-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdVMqhKlMURzNsv+Lu2ZQIuRLbfEa7m80Z2EsOwCwTjchdxHypDhrmm+3cELraJo 73JaR1IrYTBC0bEf7bK9bQ== 0000950152-02-006534.txt : 20020819 0000950152-02-006534.hdr.sgml : 20020819 20020819125440 ACCESSION NUMBER: 0000950152-02-006534 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020801 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS HEALTHCARE INC CENTRAL INDEX KEY: 0001004990 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341816187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27602 FILM NUMBER: 02742191 BUSINESS ADDRESS: STREET 1: 3201 ENTERPRISE PKWY STREET 2: STE 2200 CITY: BEACHWOOD STATE: OH ZIP: 44122 BUSINESS PHONE: 2165143350 MAIL ADDRESS: STREET 1: 1400 MCDONALD INVESTMENT CENTER STREET 2: 800 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 8-K 1 l95934ae8vk.txt NCS HEALTHCARE, INC. 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: August 19, 2002 Date of earliest event reported: August 1, 2002 NCS HEALTHCARE, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 00-27602 34-1816187 (Commission File No.) (IRS Employer Identification No.) 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122 (Address of principal executive offices, including ZIP code) (216) 378-6800 (Registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS. Between August 1, 2002 and August 12, 2002, two additional stockholder lawsuits (both of which are purported class action lawsuits) were filed against NCS HealthCare, Inc. ("NCS") and its directors, and in one case, against Genesis Health Ventures, Inc. ("Genesis") and Geneva Sub, Inc., a wholly owned subsidiary of Genesis ("Sub"), in connection with the Agreement and Plan of Merger, dated July 28, 2002, among NCS, Genesis and Sub (the "Merger Agreement") and the proposed merger of Sub with and into NCS (the "Proposed Merger"), and one existing stockholder lawsuit was amended (the "Stockholder Claims"). The Stockholder Claims allege that the directors of NCS breached their fiduciary duties, and certain other duties, to stockholders by entering into the Merger Agreement and seek various relief, including an injunction against consummation of the Proposed Merger, requiring separate class voting on approval of the Proposed Merger by NCS stockholders, rescinding the Proposed Merger if the same is consummated prior to a final judgment on the Stockholder Claims, declaring the agreements, dated July 28, 2002, with certain stockholders of NCS beneficially owning in the aggregate a majority of the outstanding voting power of NCS Common Stock (the "Voting Agreements") null and void, and compensatory damages and costs. In addition, the amended stockholder complaint alleges that the Voting Agreements violate the NCS amended and restated certificate of incorporation and therefore resulted in an automatic conversion of such stockholders' Class B common shares into Class A common shares. NCS does not believe that the Stockholder Claims have merit. The foregoing descriptions of the Stockholder Claims are qualified in their entirety by reference to the text of the Stockholder Claims, which are attached hereto as Exhibits 99.1, 99.2 and 99.3 and are incorporated herein by reference. The following three lawsuits were each filed with the court indicated on the dates indicated: 1. Michael Petrovic on behalf of himself and all others similarly situated v. NCS HealthCare, Inc., Jon H. Outcalt, Kevin B. Shaw, Richard L. Osborne, and Boake A. Sells, filed with the Court of Common Pleas for Cuyahoga County, Ohio on August 1, 2002. 2. Dolphin Limited Partnership, L.L.P. v. Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures, Inc., Genesis Sub, Inc. and NCS HealthCare, Inc., filed with the Court of Chancery of the State of Delaware in and for New Castle County on August 7, 2002. 3. First Amended Complaint Omnicare, Inc. v. NCS HealthCare, Inc., Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures, Inc. and Geneva Sub, Inc., filed with the Court of Chancery of the State of Delaware in and for New Castle County on August 12, 2002. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, AND EXHIBITS (c) Exhibits. 99.1 Petrovic Complaint, dated August 1, 2002. 99.2 Dolphin Complaint, dated August 7, 2002. 99.3 Amended Omnicare Complaint, dated August 12, 2002. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NCS HEALTHCARE, INC. Dated: August 19, 2002 By: /s/ Kevin B. Shaw -------------------------------- Name: Kevin B. Shaw Title: President, Chief Executive Officer and Director Dated: August 19, 2002 By: /s/ William B. Byrum ------------------------------- Name: William B. Byrum Title: Executive Vice President and Chief Operating Officer Dated: August 19, 2002 By: /s/ Gerald D. Stethem ------------------------------- Name: Gerald D. Stethem Title: Senior Vice President and Chief Financial Officer EXHIBIT LIST Exhibit No. Description - ----------- ----------- 99.1 Petrovic Complaint, dated August 1, 2002. 