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Exhibit 99.6
IN THE CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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MARILYN KALABSA, )
)
Plaintiff, )
)
v. )
) C.A. No. 18317N
DIGEX, INC., DAVID C. RUBERG, MARK K. )
SHULL, JOHN C. BAKER, PHILIP A. )
CAMPBELL, GEORGE F. KNAPP, ROBERT M. ) FILED
MANNING, AND INTERMEDIA ) 00 SEP 13 PM 3:34
COMMUNICATIONS, INC., )
) REGISTER IN CHANCERY
Defendants. ) DIANNE M. KEMPSKI
)
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CLASS ACTION COMPLAINT
Plaintiff, for her compliant herein, alleges the following upon
information and belief except with respect to her ownership of Digex stock,
which is alleged upon personal knowledge:
1. Plaintiff is a holder of class A stock common stock of Digex,
Incorporated ("Digex"), a Delaware corporation with headquarters in Beltsville,
MD. Digex is a leading provider of managed hosting services for internet web
sites for businesses and for application service providers.
2. Digex has about 35 million shares of class A common stock issued and
outstanding, which are held by approximately 8,600 beneficial owners and which
trade on NASDAQ. Holders of class A common stock are entitled to one vote per
share, voting together, in a single class, with the class B common stock.
3. Defendant Intermedia, a telecommunications company, is a Delaware
corporation with headquarters in Tampa, Florida. Through its wholly owned
subsidiary, it owns all 39,350,000
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issued and outstanding shares of Digex' class B common stock. Because class B
common stock has ten votes per share, Intermedia holds about 94% of the total
voting power of Digex' stock, even though it holds only about 55% of Digex'
total equity. As Digex conceded in its most recent annual report on Form 10-K:
Intermedia controls approximately 94.2% of our voting interests, and
will be able to control the management and affairs of Digex, and all
matters submitted to our stockholders for approval...
4. Digex has eight directors, six of whom are defendants in this action:
(a) Defendant Ruberg is chairman of the board of Digex and is
also president and chief executive officer of Intermedia.
(b) Defendant Shull is a Digex director and is also president
and chief executive officer of Digex.
(c) Defendants Baker, Campbell and Knapp are directors of both
Digex and Intermedia.
(d) Defendant Manning is a Digex director and is also senior
vice president and CFO of Intermedia.
5. Digex also has two independent directors, who are not defendants in
this action: Richard Jalkut and Jack E. Reich.
CLASS ACTION ALLEGATIONS
6. Plaintiff brings this action on her own behalf and as a class action on
behalf of all Class A shareholders of Digex who were injured by the acts
complained of herein.
7. This action is properly maintainable as a class action, under Rule 23
of the Chancery Court rules, for the following reasons:
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(a) The class is so numerous that joinder of all class members would
be impracticable. As noted above, as of March, 2000, there were approximately
8,000 beneficial owners of Digex class A stock, scattered throughout the United
States.
(b) There are questions of law and fact common to the class,
including inter alia, the following:
(i) Whether the director defendants have breached their
fiduciary duties to the class A shareholders.
(ii) Whether Intermedia instructed these director defendants
to breach their fiduciary duties and/or conspired or
aided and abetted in those directors' violations.
(iii) Whether plaintiffs and the class members were
irreparably harmed by defendants' actions and, if so,
the appropriate remedy therefor.
8. Plaintiff is committed to the prosecution of this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff's
claims are typical of the claims of all class members and her interests are the
same as those of other class members. Accordingly, plaintiff is an adequate
representative of the class and will fairly and adequately protect the interests
of the class.
9. In addition, defendants are acting and refusing to act on grounds
generally applicable to the class, thereby making appropriate injunctive or
declaratory relief appropriate with respect to the class as a whole.
10. The prosecution of separate actions by individual class members could
create a risk of inconsistent or varying adjudications with respect to
individual members of the class and would thereby establish incompatible
standards of conduct for defendants. Adjudications with respect to
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individual class members would, as a practical matter, be dispositive of the
interests of the other class members.
SUBSTANTIVE ALLEGATIONS
11. To alleviate its severe financial difficulties, in early 2000
Intermedia decided to sell Digex, and both Digex and Intermedia actively shopped
Digex to potential buyers. By August of 2000, several serious bids for the
company had been received. As reported in the Wall Street Journal on September
8, 2000, Exodus Communications had offered about $120 per share for Digex, and
Global Crossing Ltd. had also made an offer to acquire both Intermedia and
Digex. Both these offers provided for substantial premiums to be paid to holders
of Digex' class A common stock.
12. Digex appointed a special committee, consisting of directors Reich and
Jalkut, to review all proposals and to make recommendations to the board
concerning what actions to take in response to the offers. The special committee
was appointed to assure that any sale transaction would be fair to Digex'
minority class A shareholders. Because any sale of Digex would entail
Intermedia's sale of its controlling class B stock, all bids were also submitted
to, and considered by, Intermedia's board of directors.
