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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 13, 1999
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(Date of earliest event reported)
IXC COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-20803 74-2644120
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(State or other jurisdiction (Commission (I.R.S. Employer
of organization) File Number) Identification Number)
1122 Capital of Texas Highway South, Austin 78746
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(Address of principal executive offices) (Zip Code)
(512) 328-1112
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
Cincinnati Bell Inc., an Ohio corporation ("CBI"), IXC Communications,
Inc., a Delaware corporation ("IXC"), and Ivory Merger Inc., a Delaware
corporation and a wholly owned subsidiary of CBI, previously entered into an
Agreement and Plan of Merger dated as of July 20, 1999 (the "Merger Agreement"),
pursuant to which IXC will merge (the "Merger") with and into Ivory Merger Inc.
and become a wholly owned subsidiary of CBI.
In light of the decision of Chancellor Chandler on September 27, 1999,
in the Court of Chancery of the State of Delaware in Phelps Dodge Corporation
vs. Cyprus Amax Minerals Company, CBI and IXC have entered into Amendment No. 1
dated as of October 13, 1999 to the Merger Agreement (the "Amendment"). While
IXC does not believe that the decision is applicable to the Merger or the Merger
Agreement, IXC has decided to amend the Merger Agreement. The Amendment amends
Sections 4.03 and 4.04 of the Merger Agreement and provides that in response to
an IXC Superior Proposal or a Cincinnati Bell Superior Proposal (each as defined
in the Amendment), IXC or CBI, as the case may be, may engage in discussions to
inform itself of the terms of any such Superior Proposal. The terms and
provisions of Sections 4.03 and 4.04 of the Merger Agreement otherwise remain
unchanged.
A copy of the Amendment is attached hereto as Exhibit 2.1. Such Exhibit
is incorporated by reference to this Item 5 and the foregoing is qualified in
its entirety by reference to such Exhibit.
In connection with putative class action litigation filed by John D.
Crawford and other IXC stockholders (John D. Crawford, et al., v. Cincinnati
Bell Inc., et al., C.A. No. 17334 (the "Crawford Action") and In re IXC
Communications, Inc. Shareholders Litigation, Consolidated C.A. No. 17324), in
the Court of Chancery of the State of Delaware, plaintiffs served a Joint
Opening Brief In Support Of Their Motions for Preliminary Injunction (the "Joint
Opening Brief") on October 8, 1999. On October 13, 1999, plaintiffs in the
Crawford Action filed a motion for leave to file a second amended and
supplemental complaint (the "Amended Complaint"). In the Joint Opening Brief and
in the Amended Complaint, plaintiffs allege that the joint proxy
statement/prospectus (the "Proxy Statement") filed with the Securities and
Exchange Commission on September 13, 1999, and mailed by IXC to its stockholders
on or about September 14, 1999, contained various misstatements and omissions
that are misleading. IXC does not believe that any of the alleged misstatements
or omissions in the Proxy Statement are misleading or material.
A copy of the relevant portion of the Joint Opening Brief regarding the
Proxy Statement is attached hereto as Exhibit 2.2. A copy of the Amended
Complaint is attached hereto as Exhibit 2.3. Exhibits 2.2 and 2.3 are
incorporated by reference to this Item 5 and the foregoing is qualified in its
entirety by reference to these Exhibits. Certain of plaintiffs' disclosure
allegations are listed numerically below. Following each numbered paragraph,
certain additional disclosures are provided. Information relating to CBI is
being provided by CBI and information relating to IXC is being provided by IXC.
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1. The Proxy Statement fails to disclose that the letter agreement in
which IXC engaged Morgan Stanley was backdated (i.e., it was signed
on July 20 or 21, 1999 but dated February 3, 1999).
o On February 4, 1999, IXC publicly announced that it had engaged
Morgan Stanley to explore strategic alternatives. At around this
time the parties negotiated the general parameters regarding the
scope of Morgan Stanley's engagement and Morgan Stanley began
performing services.
o The engagement letter was not signed by both parties, however,
until July 20, 1999, when the parties finalized their
negotiations regarding the fee to be paid to Morgan Stanley for
its services. It is not unusual in the investment banking
business for engagement letters to be finalized immediately
prior to the delivery of fairness opinions but to be dated as of
an earlier date.
2. The Proxy Statement fails to disclose that neither Morgan Stanley
nor Merrill Lynch issued fairness opinions with respect to CBI's
purchase of one half of GEPT's stock in IXC at $50 per share.
o The fairness opinions of Morgan Stanley and Merrill Lynch
address only the fairness of the exchange ratio. These fairness
opinions are attached as Annexes 8 and 9 to the Proxy Statement.
3. The Proxy Statement fails to disclose that IXC shut Morgan Stanley
out for much of May and June and retained Merrill Lynch because IXC
was concerned that Morgan Stanley might refuse to issue a fairness
opinion.
o One of the reasons that Merrill Lynch was retained was because
IXC was not completely satisfied with the progress being made in
examining strategic alternatives and believed that the addition
of Merrill Lynch would assist IXC in its efforts.
o Both Merrill Lynch and Morgan Stanley participated in the due
diligence process with respect to CBI.
o If IXC had been unable to reach an agreement with Morgan Stanley
as to fees, then Morgan Stanley would have withdrawn from the
IXC engagement and would not have rendered a fairness opinion as
to the exchange ratio provided by the Merger.
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4. The Proxy Statement fails to disclose that the amount of Morgan
Stanley's fee was contingent on the value of the deal and not
finalized until the afternoon of July 20, 1999.
o Morgan Stanley's and Merrill Lynch's respective fees were
finalized on the afternoon of July 20, 1999.
o There was disagreement as to how Morgan Stanley's fee was to be
determined. After negotiations, Morgan Stanley and IXC finally
agreed that Morgan Stanley would receive a fee of $5 million
payable upon completion of the Merger.
5. The Proxy Statement fails to disclose that Morgan Stanley advised
the IXC directors that there were companies who would make better
strategic partners with IXC than would CBI.
o Morgan Stanley believed that there were other companies that may
have provided a better strategic fit with IXC than CBI. There
was no expression of interest pending, however, from any other
company at the time the Merger was approved by the IXC Board.
6. The Proxy Statement fails to disclose that Morgan Stanley
recommended that PSINet and [Company A](1) be contacted before the
IXC Board voted on a merger with CBI.
o Morgan Stanley stated that contacting PSINet and [Company A](1)
before voting on a merger with CBI was a course of action
available to IXC. The IXC Board considered and rejected this
course of action.
7. The Proxy Statement fails to disclose that Mr. Bragin, an IXC
director, has served since 1985 as Vice President of General
Electric Investment Corporation, a subsidiary of General Electric
Company, which also is an advisor to the Trustees of General
Electric Pension Trust ("GEPT").
o Wolfe H. Bragin is a Vice President at General Electric
Investment Corporation, which also is an advisor to GEPT. Mr.
