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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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TAAM ASSOCIATES, :
:
Plaintiff, :
:
-against- : Civil Action No. 18291NC
:
INTERMEDIA COMMUNICATIONS :
INC., DAVID C. RUBERG, PHILIP :
A. CAMPBELL, JOHN C. BAKER, :
GEORGE F. KNAPP, JACK E. :
REICH, MARK K. SHULL, ROBERT :
M. MANNING, RICHARD A. :
JALKUT, DIGEX, INC. and :
WORLDCOM, INC. :
:
Defendants. :
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CLASS ACTION COMPLAINT
Plaintiff, by its attorneys, alleges upon information and belief,
except at to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Taam Associates is a shareholder of defendant Digex,
Inc. ("Digex").
2. Defendant Digex is a Delaware corporation with principal
executive offices located at One Digex Plaza, Beltsville, Maryland 20705. Digex
provides website hosting services to business and organizations implementing
complex, interactive websites and web-based applications.
3. Defendant Intermedia Communications Inc. ("Intermedia" or the
"Company") is a Delaware corporation with
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principal executive offices located at One Intermedia Way, Tampa, Florida 33647.
Intermedia provides integrated communications services, including local, long
distance, high-speed date and Internet services, to business and government
customers. Intermedia owns approximately 62.0% of Digex's outstanding shares and
controls approximately 94.2% of the voting interest in Digex.
4. Defendant WorldCom, Inc. ("WorldCom") is a Georgia corporation with
principal executive offices located at 500 Clinton Center Drive, Clinton,
Mississippi 39056. WorldCom provides a broad range of communications,
outsourcing, and managed network services world wide. WorldCom regularly
conducts business in the State of Delaware.
5. Defendant David C. Ruberg is the Chairman of Intermedia's Board of
Directors and Intermedia's President and Chief Executive Officer. Ruberg is also
the Chairman of Digex's Board of Directors.
6. Defendant Philip A. Campbell is a Director of Intermedia and a Director
of Digex.
7. Defendant John C. Baker is a Director of Intermedia and a Director of
Digex.
8. Defendant George F. Knapp is a Director of Intermedia and a Director of
Digex.
9. Defendant Jack E. Reich is a Director of Digex.
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10. Defendant Mark K. Shull is a Director of Digex and the President and
Chief Executive Officer of Digex.
11. Defendant Robert M. Manning is a Director of Digex and the Chief
Financial Officer of Intermedia.
12. Defendant Richard A. Jalkut is a Director of Digex.
13. The individual defendants, as officers and/or directors of Digex, and
Intermedia, as controlling shareholder of Digex, have a fiduciary relationship
and responsibility to plaintiff and the other public shareholders of Digex and
owe to them the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action on its own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common shareholders of Digex, or their successors in interest, who are being
and will be harmed by defendants' actions described below (the "Class").
Excluded from the Class are defendants herein and any person, firm, trust,
corporation, or other entity related to or affiliated with any of defendants.
15. 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 hundreds of Digex shareholders
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of record and many more beneficial owners who are located throughout the United
States.
b. There are questions of law and fact which are common to the
Class, including: whether Intermedia has acted in a manner calculated to
benefit itself at the expense of Digex's public shareholders; and whether
plaintiff and the other members of the Class would be irreparably damaged if
Intermedia is not enjoined from committing the wrongs complained of herein.
c. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
d. Defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief
with respect to the Class as a whole; and
e. The prosecution of separate actions by individual members of the
Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
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individual members of the Class which would as a practical matter be
dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their
interests.
CLAIM FOR RELIEF
16. Digex provides storage for corporate websites, and its clients
include Ford Motor Co., J.P. Morgan & Co., and Martha Stewart Living Omnimedia
Inc. Intermedia sells basic phone and Internet services, and faces stiff
competition from BellSouth Corp. in its primary markets.
17. In July, 1997, Intermedia bought Digex for approximately $150 million
cash, and thereafter sold Digex stock to the investing public in July, 1999 and
again in February, 2000. Intermedia currently owns approximately 62.0% of
Digex's outstanding shares and controls approximately 94.2% of the voting
interest in Digex.
