(a)(1)(I)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------------------------X
:
OMNICARE, INC. :
Plaintiff, :
-vs.- : COMPLAINT
: ---------
NCS HEALTHCARE, INC., JON H. OUTCALT, :
KEVIN B. SHAW, BOAKE A. SELLS, :
RICHARD L. OSBORNE, GENESIS HEALTH VENTURES, :
INC., and GENESIS SUB, INC., :
:
Defendants, :
- ---------------------------------------------------------X
Plaintiff Omnicare, Inc. ("Omnicare"), by its undersigned counsel, alleges
upon knowledge as to itself and its own acts and upon information and belief as
to all other matters, as follows:
NATURE OF THE ACTION
1. Pursuant to an Agreement and Plan of Merger by and among Genesis Health
Ventures, Inc. ("Genesis"), Genesis Sub, Inc. ("Genesis Sub"), and NCS
Healthcare, Inc. ("NCS"), dated as of July 28, 2002 (the "Genesis Merger
Agreement"), NCS has agreed to merge with Genesis Sub (the "Proposed Genesis
Merger"). Days before NCS entered into the Genesis Merger Agreement, Omnicare
made a substantially superior all-cash offer, but defendants Jon H. Outcalt,
Kevin B. Shaw, Boake A. Sells, and Richard L. Osborne, members of NCS's board of
directors (collectively, the "Director Defendants"), in violation of their
fiduciary duties to NCS stockholders, declined even to consider Omnicare's
superior offer. Moreover, they agreed to terms in
the Genesis Merger Agreement that make it virtually impossible for Omnicare's
offer, or any other offer from any other bidder, to be accepted.
2. The Genesis Merger Agreement substantially undervalues NCS. This merger
is in fact a low premium acquisition of NCS for approximately half of what
Omnicare has offered.
3. On July 26, 2002, prior to NCS's entry into the Genesis Merger
Agreement, Omnicare, which has been attempting to negotiate an acquisition of
NCS or its assets since last summer, offered to acquire NCS for $3.00 per share
in cash, with Omnicare assuming and/or retiring existing NCS debt at its full
principal amount plus accrued interest. The Director Defendants never responded
to Omnicare's proposal.
4. Instead, the Director Defendants, in violation of their fiduciary
obligations to NCS stockholders, approved the Proposed Genesis Merger and the
Genesis Merger Agreement, which provide NCS stockholders with approximately half
the value being offered by Omnicare. In further violation of their fiduciary
obligations to NCS stockholders, the Director Defendants have also agreed to a
host of onerous and draconian defensive measures with respect to the Proposed
Genesis Merger that are disproportionate to any perceived threat posed to NCS
and that effectively preclude acceptance of any superior bid, including the
premium offer made by Omnicare.
5. Although NCS stockholders will theoretically have the opportunity to
vote for or against the acquisition, the outcome of that vote is already a
foregone conclusion. Because holders of NCS Class A shares are allowed one vote
per share, while holders of NCS Class B shares (namely, Director Defendants
Outcalt and Shaw,
2
and no one else) are allowed ten votes per share, Defendants Outcalt and Shaw
control sufficient voting strength to ensure approval of the Genesis Merger
Agreement.
6. Such approval is guaranteed by the fact that NCS, Genesis and Director
Defendants Outcalt and Shaw have executed an agreement, pursuant to which, in
further violation of their fiduciary obligations to NCS stockholders, Director
Defendants Outcalt and Shaw have granted Genesis an "irrevocable proxy" to vote
all their shares of NCS Class B common stock in favor of the Genesis Merger
Agreement (the "Director Proxy Lock-Up").
7. While the Director Proxy Lock-Up is ostensibly terminable if the Genesis
Merger Agreement is terminated, the Genesis Merger Agreement contains a
provision prohibiting the NCS Board of Directors from terminating the Genesis
Merger Agreement prior to the stockholder vote to approve it (the "No
Termination Provision"). As a result, Genesis and the NCS Board of Directors
have "locked up" the acquisition of NCS and have forced an inferior deal upon
the NCS stockholders.
