XO Communications 2010 Annual Report Download - page 31

right of NES to continue to utilize the six strands of optic fiber. On June 23, 2008, XOCS filed a notice of
removal to federal court (the U.S. District Court, Middle District of Tennessee). On June 30, 2008, NES filed
a motion to remand the case back to state court but that motion was denied by the Court. On July 7, 2008,
XOCS filed its answer and counterclaim in federal court. The XOCS counterclaim alleges that compensation
paid by XOCS to NES has been in excess of fair and reasonable compensation for access to NES’ poles and
conduit, in violation of the Communications Act, the U.S. and Tennessee Constitutions (unconstitutional
taking) and resulted in unjust enrichment to NES. On July 24, 2008, NES filed a partial motion to dismiss
certain portions of XOCS’ counterclaim. On January 7, 2009, the Court denied NES’ motion to dismiss. In
July of 2009, the parties renewed settlement discussions. On January 27, 2010, the parties signed a settlement
agreement. On May 7, 2010, the parties filed a joint motion to dismiss the case with prejudice.
R2 Derivative Litigation
On April 28, 2009, R2 Investments, LDC filed a complaint in the Supreme Court of the State of
New York, County of New York naming individual members of the Company’s Board of Directors and certain
entities controlled by the Chairman as defendants and naming the Company as the nominal defendant in
connection with derivative claims. The plaintiff alleges that the defendants breached fiduciary duties in
connection with the financing transaction consummated in July 2008 and other related matters. The complaint
seeks equitable relief as well as damages in an unspecified amount. On July 24, 2009, the defendants filed a
Motion to Dismiss the Complaint, which was denied on December 10, 2009. On April 23, 2010, the
defendants filed an answer to the amended complaint. On May 10, 2010, the defendants filed a summary
judgment motion. On February 17, 2011, R2 filed a motion to amend its complaint alleging that the rights
offering announced by XOH on October 12, 2010 and the reverse stock split (the ‘‘2010 Rights Offering and
Reverse Stock Split’’) was unfair to minority stock holders and that ACF Holding’s proposal of January 21,
2011 to acquire all of the outstanding XOH stock not owned by ACF Holding or its affiliates for $0.70 per
share (‘‘ACF Holding’s 2011 Proposal’’) was unfair as well in that it provided inadequate consideration to
XOH shareholders. The amended complaint also claims that the Special Committee is not independent.
Discovery in this case is ongoing. The effect of this case on the Company, if any, is not known at this time.
Hillenmeyer Derivative Litigation
On July 21, 2009, an XOH shareholder, Don Hillenmeyer, filed under seal in the Delaware Court of
Chancery a Complaint titled ‘‘Verified Derivative and Class Action Complaint.’’ On August 6, 2009, XOH
filed a redacted version of the Complaint in the Chancery Court. The Complaint names as defendants
individual members of the Company’s Board of Directors and ACF Holding, an entity controlled by the
Chairman, and names XOH as the nominal defendant. The Complaint challenges, among other things, ACF
Holding’s proposal on July 9, 2009 (which was subsequently withdrawn) to acquire all of the outstanding
XOH common shares which it did not already own, and alleges various breaches of fiduciary duties. The
parties entered into a Stipulation and Order Extending Time to Answer and agreed to stay proceeding with the
case until plaintiff filed an Amended Complaint. On December 15, 2009, based on plaintiff’s motion, the court
entered an order dismissing that portion of the suit that sought to enjoin ACF Holding’s July 9, 2009 proposal.
On January 7, 2010 the defendants filed a motion to stay or dismiss the remaining portion of the suit in favor
of the NY litigation (R2 v. Icahn et al). On January 26, 2010, plaintiff filed an Amended Complaint. On
February 18, 2010, defendants filed a supporting brief for its motion to dismiss. On March 26, 2010, plaintiff
filed its answering brief to defendants’ motion to dismiss or stay. Defendants’ reply brief was filed on
April 13, 2010. On May 28, 2010, the court dismissed the case without prejudice.
Zheng Derivative Class Action Litigation
On or about June 3, 2010, Youlu Zheng filed a class action complaint in the Supreme Court of the State
of New York, County of New York against the Chairman, Carl Grivner, Adam Dell, Fredrik Gradin,
Vincent J. Intrieri, Keith Meister, Robert Knauss, David S. Schechter, Peter Shea, Harold First, ACF Holding,
Arnos Corporation, High River Limited Partnership, Starfire Holding Corp., and XO Holdings, Inc. alleging
that the defendants breached fiduciary duties in connection with the financing transaction consummated in
July 2008 and other related matters. The plaintiffs request that the court rescind the July 2008 financing
transaction, award compensatory damages to the class of plaintiffs, award the plaintiff expenses, costs and
attorneys’ fees, and impose a constructive trust in favor of the plaintiff and the class upon benefits improperly
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