18. Digex stock has significantly outperformed Intermedia. As recently as
August 3, 2000, Digex stock jumped 13% after Digex raised revenue projections
for 2000 and 2001. Specifically, Digex announced that second quarter 2000 sales
more than tripled, and Digex raised its 2000 sales projections by 10% to $165
million for 2000 and $300 million for 2001, compared to less than $60 million
in 1999 sales. Intermedia stock, by contrast has dropped 41 percent this year,
and it recently announced that its
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2000 sales would be 10 to 15 percent lower than analyst expectations.
19. As result of the decline in the market price of Intermedia's stock
and the upswing in the market price of Digex stock, as well as Intermedia's
approximately $2.4 billion in debt, the market capitalization of Intermedia as
whole ($1.2 billion), was significantly less than Intermedia's stake in Digex
($3.3 billion).
20. Intermedia hired investment bankers at Bear, Stearns & Co. to explore
options for Digex, including a sale. Intermedia put Digex up for sale in July,
2000, and received several offers for Digex, including one from Exodus
Communications Inc. ("Exodus") at $120 per Digex share, representing a
significant premium for Digex stock, which had traded recently in the mid-$80
range.
21. To rescue Intermedia from its financial woes, however, defendants
refused to sell Digex alone and instead insisted that buyers acquire Intermedia
instead.
22. On September 5, 2000, Intermedia and WorldCom jointly announced that
the Boards of Intermedia, WorldCom and Digex had each approved a definitive
merger agreement whereby WorldCom would acquire all of the outstanding shares
of Intermedia common stock for $39 of WorldCom common stock, subject to a
collar (the "Merger"). The Merger represents a 70% premium for Intermedia
shares based on the closing price before the announcement.
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23. Following the announcement of the merger agreement with WorldCom --
which the Digex Board had approved -- the media reported that Intermedia had
rejected Exodus' $120 per share offer for Digex alone.
24. In reaction to the announcement of the Merger, the Digex stock price
plummeted, losing nearly 20% of its value over the next day, closing at $67.875
per share -- far below the $120 per share offered by Exodus. Intermedia shares,
however, rose 38% in response to the announcement.
25. The Wall Street Journal reported that analysts downgraded Digex stock
on the announcement, since the Merger would provide immediate benefit only to
Intermedia shareholders, but not to Digex shareholders.
26. The Merger offers no benefit for Digex or its shareholders.
27. Intermedia, acting through and/or with the support of the individual
defendants, has appropriated for itself the benefits of a transaction that, in
reality, represents WorldCom's acquisition of control over Digex. The only
reason for WorldCom to do the Merger at all is to acquire Digex.
28. According to Worldcom's Chief Executive, Bernard Ellers, ("Ellers"),
as reported in the September 6, 2000 Wall Street Journal, Worldcom plans to sell
non-Digex assets of
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Intermedia in order to pay down Intermedia debt Worldcom is assuming under the
Merger.
29. Ellers stated that controlling Digex would accelerate Worldcom's
capability by 12 to 18 months to be in the lucrative managed web hosting market.
30. Defendants have clear and material conflicts of interest and are
acting to further their own interests at the expense of Digex's public
shareholders.
31. Intermedia, with the acquiescence of the individual defendants, is
engaging in self-dealing and not acting in good faith toward plaintiff and the
other members of the Class. By reason of the foregoing, Intermedia, Digex and
the individual defendants have breached and are breaching their fiduciary
duties to the irreparable harm of the members of the Class.
32. As a party to the Merger, WorldCom is aware of the breaches of
fiduciary duty by Intermedia and the individual defendants, and has thereby
aided and abetted in the wrongs complained of herein.
33. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
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B. Preliminarily and permanently enjoining Defendants and all persons
acting in concert with them, from proceeding with, consummating or closing the
contemplated transaction;
C. In the event the contemplated transaction is consummated, rescinding it
and setting it aside or awarding rescissory damages to the Class;
D. Directing defendants to account to Class members for their damages
sustained as a result of the wrongs complained of herein;
E. Awarding plaintiff the costs of this action, including a reasonable
allowance for plaintiff's attorneys' and experts' fees; and
F. Granting such other and further relief as to the Court may seem just and
proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/ Norman M. Monhait
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919 North Market Street
Suite 1401, Mellon Bank Center
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ, LLP
10 East 40th Street
New York, NY 10016
(212) 779-1414
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