Cincinnati Bell 2011 Annual Report Download - page 144

Item 3. Legal Proceedings
Cincinnati Bell and its subsidiaries are involved in a number of legal proceedings. Liabilities are established
for legal claims when losses associated with the claims are judged to be probable, and the loss can be reasonably
estimated. In many lawsuits and arbitrations, including most class action lawsuits, it is not possible to determine
whether a liability has been incurred, or to estimate the ultimate or minimum amount of the liability until the case
is close to resolution, in which case a liability will not be recognized until that time.
On July 5, 2011, a shareholder derivative action, captioned NECA-IBEW Pension Fund (The Decatur Plan),
derivatively on behalf of Cincinnati Bell Inc. v. Phillip R. Cox, et al., was filed in the United States District Court
for the Southern District of Ohio, naming certain directors and officers of the Company and Towers Watson &
Co. (the Company’s compensation consulting firm), as defendants, and naming the Company as a nominal
defendant. The complaint alleges that the director defendants breached their duty of loyalty in connection with
2010 executive compensation decisions and that the officer defendants were unjustly enriched. The complaint
seeks unspecified compensatory damages on behalf of the Company from the director and officer defendants and
Towers Watson & Co., various forms of equitable and/or injunctive relief, and attorneys’ and other professional
fees and costs. On September 20, 2011, the court denied the motion to dismiss the officer and director
defendants, which sought dismissal for failure to make demand on the directors and for failure to state a claim.
On September 26, 2011, the court denied plaintiff’s motion for preliminary injunction, which sought an
injunction enjoining the directors from effectuating the 2010 executive compensation plan and the imposition of
a constructive trust. On October 4, 2011, the officer and director defendants filed a motion to dismiss the action
for lack of subject matter jurisdiction. That motion has not been ruled upon by the court. The officer and director
defendants believe the suit is without merit and intend to vigorously defend against it.
Two additional shareholder derivative actions, captioned Pinchus E. Raul, derivatively on behalf of
Cincinnati Bell Inc. v. John F. Cassidy, et al. and Dennis Palkon, derivatively on behalf of Cincinnati Bell Inc. v.
John F. Cassidy, et al., were filed in the Court of Common Pleas, Hamilton County, Ohio, on July 8, 2011 and
July 13, 2011, respectively. The two state court actions name the current directors and certain officers as
defendants and the Company as a nominal defendant, assert allegations similar to those asserted in the federal
court action, and seek relief similar to that requested in the federal action. The state court actions also allege that
the director defendants breached their fiduciary duties by participating in issuing materially false and/or
misleading statements in the Company’s 2011 Proxy Statement. On August 11, 2011, the state court actions were
consolidated under Case No. A1105305. On November 1, 2011, Plaintiff Raul filed a Second Amended Verified
Shareholder Derivative Complaint (“State Court Action”). On November 29, 2011, the director and officer
defendants filed a motion to dismiss the State Court Action, for failing to make demand on the directors and
failing to state a claim. On the same day, Plaintiff Raul filed a motion seeking preliminary approval of the
proposed settlement and notice to shareholders.
On December 20, 2011, Cincinnati Bell Inc. and the other defendants entered into a Stipulation and
Agreement of Settlement (the “Settlement Agreement”) with the plaintiff in the State Court Action. On
January 13, 2012, the Hamilton County, Ohio, Court of Common Pleas entered a preliminary approval order
approving the Settlement Agreement. The terms of the settlement are set forth in the Stipulation and include (1) a
variety of corporate governance changes to be initiated by the Company and the Compensation Committee of the
Board of Directors, that, among other things, more clearly communicate the Company’s executive compensation
practices to its shareholders, thus assisting the Company’s shareholders’ understanding of how these policies are
applied to covered employees; and (2) payment of plaintiff’s counsel’s attorney fees and expenses. The
settlement is specifically contingent on the entry of a final order and judgment of the Court approving the
settlement and dismissing the action with prejudice. The Court has scheduled a fairness hearing for April 16,
2012 to determine whether to approve the proposed settlement and dismiss all claims.
Based on information currently available, consultation with counsel, available insurance coverage and
established reserves, management believes the eventual outcome of all claims will not individually, or in the
aggregate, have a material effect on its financial position, results of operations or cash flows.
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Form 10-K Part I Cincinnati Bell Inc.