99.2 Dolphin Complaint, dated August 7, 2002. 99.3 Amended Omnicare Complaint, dated August 12, 2002. EX-99.1 3 l95934aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 COURT OF COMMON PLEAS CUYAHOGA COUNTY, OHIO MICHAEL PETROVIC ) CASE NO.: on behalf of himself and ) all others similarly situated ) JUDGE: 20336 Wallingford Lane ) Barrington, Illinois 60010 ) ) Plaintiffs ) ) v. ) ) NCS HEALTHCARE, INC. ) CLASS ACTION COMPLAINT 3201 Enterprise Parkway, Suite 220 ) ---------------------- Beachwood, Ohio 44122 ) ) JON H. OUTCALT ) c/o NCS HEALTHCARE, INC. ) 3201 Enterprise Parkway, Suite 220 ) Beachwood, Ohio 44122 ) ) KEVIN B. SHAW ) c/o NCS HEALTHCARE, INC. ) 3201 Enterprise Parkway, Suite 220 ) Beachwood, Ohio 44122 ) ) RICHARD L. OSBORNE ) c/o NCS HEALTHCARE, INC, ) 3201 Enterprise Parkway, Suite 220 ) Beachwood, Ohio 44122 ) ) and ) ) BOAKE A. SELLS ) c/o NCS HEALTHCARE, INC. ) 3201 Enterprise Parkway, Suite 220 ) Beachwood, Ohio 44122 ) ) Defendants ) Plaintiff, by his attorneys, alleges upon information and belief, except as to paragraph 1 which is alleged on personal knowledge, as follows: 1. Plaintiff is, and has been at all relevant times, the owner of shares of the common stock of NCS Healthcare, Inc. ("NCS" or the "Company"). 2. NCS is a corporation organized and existing under the laws of the State of Delaware; maintains its principal corporate offices at 3201 Enterprise Parkway, Suite 220, Beachwood, OH 44122; and is a provider of pharmacy services to long-term care institutions, including skilled nursing facilities, assisted living facilities and other institutional healthcare settings. 3. Defendant Jon H. Outcalt is the Chairman of the Board of Directors of NCS and is the controlling shareholder of the company with approximately 66% voting control over NCS. 4. Defendant Kevin B. Shaw is President, Chief Executive officer, secretary and Director of NCS; defendant Shaw has approximately 21.7% voting control of NCS. 2 5. Defendants Richard L. Osborne and Boake A. Sells are Directors of NCS and each has approximately 1.8% voting control of NCS. 6. By virtue of the individual defendants' positions as officers and/or directors of NCS, and Outcalt's position as majority stockholder, the individual defendants have fiduciary relationships with the plaintiff and other public shareholders of NCS and owe plaintiff and other NCS shareholders the highest obligation of good faith, fair dealing, loyalty, and due care. 7. The defendants have signed a definitive merger agreement to allow the Company to be acquired at an unfairly low price in breach of their fiduciary duties to NCS' public shareholders. CLASS ACTION ALLEGATIONS ------------------------ 8. Plaintiff brings this action on his behalf and as a shareholders' class action, pursuant to Ohio and Delaware law, on behalf of all shareholders of the common stock of the Company and their successors in interest, who are threatened with injury arising from defendants' actions. 9. This action is properly maintainable as a class action. a. The class, numbering in the thousands, is so numerous that joinder of all members is impracticable; approximately 18.5 million publicly held shares of NCS is held by hundreds if not thousands of shareholders throughout the country. b. There are questions of law and fact which are common to the class, including, inter alia, the following: 3 (i) did defendants breach their fiduciary and other common law duties owed by them to plaintiff and the members of the class; (ii) are defendants, by agreeing for NCS to enter into the proposed merger with Genesis Health Ventures, Inc., pursuing a course of conduct designed to eliminate the public shareholders of NCS without adequate disclosure, without adequate consideration, and in violation of their fiduciary duties; (iii) will the individual defendants negotiate at arms-length and in good-faith on behalf of NCS public shareholders; and (iv) is the class entitled to injunctive relief or damages as a result of the wrongful conduct of the defendants. (c) Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff's claims are similar to those of the Class and plaintiff has no interests that are adverse to the Class. 10. