UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 16, 1997
SHARED TECHNOLOGIES FAIRCHILD INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-17366 87-0424558
(Commission File Number) (IRS Employer Identification No.)
100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 258-2400
N.A.
(Former name or former address, if changed since last report)
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Item 5. Other Events
On November 17, 1997, Shared Technologies Fairchild Inc. (the "Company")
received an unsolicited offer (the "Offer") from Intermedia Communications
Inc.("Intermedia") pursuant to which Intermedia has to offered to buy all of the
outstanding common stock of the Company at $15.00 per share. Holders of the
Series D Preferred Stock, Series I 6% Convertible Preferred Stock and the Series
J Redeemable Special Preferred Stock would receive $15.00, $251.49 and $109.59,
respectively, pursuant to the Offer. The board of directors of the Company is
considering the Offer and is discussing the terms thereof with Intermedia.
On November 17, 1997, Intermedia commenced an action in Chancery Court of
Delaware, New Castle County, seeking injunctive and declaratory relief against
the Company, its Directors, Tel-Save Holdings, Inc., and TSHCo., Inc.,
Intermedia Communications, Inc., et al. v. Shared Technologies Fairchild Inc.,
et al. C.A. No. 16038. The action, among other things, seeks to enjoin the
Tel-Save Merger, the enforcement of the break-up fees provision under the Merger
Agreement and the Long-Distance Agreement.
Item 7. Financial Statements and Exhibits
(c) Exhibits. The following is a list of the Exhibits attached hereto.
Exhibit No. 99.1 Letter from Intermedia proposing merger transaction
dated November 17, 1997
Exhibit No. 99.2 Complaint filed by Intermedia in Chancery Court of
Delaware, New Castle County, seeking injunction and
declaratory relief against the Company, its Directors,
Tel-Save Holdings, Inc., and TSHCo., Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 18, 1997
SHARED TECHNOLOGIES
FAIRCHILD INC.
By: /s/ Vincent Di Vincenzo
-----------------------------------
Name: Vincent Di Vincenzo
Title: Senior Vice President-
Administration and Finance
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Exhibit Index
Exhibit No. Description
(99.1) Letter from Intermedia proposing merger transaction
dated November 17, 1997
(99.2) Complaint filed by Intermedia in Chancery Court of Delaware, New
Castle County, seeking injunction and declaratory relief against
the Company, its Directors, Tel-Save Holdings, Inc., and TSHCo.,
Inc.
Exhibit 99.1
November 17, 1997
Mr. Anthony D. Autorino
Chairman and Chief Executive Officer
Shared Technologies Fairchild, Inc.
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
Dear Mr. Autorino:
Over the past year, Intermedia Communications Inc. ("ICI") consistently has
expressed an interest in a business combination between ICI and Shared
Technologies Fairchild, Inc. ("STF"). We were greatly disappointed when STF
entered into a merger agreement with Tel-Save Holdings, Inc. ("Tel-Save"), and
continue to believe that a business combination between ICI and STF makes more
sense for STP and its stockholders than the proposed merger with Tel-Save.
Accordingly, ICI hereby offers to acquire STF by means of a merger in which
the holders of common stock of STF would receive $15.00 per share, net to such
holders, in cash. In such merger, the holders of the STF Series D Preferred
Stock, the Series I 6% Cumulative Convertible Preferred Stock and the Series J
Redeemable Special Preferred Stock would receive $15.00, $251.49 and $109.59 per
share in cash, respectively. Outstanding options and warrants would be
cashed-out at the value of the option "spread". ICI is prepared to enter into a
merger agreement with STF containing substantially the same representations,
warranties, covenants and conditions as the merger agreement with Tel-Save,
except that the consideration to be offered to STF's stockholders would be as
set forth in this letter. We have enclosed execution counterparts of a merger
agreement (the "Merger Agreement") and a stock option agreement (the "Stock
Option Agreement") to be executed by certain stockholders of STF.
This offer has been approved by our Board of Directors and is subject to
approval by your Board of Directors, the termination of the existing merger
agreement with Tel-Save, the execution of the Merger Agreement by STF, the
execution of the Stock Option Agreement by certain stockholders of STF and the
receipt of all required antitrust and other regulatory approvals. ICI has
sufficient cash on hand to fund the merger, and therefore this offer is not
contingent upon receipt of financ-
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ing or the registration of securities. This offer is not contingent upon any
additional due diligence by ICI.
Our offer represents a 25.65% premium to STF's closing stock price on
November 14, 1997. The transaction is valued at approximately $365,670,000, a
premium of $81,320,000 (or $3.18 per share of STF common stock) to the market's
current valuation of the proposed acquisition of STF by Tel-Save.
We believe that our proposed transaction is in the best interests of STF
and its stockholders. STF's stockholders would receive a substantial premium in
a transaction with ICI over the proposed transaction with Tel-Save. Our offer is
clearly a superior proposal to the proposed Tel-Save transaction. You owe it to
your stockholders to consider it.