Bragin has held this position since at least 1985.
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(1) Not identified for confidentiality reasons.
-4-
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8. The Proxy Statement fails to disclose that the Merger Agreement was
conditioned upon the GEPT Stockholders Agreement which in turn was
conditioned on CBI's purchase of GEPT's IXC shares for $50 cash per
share.
o CBI would not have entered into the Merger Agreement without an
agreement by GEPT to vote its IXC shares in favor of the Merger.
o GEPT required that CBI agree to purchase from GEPT approximately
half of its IXC shares for cash.
9. The Proxy Statement fails to disclose that Mr. Benjamin Scott was
terminated as a director of IXC just days before the IXC Board
considered the Merger Agreement because IXC was concerned that Mr.
Scott may pose an obstacle to the Merger.
o At the time Mr. Scott resigned as chief executive officer of
IXC, it was agreed that Mr. Scott would also resign from the IXC
Board at some appropriate time in the future.
o Mr. Irwin suggested that it would be appropriate for Mr. Scott
to resign from the IXC Board before the deliberations concerning
the Merger. Mr. Scott resigned from the IXC Board effective July
17, 1999.
o Mr. Scott has stated that he fully supports the Merger.
10. The Proxy Statement fails to disclose that Mr. Irwin preferred
consideration in stock over cash because he had a tax basis in his
IXC stock of less than $5 per share.
o Mr. Irwin's IXC shares have a per share basis of less than $5.
o A merger in which cash consideration was paid could result in
significant capital gains tax liability to Mr. Irwin, Mr. Ralph
Swett, and other stockholders.
o Mr. Irwin has stated that the tax-free nature of the Merger was
important to many IXC stockholders, including himself and Mr.
Swett.
11. The Proxy Statement fails to disclose certain concerns expressed by
the IXC due diligence team to the IXC Board regarding a merger
between IXC and CBI.
o The IXC due diligence team presented a report to the IXC Board
that concluded that there would be very limited cost synergies
and limited revenue synergies in a merger with CBI.
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o The IXC due diligence team also noted that one risk of a merger
with CBI was that the second level of management at CBI had
limited experience operating outside of the Cincinnati, Ohio
region.
o The IXC Board considered the report of the due diligence team.
12. The Proxy Statement misrepresents the number of shares owned by
directors and officers of IXC and their affiliates.
As of September 22, 1999, the record date for the IXC stockholders
meeting:
o Messrs. Swett and Irwin and their affiliates owned and are
entitled to vote approximately 16% of the IXC common stock and
are committed to vote, as stockholders, for the adoption of the
Merger Agreement.
o GEPT owned approximately 10% of the IXC common stock and is
committed to vote for the adoption of the Merger Agreement.
o The other IXC directors and executive officers and their
affiliates (including Mr. Bragin but excluding Messrs. Swett and
Irwin and GEPT) owned and are entitled to vote approximately 1%
of the IXC common stock and intend to vote for the adoption of
the Merger Agreement.
o The share ownership of these individuals and entities was:
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<TABLE>
<CAPTION>
Approximate
Percentage of
IXC common IXC common
Name or Entity stock owned stock owned
- -------------- ----------- -------------
<S> <C> <C>
Richard D. Irwin (and affiliates) 3,254,990 9%
Ralph J. Swett (and affiliates) 2,740,716 7%
---------
Sub-total: 5,995,706 16%
=========
GEPT 3,625,172 10%
=========
Wolfe H. Bragin 4,000 *
Joe C. Culp 2,612 *
Dominick DeAngelo 0 *
David L. Hughart 0 *
Stanley W. Katz 2,000 *
Carl W. McKinzie 211,917 *
Jeffrey C. Smith 2,000 *
Stuart K. Coppens 0 *
Michael W. Vent 0 *
Phillip L. Williams 146,762 *
John M. Zrno 0 *
--------
Sub-total: 369,291 1%
========
Total: 9,990,169 27%
========= ==
</TABLE>
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* Indicates ownership of less than 1% of IXC common stock outstanding on
September 22, 1999
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As of September 22, 1999, CBI owned and was entitled to vote 4,999,345
shares of IXC common stock, which it acquired from GEPT under a stock purchase
agreement between CBI and GEPT dated as of July 20, 1999. Based on the number of
shares of IXC common stock outstanding on September 22, 1999, CBI owned
approximately 13% of the outstanding shares of IXC common stock on that date.
-8-
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
IXC COMMUNICATIONS, INC.
By: /s/ Jeffrey C. Smith
------------------------------------
Name: Jeffrey C. Smith
Title: Senior Vice President,
General Counsel and Secretary
Date: October 14, 1999
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EXHIBIT INDEX
Exhibit No. Exhibit
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2.1 Amendment No. 1 dated as of October 13, 1999, among Cincinnati
Bell Inc., an Ohio corporation, IXC Communications, Inc., a
Delaware corporation, and Ivory Merger Inc., a Delaware
corporation, to the Agreement and Plan of Merger dated as of
July 20, 1999, among Cincinnati Bell Inc., IXC Communications,
Inc. and Ivory Merger Inc.
2.2 Selected portions from the Joint Opening Brief In Support Of
Their Motions For Preliminary Injunction filed on October 8,
1999 by plaintiffs in the action styled Crawford et al. v.
Cincinnati Bell, Inc., et al., C.A. No. 17334 and In re IXC
Communications Inc. Shareholders Litigation, Consolidated C.A.
No. 17324, pending in the Court of Chancery for the State of
Delaware.
2.3 Proposed Second Amended and Supplemental Complaint attached to a
Motion to Amend filed by plaintiffs in the action styled
Crawford et al. v. Cincinnati Bell, Inc. et al., C.A. No. 17334.
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EXHIBIT 2.1
AMENDMENT NO. 1 (this "Amendment") dated as
of October 13, 1999, among CINCINNATI BELL INC., an
Ohio corporation ("CBI"), IVORY MERGER INC., a
Delaware corporation and a wholly owned subsidiary of
CBI ("Sub"), and IXC COMMUNICATIONS, INC., a Delaware
corporation ("IXC"), to the Agreement and Plan of
Merger (the "Merger Agreement") dated as of July 20,
1999, among CBI, Sub and IXC.
WHEREAS, pursuant to the Merger Agreement, CBI, Sub and IXC
have agreed to effect the Merger (such term and each other used but not defined
herein having the meaning given to it in the Merger Agreement), upon the terms
and subject to the conditions set forth in the Merger Agreement; and
WHEREAS CBI, Sub and IXC desire to amend the Merger Agreement,
upon the terms set forth in this Amendment.