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 4 11. Defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. SUBSTANTIVE ALLEGATIONS ----------------------- 12. On July 29, 2002 the Company announced that it entered into a definitive merger agreement with Genesis Health Ventures, Inc. ("Genesis") whereby each share of NCS common stock will be exchanged for 0.1 shares of Genesis common stock, and Genesis will repay in full the outstanding debt of NCS, including $206 million of senior debt. In addition, Genesis will redeem $102 million of 5.75% convertible subordinated debentures, including any accrued and unpaid interest owed by the Company. 13. The transaction, which was unanimously approved by the Board of directors of NCS, is valued at approximately $340 million. At the proposed exchange rate of 0.1 Genesis shares (trading at approximately $16 per share) for each NCS share, shareholders of NCS would be receiving approximately $1.60 per share in the proposed transaction. 14. Although the $1.60 offer per share represents a significant premium over NCS' closing price of $0.74 before announcement of the transaction, the proposed transaction does not represent the true value of the assets and future prospects underlying each share of NCS. 15. In fact, a leading provider of pharmaceutical care for the elderly, Omnicare, Inc. ("Omnicare"), has offered $3 per share in cash for each NCS share. Omnicare, among other things, serves approximately 729,500 residents in long-term care facilities in 45 5 states, provides clinical research services for the pharmaceutical and biotechnology industries in 27 countries, and has annual sales of approximately $2.1 billion. 16. In a letter to the Company dated July 28, 2002, Omnicare offered to purchase NCS for $3 per share in cash, or $400 million. 17. Omnicare has stated that it is "prepared to negotiate quickly" and its cash offer is not subject to financing contingencies or "break-up" fees that would deter potential acquirers from offering a higher price for the Company. In fact, Omnicare has already presented NCS with a draft merger agreement, which was sent along with Omnicare's July 28, 2002 letter. 18. It does not appear that defendants sought a third party buyer for NCS, nor did they shop the Company in order to obtain a higher price. On the contrary, defendants have agreed to vote their shares in favor of this merger transaction in the face of a superior offer from Omnicare and prior to shopping the Company. 19. The proposed consideration of $1.60 per share does not represent the true value of the assets and future prospects of NCS and does not adequately reflect the value of the NCS' common stock. Defendants' agreement to the transaction for inadequate consideration constitutes a breach of their fiduciary duties. 20. Defendants have breached their fiduciary duties to plaintiffs and NCS' public shareholders by not renegotiating and/or reformulating the terms of the merger. Absent injunctive relief of the Court, plaintiff and the Class will be irreparably harmed as a result of defendants' breaches of their fiduciary duties. 6 21. In light of the foregoing, the individual defendants must, as their fiduciary obligations require, act independently so that the interests of NCS' public stockholders will be protected; and adequately ensure that no conflicts of interest exist between the interests of the defendants, including Outcalt, and their fiduciary obligations to NCS' public stockholders or, if such conflicts exist, to ensure that all conflicts are resolved in the best interests of NCS's public stockholders. 22. Plaintiff and the Class have no adequate remedy at law. WHEREFORE, plaintiff demands judgment against the defendants jointly and severally, as follows: (1) declaring this action to be a class action and certifying plaintiff as the class representative and his counsel as class counsel; (2) enjoining, preliminarily and permanently, the proposed transaction between NCS and Genesis; (3) in the event that the transaction is consummated prior to the entry of this Court's final judgment, rescinding it or awarding to plaintiff and the Class rescissory damages; (4) directing that defendants account to plaintiff and the other members of the class for all damages caused by them and account for all profits and any special benefits obtained as a result of their breaches of their fiduciary duties; (5) awarding to plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of plaintiff's attorneys and experts; and 7 (6) granting plaintiff and the other members of the Class any further relief the Court deems just and proper. Of Counsel: /s/ Ronald H. Isroff -------------------------- BEATIE AND OSBORN LLP Ronald H. Isroff (0021930) Edward Korsinsky Michael N. Ungar (0016989) 521 Fifth Avenue, 34th Floor David D. Yeagley (0042433) New York, New York 10175 ULMER & BERNE LLP Tel: (212)888-9000 Penton Media Building 1300 East Ninth Street, Suite 900 Cleveland, Ohio 44114-1583 Telephone (216) 621-8400 Fax (216)621-7488 E-mail: risroff@ulmer.com E-mail: mungar@ulmer.com E-mail: dyeagley@ulmer.com Attorneys for Plaintiffs 8 EX-99.2 4 l95934aexv99w2.txt EXHIBIT 99.2 Exhibit 99.2 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ------------------------------------------x DOLPHIN LIMITED PARTNERSHIP L.L.P., : : Plaintiff, : : -vs.