Amendment to General Statement of Beneficial Ownership — Schedule 13D
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1: SC 13D/A Amendment No. 2 to Schedule 13D 3 16K
2: EX-8 Letter Dated March 28, 2002 4 16K
3: EX-9 Demand to Inspect Corporate Records 1 7K
EX-8 — Letter Dated March 28, 2002
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Page 4 of 8 Pages
EXHIBIT 8
EDWARD J. BONN
15303 VENTURA BLVD.
SUITE 1070
SHERMAN OAKS, CA 91403
March 28, 2002
VIA FAX
To Members of the Board of Directors
of New Frontier Media, Inc.:
In preparation for the special Board meeting called by Mark Kreloff for Friday,
March 29, 2002 at 9:00 AM (Colorado time), I wanted to clarify certain matters
and bring the following to your attention.
1. NOOF = THE WORST PERFORMING ADULT ENTERTAINMENT STOCK.
Over the past two years, the Company's shareholders have lost over 80%
of their stock value. Relative to our public comparables of Private
Media Group, Inc. (NASDAQ: PRVT) and Playboy Enterprises, Inc.,
(NYSE:PLA), NOOF has under performed by 40% and 65% -- to say nothing of
the Company's performance relative to the Russell 2000, where NOOF has
under performed by a staggering 70%.
The Board of Directors must address this matter. Our principal
obligation as directors is to act in our shareholders' best interests.
The situation must be corrected.
2. THE TIME TO ACT IS NOW.
Over the past two years, I have attempted to work with current
management and the Board to address these issues and develop an
acceptable business strategy for the Company. These efforts have been
unsuccessful. While I am willing to work with current management and the
Board to address these matters on a responsible basis, I do not believe
that the current CEO is behaving in a constructive manner.
I do not profess to have all the answers, but I do know that the current
management team has failed to deliver shareholder value and must be held
accountable for that failure. I urge you to impose accountability on
management for the poor performance of the Company.
The proposals I have heard from management regarding the future
direction of the Company are just more of the same. I strongly advocate
retaining a new management team with the right experience and allowing
that team to develop and implement a plan to restore value for all of
the Company's shareholders.
3. MANAGEMENT IS NOW WORKING TO ENTRECH ITSELF.
Notwithstanding the Board's repeated efforts to encourage management to
develop a strategy, current management has failed to develop an
appropriate plan to address the declining market value of the Company.
Rather than addressing this critical issue, our CEO is now working to
perpetuate his position in office.
Page 5 of 8 Pages
Members of the Board of Directors
of New Frontier Media, Inc.
Page 2
On March 22, Mark Kreloff left me a voicemail message calling me a
"despicable human being" and vowing to fight my efforts to effect a
change in management. A transcript of this voicemail is attached.
In an effort to implement his strategy to perpetuate his tenure, Mr.
Kreloff is using our Company's treasury to retain new counsel for the
Company, without consulting the full Board or using an independent Board
committee with its own independent counsel to evaluate these matters.
Why is the Board letting the person most responsible for the dismal
performance of the Company now select counsel to perpetuate himself in
office?
I realize current management is attempting to make Internet operations
an issue. This is not the issue. The performance of the Company over the
last two years is the issue.
It is critical that we obtain an independent perspective from a new
management team. This is the only way that the Company can regain the
confidence of investors and develop an effective plan to enhance
shareholder value.
4. CONTRARY TO ADVICE FROM COMPANY COUNSEL, THE "POISON PILL" HAS NOT BEEN
TRIGGERED.
On March 20, 2002, Hank Greyson, acting as counsel to the Company,
called my counsel to allege that Brad Weber and I are acting as a
"group" for purposes of the federal securities laws and that, as a
result, the Company's "poison pill" anti-takeover device had been
triggered. This extraordinary and irresponsible allegation would make us
one of the few companies in history to trigger a poison pill and would
wreak havoc on our Company's capitalization.