NOW, THEREFORE, in consideration of the agreements contained
in this Amendment, the parties hereto agree as follows:
SECTION 1. Amendments to Section 4.03(a) of the Merger
Agreement. (a) Section 4.03(a) of the Merger Agreement is hereby amended by
inserting the following sentence immediately after the first sentence thereof:
"Notwithstanding the foregoing, in the event that,
notwithstanding compliance with the preceding sentence, IXC
receives an IXC Superior Proposal, IXC may, to the extent that
the Board of Directors of IXC determines in good faith (based
on the advice of outside counsel) that such action would, in
the absence of the foregoing proscriptions, be required by its
fiduciary duties, participate in discussions regarding any IXC
Superior Proposal in order to be informed with respect thereto
in order to make any determination permitted pursuant to
Section 4.03(b)(i). In such event, IXC shall, no less than 48
hours prior to participating in any such discussions, (i)
inform CBI of the material terms and conditions of such IXC
Superior Proposal, including the identity of the person making
such IXC Superior Proposal, (ii) inform CBI of the substance
of any discussions relating to such IXC Superior Proposal and
(iii) keep CBI
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2
fully informed of the status, including any change to the
details of, any such IXC Superior Proposal."
(b) Section 4.03(a) of the Merger Agreement is hereby amended
by inserting the following sentence to be the final sentence thereof:
"For purposes of this Agreement, "IXC Superior Proposal" means
any offer not solicited by IXC made by a third party to
consummate a tender offer, exchange offer, merger,
consolidation or similar transaction which would result in
such third party (or its shareholders) owning, directly or
indirectly, more than 50% of the shares of IXC Common Stock
then outstanding (or of the surviving entity in a merger) or
all or substantially all of the assets of IXC and its
Subsidiaries, taken together, and otherwise on terms which the
Board of Directors of IXC determines in good faith (based on
the advice of a financial advisor of nationally recognized
reputation) to be reasonably likely to obtain the IXC
Stockholder Approval and to provide consideration to the
holders of IXC Common Stock with a greater value than the
consideration payable in the Merger."
SECTION 2. Amendments to Section 4.04(a) of the Merger
Agreement. (a) Section 4.04(a) of the Merger Agreement is hereby amended by
inserting the following sentence immediately after the first sentence thereof:
"Notwithstanding the foregoing, in the event that,
notwithstanding compliance with the preceding sentence, CBI
receives a CBI Superior Proposal, CBI may, to the extent that
the Board of Directors of CBI determines in good faith (based
on the advice of outside counsel) that such action, would, in
the absence of the foregoing proscriptions, be required by its
fiduciary duties, participate in discussions regarding such
CBI Superior Proposal in order to be informed with respect
thereto in order to make any determination permitted pursuant
to Section 4.04(b)(i). In such event, CBI shall, no less than
48 hours prior to participating in any such discussions, (i)
inform IXC of the material terms and conditions of such CBI
Superior Proposal, including the identity of the person making
such CBI Superior Proposal, (ii) inform IXC of the substance
of any discussions relating to such CBI Superior Proposal
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3
and (iii) keep IXC fully informed of the status, including any
change to the details of, any such CBI Superior Proposal."
(b) Section 4.04(a) of the Merger Agreement is hereby amended
by inserting the following sentence to be the final sentence thereof:
"For purposes of this Agreement, "CBI Superior Proposal" means
any offer not solicited by CBI made by a third party to
consummate a tender offer, exchange offer, merger,
consolidation or similar transaction which would result in
such third party (or its shareholders) owning, directly or
indirectly, more than 50% of the shares of CBI Common Stock
then outstanding (or of the surviving entity in a merger) or
all or substantially all of the assets of CBI and its
Subsidiaries, taken together, and otherwise on terms which the
Board of Directors of CBI determines in good faith (based on
the advice of a financial advisor of nationally recognized
reputation) to be reasonably likely to obtain the CBI
Shareholder Approval and to provide consideration to the
holders of CBI Common Stock with a greater value than the
consideration payable in the Merger."
SECTION 3. Counterparts. This Amendment may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 4. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflict
of laws thereof, except to the extent the laws of the State of Ohio are
mandatorily applicable for the rights of CBI shareholders and directors and
corporate governance matters.
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4
IN WITNESS WHEREOF, CBI, Sub and IXC have caused this
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
CINCINNATI BELL INC.,
by /s/ RICHARD G. ELLENBERGER
-------------------------------
Name: Richard G. Ellenberger
Title: President and Chief
Executive Officer
IVORY MERGER INC.,
by /s/ THOMAS E. TAYLOR
-------------------------------
Name: Thomas E. Taylor
Title: Vice President and
Secretary
IXC COMMUNICATIONS, INC.,
by /s/ JEFFREY C. SMITH
-------------------------------
Name: Jeffrey C. Smith
Title: Senior Vice President,
General Counsel and
Secretary
<PAGE> 1
EXHIBIT 2.2
On October 8, 1999, plaintiffs in the action styled Crawford, et al. v.
Cincinnati Bell, Inc. et al., C.A. No. 17324, and In re IXC Communications, Inc.
Shareholders Litigation, Consolidated C.A. No. 17324, filed a Joint Opening
Brief In Support Of Their Motion For Preliminary Injunction ("Joint Opening
Brief"). The Joint Opening Brief makes the following assertions with respect to
the proxy statement issued by IXC Communication, Inc., in connection with a
merger between IXC and Ivory Merger, Inc., a wholly owned subsidiary of
Cincinnati Bell, Inc. ("CBI") (citations and footnotes to the record have been
omitted):
"1. The Proxy Statement Materially Misrepresents The Role
Played And Advice Given By IXC's Financial Advisors
In Connection With The Merger.
According to the proxy statement, the IXC Board relied upon
the financial advice and opinions of Morgan Stanley and Merrill Lynch
in approving the Merger. The proxy statement, however, makes several
misleading statements about the role played by IXC's financial advisors
in connection with the pursuit of strategic alternatives and the
evaluation of the CBI transaction.
First, the proxy statement states that IXC retained Morgan
Stanley to provide advice and a financial opinion in connection with
the Merger, pursuant to a letter agreement dated as of February 3,
1999. What the proxy statement fails to disclose is that the letter
agreement was backdated i.e., it was signed on July 20 or 21, 1999 but
defendants never changed the February 3, 1999 date that appeared on the
initial draft of the letter. In fact, the IXC Board did not approve the
retention of Morgan Stanley or of Merrill Lynch until after both
advisors had presented their respective oral opinions that, subject to
the limitations of the opinions, the exchange ratio to be used in the
Merger was fair to IXC's stockholders other than CBI.
Second, the proxy statement fails to disclose that neither
Morgan Stanley nor Merrill Lynch's opinions took into account as an
indicia of fairness or unfairness CBI's purchase of one half of
[General Electric Pension Trust's ("GEPT")] stock in IXC at $50 per
share.