In light of the STF stockholders meeting currently scheduled for December
1, 1997, we should meet immediately in order to discuss our offer in detail. In
view of the firm nature of our offer, we have been advised by counsel that we
are required to make a public announcement of this offer, and expect to do so
today. If not previously accepted by you, our offer will expire at 8:00 a.m.,
New York time, on November 25, 1997.
I look forward to hearing from you, and to working with you on this
transaction.
Sincerely yours,
/s/ David C. Ruberg
----------------------------------
David C. Ruberg
President, Chief Executive Officer and
Chairman Intermedia Communications Inc.
cc: Jeffrey J. Stiner
Mel D. Borer
Thomas H. Decker
William A. DiBella
Vincent DiVincenzo
Natalia Hercot
Ajit G. Hutheesing
Jo McKenzie
Donald E. Miller
James J. Clark, Esq.
EXHIBIT 99.2
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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)
INTERMEDIA COMMUNICATIONS, INC., )
)
Plaintiff, )
)
- against - )
) C.A. No. 16038
SHARED TECHNOLOGIES FAIRCHILD, )
INC., ANTHONY D. AUTORINO, MEL D. )
BORER, THOMAS H. DECKER, WILLIAM )
A. DiBELLA, VINCENT DiVINCENZO, )
NATALIA HERCOT, AJIT G. HUTHEESING, )
JO McKENZIE, DONALD E. MILLER, )
JEFFREY STEINER, TEL-SAVE )
HOLDINGS, INC. AND TSHCo, INC., )
)
Defendants.
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VERIFIED COMPLAINT FOR INJUNCTIVE RELIEF
AND DECLARATORY JUDGMENT
Plaintiffs, Intermedia Communications, Inc. ("ICI"), and Moonlight
Acquisition Corp. ("Moonlight"), by their undersigned attorneys, as and for
their complaint herein, allege, upon knowledge with respect to themselves and
their own actions, and upon information and belief with respect to all other
matters, as follows:
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NATURE OF THE ACTION
1. On November 17, 1997, ICI delivered a letter and proposed merger
agreement to the Chairman and Chief Executive Officer of Shared Technologies
Fairchild, Inc. (STF), in which it offered to acquire STF through a cash merger
(the ICI Offer"). Under the proposed merger, STF stockholders would receive $15
in cash for each outstanding share of STF common stock. The ICI Offer is not
subject to any financing contingencies.
2. The ICI Offer is a superior alternative to the proposed acquisition of
STF by defendants Tel-Save Holdings, Inc. ("Tel-Save") and TSHCo, Inc.
(11TSHColl), pursuant to an Agreement and Plan of Merger dated as of July 16,
1997, (the "Tel-Save Merger Agreement"), which, if consummated today, would
provide STF stockholders with only approximately $11.82 worth of Tel-Save stock
for each share of STF common stock (the "Tel-Save Proposal" or the "Tel-Save
Merger"). A copy of the Tel-Save Merger Agreement is annexed hereto as Exhibit
A. A copy of the amended registration statement that Tel-Save filed with the
Securities and Exchange Commission on or about October 30, 1997, which contains
the Joint Proxy Statement filed by
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Tel-Save and STF in connection with the Tel-Save Merger, is annexed hereto as
Exhibit B.
3. The board of directors of STF has approved the Tel-Save Proposal and
recommended that the STF stockholders approve the Tel-Save Proposal at an STF
stockholders meeting to vote on that proposal, which currently is scheduled to
commence at 9:00 a.m. EST on December 1, 1997. Ex. B at 3-4. A Tel-Save
stockholders meeting, at which the Tel-Save stockholders will also vote on the
Tel-Save proposal, is scheduled for the same date and time.
4. The ICI Offer, which is approximately $3.18 (or 27 percent) higher (per
share of STF common stock) than the Tel-Save Proposal, offers the STF
stockholders the highest value reasonably available for their shares. The STF
directors have a fiduciary duty to STF stockholders to obtain the highest value
reasonably available for STF shares, and are therefore required to consider and
pursue the ICI Offer, to recommend the ICI Offer to the STF Stockholders, and to
take action to avoid consummating the Tel-Save Merger.
5. If the STF and Tel-Save stockholders approve the Tel-Save Proposal at
their respective shareholders meetings on
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December 1, 1997, the Tel-Save Merger can be consummated immediately after those
meetings. Absent immediate equitable intervention by this Court, the Tel-Save
Merger may be consummated notwithstanding the superior ICI Offer, the STF
stockholders may not be given the chance to consider the ICI Offer, and the STF
stockholders will lose the opportunity to receive the highest value reasonably
available in connection with the disposition of their STF stock.
6. Indeed, the STF directors have taken several steps intended to
discourage more favorable offers. The Tel-Save Merger Agreement provides that if
the STF directors determine that their fiduciary duties require them to
terminate the TelSave Merger Agreement to pursue a superior offer (a "Company
Superior Proposal"), STF must pay Tel-Save a "Termination Fee" of $15 million,
within two business days. Ex. A at 57.
