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DENVER from www.courthousenews.com – – Shareholders claim in court that a porn TV station is selling itself too cheaply to a Larry Flynt company.
The shareholder class action claims New Frontier Media is selling itself on the cheap to Flynt Broadcasting, a wholly owned subsidiary of co-defendant LFP Broadcasting.
New Frontier announced last week that it would sell itself to join LFP Broadcasting, Flynt-owned producer of Hustler TV, for $33 million, or $2.02 per share.
Boulder-based New Frontier describes itself as a distributor of “branded adult television programming.” It advertises access to pay-per-view pornography, including Penthouse TV and Sex See, on its website.
Lead plaintiff Elwood White claims New Media’s board of directors breached their fiduciary duty by selling the company on the cheap to Flynt’s erotic empire.
White claims the $2.02 price per share is “unfair and grossly inadequate,” that the company is worth twice as much.
He claims the deal was “calculated to unreasonably dissuade potential suitors from making potential offers.”
White claims former New Frontier CEO Michael Weiner, who resigned Oct. 16, questioned whether “any member of the Special Committee has a personal or business relationship with any representatives of the bidders.”
In his letter of resignation, Weiner blamed the “extremely troubling actions taken by a majority of the members of the board of directors” for his departure, according to the complaint.
“Weiner questioned whether actions by the board ‘made the company a less attractive acquisition candidate,’ as well as whether ‘the Special Committee treated all bidders equally and conducted a fair and exhaustive review process,'” the complaint states.
White also challenged the “no solicitation provision” of the deal, its $1 million termination fee, and a “matching right” that allows LFP Broadcasting to contest any “superior proposal” made to New Frontier.
“The proposed transaction is the product of a flawed process that resulted from the board’s failure to maximize shareholder value and deprives New Frontier’s public shareholders of the ability to participate in the company’s long-term prospects,” the complaint states.
White seeks damages for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and he wants the sale enjoined.
He is represented by Charles Lilley of Denver and Seth Rigrodsky of Wilmington, Del.