- : COMPLAINT 19822 : JON H.OUTCALT, KEVIN E. SHAW, : BOAKE A. SELLS, RICHARD L. OSBORNE, : GENESIS HEALTH VENTURES, INC., : GENESIS SUB, INC. AND NCS HEALTHCARE, : INC., : : Defendants. : - ------------------------------------------x Plaintiff, by its attorneys, alleges upon information and belief, except as to Paragraph 12, which is alleged on knowledge, as follows: NATURE OF THE ACTION -------------------- 1. On July 29, 2002, NCS Healthcare, Inc. ("NCS" or the "Company") announced that it had entered into a definitive merger agreement with Genesis Health Ventures, Inc. ("Genesis"). In the proposed merger, each of NCS's approximately 23.7 million shares of common stock outstanding would be exchanged for 0.1 share of Genesis common stock, which, on July 26, 2002 (the last trading day prior to the announcement of the proposed merger, closed at $16 per share on NASDAQ, making the merger worth about $38 million to NCS common stockholders, or $1.60 per NCS share. Genesis would also assume NCS debt of approximately $308 million. Under the proposed Genesis merger, NCS public shareholders would own approximately 4.2% of the combined company. The equity market value of Genesis is approximately $650 million and the combined Genesis/NCS would have approximately $874 million of net debt and preferred stock as of March 31, 2002. 2. On July 26, 2002, Omnicare, Inc. ("Omnicare") made a $3.00 per share cash offer to acquire all of the outstanding shares of NCS common stock, plus the assumption of NCS's debt. Omnicare is a leading provider of pharmaceutical care for the elderly, with an equity market value of approximately $1.5 billion. 3. On August 1, 2002, Omnicare announced that it would shortly commence a $3.50 tender offer to acquire all the shares of NCS common stock, thus valuing the Omnicare offer at approximately $83 million to NCS common stockholders - more than double the worth of the consideration to be received by NCS shareholders in the proposed Genesis merger. 4. On July 26, 2002, the last trading day prior to the announcement of the proposed Genesis merger, the price of NCS closed on the NASDAQ Bulletin Board at $.74 per share. The facts that (a) shareholders will own only approximately 4.2% of the combined company following the Genesis merger, and (b) will receive a substantial premium over NCS's pre-announcement trading price show that the proposed transaction is not structured as a merger of equals, but rather as an acquisition of NCS by Genesis. Having decided to put NCS up for sale, the NCS Board of Directors has a fiduciary duty to all NCS common stockholders to maximize the value of their shares. 5. Defendants Jon H. Outcalt ("Outcalt"), Kevin E. Shaw ("Shaw"), Boake A. Sells ("Sells") and Richard L. Osborne ("Osborne") (collectively, the "Director Defendants"), constituting the entire Board of Directors of NCS, have violated their fiduciary duties to NCS public stockholders by refusing to consider Omnicare's premium all cash offers and agreeing to 2 the grossly inferior proposed Genesis merger despite the fact that Omnicare has advised the NCS Board of Directors that: 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. 6. On August 1, 2002, Omnicare announced that it had filed a lawsuit in this Court to stop the Genesis acquisition of NCS and said that it expected to commence a tender offer for NCS. Omnicare's Chief Executive Officer stated that We are taking these steps after continued refusal by NCS to discuss Omnicare's offer to acquire the company. We believe that the Board of Directors of NCS has breached its fiduciary duties by entering into the Genesis Agreement while they were fully aware of our offer ... 7. NCS has about 23,716,000 shares outstanding, of which about 18,460,000 are Class A common shares and 5,255,210 are Class B common shares. Defendants Outcalt and Shaw hold outright 230,968 Class A common shares (1.3% of this class) and 4,617,220 Class B common shares (87.9% of this class). Each Class B common share is entitled to ten (10) votes for every vote of a Class A common share. 8. Defendants Outcalt and Shaw are, respectively, the Chairman of the Board and President of NCS. They are also controlling shareholders of NCS, by virtue of their ownership of 3 87.9% of the super-voting Class B common stock. Although the public shareholders of NCS own more than 96% of NCS Class A common shares and approximately 77% of the Company, defendants Outcalt and Shaw have the voting power, by virtue of their ownership of Class B common shares, and irrespective of the wishes or votes of owners of Class A common shares, to force approval of the proposed Genesis merger for their own self-serving purposes and contrary to the interests of NCS public shareholders. 