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Exhibit 99.8
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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CRANDON CAPITAL PARTNERS, :
Derivatively And On Behalf :
Of Digex, Inc., :
:
Plaintiff, :
:
v. :
: Civil Action N. 18310
DAVID C. RUBERG, PHILIP A. CAMPBELL :
JOHN C. BAKER, GEORGE F. KNAPP, :
MARK K. SHULL, ROBERT M. : FILED
MANNING, and INTERMEDIA :
COMMUNICATIONS, INC., : 00 SEP 12 P4:04
:
Defendants. : REGISTRER IN CHANCERY
: DIANNE M. KEMPSKI
and :
:
DIGEX, INC., :
:
Nominal Defendant. :
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DERIVATIVE COMPLAINT
Plaintiff, by its attorneys, alleges upon personal knowledge as to
their own acts and upon information and belief as to all other matters, as
follows:
1. Plaintiff brings this action derivatively on behalf of Digex,
Inc. ("Digex" or the "Company") for injunctive and other relief. Plaintiff seeks
injunctive relief herein, inter alia, to enjoin the implementation of a
transaction whereby WorldCom Inc. ("WorldCom") has agreed to buy defendant
Intermedia Communications, Inc. ("Intermedia"), the 54% owner of Digex, for
approximately $6 billion in stock and debt in order to gain control of Digex and
to enjoin the agreement to waive Section 203 of Delaware General Corporation
Law. Intermedia had put Digex up for sale and had received several offers,
including one offer from Exodus
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Communications, Inc. ("Exodus") to purchase Digex for $120 per share,
representing a significant premium for Digex stock, which had been trading in
the mid-$80 range. However, Intermedia refused to sell Digex alone and insisted
that buyers acquire Intermedia instead, thereby usurping Digex's corporate
opportunity for itself. Intermedia and Digex's Board of Directors, half of whom
are also Intermedia Board members, suffer from a conflict of interest and
divided loyalties and have breached their fiduciary duty of loyalty to Digex by
permitting Intermedia to usurp Digex's corporate opportunity, approving the
WorldCom transaction and approving a waiver of Section 203 of the Delaware
General Corporation Law against the recommendation of Digex's special committee.
PARTIES
2. Plaintiff is a shareholder of Digex and has been a shareholder
during the period when defendants breached their duties and committed the acts
alleged herein.
3. Nominal Defendant Digex is a Delaware corporation with principal
executive offices located at One Digex Plaza, Beltsville, Maryland 20705. Digex
provides website hosting services to business and organizations implementing
complex, interactive websites and web-based applications.
4. Defendant Intermedia is a Delaware corporation with principal
executive offices located at One Intermedia Way, Tampa, Florida 33647.
Intermedia provides integrated communications services, including local, long
distance, high-speed data and Internet services, to business and government
customers. Intermedia owns approximately 54% of Digex's outstanding shares and
controls approximately 94.2% of the voting interest in Digex. Intermedia also
controls the Digex Board of Directors through its ownership and voting interest.
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5. Defendant David C. Ruberg is the Chairman of Digex's Board of
Directors. He is also Chairman of Intermedia's Board of Directors and
Intermedia's President and Chief Executive Officer.
6. Defendant Philip A. Campbell is a Director of Digex and a
Director of Intermedia.
7. Defendant John C. Baker is a Director of Digex and a Director of
Intermedia.
8. Defendant George F. Knapp is a Director of Digex and a Director
of Intermedia.
9. Defendant Mark K. Shull is a Director of Digex and the President
and Chief Executive Officer of Digex.
10. Defendant Robert M. Manning is a Director of Digex and the Chief
Financial Officer of Intermedia.
SUBSTANTIVE ALLEGATIONS
11. Digex provides storage for corporate websites, and its clients
include Ford Motor Co., J.P. Morgan & Co., and Martha Stewart Living Omnimedia
Inc. Intermedia sells basic phone and Internet services, and faces stiff
competition from BellSouth Corp. in its primary markets.