8. To clinch the coercive, onerous and preclusive effects of these actions,
the Genesis Merger Agreement provides that, if the Proposed Genesis Merger does
not obtain the required stockholder approval, thus preventing consummation of
the merger (an unlikely event given the other provisions described above), NCS
will face a $6 million penalty if it pursues any alternative acquisition within
12 months of the termination of the Genesis Merger Agreement (the "Break-up
Penalty"). This provision, while no more than a transparent attempt to prevent
other bidders from offering NCS stockholders fair value for their shares,
provides Genesis and Genesis Sub with a windfall, while betraying the interests
of NCS stockholders by making it difficult for
3
NCS to negotiate with third parties willing to offer NCS stockholders greater
value than they will realize through the Proposed Genesis Merger.
9. Thus, the Director Defendants, by agreeing to the No Termination
Provision, the Director Proxy Lock-Up, the Break-up Penalty and the rest of the
indisputably inferior terms offered by Genesis, have effectively abdicated their
fiduciary duties to manage NCS and have impermissibly locked NCS stockholders
into a transaction that denies them anything close to fair value for their
shares. The Director Defendants in effect decided not only to take a "fiduciary
holiday," but to put their fiduciary duties into permanent receivership.
10. Accordingly, Omnicare is forced to bring this action to secure
declaratory and injunctive relief against the breaches of fiduciary duty by the
Director Defendants alleged herein, and the aiding and abetting of such breaches
of fiduciary duty by Genesis and Genesis Sub alleged herein.
PARTIES
11. Plaintiff Omnicare is a corporation organized and existing under the
laws of the State of Delaware with its principal place of business in Covington,
Kentucky. Omnicare is an important participant in the institutional pharmacy
business, with annual sales in excess of $2.1 billion during its last fiscal
year. Omnicare is a stockholder of NCS.
12. Defendant NCS is a corporation organized and existing under the laws of
the State of Delaware with its principal place of business in Beachwood, Ohio.
NCS is an independent provider of pharmacy and related services to long-term
care and
4
acute care facilities, including skilled nursing centers, assisted living
facilities and hospitals.
13. Defendant Jon H. Outcalt is Chairman of the Board of Directors of NCS
and a founding principal of NCS. Outcalt has been a member of the Board since
1986. As a Director of NCS, Outcalt owes fiduciary duties of loyalty and care to
NCS stockholders.
14. Defendant Kevin B. Shaw is a founding principal and has been President,
Secretary and a Director of NCS since 1986. As an Officer and Director of NCS,
Shaw owes fiduciary duties of loyalty and care to NCS stockholders.
15. Defendant Boake A. Sells has been a member of the Board since 1993 and
serves on the Audit and Human Resources Committees of the Board. As a Director
of NCS, Sells owes fiduciary duties of loyalty and care to NCS stockholders.
16. Defendant Richard L. Osborne has been a member of the Board since 1986
and serves on the Audit and Human Resources Committees of the Board. As a
Director of NCS, Osborne owes fiduciary duties of loyalty and care to NCS
stockholders.
17. Defendant Genesis is a corporation organized and existing under the
laws of the State of Pennsylvania with its principal place of business in
Kennett Square, Pennsylvania.
18. Defendant Genesis Sub, a wholly owned subsidiary of Genesis, is a
corporation organized and existing under the laws of the State of Delaware.
Genesis Sub was formed by Genesis to acquire NCS.
5
FACTUAL BACKGROUND
Negotiations Between Omnicare And NCS
19. Omnicare has been analyzing a combination with NCS for quite some time
with the assistance of its legal and financial advisors.
20. Since July 2001, Omnicare and NCS have been in discussions about a
possible acquisition of NCS or its assets by Omnicare.