Third, the proxy statement fails to disclose that Merrill
Lynch had been brought into the picture because the process had not
gone as well as IXC had hoped. Thus, despite telling shareholders that
Morgan Stanley had been advising IXC since February, IXC shut Morgan
Stanley out for much of May and June, and ultimately presented the CBI
deal to Morgan Stanley as a fait accompli. The issue of the size of
Morgan Stanley's fee was not finally addressed until the afternoon of
July 20, 1999. Morgan Stanley's fee was contingent on the value of the
deal, and Merrill Lynch was brought in to calm the Board's concerns
that Morgan Stanley might refuse to issue its opinion.
<PAGE> 2
Fourth, the proxy statement omits perhaps Morgan Stanley's
most important advice to IXC's directors. Morgan Stanley advised the
IXC directors, prior to the Board's approval of the Merger, that there
were companies who would make better strategic partners with IXC than
would CBI. Morgan Stanley even recommended as a course of action that
PSINet and [Company A](1) be contacted before the IXC Board voted on
the Merger Agreement, to see if either of those entities would offer a
transaction superior to the Merger. The IXC Board refused that request.
Neither Morgan Stanley's advice nor the Board's refusal to allow at the
time of the Merger its investment bankers to pursue potential
transactions superior to the Merger is disclosed in the proxy
statement.
2. The Proxy Statement Materially Misrepresents The
Board's Consideration Of The Merger
The proxy statement contains several serious misstatements
about the IXC's Board's decision making process, as well as the
interests of the directors who approved the Merger.
First, and perhaps most striking, is that the proxy
statement's section on "Interests of IXC Directors and Management in
the Merger" does not disclose (i) that Mr. Bragin, an IXC director, has
served since 1985 as Vice President of General Electric Investment
Corporation, a subsidiary of General Electric Company, which also is an
advisor to the Trustees of GEPT and (ii) that the Merger Agreement was
conditioned upon the GEPT Stockholders Agreement [between CBI and GEPT
(the "Stockholder Agreement")] which in turn was conditioned on CBI's
purchase of GEPT's IXC shares of $50 cash per share.
Second, the proxy statement does not disclose that Mr. Scott
was terminated as a director of the Company just days before the Board
considered the Merger Agreement. Of course, the proxy statement also
does not disclose the reason for the termination of Mr. Scott from the
Board prior to the Board's consideration of the Merger Agreement: i.e.,
that the presence of Mr. Scott, who believed that CBI's concerns over
IXC's cash position were exaggerated, might stir up emotion among the
directors. The stockholders are entitled to such information, and to
decide for themselves whether to draw the inference that Mr. Scott was
removed so that his views would not present an obstacle to the approval
of the Merger.
Third, the proxy statement states that one factor upon which
the IXC directors based their approval of the Merger was the decision
of Messrs. Swett and Irwin to "take all stock in the merger, believing
the potential upside in the stock price of the combined company
- --------
(1) Not identified for confidentiality reasons.
<PAGE> 3
outweighed the benefits of taking half the value of their shares in
cash." What the proxy statement fails to disclose is that Mr. Irwin has
a tax basis in his IXC stock of less than $5 per share; thus making
cash an unattractive choice for tax purposes, not because of the
expected profitability of the combined company. Why else would Messrs.
Irwin and Swett [Footnote: Mr. Swett's tax basis in his IXC stock has
still not been disclosed, but in light of his status as a co-founder of
[IXC] and his service to [IXC], he is likely to be similarly situated
to Mr. Irwin.] refuse an offer to receive a cash premium for their IXC
stock, which they could then have used to purchase more IXC shares in
the market prior to the Merger than they owned in the first place,
giving them an even greater stake in the combined company?
Fourth, the proxy statement identifies as a reason for
approving the Merger, the "high degree of compatibility in the
businesses of IXC and Cincinnati Bell". That statement, however, flatly
contradicts (i) the information the IXC Board received from its due
diligence team that the companies did not have any cost or revenue
synergies, and (ii) the advice of IXC's investment bankers that PSINet
and [Company A] both would have been better fits for IXC than was CBI.
Fifth, the proxy statement represents that the IXC directors'
approval of the Merger was based in part on the fact that General
Electric, considered by the IXC Board to be one of the most respected
institutional investors in the world, was in favor of the Merger and
would remain a stockholder of the combined company with approximately
10 million shares of stock on a fully diluted basis in the combined
company. That portion of the proxy statement, however, does not mention
that GEPT would not have agreed to the Stockholder Agreement upon which
CBI conditioned the Merger Agreement if it had not been able to sell
half of its IXC stock to CBI for a $50 cash premium. GEPT required as a
condition to the Merger Agreement that it be paid $50 in cash for half
of its IXC shares, in large part to accomplish a divestment of what
GEPT felt was too large of a position in IXC. Moreover, GEPT's
representative on the Board testified that he has no knowledge of what
GEPT's future plans are for its IXC holdings.
Sixth, the proxy statement suggests that the IXC Board based
its approval of the Merger in part on a belief that CBI had high
quality and depth in its management. What the proxy statement fails to
disclose is that IXC's directors were told by the Company's due
diligence team that one risk of the Merger was the lack of depth in
CBI's management. In addition, IXC's due diligence team informed the
Board that there were effectively no synergies in the combination.
Seventh, the proxy statement cites the "lack of alternatives
to the merger available to IXC and its stockholders and the lack of
other possible acquirers" as a factor considered by IXC's Board in
approving the transaction. Again, what the proxy statement fails to
disclose is that not only did Morgan Stanley advise IXC that at the
time of the Merger Agreement at least two potential strategic partners
were preferable to CBI,
<PAGE> 4
but that the IXC Board refused to contact or to authorize Morgan
Stanley to contact those entities or any other entities who had
previously expressed interest.
Eighth, the proxy statement identifies the following as price
factors considered by the IXC Board in approving the Merger: (i) the
Morgan Stanley and Merrill Lynch fairness opinions (limited as they
are), (ii) the "premium" that the exchange rate in the Merger offers
IXC stockholders above the market price of their shares prior to IXC's
announcement that it had hired Morgan Stanley "to pursue strategic
alternatives" [Footnote: In light of IXC's instructions forbidding
Morgan Stanley from soliciting interest in IXC, the term "pursue" is
itself misleading.] and (iii) the expected trading price of IXC stock
if the disappointing second quarter 1999 results were announced without
the concurrent announcement of the retention of Morgan Stanley. These
listed factors - as well as the statement that there was a lack of
alternative transactions to the Merger - are the purported reasons that
the IXC Board felt that the Merger price was fair and/or the best price
available to IXC. What the proxy statement fails to disclose, however,
is that:
(i) the IXC Board felt that the Company's stock was
undervalued;
(ii) in the negotiations preceding the execution of the
Merger Agreement, IXC had requested that CBI pay all
of the Company's stockholders the same cash price to
be received by GEPT;
(iii) in the same negotiations, IXC had sought a price of
$100 per share for all of the Company's stockholders;
and
(iv) following the announcement of the Merger and the
expected precipitous decline in CBI's stock price,
IXC repeated its request that all its stockholders be
paid the same cash price and that the price be raised
to $100 per share."