12. In July, 1997, Intermedia bought Digex for approximately $150
million cash, and thereafter sold Digex stock to the investing public in July,
1999 and again in February, 2000. Intermedia currently owns approximately 54% of
Digex's outstanding shares and controls
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approximately 94.2% of the voting interest in Digex. As the majority shareholder
of Digex, Intermedia owes a fiduciary obligation to Digex and its minority
shareholders.
13. Digex stock has significantly outperformed Intermedia. As
recently as August 3, 2000, Digex stock jumped 13% after Digex raised revenue
projections for 2000 and 2001. Specifically, Digex announced that second quarter
2000 sales more than tripled, and Digex raised its 2000 sales projections by 10%
to $165 million for 2000 and $300 million for 2001, compared to less than $60
million in 1999 sales. Intermedia stock, by contrast, has dropped 41% this year,
and it announced in July that its 2000 sales would be 10% to 15% lower than
analyst expectations. Intermedia stock dropped again after that announcement,
trading in the high teens for most of August 2000. Intermedia was privately
considering several options, including filing for bankruptcy.
14. As a result of the decline in the market price of Intermedia's
stock and the upswing in the market price of Digex stock, as well as
Intermedia's approximately $2.4 billion in debt, the market capitalization of
Intermedia as a whole ($1.2 billion), was significantly less than Intermedia's
stake in Digex ($3.3 billion).
15. Intermedia hired investment banker Bear, Stearns & Co. to
explore options for Digex, including a sale, and thereafter put up Digex for
sale. During the auction, Directors Reich and Jalkut were named to a special
committee to protect the rights of Digex's minority shareholders (the "Special
Committee"). By late August 2000, Digex began receiving bids, at least one of
which valued Digex at approximately $8.5 billion. Exodus offered about $120 per
share and Global Crossing Ltd. made a three-way bid for Intermedia and Digex.
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16. Intermedia's Board rejected all of the offers for Digex. To
rescue Intermedia from its financial woes and to provide its investors with the
benefit of the value of Digex, Intermedia refused to sell Digex alone and
insisted that buyers acquire Intermedia instead. WorldCom wanted to buy
Intermedia but wanted Digex's Board to approve the transaction, and to waive
Section 203 of Delaware General Corporation Law. Section 203 is intended to
protect minority shareholders by discouraging acquisitions of control by anyone
without the approval of the issuer's Board -- in this case, Digex's Board.
Without this waiver, WorldCom would not be able to do certain transactions with
Digex for a three-year period, including combining assets with Digex. Digex's
Special Committee recommended against and voted against granting the waiver of
Section 203. Prior to the vote on the waiver, Directors Reich and Jalkut had
made a recommendation to the Digex Board that any sale to WorldCom be delayed
and that Digex solicit bids from other companies. In a highly unusual move, the
Digex Board went against the advice of the Special Committee and agreed to waive
Section 203, clearing the way for WorldCom's acquisition of Intermedia. The
Digex Board's rejection of the Special Committee's recommendation is an
extremely rare occurrence and as a matter of practice, a special committee's
recommendation is virtually always followed.
17. On September 5, 2000, Intermedia and WorldCom jointly announced
that the Boards of Intermedia, WorldCom and Digex had each approved a definitive
merger agreement whereby WorldCom would acquire all of the outstanding shares of
Intermedia common stock for $39 in WorldCom common Stock, subject to a collar
(the "Merger"). The Merger represents a 70% premium for Intermedia shares based
on the closing price before the announcement.
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18. Following the announcement of the Merger agreement with WorldCom
-- which the Digex Board had approved -- the media reported that Intermedia had
rejected Exodus' $120 per share offer for Digex alone.
19. The Merger offers no benefit for Digex or its shareholders but
strips Digex of its true value and corporate opportunity to sell itself for its
true value. Digex's minority shareholders will remain minority shareholders of
Digex. Upon the Merger announcement, Digex common stock fell from $84.50 per
share to $67.875 per share on September 5, 2000.
20. Kohlberg Kravis Roberts & Co., which had a 12.7% interest in
Intermedia acquired for a $200 million investment, which was convertible at $36
per share, will break even in the WorldCom acquisition of Intermedia.