21. On August 29, 2001, Omnicare sent NCS a written proposal to acquire the
assets of NCS, an asset purchase agreement and a due diligence request list.
22. On several occasions in October, 2001, NCS, directly or through its
financial advisors, produced to Omnicare information relating to NCS's financial
and business matters.
The Omnicare Merger Proposal
23. On July 26, 2002, Joel F. Gemunder, President and CEO of Omnicare, sent
a letter to defendant Jon H. Outcalt, Chairman of the Board of Directors of NCS,
proposing an acquisition of NCS by Omnicare in a merger transaction pursuant to
which NCS stockholders would receive $3.00 per share in cash and Omnicare would
assume and/or retire existing NCS debt at its full principal amount plus accrued
interest.
24. On July 28, 2002, Mr. Gemunder sent another letter to Mr. Outcalt,
expressing Omnicare's disappointment that NCS and its representatives had
continued to refuse to meet with Omnicare to discuss Omnicare's proposal to
acquire NCS. The letter noted that Omnicare's $3.00 per share offer represented
more than four times NCS's current stock price, which was already at its highest
level in two years.
6
25. The letter also noted that this proposal would provide almost $400
million in cash to NCS's security holders, and reiterated Omnicare's continued
belief that such a proposal provides exceptional value to the NCS security
holders.
26. The letter further recited that Omnicare's Board had authorized this
proposal, that Omnicare was prepared to negotiate quickly and execute a mutually
acceptable definitive merger agreement and that Omnicare, having done extensive
due diligence on NCS, would need to do only confirmatory due diligence, which
would involve only a review of certain non-public information typical for a
transaction of this type, in order to proceed with a definitive merger
agreement. The letter stated that, with the cooperation of the NCS board
members, such confirmatory due diligence could be completed and a definitive
merger agreement could be executed in one week. To help clarify and facilitate
its proposal, Omnicare enclosed a draft merger agreement, which contained
provisions customary for transactions of this type.
27. Significantly, as the letter pointed out, Omnicare's proposal is not
subject to any financing contingencies, did not contain any request for voting
or similar agreements from any NCS stockholder, and did not require that NCS
agree to a "break-up" or similar fee that might act as a deterrent to someone
willing to provide greater value to NCS's equity and debt holders. The letter
expressed Omnicare's belief that the security holders of NCS should have the
option to choose a transaction providing them with the greatest value without
any impediment to that choice or the payment of any penalty for that choice.
28. Mr. Gemunder's letter concluded by expressing the hope that Mr. Outcalt
and the other members of the NCS Board of Directors view this proposal as
7
Omnicare does -- an excellent opportunity for the equity and debt holders of NCS
to realize full value for their securities to an extent not likely to be
available to them in the marketplace. That letter concluded as follows:
In the context of a negotiated transaction, we are prepared
to discuss all aspects of our proposal with you, including
structure, economics and your views as to the proper roles
for our respective management and employees in the combined
company. We would also consider a stock transaction in order
to allow NCS stockholders to share in the upside of the
combined companies. With respect to structure, we would be
willing to discuss acquiring the securities of NCS in a
tender offer. We wish, and are prepared, to meet immediately
with you and the other directors, management and advisors to
answer any questions about our proposal and to proceed with
negotiations leading to the execution of a definitive merger
agreement.
We continue to believe that there are clear and compelling
advantages to both Omnicare and NCS from the combination of
our two companies and that such a transaction would create
significant value for each of our companies and our
respective security holders. We trust that you and the other
members of the NCS Board of Directors will give this
proposal immediate and serious consideration. Your fiduciary
duties to your equity and debt holders require no less. We
look forward to hearing from you promptly.