In addition, in the Joint Opening Brief, the plaintiffs refer to the
section appearing on page 20 of the proxy statement/prospectus entitled "The IXC
Special Meeting - Voting by IXC Directors and Executive Officers." The
plaintiffs allege:
"That disclosure is materially misleading for two reasons.
First, the statement that each director and executive has expressed his
or her intention to vote in favor of the Merger is false. IXC's
Chairman and Chief Executive Officer, Mr. Zrno, testified that he has
not expressed any intent as to how he will vote whatever stock he might
hold at the time of the special meeting and that he is unaware of any
officer or director other
<PAGE> 5
than Messrs. Swett and Irwin stating an intention to vote shares in
favor of the Merger.
Second, the statement that approximately 20% of IXC's common
stock outstanding is owned by directors or officers or affiliates of
directors and officers is almost certainly inaccurate and is without
doubt confusing. Messrs. Swett and Irwin and their affiliates
collectively own approximately 17% of IXC's common stock. GEPT, with
whom Mr. Bragin is affiliated, owns approximately 13% of the Company's
common shares outstanding. These three stockholders and their
affiliates alone account for approximately 30% of the Company's common
stock outstanding, thus putting the 20% figure into question. The proxy
statement, however, also suggests that the 20% of shares held by
executive officers and directors does not include Mr. Swett, Mr. Irwin
and GEPT. That interpretation is also problematic. If, in addition to
the 30% owned by GEPT and Messrs. Swett and Irwin, IXC's remaining
officers and directors and their affiliates own an additional 20%, then
approximately 50% of the Company's stock has been committed to or
intent has been expressed to vote and approve the Merger. Combined with
CBI's 13% stake, approval of the Merger would be assured. In any event,
at best, the calculations of shares owned or controlled by IXC officers
and/or directors or their affiliates is hopelessly confusing. Even Mr.
Zrno, a director and IXC's Chief Executive Officer, could not make any
sense of it."
<PAGE> 1
EXHIBIT 2.3
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN D. CRAWFORD, CAROLYN )
BAGBEY, RICK R. DAVIS, DONNA )
RAOUST, OLIVIER RAOUST, and DAVID )
GLENN TATUM SMITH, )
)
Plaintiffs, )
)
v. ) Civil Action
) No. 17334
)
CINCINNATI BELL, INC., an Ohio )
corporation, IXC COMMUNICATIONS, )
INC., a Delaware corporation, IVORY ) FILED UNDER
MERGER, INC., a Delaware corporation, ) SEAL
WOLFE H. BRAGIN, JOE C. CULP, CARL W. )
MC KINZIE, RALPH J. SWETT, )
PHILLIP L. WILLIAMS, BENJAMIN L. SCOTT, )
RICHARD D. IRWIN, JOHN M. ZRNO, )
)
)
Defendants. )
SECOND AMENDED AND SUPPLEMENTAL COMPLAINT
<PAGE> 2
Plaintiffs John D. Crawford, et al., by their attorneys, allege upon
knowledge as to themselves and their actions, and upon information and belief as
to all other matters, as follows:
THE PARTIES
1. Plaintiff John D. Crawford is, and at all relevant times has been, a
record stockholder of Defendant IXC Communications, Inc. ("IXC" or the
"Company"). Mr. Crawford currently controls approximately 880,000 shares of IXC
common stock, or about 2% of the Company's outstanding shares. Mr. Crawford is
the former president of IXC's retail division.
2. Plaintiffs Donna and Olivier Raoust own 32,835 shares of IXC common
stock.
3. Plaintiff Rick R. Davis owns 10,445 shares of IXC common stock.
4. Plaintiff David Glenn Tatum Smith owns 2,180 shares of IXC common
stock.
5. Plaintiff Carolyn Bagbey owns 200 shares of IXC common stock.
6. The individual named Plaintiffs above own in the aggregate 925,660
shares of IXC common stock, or approximately 2.5% of such shares outstanding.
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<PAGE> 3
7. IXC is a Delaware corporation headquartered in Austin, Texas. Through
its subsidiaries, IXC provides telecommunications services. IXC has a nationwide
fiber optic network and sells voice and data transmission services to
telecommunication companies. IXC's common stock is traded on NASDAQ. As of March
19, 1999, there were approximately 36,602,934 shares of IXC common stock issued
and outstanding.
8. Defendant Cincinnati Bell, Inc. ("Cincinnati Bell") is an Ohio
corporation whose core business is local telecommunication services.
9. Defendant Ivory Merger, Inc. ("Ivory") is a Delaware corporation and
a wholly owned subsidiary of Cincinnati Bell.
10. Defendant Benjamin L. Scott ("Scott") was President, Chief Executive
Officer and Chairman of the Board of IXC from 1997 until May 1999. In May 1999,
Scott was removed as President and Chief Executive Officer. On or about July 17,
1999 Scott was terminated as Chairman of the Board.
11. Defendant Richard D. Irwin ("Irwin") was a director of the Company
at all times relevant hereto. On or about July 17, 1999, he replaced Scott as
Chairman of IXC's Board of Directors.
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<PAGE> 4
12. Defendant John M. Zrno ("Zrno") replaced Scott as IXC's President
and Chief Executive Officer in May 1999. He has also been a director of IXC
since May 1999.
13. Defendant Wolfe H. Bragin ("Bragin") was a director of the Company
at all times relevant hereto and has served since 1985 as Vice President of
General Electric Investment Corporation, a subsidiary of General Electric
Company that acts as an advisor to the Trustees of the General Electric Pension.
14. Defendants Joe C. Culp, Carl W. McKinzie, Ralph J. Swett, and
Phillip L. Williams were each directors of the Company at all times relevant
hereto.
CLASS ACTION ALLEGATIONS
15. Plaintiffs bring this action on their own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all common stockholders of IXC, or their successors in interest, who are being
and will be harmed by Defendants' actions described herein (the "Class").
Excluded from the Class are Defendants, the General Electric Pension Trust
("GEPT"), and any person, firm, trust, corporation, or other entity related to
or affiliated with any of Defendants.
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<PAGE> 5
16. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are thousands of IXC stockholders who are located
throughout the United States.
b. There are questions of law and fact which are common to the
Class, including: (i) whether the Defendants have engaged or are engaging in a
manner calculated to benefit themselves or others at the expense of IXC
stockholders, (ii) whether the individual Defendants have breached their
fiduciary duties to the Class members, and (iii) whether Plaintiffs and the
other members of the Class would be irreparably damaged if the Defendants are
not enjoined as requested.
c. Plaintiffs' claims are typical of the claims of the other members
of the Class and plaintiffs have no interest that is adverse or antagonistic to
the interests of the Class.
d. Plaintiffs are committed to prosecuting this action and have
retained counsel competent and experienced in litigation of this nature. In
fact, as discussed hereafter, Plaintiff Crawford has prosecuted a related
action, Crawford v. IXC Communications, Inc., Del. Ch., C.A. No. 17189 (filed
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<PAGE> 6
May 28, 1999), demanding access to the books and records of the Company to
investigate, among other things, the actions of the individual Defendants in
response to offers to purchase the Company. Accordingly, Plaintiffs are adequate
representatives of the Class and will fairly and adequately protect the
interests of the Class.
e. The Defendants have acted -- and have refused to act -- on
grounds generally applicable to the Class. Thus, final injunctive relief on
behalf of the Class is appropriate.
f. Plaintiffs anticipate that there will be no difficulty in the
management of this litigation.