7. A "Company Superior Proposal" is defined in the Tel-Save Merger
Agreement to mean:
any bona fide proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of [STF]
Common Stock and [STF] Preferred Stock then outstanding or all or
substantially all the assets of [STF] and otherwise on terms that the
Board of Directors of [STF] determines in its good faith judgment
(based on
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the advice of a financial advisor of nationally recognized reputation)
to be more favorable to [STF's] stockholders than the [Tel-Save]
Merger.
Id. at 47.
8. In addition, under a related agreement between STF and Tel-Save,
Tel-Save would also have the right to purchase up to three million shares of STF
common stock at $11.25 per share (the "Tel-Save Option Agreement"), a copy of
which is Exhibit C hereto. The net effect of this option is that, in order to
obtain the highest value reasonably available for the STF stockholders by
pursuing a Company Superior Proposal, STF would have to pay Tel-Save the
difference between the price per share of the Company Superior Proposal and the
option price of $11.25. For example, at the ICI offer of $15 per share ($3.75
above the option price), STF would have to pay Tel-Save an additional $11.25
million dollars (in addition to the $15 million Termination Fee) as part of a
break-up fee. Tel-Save could require that this payment be made as early as three
business days after STF terminated the Tel-Save Merger Agreement.
9. The aggregate "termination" payments would thus exceed $26 million, (or
9 percent) of the equity value of the Tel-Save Merger, which is approximately
$284 million.
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10. Further, in a transparent and wilful last-minute maneuver to deter and
disadvantage competing and better offers for STF, on Friday, November 14, 1997,
STF and Tel-Save announced that on November 13, 1997, they had entered into an
agreement pursuant to which STF committed, for a five-year period, to purchase
at least 85 percent of its long-distance telecommunications services from
Tel-Save (the "Long-Distance Agreement"). The Long-Distance Agreement requires
STF to make minimum annual payments to Tel-Save (the "Minimum Payments"),
amounting to $105 million over the term of the agreement. If STF terminates the
Long-Distance Agreement prior to the end of its term "without cause", it is
required to pay Tel-Save a penalty of 50 percent of the total Minimum Payments
due for the remaining years of the Long-Distance Agreement, or as much as $52.5
million. This alone amounts to 18 percent of the equity value of the Tel-Save
Proposal.
11. In light of the Tel-Save/STF merger planned for December 1, 1997, there
is no legitimate business purpose whatsoever for STF to enter into this
Agreement. Its sole purpose is to make STF less valuable in the eyes of other
potential acquirers.
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12. A substantial part of the interest in STF of ICI, Tel-Save, and other
potential acquirers who sell long-distance services is the savings that can be
achieved by the synergies .that would result from combining with STF. The
Long-Distance Agreement, which requires STF to purchase such services from
TelSave (and imposes a draconian penalty if STF terminates the agreement before
the end of the five-year term), eliminates a very large part of those synergies.
Thus, as a result of the Long-Distance Agreement, the value of STF to
third-parties has been significantly reduced.
13. The Termination Fee, the Tel-Save Option Agreement, and the
Long-Distance Agreement agreed to by the STF directors were designed to
discourage competitive bidding for STF, and to prevent STF stockholders from
receiving the highest value reasonably available for their shares. Taken
together, they impose penalties on STF and in favor of Tel-Save amounting to 27
percent of the equity value of the Tel-Save Proposal.
14. Accordingly, ICI brings this action to, among other things, (a) obtain
a declaration that the STF directors' fiduciary duties require them to pursue
the ICI Offer and not to consummate the Tel-Save Merger, (b) enjoin STF and the
STF directors from breaching their fiduciary duties by consummating
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the Tel-Save Merger, (c) require the STF directors to recommend the ICI Offer to
the STF stockholders, and (d) enjoin Tel-Save from seeking to collect and/or
enforce the Termination Fee, the Tel-Save Option Agreement, and the
Long-Distance Agreement.
THE PARTIES
15. Plaintiff ICI is a Delaware corporation with its principal place of
business in Tampa, Florida. ICI is a rapidly growing provider of integrated
communications services, offering a full range of such services to business and
government customers, long distance carriers, Internet service providers,
resellers, and wireless communications companies. ICI is currently the
third-largest company in the class of providers generally referred to as
"competitive local exchange carriers." ICI is a beneficial owner for its own
account of approximately 130,000 shares of STF common stock.
16. Plaintiff Moonlight is a Delaware corporation and a wholly-owned
subsidiary of ICI. Moonlight was created for the sole purpose of consummating a
merger of STF with and into Moonlight, after which STF would be the surviving
corporation and would continue as a wholly-owned subsidiary of ICI.
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17. Defendant STF is a Delaware corporation with its principal place of
business in Wethersfield, Connecticut. STF provides shared telecommunication
services and telecommunications systems to tenants of modern, multi-tenant
office buildings.
18. Defendants Anthony D. Autorino, Jeffrey J. Steiner, Mel D. Borer,
Thomas H. Decker, William A. DiBella, Vincent DiVincenzo, Natalia Hercot, Ajit
G. Hutheesing, Jo McKenzie, and Donald E. Miller are directors of STF and owe
fiduciary duties to STF and its stockholders.
19. Defendant Tel-Save is a Delaware corporation with its principal place
of business in New Hope, Pennsylvania. Tel-Save provides long-distance
telecommunications services to small and medium-sized businesses throughout the
United States.