29. To date, no response has been forthcoming.
The Genesis Merger Agreement
30. On July 29, 2002, NCS announced that, on July 28, 2002, it had entered
into the Genesis Merger Agreement. Under the terms of the Genesis Merger
Agreement, each outstanding share of NCS would be exchanged for 0.1 shares of
Genesis. This offer purportedly represented a value of $1.60 per share of NCS
stock (far less than the $3.00 per share in cash offered by Omnicare).
Meanwhile, the Director
8
Defendants simply ignored Omnicare's all-cash proposal with a value of four
times NCS's current stock price.
31. The Genesis Merger Agreement and the associated Director Proxy Lock-Up
have effectively locked up NCS for Genesis and precluded any superior offer. The
Director Proxy Lock-Up, for example, requires that Director Defendants Outcalt
and Shaw, who collectively hold approximately 65% of the voting power of all
stockholders of NCS through their holdings of NCS Class B common stock, (a)
grant a proxy to Genesis to vote their respective shares of NCS common stock in
favor of adoption and approval of the Proposed Genesis Merger and against
proposals for other transactions no matter how superior, and (b) not transfer
their shares of NCS common stock prior to consummation of the Proposed Genesis
Merger.
32. By agreeing to the terms of the Director Proxy Lock-Up, the Director
Defendants have surrendered any ability to fulfill their fiduciary duties to NCS
and its stockholders. Although the Genesis Merger Agreement purports to permit
the Director Defendants to furnish non-public information to or enter into
discussions with "any Person in connection with an unsolicited bona fide written
Acquisition Proposal by such person," that provision is completely illusory. The
Director Proxy Lock-Up combined with the No Termination Provision of the Genesis
Merger Agreement effectively prevents the NCS Board from accepting any
alternative proposal.
33. In addition to the constraint of the Director Proxy Lock-Up and the No
Termination Provision of the Genesis Merger Agreement, NCS's ability to
negotiate with third parties willing to offer NCS stockholders greater value is
further hampered by requiring that, if the Proposed Genesis Merger fails to
obtain the required stockholder
9
approval (which, by the way, is not currently possible), thus preventing the
consummation of the proposed merger, NCS must pay the $6 million Break-up
Penalty if it enters into an alternative acquisition agreement, an acquisition
is consummated, or the Board recommends that NCS enter into such agreement
within 12 months of the termination of the Genesis Merger Agreement. This
penalty amounts to an astounding 15% of the equity value of the transaction.
34. The Director Proxy Lock-Up, the No Termination Provision and the
Break-up Penalty (a) impede Omnicare's ability (as well as the ability of any
other third party) to conclude a merger with NCS for greater value than that
provided by the Genesis Merger Agreement despite that agreement's economic
inferiority to the Omnicare Proposed Merger and, therefore, (b) preclude
stockholder consideration of merger proposals from parties such as Omnicare who
wish to offer NCS stockholders greater value than that offered by the Proposed
Genesis Merger.
35. The Director Defendants have impermissibly denied NCS stockholders the
benefit of the more favorable terms offered by Omnicare and have effectively
abdicated their responsibility to manage the corporation in accordance with
their fiduciary duties to NCS and its stockholders.
36. The Director Defendants have breached their fiduciary duties by
approving the Genesis Merger Agreement, of which the Director Proxy Lock-Up is
an essential component.
37. To prevent ongoing irreparable injury to Omnicare and all other NCS
stockholders, Omnicare brings this action seeking injunctive and other relief,
among
10
other things, declaring the Genesis Merger Agreement and the Director Proxy
Lock-Up null and void.
COUNT I
Breach of Fiduciary Duty Against the Director Defendants
38. Omnicare repeats and realleges each of the preceding allegations as if
set forth fully herein.
39. By virtue of their positions as directors of NCS, the Director
Defendants owe duties to NCS and its stockholders. These duties include, but are
not limited to, the obligation to consider and fully evaluate all offers for
NCS, the obligation to exercise due care in conducting the affairs of NCS, the
obligation not to put self-interest and personal or other consideration ahead of
the interests of NCS stockholders, and the obligation not to take unreasonable
defensive measures that are disproportionate to any perceived threat posed to
NCS.