FACTUAL BACKGROUND
IXC RECEIVES ACQUISITION PROPOSALS
17. In early February 1999, IXC announced that it had retained
Morgan Stanley Dean Witter & Co. ("Morgan Stanley") to explore a possible sale
of the Company or a strategic partnership. The February 15, 1999 edition of
Mergers & Acquisitions Report cited analysts' reports that the Company was
"shopping itself for $80 per share, or roughly $3 billion ..." and that several
weeks prior to that date, an unidentified bidder had offered $60 per share. The
March 15 issue of Business Week reported that IXC would be sold "within weeks"
for $53 per share.
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<PAGE> 7
18. In the latter part of March 1999, when IXC was trading at
approximately $52 per share, Mr. Crawford called Benjamin L. Scott, IXC's
then-President and CEO, and was led to believe that the Company would be sold
within two weeks to sixty days. No such transaction materialized. Mr. Crawford
was also informed at various times by representatives of Merrill Lynch Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") that Mr. Scott and other officers
of IXC were meeting with representatives of RSL Corporation or other entities in
an effort to negotiate a merger. These negotiations, however, were unsuccessful.
According to Merrill Lynch, the negotiations failed because the IXC Board of
Directors was seeking a price of at least $70 per share for IXC's common stock,
while the Company's suitors, having realized that IXC was plagued with
ineffective management, were offering less.
19. The May 22, 1999 edition of the International Herald Tribune noted
that J.P. Morgan Securities had downgraded IXC's stock the previous week
following the Company's rejection of a number of acquisition proposals. The
Company's per share price eventually slid to the $30-$35 range. On approximately
May 28, 1999, Mr. Scott was replaced as CEO and President of IXC by Defendant
John Zrno.
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<PAGE> 8
MR. CRAWFORD'S ACTION PURSUANT TO 8 DEL. C. SECTION 220
20. On May 18, 1999 Mr. Crawford sent to the Company a written demand
pursuant to Section 220 of the Delaware General Corporation Law to inspect and
copy the stock ledger, stockholder list and all books and records of the Company
relating to proposed purchase offers made for IXC stock within the six month
period immediately preceding the date of the demand. The demand stated Mr.
Crawford's purpose -- to evaluate the advisability of any proposed transaction
as described above and to evaluate the response thereto by management and the
Board of Directors.
21. Although it never formally responded to the demand, the Company
refused Plaintiff's request. As a result, on May 28, 1999 the Plaintiff filed a
complaint pursuant to 8 Del. C. Section 220, Crawford v. IXC Communications,
Inc., Del. Ch. C.A. No. 17189 (the "Section 220 Action"). The Section 220 Action
is in the process of being settled. Pursuant to that settlement, Plaintiff
Crawford has received documents indicating that the Company did negotiate with
several suitors before entering a Merger Agreement with Cincinnati Bell (the
"Merger Agreement") and that the earlier suitors proposed transactions more
attractive to IXC's stockholders than the Merger Agreement.
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<PAGE> 9
IXC RECEIVES MULTIPLE PROPOSALS FOR BUSINESS COMBINATION TRANSACTIONS
22. According to the documents received by Plaintiff Crawford pursuant
to the Section 220 Action, IXC received proposals for business combinations from
at least four telecommunication companies prior to the Cincinnati Bell offer.
One of these entities represented that it was "prepared to provide your
shareholders with a significant premium to your stock's closing price of $45.06
on February 9, 1999." The prospective acquirer stated further that it was
"flexible with respect to the mix of consideration (cash and/or common stock) to
be received by your shareholders" and "welcome[d]" the Company's "input on what
would be most attractive to its [the IXC] shareholders."
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<PAGE> 10
23. Further documents obtained by Crawford in the Section 220 Action
show that another suitor proposed a stock-for-stock merger which it estimated to
have "a value of approximately $51 per IXC share or an approximate 42% premium
to the February 1 stock price when we initially proposed these economic terms."
This suitor also explained that, in addition to the $51 per share merger
consideration, IXC's stockholders would share in further value created by the
synergies between the companies:
Based on the work our teams have done together to identify revenue,
cost and capital synergies, IXC shareholders would share a potential
value of creation with the present value of approximately $3.4
billion or $40.00 per IXC share. As a result, we believe our
proposal would deliver value to the IXC shareholders far in excess
of any current implied value from the exchange ratio.
24. Further documentation received by Plaintiff Crawford in the Section
220 Action reveals that on February 8, 1999 another suitor proposed a
transaction in which IXC's stockholders would have been paid in the range of $60
per share. Several months later, on May 12, 1999, the same suitor offered to pay
in the $50 per share range to IXC's common stockholders, a price that itself
substantially exceeds the current value of the merger consideration in the
Cincinnati Bell transaction.
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<PAGE> 11
25. The proposals discussed above did not constitute final offers.
Rather, the individual Defendants had the opportunity to negotiate an even
higher value for IXC stockholders than the amounts originally put forward by the
bidders for the Company.
26. Unfortunately, the individual Defendants not only failed to act
appropriately in connection with the proposals described above, but approved a
Merger Agreement with Cincinnati Bell that is designed specifically to preclude
any of the other suitors from re-entering the bidding process.
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<PAGE> 12
THE DEFENDANTS APPROVE AN INADEQUATE (AND TWO TIERED) OFFER
27. On or about July 21, 1999, IXC announced the Merger Agreement. Under
the Agreement, Cincinnati Bell's wholly owned subsidiary, Ivory Merger, Inc.
("Ivory") will merge with and into the Company (the "Merger"). Following the
Merger, the Company will be a wholly owned subsidiary of Cincinnati Bell. Two of
IXC's directors, John Zrno and Richard Irwin, will join the Cincinnati Bell
board. Cincinnati Bell's Chief Executive Officer, Richard Ellenberger, will
become president and CEO of the new, combined company. Each share of IXC stock
- -- other than those accorded illegal special treatment -- will be converted at a
fixed exchange ratio of 2.0976 shares of Cincinnati Bell common stock. Based on
the July 20 closing price for Cincinnati Bell of $23.56, the transaction would
have been valued by IXC at approximately $3.2 billion, or $49.43 per share
(including assumed debt). The purchase price for shares held by the public
stockholders is not protected by a collar, i.e. there is no agreed minimum per
share price. Thus, if the price of Cincinnati Bell stock decreases
precipitously, the public stockholders of IXC will receive a correspondingly
lower value in exchange for their IXC shares.