20. Defendant TSHCo is a Delaware corporation and a wholly-owned subsidiary
of Tel-Save. TSHCo was created by TelSave for the sole purpose of consummating
the merger of STF with and into TSHCo, after which TSHCo would be the surviving
corporation and would continue as a wholly-owned subsidiary of Tel-Save.
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FACTUAL BACKGROUND
A. STF Looks For A Buyer
21. Beginning in the second half of 1996, STF has "explored the possibility
of either a sale of STF or a strategic merger with a third party in the
telecommunications industry." Ex. B at 40. In the course of seeking an acquiror,
STF pursued, negotiated, considered, and analyzed various transactions,
including at least one proposed cash sale of the company. Id. at 40-41.
22. STF, through its financial advisor CS First Boston Corporation,
initiated the marketing process by approaching ICI in the fall of 1996 and
soliciting a bid from ICI for the acquisition of STF. ICI made a bid at $12 per
share, payable in ICI stock. STF rejected this bid, ostensibly because it was
concerned with the illiquidity of ICI's stock, ICI's highly leveraged capital
structure, and the need for ICI to obtain bondholder approval for the
transaction. Ex. B at 40.
23. In January 1997, STF's board likewise solicited a bid from WilTel
Communications LLC, and informed WilTel that STF was seeking an offer in excess
of $10 per share. Id. at 41.
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24. In March 1997, STF solicited a further bid from ICI. Id.
25. In June 1997, after some discussions between the companies, STF
received a bid from Providence Equity Partners of .$9 per share, entirely in
cash. STF rejected Providence's offer on the grounds that it was too low. Id.
26. In May 1997, Salomon Brothers, which had had relationships with both
Tel-Save and STF, informed Tel-Save that STF was "in the process of exploring
strategic alternatives." In June, STF and Tel-Save began discussions, and
Tel-Save submitted a bid for STF, using Tel-Save stock as consideration. Id. at
33.
27. On July 14-15, 1997 following STF's public announcement that it was
engaged in-discussions for a sale or merger of STF, STF received, considered,
and negotiated a competing bid from ICI, for ICI's purchase of STF for $12 per
share entirely in cash, entirely in stock, or partially in cash and partially in
stock. ICI's bid was rejected purportedly because of STF's concerns about ICIs
stock and because it was subject to contingencies. Id. at 34-35.
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B. The Tel-Save Merger Agreement
28. On July 16, 1997, Tel-Save, TSHCo, and STF entered into the Tel-Save
Merger Agreement, which provides that, upon the approval of the merger proposal
by the stockholders of STF and Tel-Save, STF would be merged with and into
TSHCo, with TSHCo continuing as the surviving corporation and as a wholly-owned
subsidiary of Tel-Save.
29. The Tel-Save Merger Agreement provides a mechanism for the conversion
of STF stock into Tel-Save stock. In substance, for each share of STF common
stock outstanding, STF stockholders would receive Tel-Save common stock valued
at the sum of $11.25 plus 30 percent of the amount by which the "Closing Date
Market Price" of Tel-Save common stock exceeds $20 per share. The Closing Date
Market Price is defined as the average trading price of Tel-Save common stock
over the fifteen consecutive trading days ending on the trading day three
trading days immediately prior to the date of the merger. The Tel-Save Merger
Agreement also provides for the exchange of STF preferred stock, as well as STF
options and STF warrants, for Tel-Save stock, options, and warrants,
respectively. Finally, one class of STF preferred stock, which, pursuant to its
terms, is redeemable upon a change in control of STF, would be re-
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deemed for about $21.9 million in cash. Ex. A at 3-12 and Ex. B at 46.
30. At the average trading price of Tel-Save common stock for the 15
consecutive trading days ending Friday, November 14, 1997, STF stockholders
would receive $11.82 worth of Tel-Save common stock for each share of STF common
stock they own.
31. The Tel-Save Merger Agreement also provides that if the Tel-Save Merger
is consummated, defendants Steiner and Autorino, who are currently directors of
STF and who approved the Tel-Save Proposal and recommended it to the STF
stockholders, automatically will become directors of Tel-Save.
32. The Tel-Save Merger, if consummated, would effect a change in control
of STF. STF will become a wholly-owned subsidiary of Tel-Save. STF's current
shareholders will, in the aggregate, own approximately 15 percent of Tel-Save's
shares. Ex. B at 6. Tel-Save, however, will continue to be effectively
controlled by one person -- Mr. Daniel Borislow. Mr. Borislow, who owns about 38
percent of Tel-Save's common stock, is also Tel-Save's Chairman and Chief
Executive Officer.
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33. Mr. Borislow's effective control over Tel-Save is acknowledged in the
Proxy Statement:
As of October 8, 1997, Mr. Borislow owned beneficially approximately
38.01% of the outstanding Tel-Save Common Stock. Accordingly, Mr.
