Exhibit (a)(1)(SSS)
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
December 30, 2002
BY HAND
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The Honorable Stephen P. Lamb
Vice Chancellor
Court of Chancery
500 North King Street
Wilmington, Delaware 19801
Re: Dolphin Limited Partnership I, L.P., et al. v. NCS
Acquisition Corp. et al., Civil Action No. 20101
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Dear Vice Chancellor Lamb:
I write on behalf of defendants NCS Healthcare, Inc. ("NCS"),
Boake A. Sells and Richard L. Osborne (collectively, the "NCS Defendants")
to oppose Plaintiffs' Attorneys' application for a temporary restraining order
(the "TRO Application") setting aside $13,500,000 of the consideration to be
paid to NCS stockholders for payment of their attorneys' fees and expenses.
A TRO is an extraordinary remedy that "will be granted only where it appears
that immediate action is required to preserve the status quo and to prevent an
immediately threatened irreparable injury that will occur before the matter
can be heard on a motion for a preliminary injunction." MacFadden Holdings,
Inc. v. John Blair & Co., No. 8489, 1986 WL 7356 at *3 (Del. Ch. July 2, 1986)
(attached hereto as Exhibit E). As the party seeking a TRO, Plaintiffs'
Attorneys bear the heavy burden of showing a reasonable probability of success
on the merits, irreparable injury if the TRO is not granted and that the
balancing of hardships favors them. See id.; Sarabyn v. Jessoc, Inc., No. 07,
1978 WL 2504, at *2-*3 (Del. Ch. Sept. 20, 1978) (refusing to restrain
shareholder meeting scheduled to vote on merger agreement) (attached hereto as
Exhibit F). Plaintiffs' Attorneys cannot satisfy any of these requirements.(1)
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(1) Enclosed are courtesy copies of the NCS Defendants Motion to Invervene and
(continued...)
The Honorable Stephen P. Lamb
December 30, 2002
Page 2
First, pursuant to the terms of NCS/Omnicare Merger Agreement and
Omnicare's Supplement to the Offer to Purchase for Cash NCS Acquisition Corp.
("December 23 Tender Offer Supplement"), NCS stockholders are entitled to $5.50
per share "net to the seller in cash." (NCS/Omnicare Merger Agreement at 1)
(emphasis added) (attached hereto as Exhibit A) Any amount of attorneys' fees
deducted from the merger consideration would deprive NCS stockholders of the
$5.50 per share they have been promised. The size of the fee request (in
absolute terms, larger than any fee amount previously granted by this Court in
a reported decision, with the exception of Joseph v. Shell Oil Co., Nos. 7450,
7699, 1985 WL 150466 (Del. Ch. Apr. 22, 1985) (awarding $15 million in fees)
(attached hereto as Exhibit G), coupled with the relatively small number of
shares in the class represented, would materially decrease the consideration to
be received by stockholders.(2)
Second, Omnicare does not have the right to alter the tender offer
consideration under the NCS/Omnicare Merger Agreement. Section 1.1 of the
NCS/Omnicare Merger Agreement provides that "without the consent of the Company
[NCS], Parent [Omnicare] and Sub [NCS Acquisitioni Corp.] shall not ... (ii)
reduce the consideration payable in the Offer; or (vi) amend any other term of
the Offer in any manner adverse to the Company Stockholders." (NCS/Omnicare
Merger Agreement 'SS'1.1) (emphasis added) If Omnicare had desired to set aside
a
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(1) (...continued)
Answer of the NCS Defendants in Intervention filed with the Court today.
(2) Excluding the Class A shares held by the individual defendants and their
families, Plaintiffs purport to represent an uncertified class of
stockholders owning 18,142,534 shares of Class A Common Stock. See
Consolidated Amended Complaint at [p]24; Tender Offer at 5; Osborne 21;
Outcalt 86; Sells 20; Shaw 88. The Omnicare Tender Offer purports to
provide "$5.50 net to the seller in cash", or approximately $3.90 more
per share than the NCS/Genesis Merger Agreement as of July 28, 2002
(without considering the differing tax consequences of the two
transactions). The net benefit to the class is thus approximately
$70,760,000. Plaintiffs' Attorneys' fee demand represents 19.08% of the
benefit, and would effectively reduce the merger consideration for the
class to less than $5.00 per share.
The Honorable Stephen P. Lamb
December 30, 2002
Page 3
portion of the merger proceeds to pay Plaintiffs' Attorneys' fees, it could have
raised the issue prior to entering into the NCS/Omnicare Merger Agreement.
Omnicare never did so. Moreover, this issue could not have been overlooked by
Omnicare, which was well-aware of Plaintiffs' participation and, indeed, was
actively working with Plaintiffs during the course of the litigation. In fact,
this demand for fees could not have come as any surprise to Omnicare, which has
already agreed to pay $22 million to Genesis to terminate its merger agreement
with NCS.
