking an expedited briefing and discovery schedule in New Frontier v. Rothstein, an action brought May 31 by NOOF against a group of individuals and entities, including majority shareholder Longkloof Limited, which it accuses of violating "Section 13(d) of the Securities Exchange Act of 1934, as amended, by failing to file timely, accurate, and complete disclosure, and [seeking] declaratory relief enjoining Defendants from continuing to violate the Exchange Act or engage in activity related to New Frontier until they [correct] their violations."
More specifically, New Frontier has argued that Longkloof filed "false and misleading" SEC reports that failed "to disclose all of the members of its bidding group, or its true plans with regard to [New Frontier]," in order to achieve "preferential treatment" in its bid to take over the Nasdaq-traded media company, and that the behavior by the defendants in this case has hindered the work of a Special Committee formed to "review strategic business alternatives to maximize shareholder value for all shareholders, including, but not limited to, a possible sale of the company."
New Frontier also has consistently claimed that the "Special Committee structured this process with the intent of ensuring that all potential bidders to acquire New Frontier could participate on an equal playing field with one another and no one bidder would be placed at a significant competitive advantage irrespective of their past relationships with New Frontier or any member of its Board or management, believing such a structure would further the goal of maximizing value for all shareholders."
There are currently two bidders for New Frontier, Manwin and a group collectively known as Longkloof Limited, each of which has submitted specific offers for consideration by the company's board. New Frontier claims, however, that the Longkloof cabal has "consistently refused to engage in this process on an equal footing with all other bidders. Instead, [they] have publicly issued numerous inflammatory and, at times, false and misleading press releases in an effort to tarnish the reputation of the dedicated and committed members of New Frontier’s Board and the Special Committee in an effort to chill interest in the Company from potential bidders, intimidate potential bidders from wanting to pursue the acquisition of New Frontier, and adversely affect the ultimate purchase price for New Frontier."
Longkloof filed a counterclaim against New Frontier in mid-June in which it claimed that "the Board has breached its fiduciary duties in denying Longkloof's nomination of a slate of four directors and in stonewalling Longkloof's previously announced all-cash, fully financed offer to acquire the Company. The counterclaims allege, among other things, that the Board is seeking to entrench itself and to continue to pay themselves extravagant directors' fees. To preserve their annuity, the Board is resisting any offer to acquire the Company even on generous terms. The effort to deny shareholders the opportunity to vote for a competing slate—that would more open-mindedly consider all acquisition proposals—is simply a continuation of the Board's efforts to entrench themselves in office."
The conflict, according to the Friday filing, now threatens to impact the Sept. 28 shareholder meeting, during which an election is scheduled to be held to elect a new board of directors.
"One prong of Defendants’ strategy includes staging a proxy contest in an attempt to fill two-thirds of the New Frontier Board with directors that are sympathetic to, and hand-picked by, the Defendants," the brief states. "In fact, two of the candidates proposed by one of the Defendants, Longkloof Limited, are employees of an affiliate of its co-defendant Hosken Consolidated Investments. But Defendants have failed to comply with the advance notice of nomination requirements contained in New Frontier’s Bylaws, causing Defendants’ attempted notice to be invalid and its proposed candidates not recognizable by New Frontier.
"Defendants have also hidden, and they continue to hide, their true plans and intentions for New Frontier Media by failing to disclose on any Schedule 13D filed with the U.S. Securities and Exchange Commission Defendants’ true plans and intentions relating to their attempts to gain control of New Frontier and have concealed all of the actual members of their bidding group," it adds. "New Frontier continues to believe that it and its shareholders have the right to know all the individuals who are acting in concert with the Defendants, including, but not limited to, any individuals who may be currently affiliated with, have fiduciary duties, or are under contractual obligations, to New Frontier. New Frontier has sought this information from the Defendants on at least two occasions in the recent past only to be rebuffed and stonewalled."