Borislow may have the ability to control the election of all the
members of the Tel-Save Board of Directors and the outcome of corporate
actions requiring majority stockholder approval. Even as to corporate
transactions in which super-majority approval may be required, such as
certain fundamental corporate transactions, Mr. Borislow may have the
ability to control the outcome of such actions. It is anticipated that
Mr. Borislow will continue to be the single largest beneficial owner of
Tel-Save Common Stock after the issuance of Tel-Save Common Stock upon
consummation of the [Tel-Save] Merger, although his ownership
percentage will be reduced.
Ex. B at 27.
34. In its proxy statement, STF states that, in negotiating with Tel-Save,
"[r]epresentatives of STF [ ] advised Tel-Save that it would only sign an
agreement that contained a satisfactory provision permitting the STF Board to
terminate any merger agreement if it deemed it necessary to do so in order to
fulfill its fiduciary obligations to STF's stockholders." Ex. B at 35.
35. Thus, section 8.6(a) of the Tel-Save Merger Agreement provides that STF
shall not participate in discussions or negotiations regarding any "Company
Takeover Proposal"
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(i.e., a takeover offer other than the Tel-Save Proposal) unless, in connection
with an unsolicited Company Takeover Proposal, and prior to the STF stockholders
meeting at which the Tel-Save Proposal would be voted on, the STF directors
determine that participating in such discussions or negotiations is necessary to
comply with their fiduciary duties to STF stockholders. Ex. A at 45-46.
36. Further, section 8.6(b) of the Tel-Save Merger Agreement provides that
the STF directors shall not (i) withdraw or modify their approval or
recommendation of the Tel-Save Proposal or the Tel-Save Merger Agreement, (ii)
approve or recommend any Company Takeover Proposal, or (iii) cause STF to enter
into any agreement related to any Company Takeover Proposal. However, section
8.6(b) also provides that if, prior to the STF stockholders meeting, the
directors determine that their fiduciary duties require them to do so, they may
withdraw their approval or recommendation of the Tel-Save Proposal or the
Tel-Save Merger Agreement, (ii) approve or recommend a Company Superior
Proposal, or (iii) terminate the Tel-Save Merger Agreement, and if they so
choose, cause STF to enter into an agreement related to a Company Superior
Proposal. Id. at 46-47.
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C. The ICI Offer Is A Company Superior Proposal
37. The ICI Offer is a cash merger. ICI is offering $15 in cash for each
share of STF common stock outstanding. The price paid for STF convertible
preferred stock will be determined by calculating the number of shares of STF
common stock it is convertible into, and multiplying that number by the offering
price of $15. The price paid for STF preferred redeemable stock will be its
stated redemption price.
38. The ICI Offer is $3.18 per share (or 27 percent) higher than the
Tel-Save Proposal, and provides the STF stockholders with greater value for
their STF stock than the TelSave Proposal. The ICI Offer is a Company Superior
Proposal within the meaning of the Tel-Save Merger Agreement.
39. The STF directors have a fiduciary duty to act in the best interests of
STF stockholders. In particular, because the STF directors had been actively
"shopping" STF since last year, and because the Tel-Save Proposal represents a
sale of control of STF, the STF directors have a fiduciary duty to STF
stockholders to obtain the highest value reasonably available for the STF
stockholders. That value is the $15 per share offered to STF stockholders in the
ICI offer.
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D. The STF Directors Have Taken Steps That Are Intended To Discourage Superior
Offers For STF
40. As described above, STF states that it insisted on a provision in the
Tel-Save Merger Agreement that permitted STF to terminate that agreement if it
deemed it necessary to do so in order to fulfill its fiduciary obligations to
STF's stockholders, i.e., to pursue a Company Superior Proposal. However, to
discourage this possibility, the Tel-Save Merger Agreement prohibits STF from
soliciting other offers, and only allows the STF directors to comply with their
fiduciary duties if they received an unsolicited offer.
41. Further, and in violation of their fiduciary duties to the STF
stockholders, the STF directors agreed to two terms in the Tel-Save Proposal
that would require STF to pay TelSave an unreasonable break-up fee if STF were
to terminate the Tel-Save Merger Agreement to pursue a Company Superior
Proposal. In essence, this is a payment by STF to Tel-Save for the STF directors
compliance with their fiduciary duties to STF stockholders.
42. First, if STF terminates the Tel-Save Merger Agreement to pursue a
Company Superior Proposal (such as the ICI Offer), Section 10.2(b) of that
agreement requires STF to
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pay Tel-Save a Termination Fee of $15 million within two business days of
termination. Ex. A at 57.
43. Second, under the terms of the Tel-Save Option Agreement, if STF
terminates the Tel-Save Merger Agreement under circumstances which require STF
to pay the Termination Fee, Tel-Save would have the right to purchase three
million shares of STF common stock from STF for $11.25 per share (the minimum
price under the Tel-Save Proposal). Ex. C at 1.
44. The Tel-Save Option Agreement discourages superior proposals that would
maximize the value for STF stockholders. Under that agreement, the greater the
amount by which a Company Superior Proposal exceeds the minimum price per share
of the TelSave Proposal -- i.e., the more consideration STF stockholders would
receive for their shares -- the more money STF has to pay Tel-Save for accepting
the Company Superior Proposal. This is because, as a practical matter, Tel-Save
would receive an amount of cash equal to the difference between the price per
share of the Company Superior Proposal and the Tel-Save Option Agreement
exercise price of $11.25 per share for the three million shares subject to the
option. Under the Tel-Save Option Agreement, TelSave can require that STF make
this
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payment as early as three business days after termination of the Tel-Save Merger
Agreement.