28. The absence of minimum price protection is particularly harmful
here, where Cincinnati Bell itself expected the price of its common stock to
plummet upon
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<PAGE> 13
announcement of the Merger. In order to cushion the anticipated blow to its
stock price, Cincinnati Bell agreed to issue $400 million of convertible
subordinated debentures to Oak Hill Capital Partners, LP, an investment
partnership founded by Robert M. Bass ("Oak Hill"). J. Taylor Crandall of Oak
Hill will become a member of Cincinnati Bell's Board of Directors. In addition,
Cincinnati Bell's directors have authorized using up to $200 million of the
proceeds from the Oak Hill investment to repurchase stock in an open market
share repurchase program. Not surprisingly, however, the anticipated decline in
the price of Cincinnati Bell stock--and the resulting decline in value of the
Merger consideration to the public stockholders of IXC--did materialize.
Specifically, on the day that the Merger was announced, the market price per
share of Cincinnati Bell stock dropped $3.75 to $19.8125, resulting in an over
15% decrease in the value of the Merger consideration to IXC's public
stockholders.
29. IXC's largest stockholder, GEPT, however, did not agree to accept
the same terms to be received by IXC's other stockholders in the Merger. Rather,
GEPT, which owned approximately 26% of the Company's outstanding shares at the
time that the Merger Agreement was negotiated, and which had (and still has) a
representative on the Company's board --
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<PAGE> 14
Mr. Bragin -- negotiated a higher, guaranteed price of $50 cash per share for
half of its IXC holdings, negotiations memorialized in a Stock Purchase
Agreement dated as of July 20, 1999 (the "GEPT Stock Purchase Agreement").
30. Cincinnati Bell afforded GEPT preferential treatment in order to
procure GEPT's approval of the transaction. The Merger is subject to the
majority stockholder approval of both companies. The proposed purchase of GEPT's
vote along with its shares poisons the voting process for IXC's stockholders.
Approximately twenty-six percent of the shares voted will be voted by Cincinnati
Bell through its purchase of approximately one-half of GEPT's IXC shares and
through Cincinnati Bell's purchase of GEPT's vote of its remaining IXC stock
pursuant to a Stockholder Agreement dated as of July 20, 1999 (the "GEPT
Stockholders Agreement"). That vote, however, will purport to bind the remaining
IXC shareholders to a transaction different from that entered into with GEPT --
one for lower consideration.
31. Defendants Swett and Irwin entered into a similar stockholders
agreement, also dated the same day as the Merger Agreement, whereby Messrs.
Swett and Irwin agreed to vote 5,995,706 shares of IXC controlled by them in
favor of the Merger.
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<PAGE> 15
32. Thus, including GEPT, shareholders representing approximately 40% of
the outstanding shares of IXC have committed to vote their shares in favor of
the Merger.
33. Moreover, the Merger Agreement is designed to deter potential
suitors from making competing bids. For example, Section 4.03 of the Merger
Agreement contains a "No Solicitation" provision that is striking in breadth.
Section 4.03 not only prohibits IXC or its agents from soliciting alternative
transactions to the Merger, but prohibits IXC or its agents from even discussing
an unsolicited proposal with any suitor other than Cincinnati Bell.
34. If IXC violates the prohibition against discussions or solicitations
and instead enters into an alternative IXC Acquisition Agreement, Cincinnati
Bell will be entitled not only to terminate the Merger Agreement, but to collect
a $105 million termination fee, exercise a stock option to purchase IXC shares
that could yield a profit to Cincinnati Bell of up to $26.25 million and sue for
further damages against IXC or others.
35. The net effect of these provisions is to render any proposal for an
alternative to the Cincinnati Bell transaction prohibitively expensive.
Accordingly, the Merger Agreement has effectively locked up IXC and is
preventing the Company from receiving any further solicitations of interest.
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<PAGE> 16
36. On or about September 14, 1999, IXC distributed to its stockholders
the proxy statement prospectus (the "proxy statement") in connection with the
special stockholders meeting to vote on the Merger. The proxy statement contains
numerous material misstatements and omissions that preclude an informed
shareholder vote.
37. The proxy statement misstates the number of shares owned by holders
who have committed to--or stated an intention to--vote in favor of the
Merger. By suggesting that approval of the Merger is a foregone conclusion, the
proxy statement discourages votes against the Merger.
38. The proxy statement also makes misleading statements about the
advice that IXC received from its financial advisors, Morgan Stanley and Merrill
Lynch. Contrary to what is represented in the proxy statement, the IXC Board did
not approve the retention of Morgan Stanley or of Merrill Lynch until after both
advisors had presented their respective oral opinions. The proxy statement also
fails to disclose that neither Morgan Stanley nor Merrill Lynch's opinions took
into account, as an indicia of fairness or unfairness, Cincinnati Bell's
purchase of one half of GEPT's stock in IXC at $50 per
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<PAGE> 17
share. Third, the proxy statement omits that Morgan Stanley advised the IXC
directors, prior to the Board's approval of the Merger, that Morgan Stanley
believed that there were companies who would make better strategic partners with
IXC than would Cincinnati Bell.
39. The proxy statement also contains serious misstatements about the
IXC Board's decision making process, as well as the interests of the directors
who approved the Merger:
a. The proxy statement section on "Interests of IXC's Directors and
Management in the Merger" does not disclose (i) that Mr. Bragin, an IXC
director, has served since 1985 as Vice President of General Electric Investment
Corporation, a subsidiary of General Electric Company, which also is an advisor
to the Trustees of GEPT and (ii) that the Merger Agreement was conditioned upon
the GE Stockholders Agreement which in turn was conditioned on Cincinnati Bell's
purchase of GEPT shares for $50 cash.
b. The proxy statement does not disclose that Mr. Scott was
terminated as a director of the Company just days before the Board considered
the Merger Agreement.
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<PAGE> 18
c. The proxy statement states that one factor upon which the IXC
directors based their approval of the Merger was the decision of Messrs. Scott
and Irwin to "take all stock in the merger, believing the potential upside in
the stock price of the combined company outweighed the benefits of taking half
the value of their shares in cash." What the proxy statement fails to disclose
is that Mr. Irwin has a tax basis in his IXC stock of less than $5 per share;
thus making cash an unattractive choice for tax purposes, not because of the
expected profitability of the combined company.
d. The proxy statement represents that the IXC directors' approval
of the Merger was based in part on the fact that General Electric, considered by
the IXC board of directors to be one of the most respected institutional
investors in the world, was in favor of the merger and would remain stockholder
of the combined company with approximately 10 million shares of stock on a fully
diluted basis in the combined company. That portion of the proxy statement,
however, does not mention that GEPT insisted on being paid $50 in cash for half
of its IXC shares, in large part to accomplish a divestment of what GEPT felt
was too large of a position in IXC.
e. The proxy statement suggests that the IXC Board based its
approval of the Merger in part on a belief that Cincinnati Bell had high quality
and depth in its management. What the proxy statement fails to disclose is that
IXC's directors were told by the Company's due diligence team that one risk of
the Merger was the lack of depth in Cincinnati Bell's management.
