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)
CINCINNATI BELL INC.
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(Exact name of registrant as specified in its charter)
Ohio 1-8519 31-1056105
------------ ------------ ------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Identification
organization) Number) Number)
201 East Fourth Street
Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip Code)
(513) 397-9900
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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 CBI does not believe that the decision is
applicable to the Merger or the Merger Agreement, CBI 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. CBI
does not believe that
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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.
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
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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.
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.
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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] 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.
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.
- ------------------
1 Not identified for confidentiality reasons.
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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.
o As of September 22, 1999, the record date for the IXC
stockholders meeting:
- 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.
- GEPT owned approximately 10% of the IXC common stock and
is committed to vote for the adoption of the Merger
Agreement.
- 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.
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- The share ownership of these individuals and entities was:
Approximate
percentage
of IXC
IXC common common
Name or Entity stock Owned stock owned
-------------- ----------- -----------
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%
=========== ===
o 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.
-----------------
* Indicates ownership of less than 1% of IXC common stock
outstanding on September 22, 1999.
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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.
CINCINNATI BELL INC.
by:
/s/ Thomas E. Taylor
--------------------------------
Name: Thomas E. Taylor
Title: General Counsel and
Secretary
Date: October 14, 1999
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Exhibit Index
Exhibit No. Exhibit
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
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such IXC Superior Proposal and (iii) keep CBI 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
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discussions relating to such CBI Superior Proposal 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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IN WITNESS WHEREOF, CBI, Sub and IXC have caused this Agreement 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: Sr. Vice President,
General Counsel and
Secretary
4
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 Communications, Inc. ("IXC"), 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
<PAGE>
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.
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]2 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 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's Directors and Management in the Merger"
does not disclose (i) that Mr. Bragin, an IXC
----------------
2 Not identified for confidentiality reasons.
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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 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?
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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
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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, 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
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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 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
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Chief Executive Officer, could not make any sense of it."
7
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
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.
<PAGE>
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.
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
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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.
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,
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corporation, or other entity related to or affiliated with any of Defendants.
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
May 28, 1999), demanding access to the books and records of the Company to
investigate, among other things, the actions of
4
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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.
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
5
<PAGE>
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.
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
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<PAGE>
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. ss. 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.
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
7
<PAGE>
"welcome[d]" the Company's "input on what would be most attractive to its [the
IXC] shareholders."
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.
8
<PAGE>
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.
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
9
<PAGE>
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 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.
10
<PAGE>
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 -- 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
11
<PAGE>
Agreement, whereby Messrs. Swett and Irwin agreed to vote 5,995,706 shares of
IXC controlled by them in favor of the Merger.
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
12
<PAGE>
has effectively locked up IXC and is preventing the Company from receiving any
further solicitations of interest.
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
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
same cash price and that the price be raised to $100 per
share.
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
17
<PAGE>
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.
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.
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
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<PAGE>
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.
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;
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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.
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
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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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