45. The Termination Payment and the Tel-Save Option Agreement
(collectively, the "Break-Up Fees") are unreasonable in proportion to the
consideration being offered to STF stockholders under the Tel-Save Proposal. The
Break-Up Fees bear no relation to the costs incurred by Tel-Save in connection
with the Tel-Save Proposal, and are the product of the STF directors' breach of
their fiduciary duty. They therefore are unenforceable. For example, under the
terms of the ICI Offer, the Break-Up Fees in total would be $26.25 million
dollars. The market value being offered for STF's equity (i.e., shares of STF
common stock and shares of STF preferred stock that are convertible into STF
common stock) under the Tel-Save Proposal is approximately $284 million. The
size of the Break-Up Fees -- 9 percent of the Tel-Save Proposal -- is
unreasonable, especially when considered in light of the diminution in value of
STF to potential acquirors resulting from the Long-Distance Agreement.
46. The Long-Distance Agreement represents yet a further attempt to repel
competing offers. On Friday, November 14, 1997, Tel-Save and STF announced that
on November 13,
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1997, they had entered into the Long Distance Agreement, pursuant to which STF
committed, for a five-year period, to purchase at least 85 percent of its
long-distance telecommunications services from Tel-Save. The Long-Distance
Agreement requires STF to make annual Minimum Payments to Tel-Save in amounts
ranging from $15 million to $27 million, and totaling $105 million. If STF
terminates the Long-Distance Agreement before the end of its term "without
cause", it must pay Tel-Save a penalty of 50 percent of the total Minimum
Payments due for the remaining years of the Long-Distance Agreement.
47. If the Long-Distance Agreement were terminated today, STF would thus be
required to pay Tel-Save a penalty in excess of $50 million.
48. When Tel-Save and STF entered into the Long-Distance Agreement,
defendants believed that ICI was still interested in acquiring STF, and might
shortly make a superior offer for STF.
49. There is no legitimate business purpose whatsoever for the
Long-Distance Agreement. If the Tel-Save Merger is consummated on December 1, as
Tel-Save and STF expected, STF
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would be merged into a wholly-owned subsidiary of Tel-Save. The Long-Distance
Agreement would be entirely unnecessary.
50. The sole purpose of the Long-Distance Agreement is to make STF less
attractive to other parties interested in acquiring STF, and, in particular,
ICI, which like Tel-Save, is a provider of long-distance services. From ICI's
perspective, a great deal of the value of a combination with a company like STF
are the synergies that could be realized from such a combination, with ICI
providing the long-distance services that the STF business requires. The
Long-Distance Agreement eliminates a large part of those synergies because it
would require ICI or any other acquiror to buy from Tel-Save the very services
that it could, and otherwise would, provide to STF.
51. By eliminating the synergies that a competitor of Tel-Save could
realize by merging with STF, the Long-Distance Agreement has diminished the
value of STF in the eyes of potential merger partners and has deprived the STF
stockholders of their right to obtain the highest value reasonably available for
their shares. By entering into the Long-Distance Agreement, the STF directors
further breached their fiduciary duties to STF stockholders.
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52. At the time it entered into the Tel-Save Merger Agreement and the
Tel-Save Option Agreement, Tel-Save knew that the STF directors had a fiduciary
duty to the STF stockholders and that the directors were breaching that duty by
agreeing to the Termination Fee provision in the Tel-Save Merger Agreement and
by entering into the Tel-Save Option Agreement.
53. At the time it entered into the Long-Distance Agreement, Tel-Save knew
that the STF directors had a fiduciary duty to the STF stockholders and that the
directors were breaching that duty by entering into the Long-Distance Agreement.
E. The Voting Agreements
54. Finally, as a condition of entering into the Merger Agreement, Tel-Save
required three STF stockholders -- RHI Holdings, Inc., J.J. Cramer & Co., and
Anthony Autorino -- each to enter into an agreement (collectively, the "Voting
Agreements"), pursuant to which they agreed to vote their STF common stock in
favor of the Tel-Save Merger and the Tel-Save Merger Agreement, and against any
proposal or transaction involving STF or Tel-Save that would interfere with, or
result in a breach of any agreement with respect to, the Tel-Save Merger,
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the Tel-Save Merger Agreement, or any of the transactions contemplated thereby..
Subsequently, Tel-Save entered into an identical Voting Agreement with a fourth
STF stockholder, Mentor Partners, L.P. Ex. B at 63-64.
55. As a result of these Voting Agreements, which, in the aggregate, cover
approximately 53 percent of the outstanding shares of STF, sufficient votes have
been locked up to guarantee that the STF stockholders will approve the Tel-Save
Merger Proposal if that proposal is brought to a stockholder vote. Id. at 5.