The rights agreement excludes any person who (like me) owned 15% or more
of the Company's common stock on the day the Rights Agreement was
adopted. Unless that person increases his "beneficial ownership" of
common stock by 1% or more, such pre-existing share ownership is
"grandfathered" under the poison pill. I have not increased my
beneficial ownership of common stock in any way.
Furthermore, Brad Weber and I have not been acting as a "group," and we
have done nothing to trigger the poison pill. Any activities and
business relationships between Brad and myself are disclosed and are
well known; these relationships were in place long before adoption of
the poison pill.
Are there any members of the Board, other than Mark Kreloff, who thought
that the poison pill would be triggered by the directors taking action
under the Company's bylaws or by the shareholders exercising their
rights? The rights agreement provides the Board with broad discretion to
amend the Rights Agreement and redeem the rights. Does the Board
understand the true financial and economic consequences of deciding to
trigger the Rights Plan?
The Board should create an independent committee to analyze any issues
that may arise under the Rights Plan, based on the advice of separate
independent counsel selected by this independent committee, and without
the involvement of management that appears to be set on a path to
preserve its positions in office.
Page 6 of 8 Pages
Members of the Board of Directors
of New Frontier Media, Inc.
Page 3
I do not believe that the Board adopted the poison pill to frustrate
directors in their efforts to address critical management issues. The
issue of selection and retention of the CEO is an essential part of the
Board's proper discharge of its fiduciary responsibilities.
Nor is the poison pill intended to frustrate directors or shareholders
in airing their views. The poison pill does not supercede the process of
shareholder democracy. As a director and shareholder of the Company, I
and others are entitled to be heard and to exercise our rights.
5. THE BOARD'S RESPONSIBILITY.
The Board now has an opportunity to put the Company back on track. A
fresh start with new independent management and new independent
directors is required. Current management is attempting to entrench
itself in office, regardless of the expense or impact on our Company.
After being appointed to the special committee to address the issues
regarding Mark Kreloff's departure, I have had my advisors talk to Alan
Isaccman to develop an acceptable proposal. I have spoken with Alan
Isaccman and submitted written proposals that are far more generous than
what the Company is obligated to provide under its amended employment
agreement with Mark Kreloff. As was our plan, we can discuss these
issues at length at our Board meeting on Monday. The side show that
management is now attempting to create at this late date, after years of
mismanagement, is not in our shareholder's best interests nor consistent
with our fiduciary duties.
6. IT IS TIME TO ACT WITH OUR SHAREHOLDERS' INTERESTS IN MIND.
Our shareholders are watching. We can resolve this process
professionally - in the exercise of our due care as directors - or we
can watch as management drives the Company to incur tremendous cost and
further distraction. As we consider how to proceed on these important
topics, we have a responsibility to prevent waste of the Company's
assets. As you hear management justify its actions and maneuver to
prevent the workings of shareholder democracy, consider whether the CEO
is using the Company's assets and resources in the best interests of all
shareholders. Every member of the Board of Directors will be held
accountable for these actions. The future of our Company is at stake.
I look forward to hearing your views and am available to answer any questions.
Sincerely,
/s/ Edward J. Bonn
Edward J. Bonn
Page 7 of 8 Pages
[TRANSCRIPT OF VOICEMAIL LEFT BY MARK KRELOFF
FOR EDWARD BONN ON MARCH 22, 2002]
Mark Kreloff: Hey Ed, do me a favor and don't get back to me as soon as you can.
That newswire was the last straw. You have humiliated me. You have embarrassed
me. You have done the most despicable thing that I have ever thought to think of
in my life. I have newspaper reporters wanting to talk to me about this. This is
an outrage and I am going to go after you and I'm going to fight to have you
thrown off the board unless you do something to rescind this. This is just
outrageous and you are a despicable human being.
Dates Referenced Herein and Documents Incorporated by Reference
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