Omnicare's December 23 Tender Offer Supplement similarly emphasizes
that the tender offer price is "$5.50 per share net to the seller in cash,
without interest and less required withholding taxes." (December 23 Tender Offer
Supplement at 1) (emphasis added) (attached hereto as Exhibit B) Although the
Tender Offer Supplement discloses that Plaintiffs' Attorneys had indicated they
would seek an order from the Court of Chancery setting aside a portion of the
payment made to NCS stockholders, Omnicare has no right under the NCS/Omnicare
Merger Agreement to reduce the price, which is $5.50 per share "net to the
seller in cash." (NCS/Omnicare Merger Agreement at 1) (emphasis added) Nowhere
in the NCS/Omnicare Merger Agreement did the parties indicate that the offer
price of $5.50 per share "net to the seller in cash" would be reduced by
Plaintiffs' Attorneys' fees. (NCS/Omnicare Merger Agreement at 1) (emphasis
added)
The current price of NCS's stock also demonstrates that NCS
stockholders and the public have no expectation that the offer price of $5.50
will be reduced in order to pay attorneys' fees. NCS Class A Common Stock traded
at between $5.40 and $5.41 per share on December 27. See December 27, 2002 Yahoo
Finance Stock Quote (attached hereto as Exhibit C). If Plaintiffs' Attorneys'
fees were to be deducted from the merger consideration, and trading in NCS Stock
accounted for this deduction, NCS Common Stock should instead be trading at less
than $5.00, a price which would reflect the merger consideration after this
deduction. In addition, NCS stock has consistently traded well in excess of
$5.00 per share since the announcement of Omnicare's "irrevocable offer" of
$5.50 on December 12, 2002.
Third, it is typically the case that an acquirer will agree to pay
class counsel's fees, subject to its right to challenge the amount of those
fees and the court's approval. See, e.g., Mentor Graphics Corp. v. Quickturn
Design Sys., Inc.,
The Honorable Stephen P. Lamb
December 30, 2002
Page 4
789 A.2d 1216, 1221 (Del. Ch. 2001) (noting that after class plaintiffs filed
TRO to place portion of merger consideration in escrow for payment of
attorneys' fees, acquirer agreed to pay attorneys' fees itself, leaving full
amount of merger consideration for shareholders); In re Dunkin' Donuts S'holders
Litig., Civ. A. No. 10825, 1990 WL 189120, at *3 (Del. Ch. Nov. 27, 1990)
(noting tender offeror agreed to cause target to pay class plaintiffs'
attorneys' fees to facilitate tender offer) (attached hereto as Exhibit K). This
is undoubtedly what Omnicare had in mind when it specifically agreed to pay
$5.50 net to the seller in cash. See In re First Interstate Bancorp Consol.
S'holder Litig., 756 A.2d 355, 362 (Lamb, V.C.) (Del. Ch. 1999) (applying
equitable principles to require acquirer to pay plaintiffs' attorneys' fees).
Finally, Plaintiffs have failed to satisfy their burden of justifying
the amount of the tender offer consideration which they seek to have withheld.
There is no doubt that Plaintiffs' Attorneys received substantial assistance
from Omnicare's counsel in their litigation efforts. Prior to Omnicare's
dismissal for lack of standing, its counsel took the lead at all of the
depositions and handled the bulk of the briefing. Even after Omnicare was
dismissed, Omnicare continued to participate in the preparation of litigation
documents used by Plaintiffs' Attorneys. Indeed, the footer of the office of
Omnicare's local counsel appeared on documents filed by Plaintiffs' Attorneys.
See Notice of Objection to Restrictions On Public Access (filed November 11,
2002) (attached hereto as Exhibit D). Omnicare's counsel has also represented to
counsel for the NCS Defendants that it performed the majority of the work in the
shareholder action, even after Omnicare's action was dismissed. See In re MCA,
Inc. S'holder Litig., Civ. A. No. 11740, 1993 WL 43024, at *6 (Del. Ch. Feb. 16,
1993) aff'd 633 A.2d 370 (Del. 1993) (reduced attorneys' fees awarded will be
awarded where benefit is partly caused by activities of others) (attached hereto
as Exhibit H).
Moreover, NCS understands Plaintiffs' Attorneys claim to have spent
approximately 3,000 hours on this matter. In light of their $13,500,000 fee
demand, that number works out to approximately $4,500 per hour. By any standard,
that is simply too high. See In re North American Phillips Stockholders Litig.,
1987 WL 28434, at *1 (Del. Ch. Dec. 16, 1987) (requiring consideration of time
and labor expended) (attached hereto as Exhibit I); see also In re McCaw
Cellular Communications, Inc. S'holder Litig., Civ. A. NO. 12793, 1994 WL
544017, at *3-4 (Del. Ch.
The Honorable Stephen P. Lamb
December 30, 2002
Page 5
Oct. 18, 1994) (refusing to rule on fee application where plaintiffs' counsel
"played no role in negotiating the merger transaction that is the foundation for
the claimed benefit" and provided no other basis for determining reasonable fee)
(attached hereto as Exhibit J).
Plaintiffs have not met the heavy burden required of them before this
Court will issue a TRO. Accordingly, the TRO Application should be denied.
Respectfully,
/s/ Edward P. Welch
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Edward P. Welch
cc: Register in Chancery (by hand delivery)
Joseph A. Rosenthal, Esquire (by hand delivery)
Robert J. Kriner, Jr., Esquire (by hand delivery)
Donald J. Wolfe, Jr., Esquire (by hand delivery)
Jon E. Abramczyk, Esquire (by hand delivery)
Edward M. McNally, Esquire (by hand delivery)