56. By their terms, the Voting Agreements terminate in the event that any
of the parties terminate the Tel-Save Merger Agreement. Id. at 64. Thus, if
pursuant to section 8.6(b) of that agreement the STF directors determine that
their fiduciary duties require them to terminate the Tel-Save Merger Agreement
and do so, the Voting Agreements terminate. However, as long as the Tel-Save
Merger Agreement remains in effect, the Voting Agreements guarantee approval of
the Tel-Save Proposal and the defeat of any and all other proposals.
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IRREPARABLE INJURY
57. If defendants are not enjoined as prayed herein, the Tel-Save Merger
may be consummated on or about December 1, 1997. Plaintiffs ICI and Moonlight
may be deprived of a unique business opportunity -- the opportunity to enter
into a business combination with STF. In addition, STF's stockholders will be
deprived of their fundamental right to receive the highest value reasonably
available for their shares.
58. Damages for these losses cannot be readily calculated, and, in any
event, would far exceed any amounts which could be recovered from individual
directors.
59. Thus, absent equitable relief from this Court, plaintiffs will be
irreparably harmed.
60. Further, absent injunctive relief, if the STF directors, as a result of
the ICI Offer, terminate the Tel-Save Merger Agreement, STF would be required to
pay Tel-Save over $26 million in break-up fees. The $15 million Termination Fee
would have to be made within two business days of termination; the $11.25
million payment under the Tel-Save Option Agreement may (at Tel-Save's election)
be payable as early as three business days after termination. The damages caused
by these pay-
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ments would far exceed any amounts which could be recovered from individual
directors.
61. Thus, absent equitable relief from this Court, plaintiffs will be
irreparably harmed.
62. Plaintiffs have no adequate remedy at law.
COUNT ONE
(Declaratory and Injunctive Relief)
63. Plaintiffs repeat and reallege each and every allegations set forth
above in paragraphs 1-62.
64. STF's directors have a fiduciary duty to the STF stockholders to obtain
the highest value reasonably available for the STF stock, and not to approve or
allow a merger that is not the best transaction available to the stockholders.
That duty arises from the basic fiduciary duties of directors to act for the
benefit of their stockholders, and, additionally, because the STF directors have
actively sought a purchaser for STF and because the Tel-Save Merger will result
in a change in control of STF. The directors' fiduciary duty includes the
obligation to focus upon the immediate value of the Tel-Save Proposal, the ICI
Offer (and any other alternative transactions
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available), and to only approve a transaction based on full information as to
all the alternatives, and to obtain for the stockholders the highest value
reasonably available.
65. The ICI Offer offers the STF stockholders the highest value reasonably
available for their shares, and is superior to the Tel-Save Proposal currently
supported by STF's directors.
66. Accordingly, STF's directors have a fiduciary duty to consider and to
support consummation of the ICI Offer, and to prevent consummation of the
Tel-Save Merger.
67. Plaintiffs seek a declaration from this Court that the ICI Offer is a
Company Superior Proposal and that the STF directors have a fiduciary duty to
STF's stockholders to:
(a) participate in negotiations regarding the ICI Offer;
(b) withdraw their approval and recommendation of the Tel-Save Merger;
(c) terminate the Tel-Save Merger Agreement; and
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(d) approve and recommend the ICI Offer to the STF stockholders.
68. Plaintiffs also seek injunctive relief:
(a) requiring the directors to withdraw their approval and recommendation
of the Tel-Save Merger, and to terminate the Tel-Save Merger Agreement; and
(b) (i) enjoining STF and its directors from taking any steps to consummate
the Tel-Save Merger pending this Court's determination whether the ICI Offer is
a Company Superior Proposal and whether the directors have a fiduciary duty to
participate in negotiations regarding the ICI Offer, to withdraw their approval
and recommendation of the Tel-Save Merger, to terminate the Tel-Save Merger
Agreement, and to approve and recommend the ICI Offer to the STF stockholders;
or, alternatively, (ii) enjoining STF and its directors from taking any steps to
consummate the Tel-Save Merger until the Board withdraws its approval and
recommendation of the Tel-Save Merger and gives the STF stockholders the
opportunity to approve the ICI Offer, and enjoining enforcement of the Voting
Agreements; and
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(c) preventing STF and its Board from taking any actions that impede, delay
or otherwise interfere with the ICI Offer; and
(d) preventing Tel-Save and TSHCo from aiding and abetting such actions.
COUNT TWO
(Declaratory and Injunctive Relief)
69. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1-68.
70. The Break-Up Fees (i.e., the Termination Fee and the Tel-Save Option
Agreement) and the Long-Distance Agreement were intended to discourage proposals
for STF that offer STF stockholders more value for their shares than the
Tel-Save Proposal.
71. The Break-Up Fees, which, in the case of the ICI offer, would require a
payment to Tel-Save in an amount equal to about 9 percent of the equity value of
the Tel-Save Proposal, are unreasonable, especially when considered in light of
the diminution in value of STF to potential acquirers resulting from the
Long-Distance Agreement.
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72. There was no valid business purpose whatsoever for STF to enter into
the Long-Distance Agreement.
