J.P. Lipson: Kreloff and Weiner "Dangerous to the Health" of New Frontier Media

Colorado businessman J.P. Lipson has petitioned for expedited discovery in his lawsuit against New Frontier Media. Inc.

Lipson filed the petition Feb. 24 in the District Court, county of Boulder, stating that both New Frontier Media's CEO Mark Kreloff and V.P. Michael Weiner, defendants in his lawsuit, were "dangerous to the health of the company" and should be removed from running the company. Lipson has petitioned to have a court receiver appointed. Kreloff and Weiner will be required over the next month to give depositions in response.

Lipson, a multi-millionaire investor, filed suit in January against New Frontier Media, alleging that the company, Kreloff and Weiner reneged in an agreement that would give Lipson controlling interest of the company.

In a three-page agreement that was signed Oct. 5, 1998, Lipson was to get 70 percent of the company in exchange for $1.2 million that would go towards the settlement of an outstanding bill with Loral Skynet, the company which provides transponder service for New Frontier Media's TeN Channel broadcasts. Loral had, allegedly, threatened to cut New Frontier Media off from service. In addition, Lipson was to make additional loans to New Frontier Media that would have totaled $10 million.

Lipson alleges that Kreloff and Weiner turned their backs on the deal and had Lipson removed by the police when Lipson took active steps to begin running the company.

"Kreloff and Weiner told the police I was trespassing," Lipson says. According to Lipson, he was removed from the company's premises before the transfer of lease was completed. Both Kreloff and Weiner's names were still on the original lease.

New Frontier Media has since repaid Lipson $690,000 of the $1.2 million including interest, but has been denying the remainder of the claim. New Frontier Media, in its counter claim to the Lipson suit, also charged Lipson with fraudulent inducement, claiming that Lipson settled the Loral bill without its knowledge or consent.

According to Lipson, the company has now offered to settle for the remainder and has backed off from the fraudulent inducement charges - except Lipson doesn't want to hear it.

"I intend [on] running this company," says Lipson, who wants to move the corporate headquarters to California.

In other action related to the Lipson lawsuit, Dan Bender, former partner and board member of New Frontier Media, Inc., has sworn an affidavit stating that Michael Weiner, the number two man at New Frontier Media, told him the company had no intention of going through with a deal that would give Lipson 70 percent of the company.

In a sworn statement delivered on Feb. 20 to Lipson's attorney, Jim Ghiselli, Bender said that both Colorado Satellite Broadcasting, a wholly owned subsidiary of New Frontier Media, and New Frontier Media, a NASDAQ company which went public in February, 1998, were in dire straits financially by the fall of that year.

"Office bills were not being paid," Bender said. "Colorado Satellite Broadcasting was reneging on bills to [adult] studios. Most studios were eight weeks overdue." Bender said the overdue amounts approximated $100,000 and that he was receiving collection letters and phone calls on a daily basis from the studios.

Bender, in his affidavit, also confirms Lipson's allegations in that Colorado Satellite Broadcasting was behind on its payments to Loral Skynet and ran the risk of being shut down.

Desperate for an infusion of cash, both Kreloff and Weiner, according to Bender, told him, "The company is hemorrhaging; we have to do something to get money quickly." According to Bender, he was told by Weiner that the company had found an investor to "bail out" the company: J.P. Lipson.

"J.P. Lipson was running the company... Weiner no longer had signature authority on the company's checks," Bender said in his affidavit.

Bender also claims Weiner told him that, although they (Kreloff and Weiner) had promised Lipson 70 percent of the company, the agreement was "unenforceable and would not be honored by the company." Bender claims to have been told by Weiner, "I had to take his money, my back was against the wall, what else was I supposed to do?"

Bender states that he had been informed by the company's chief financial officer, Rob Kalnenski, that there had been a change in management and that Lipson was running the company.

"If it weren't for Lipson, we would all be out of jobs," Kalnenski is alleged to have said.