21. Intermedia, acting through and/or with the support of the
individual defendants, has appropriated for itself the true value of and
corporate opportunity belonging to Digex and reaps the benefits of a transaction
that, in reality, represents WorldCom's acquisition of control over Digex, all
at the expense and to the detriment of Digex and its minority shareholders. The
only reason for WorldCom to do the Merger at all is to acquire Digex.
CLAIM FOR RELIEF
22. The individual defendants, as directors of Digex who hold their
positions only at the pleasure of Intermedia, and Intermedia, as the majority
shareholder of Digex, have a fiduciary duty to Digex and its minority
shareholders and are required to maintain and preserve Digex's corporate
opportunities for the benefit of Digex alone. Defendants, however, suffering
from disabling conflicts of interest and divided loyalties, have breached their
fiduciary duty by (1) permitting Intermedia to usurp Digex's corporate
opportunity by requiring WorldCom to buy
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Intermedia instead of Digex when Digex was the acquisition target and was itself
up for sale; and (2) by agreeing to waive Section 203 against the advice of
Digex's special committee.
DERIVATIVE ALLEGATIONS
23. Plaintiff brings this action derivatively for the benefit of
Digex to redress injuries suffered and to be suffered by Digex as a direct
result of the breach of fiduciary duty of loyalty by defendants.
24. Plaintiff has owned Digex common stock during the wrongful
course of conduct by defendants alleged herein and continue to own Digex common
stock.
25. Plaintiff will adequately and fairly represent the interests of
Digex and its shareholders in enforcing and prosecuting their rights and have
retained counsel competent and experienced in stockholders' derivative
litigation.
DEMAND ON THE DIGEX BOARD IS EXCUSED AS FUTILE
26. Plaintiff has not made demand on the Digex Board to bring suit
asserting the claims set forth herein because Intermedia controls the Board of
Digex whose members sit on the Board solely at the pleasure of Intermedia and
Intermedia has obtained the benefit of the improper conduct alleged herein. In
fact, in order for Intermedia's wrongful conduct to succeed Intermedia caused
the Digex Board to agree to waive Section 203 against the advice of the special
committee. A majority of Digex's directors suffer from conflicts of interest and
divided loyalties which preclude them from exercising independent business
judgment. Four of Digex's directors -- defendants Ruberg, Campbell, Baker and
Knapp -- are also directors of Intermedia. Defendant Ruberg is Chairman of both
Intermedia's Board and Digex's Board. Defendant Shull is a director of Digex and
the Chief Financial Officer of Intermedia. Demand on defendants
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would be futile and useless because the Digex Board approved the WorldCom merger
and agreed to waive Section 203, permitting their loyalty to Intermedia to
supersede their fiduciary duty of loyalty to Digex. Such action, motivated by
conflict of interest and divided loyalty was not the product of sound or
independent business judgment and is not protected from judicial scrutiny. Under
these circumstances, defendants could not be expected to sue Intermedia or
themselves.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Declaring that the individual defendants, as directors of Digex,
and Intermedia, as majority shareholder, have breached their fiduciary duties of
loyalty to Digex;
B. Preliminarily and permanently enjoining defendants and their
counsel, agents, employees, and all persons acting under, in concert with, or
for them, from proceeding with or implementing the Merger;
C. Declaring the Digex Board's waiver of Section 203 ineffective and
rescinding the waiver;
D. In the event the Merger is consummated, rescinding it and setting
it aside and/or imposing a constructive trust upon the proceeds received by
Intermedia;
E. Awarding Digex its damages caused by defendants' breach of
fiduciary duty and Intermedia's usurpation of Digex's corporate opportunity;
F. Awarding Digex the benefits defendants received from their
improper conduct;
G. Awarding plaintiff the costs and disbursements and reasonable
allowances for plaintiff's counsel's and expert's fees and expenses; and
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H. Granting such other and further relief as may be just and proper.
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
By: /s/ Norman M. Monhait
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Joseph A Rosenthal
Norman M. Monhait
Mellon Bank Center, Suite 1401
919 Market Street
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
WECHSLER HARWOOD HALEBIAN & FEFFER LLP
488 Madison Avenue
New York, New York 10022
(212) 935-7400
September 12, 2000
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