73. By agreeing to the Break-Up Fees and the Long-Distance Agreement in
order to discourage offers that would allow STF stockholders to receive the
highest value reasonably available for their shares, the STF directors breached
their fiduciary duties.
74. Plaintiffs seek a declaration from this Court that the STF directors
breached their fiduciary duties by agreeing to the Break-Up Fees and the
Long-Distance Agreement and that the Break-Up Fees and Long-Distance Agreement
are therefore unenforceable, and injunctive relief prohibiting Tel-Save from
seeking to collect and/or enforce the Break-Up Fees and the Long-Distance
Agreement.
COUNT THREE
(Declaratory Relief)
75. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1-74.
76. STF's stockholders benefit from free, open and unfettered competitive
bidding in the face of a proposed acqui-
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sition of STF, and will benefit from being given the opportunity to consider the
ICI Offer. In fact, the Tel-Save Proposal expressly contemplates the possibility
of a Company Superior Proposal such as the ICI Offer by allowing STF to
terminate the Tel-Save Merger Agreement if the STF board receives such a
proposal. The STF stockholders are also entitled to know what opportunities are
available to them at the time that they cast their votes.
77. Accordingly, the ICI Offer does not constitute and should not be deemed
to be tortious interference, or any other business-related tort, in connection
with the Tel-Save Proposal.
78. Plaintiffs seek a declaration from this Court that the ICI Offer does
not constitute tortious interference, or any other business-related tort, in
connection with the Tel-Save Proposal.
WHEREFORE, plaintiffs respectfully request that this Court enter judgment
against all defendants, and all persons in active concert or participation with
them, as follows:
(A) declaring that the ICI Offer is a Company Superior Proposal and that
the STF directors have a fiduciary duty
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to STF's stockholders to (i) participate in negotiations regarding the ICI
Offer; (ii) withdraw their approval and recommendation of the Tel Save Proposal;
(iii) terminate the Tel-Save Merger Agreement; and (iv) approve and recommend
the ICI Offer to the STF stockholders;
(B) requiring the STF directors to withdraw their approval and
recommendation of the Tel-Save Proposal, and to terminate the Tel-Save Merger
Agreement;
(C) (i) enjoining STF and its directors from taking any steps to consummate
the Tel-Save Merger pending this Court's determination whether the ICI Offer is
a Company Superior Proposal and whether the directors have a fiduciary duty to
participate in negotiations regarding the ICI Offer, to withdraw their approval
and recommendation of the Tel-Save Merger, to terminate the Tel-Save Merger
Agreement, and to approve and recommend the ICI Offer to the STF stockholders;
or, alternatively, (ii) enjoining STF and its directors from taking any steps to
consummate the Tel-Save Merger until the Board withdraws its approval and
recommendation of the Tel-Save Merger and gives the STF stockholders the
opportunity to approve the ICI Offer, and enjoining enforcement of the Voting
Agreements;
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(D) enjoining STF and its directors from taking any actions that impede,
delay or otherwise interfere with the ICI offer;
(E) enjoining Tel-Save and TSHCo from aiding and abetting any such actions;
(F) declaring that the STF directors breached their fiduciary duties by
agreeing to the Break-Up Fees and the Long-Distance Agreement and that the
Break-Up Fees and Long-Distance Agreement are therefore unenforceable;
(G) enjoining Tel-Save from seeking to collect and/or enforce the Break-Up
Fees and the Long-Distance Agreement;
(H) declaring that the ICI Offer does not constitute tortious interference,
or any other business-related tort, in connection with the Tel-Save Proposal;
(I) granting damages for all incidental injuries suffered as a result of
defendants' unlawful conduct;
(J) if the Tel-Save Merger is consummated prior to the entry of this
Court's final judgment, awarding plaintiffs damages in an amount to be
determined at trial;
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(K) if the STF directors terminate the Tel-Save Merger Agreement to pursue
the ICI Offer, and STF pays Tel-Save the Break-Up Fees in connection with the
termination, awarding plaintiffs damages in an amount to be determined at trial;
(L) awarding plaintiffs the costs and disbursements of this action,
including attorneys' fees; and
(M) granting plaintiffs such other and further relief as the Court deems
just and proper.
RICHARDS, LAYTON & FINGER, P.A.
Thomas A. Beck
Daniel A. Dreisbach
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
(302) 658-6541
Attorneys for Plaintiffs
Of Counsel:
KRONISH, LIEB, WEINER & HELLMAN LLP
1114 Avenue of the Americas
New York, New York 10036
(212) 479-6000
Dated: November 17, 1997
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VERIFICATION
STATE OF FLORIDA )
) ss.:
COUNTY OF HILLSBOROUGH )
Robert M. Manning, being duly sworn, deposes and says:
1. I am Senior Vice President, Chief Financial Officer, and Secretary of
Intermedia Communications, Inc. ("ICI"), a corporation organized under the laws
of Delaware and a plaintiff in this action. I have read the foregoing complaint
and know the contents thereof to be true based on my own knowledge and ICI's
records, except as to matters alleged upon information and belief, and as to
those matters, I believe them to be true.
ROBERT M. MANNING
Sworn to before me this
__ day of November, 1997