40. The decisions of the Director Defendants with respect to the Director
Proxy Lock-Up and the Genesis Merger Agreement demonstrate a lack of good faith,
could not have been based upon a reasonable inquiry, and unreasonably preclude
Omnicare or any other third party from entering into an agreement that offers
greater value to NCS stockholders than that offered by the Proposed Genesis
Merger.
41. The Director Defendants have breached their duties of care and loyalty
by agreeing to enter into the Genesis Merger Agreement and the Director Proxy
Lock-Up.
42. Additionally, in further breach of their fiduciary duties, the Director
Defendants have failed even to consider Omnicare's superior offer.
11
43. The Director Defendants have willfully and purposely refused to explore
Omnicare's bid, even when Omnicare specifically invited NCS representatives to
engage in discussions with respect to that bid. The Director Defendants' willful
blindness and refusal to fully inform themselves of Omnicare's superior offer
constitutes a breach of the Director Defendants' fiduciary duties.
44. Unless enjoined by this Court, the Director Defendants will continue to
breach their fiduciary duties to the detriment of NCS and its stockholders
thereby preventing NCS's stockholders from even considering potentially superior
merger proposals, such as the Omnicare Merger Proposal.
45. Omnicare has no adequate remedy at law.
COUNT II
Aiding and Abetting Breach of Fiduciary
Duty Against Genesis and Genesis Sub
46. Omnicare repeats and realleges each of the preceding allegations as if
set forth fully herein.
47. By virtue of their positions as directors of NCS, the Director
Defendants owe fiduciary duties to the stockholders of NCS.
48. The Director Defendants have breached their fiduciary duties to the
detriment of NCS and its stockholders.
49. Genesis and Genesis Sub have aided and abetted the Director Defendants
in their breaches of fiduciary duty. As direct participants in the Director
Proxy Lock-Up and the Genesis Merger Agreement, Genesis and Genesis Sub
purposefully, knowingly and substantially aided and abetted the Director
Defendants in their breach of fiduciary duties by insisting upon and agreeing to
the excessive and
12
unreasonable features and "penalty" provisions of the Genesis Merger Agreement
and the Director Proxy Lock-Up, which were designed by Genesis, Genesis Sub and
NCS to interfere with Omnicare's or any other superior merger proposals.
50. Unless enjoined, Genesis and Genesis Sub will continue to aid and abet
the Director Defendants' breaches of fiduciary duties to NCS and its other
stockholders.
51. Omnicare has no adequate remedy at law.
WHEREFORE, Omnicare prays for judgment as follows:
a. Preliminarily and permanently enjoining NCS, the Director Defendants,
Genesis, Genesis Sub, and their respective officers, directors, employees,
agents and all persons acting on their behalf from taking further steps or any
actions with respect to (i) the Director Proxy Lock-Up and/or (ii) the Genesis
Merger Agreement;
b. Preliminarily and permanently enjoining Genesis and Genesis Sub from
aiding and abetting the Director Defendants' breaches of their fiduciary duties
of loyalty and care;
c. Declaring the Genesis Merger Agreement and the Director Proxy Lock-Up
null and void; and
13
d. Granting Omnicare such other and further relief as this Court may deem
just and proper, including the costs and disbursements of this action and
reasonable attorneys' fees.
Dated: Wilmington, Delaware
August 1, 2002
POTTER ANDERSON & CORROON LLP
By: Donald J. Wolfe, Jr.
------------------------------------------
Donald J. Wolfe, Jr.
Hercules Plaza
1313 N. Market Street
P. O. Box 951
Wilmington, DE 19899
(302) 984-6015
Of counsel:
Robert C. Myers
David F. Owens
Melanie R. Moss
DEWEY BALLANTINE LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Telephone (212) 259-8000
14