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<PAGE> 19
f. The proxy statement cites the "lack of alternatives to the merger
available to IXC and its stockholders and the lack of other possible acquirers"
as a factor considered by IXC's Board in approving the transaction. Again, what
the proxy statement fails to disclose is that not only did Morgan Stanley advise
IXC that at the time of the Merger Agreement at least two potential strategic
partners preferable to Cincinnati Bell were still available, but that the IXC
Board refused to allow Morgan Stanley to contact those entities.
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<PAGE> 20
g. The proxy statement identifies the following as price factors
considered by the IXC Board in approving the Merger: (i) the Morgan Stanley and
Merrill Lynch fairness opinions the Company received from Morgan Stanley and
Merrill Lynch, (ii) the "premium" that the exchange rate in the Merger offers
IXC stockholders above the market price of their shares prior to IXC's
announcement that it had hired Morgan Stanley "to pursue strategic alternatives"
and (iii) the expected trading price of IXC stock if disappointing second
quarter 1999 results were announced without the concurrent announcement of the
Merger. What the proxy statement fails to disclose, however, is that:
(i) in the negotiations preceding the execution of the Merger
Agreement, IXC had requested that CINCINNATI BELL pay all of
the Company's stockholders the same cash price to be received
by GEPT;
(ii) in the same negotiations, IXC had sought a price of $100 per
share for all of the Company's stockholders; and
(iii) following the announcement of the Merger and the expected
precipitous decline in CINCINNATI BELL's stock price, IXC
repeated its request that all its stockholders be paid the
same cash price and that the price be raised to $100 per
share.
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<PAGE> 21
SUMMARY OF CLAIMS ASSERTED
40. The individual Defendants breached their fiduciary duties by
committing the Company to a merger with Cincinnati Bell that provides IXC
stockholders, other than GEPT, inferior value than that identified in proposals
received from at least two earlier bidders.
41. The proposed acquisition is unfair to members of the Class. The
consideration to be paid to IXC's public stockholders does not reflect the full
value of the Company's assets. For example, the proposed acquisition does not
take into account the Company's increased earnings potential resulting from its
planned 18,000 mile next-generation fiber network providing services to
telecommunications providers and internet service providers. The inadequacy of
the Merger price to be paid to the IXC stockholders is also demonstrated by the
higher offers that had earlier been reported in the investment community. In
addition, the guaranteed $50 cash per share price guaranteed to GEPT is evidence
that the remaining stockholders of IXC are receiving an inadequate price for
their stock. In fact, Richard Ellenberger, Cincinnati Bell's Chief Executive
Officer, tacitly conceded that an arm's length negotiator would not accept the
price currently offered to the IXC stockholders other than GEPT when he
disclosed that the purpose of Cincinnati Bell's according special treatment to
GEPT was to insure that the transaction would go through. To put it another way,
GEPT insisted upon receiving $50 in cash to support the Merger, while the other
stockholders received an uncertain value in Cincinnati Bell stock.
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<PAGE> 22
42. The stockholder vote on the Merger will be unfair to IXC's public
stockholders other than GEPT: First, while GEPT will be receiving a guaranteed
$50 per share for one-half of its common stock, it will be casting its 26%
position as a vote that would bind the remaining public stockholders to a
different, lower price, that GEPT itself was unwilling to accept. Second, IXC's
stockholders will base their voting decision on a materially misleading proxy
statement.
43. The individual Defendants have breached and are breaching their
fiduciary duties to Plaintiff and to the other members of the Class by
permitting Cincinnati Bell to attempt to purchase approval of the proposed
Merger from GEPT in exchange for preferential treatment and by approving on
IXC's behalf a Merger that will pay the public shareholders of IXC an inadequate
price, while providing for different and better consideration to GEPT.
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<PAGE> 23
44. Cincinnati Bell and Ivory have aided and abetted the individual
Defendants' breaches of fiduciary duties. Cincinnati Bell and Ivory were each
aware that the price offered to the Company's public stockholders in the Merger
was inadequate, as illustrated by Cincinnati Bell and Ivory's agreement to pay
GEPT a higher price than the public stockholders in order to garner GEPT's vote
to approve the Merger. Moreover, Cincinnati Bell and Ivory insisted that IXC's
directors "agree" to the unlawful termination fee, stock option and no-talk
provisions of the Merger Agreement.
45. Plaintiff and the other members of the Class will be irreparably
harmed unless the proposed transaction is enjoined. Absent injunctive relief,
the individual defendants -- aided and abetted by Cincinnati Bell and Ivory --
will continue to breach their fiduciary duties owed to Plaintiffs and the
members of the Class by, among other things, causing IXC to consummate a merger
with Cincinnati Bell that is unfair to IXC's public stockholders. In addition,
IXC will lose the opportunity to sell itself in transactions at higher -- and
fairly apportioned -- prices while potential bidders are discouraged by the
pending merger with Cincinnati Bell and the "no solicitation" and termination
provisions in the Merger Agreement.
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<PAGE> 24
46. Plaintiffs and the other members of the Class have no adequate
remedy at law.
WHEREFORE, Plaintiffs pray for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying Plaintiffs as the Class representatives;
B. Declaring that Defendants have breached their fiduciary and other
duties to Plaintiffs and the other members of the Class;
C. Preliminarily and permanently enjoining the Defendants and their
counsel, agents, employees and all persons acting under, in concert with or for
them, from proceeding with the violations complained of above, by:
(i) preliminarily and permanently enjoining the proposed Merger;
(ii) preliminarily and permanently enjoining the IXC stockholder
vote on the Merger;
(iii) declaring the no-talk, stock option and termination fee
provisions of the Merger Agreement void and enjoining their enforcement; and
(iv) declaring that IXC and its directors and shareholders have an
absolute right to receive, consider and accept any alternative offers to the
Merger.
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<PAGE> 25
D. Awarding compensatory and/or rescissory damages against
Defendants individually and severally in an amount to be determined at trial,
together with prejudgment interest at the maximum rate allowable by law;
E. Awarding costs and disbursements, including Plaintiffs' counsel's
fees and experts' fees; and
F. Granting such other and further relief as to the Court may seem
just and proper.
ASHBY & GEDDES
-----------------------------------
Stephen E. Jenkins
Richard D. Heins
Philip Trainer, Jr.
One Rodney Square
P.O. Box 1150
Wilmington, DE 19899
(302) 654-1888
Attorneys for Plaintiffs
Dated: October 13, 1999
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