13. Intermedia's board of directors rejected the offers of Exodus and
Global Crossing, in favor of a proposal submitted by Worldcom, Inc. However,
Worldcom offered to acquire only Intermedia, in a transaction valued at about $6
billion in stock and assumption of debt. The Worldcom proposal offered nothing
for Digex' class A shareholders, whose shares were to remain outstanding.
14. Worldcom's offer did, however, require that the Digex board approve
the transaction, and thereby render inapplicable ss.203 of the General
Corporation Law. That section provides, in
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pertinent part, that
(a) Notwithstanding any other provisions of this chapter, a
corporation shall not engage in any business combination with
any interested stockholder for a period of 3 years following
the date that such stockholder became an interested
stockholder, unless:
(1) prior to such date the board of directors of the
corporation approved either the business combination or
the transaction which resulted in the stockholder
becoming an interested stockholder....
"Business combination" is broadly defined in ss.203(c)(3) to prevent not only
mergers but also significant sales, leases, or transfers of stock or assets.
Thus, unless the directors approve the transaction, ss.203 puts a serious
impediment on business transactions between the acquiring stockholder, such as
Worldcom here, and the company, and makes any acquisition of a controlling
interest in a company far less desirable from the acquirer's point of view.
15. Because Worldcom's request presented a direct conflict of interest for
the Digex directors affiliated with Intermedia, its request was submitted to the
special committee for its review and recommendation. It was readily apparent to
the members of the committee, Messrs. Reich and Jalkut, that consenting to
Worldcom's proposal was not in the interests of either Digex or its class A
stockholders, whose interests the committee was charged with protecting. The
committee therefore recommended that the Digex board not approve the Worldcom
proposal, and that any transaction be delayed to enable Digex to solicit
additional bids, so that the minority shareholders would be able to benefit from
any potential acquisition.
16. The Directors of Digex, including those also serving as officers and
directors of Intermedia, had a fiduciary duty of loyalty to cast their votes, as
Digex directors, to protect the interests of Digex and all its shareholders. In
this case, they violated that duty by rejecting the
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recommendation of the special committee and by approving a transaction that
benefitted only Intermedia, at the expense of Digex' other stockholders. As the
Digex directors were well aware, the Worldcom proposal deprived Digex' minority
shareholders of any opportunity to obtain a premium for their shares; whereas
other proposals on the table provided a premium for all of Digex' shareholders.
Therefore, Digex' directors had a fiduciary duty of loyalty to reject the
Worldcom proposal and to insist that any transaction, to receive the approval of
the Digex board, must benefit all of its shareholders equitably. Had the Digex
directors taken such a stand, Intermedia, which desperately needed to sell
either itself or its stake in Digex, would have had no choice but to comply.
Each of the director defendants in this action voted to approve the Worldcom
offer. That vote represented an unfair self-dealing transaction which benefitted
Digex' controlling shareholder. Intermedia, at the expense of Digex' minority
shareholders.
17. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may properly be maintained as a class
action;
B. Adjudicating that the director defendants have violated their
fiduciary duties to plaintiff and the class, and that Intermedia caused those
violations, through its control of these directors, or aided and abetted and
conspired in these violations.
C. Awarding such declaratory, equitable or other relief as the Court
deems just and proper.
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recommendation of the special committee and by approving a transaction that
benefitted only Intermedia, at the expense of Digex' other stockholders. As the
Digex directors were well aware, the Worldcom proposal deprived Digex' minority
shareholders of any opportunity to obtain a premium for their shares; whereas
other proposals on the table provided a premium for all of Digex' shareholders.
Therefore, Digex' directors had a fiduciary duty of loyalty to reject the
Worldcom proposal and to insist that any transaction, to receive the approval of
the Digex board, must benefit all of its shareholders equitably. Had the Digex
directors taken such a stand, Intermedia, which desperately needed to sell
either itself or its stake in Digex, would have had no choice but to comply.
Each of the director defendants in this action voted to approve the Worldcom
offer. That vote represented an unfair self-dealing transaction which benefitted
Digex' controlling shareholder. Intermedia, at the expense of Digex' minority
shareholders.
17. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may properly be maintained as a class
action;
B. Adjudicating that the director defendants have violated their
fiduciary duties to plaintiff and the class, and that Intermedia caused those
violations, through its control of these directors, or aided and abetted and
conspired in these violations.
C. Awarding such declaratory, equitable or other relief as the Court
deems just and proper.
D. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorney's fees.
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E. Granting such other and further relief as may be just and proper.
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
By /s/ [Illegible]
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Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
POMERANTZ HAUDEK BLOCK
GROSSMAN & GROSS, LLP
100 Park Avenue, 26th Floor
New York, NY 10017
(212) 661-1100
WEISS & YOURMAN
551 Fifth Avenue
New York, NY 10176
(212) 682-3025
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
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