According to the motion, "In mid-June, New Frontier remained hopeful that the parties could still resolve their disagreements without further litigation. That has proven to be untrue. New Frontier’s only remaining path to resolution is through the Court. New Frontier respectfully requests that the Court grant this motion for expedited discovery and briefing so that New Frontier may obtain a timely ruling on New Frontier’s request for a preliminary injunction from the Court."
With time running out to meet the legal requirements imposed by the Securities and Exchange Commission (SEC) and the Colorado Business Corporations Act (CBCA), NOOF says it needs the court to agree to an expedited briefing and discovery schedule "before a shareholder would have the right to seek injunctive relief from the Colorado state courts under 7-107-103 of the CBCA: September 28, 2012."
Because New Frontier also has alleged that the so-called Longkloof Group has failed to disclose the identity of all of its members in violation of the company's bylaws, it is seeking an expedited schedule of limited discovery that includes deposing a number of "key individuals who could have knowledge concerning the agreement New Frontier believes Defendants have reached," which would mean immediately serving them with subpoenas. It is not a small list of people.
New Frontier seeks the following depositions:
* Adam Rothstein (Identified by New Frontier as the representative of its largest shareholder, Longkloof Limited.)
* Eric Doctorow
* Mahomed Khalik Ismail Sherrif
* Willem Deon Nel
* Barbara Wall
* Marcel Golding
* Persons most knowledgeable about Rothstein’s interactions with and agreements with them, as well as their intentions and the group’s from Longkloof Limited
* Persons most knowledgeable about Rothstein’s interactions with and agreements with them, as well as their intentions and the group’s from Mile End Limited
* Persons most knowledgeable about Rothstein’s interactions with and agreements with them, as well as their intentions and the group’s from Sabido Investments
* Persons most knowledgeable about Rothstein’s interactions with and agreements with them, as well as their intentions and the group’s from Hosken Consolidated Investments, Limited.
New Frontier also seeks depositions of various party representatives and third parties who have unique knowledge of the Defendants’ plans and intentions, as well as likely being able to testify about who the members of the group are. New Frontier seeks to depose:
* The Co-founder of Hosken Consolidated Investments Limited, who is believed to have knowledge regarding the purpose behind Defendants’ agreement.
* Five (5) Former New Frontier Employees—each is anticipated to provide unique knowledge regarding the relationships between Defendants, Defendants’ interest in New Frontier, and the purpose behind Defendants’ agreement. These individuals are believed to have current relationships with either executives at New Frontier or Defendants, which would shed light on the claims at issue.
* Executive of a potential investor who withdrew its interest in New Frontier and is suspected to have knowledge of Defendants’ plans and intentions due to personal relationships.
* Three (3) New Frontier investors that are believed to have knowledge of Rothstein’s plans.
* Individual that is believed to have attended a meeting where Defendants’ scheme was discussed in detail.
* Former co-worker of Rothstein.
New Frontier is also requesting the following expedited schedule:
* Plaintiff shall file its Motion for a Protective Order on Friday June 29, 2012.
* Defendants shall file their Response to Plaintiff’s Motion for a Protective Order on or before Tuesday, July 3, 2012.
* Plaintiff shall file its Reply in Support of its Motion for a Protective Order on or before Friday July 6, 2012.
* Defendants shall respond to Plaintiff’s Interrogatories on or before Monday, July 2, 2012.
* Documents shall be produced in response to Plaintiff’s and Defendant’s respective discovery requests on or before Thursday July 5, 2012.
* Select depositions shall begin on Monday, July 9, 2012 and continue until Friday, July 13, 2012.
* Plaintiff shall file its Motion (and Memorandum in Support) for Preliminary Injunction (“Plaintiff’s Motion”) on or before Monday, July 16, 2012.
* Defendants shall file their response to Plaintiff’s Motion on or before Wednesday, July 19, 2012.
* Plaintiff shall submit its Reply Brief in support of its Motion on or before Monday, July 23, 2012.
* The parties shall request that the hearing on Plaintiff’s Motion be held on Wednesday, July 25, 2012.