9. The proposed merger, as structured, requires the approving vote of only 51% of the outstanding NCS shares, with the Class A and B shares voting as a single class. Since defendants Outcalt and Shaw own or control more than 65% of the voting power of the NCS shares entitled to vote on the merger, the vote will be meaningless. In effect, defendants Outcalt and Shaw have the power to cram the merger down the throats of NCS Class A common shareholders, the owners of approximately 77% of the economic interest in NCS. 10. As controlling shareholders of NCS, Defendants Outcalt and Shaw have violated their fiduciary duties to NCS public stockholders by granting Genesis an irrevocable proxy to vote all of their shares of NCS Class B common stock in favor of the proposed merger, thereby assuring approval of the merger agreement between NCS and Genesis and rejection of the vastly superior Omnicare $3.50 per share cash offer. 11. This action is brought on behalf of all holders of the Class A common stock of NCS, other than defendants, their families and their affiliates, to enjoin the proposed merger of NCS and Genesis which is inimical to the interests of NCS's Class A shareholders, and to ensure that the Individual Defendants fulfill their fiduciary duty to maximize shareholder value in a sale of the company. 4 THE PARTIES ----------- 12. Plaintiff Dolphin Limited Partnership L.L.P., a Delaware limited partnership with offices in Stamford, CT, owns approximately 500,000 shares of NCS Class A common stock. 13. 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 acute-care facilities, including skilled nursing centers, assisted living facilities, and hospitals. 14. Defendant Outcalt is Chairman of the Board of Directors of NCS and a founding principal of NCS. Outcalt receives an annual salary of $200,000 plus other benefits and, in addition, he also receives a monthly retention bonus of $17,000 for services in connection with the company's restructuring program. Upon completion of the Genesis merger, Outcalt will receive a one-time payment of $200,000. 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. 15. Defendant Kevin B. Shaw is a founding principal and has been President, Secretary, and a Director of NCS since 1986. Shaw received an annual salary of $187,000 for fiscal 2001 plus other benefits, and a retention bonus of $25,000 payable during 2001 and 2002. As an Officer and Director of NCS, Shaw owes fiduciary duties of loyalty and care to NCS stockholders. 16. 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. Sells has been receiving a director's fee of $35,000 per year, plus a monthly consulting fee of $10,000, or $120,000 per year in addition to the $35,000 director's fee. As a Director of NCS Sells owes fiduciary duties of 5 loyalty and care to NCS stockholders. 17. 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. Osborne has been receiving a director's fee of $35,000 per year. As a Director of NCS, Osborne owes fiduciary duties of loyalty and care to NCS stockholders. 18. Defendants Osborne and Sells have served as members of a Special Committee of the NCS Board of Directors and, in that capacity, have recommended to the entire Board of Directors, consisting of Outcalt and Shaw in addition to themselves, approval of the proposed Genesis merger. Defendants' appointment of a special committee in connection with the proposed Genesis merger indicates that defendants believe that defendants Outcalt and Shaw suffer from conflicts of interests, presumably because they will enjoy continuing remunerative employment with the combined enterprise. Sells' ability to act independently is compromised by a conflict of interest arising from his $120,000 per year consulting fee with NCS, for which he is beholden to defendants Outcalt and Shaw. 19. 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. Genesis is a provider of pharmacy services to long term health care institutions. Genesis has recently emerged from bankruptcy proceedings and as of March 31, 2002 had approximately $600 million of net debt and redeemable preferred stock. Its Chief Executive Officer left in May and the position of CEO is presently being filled on an interim basis by a member of the Genesis Board of Directors. 20. Defendant Genesis Sub, Inc., a wholly owned subsidiary of Genesis, is a 6 corporation organized and existing under the laws of the State of Delaware. Genesis Sub, Inc. was formed by Genesis to acquire NCS. References to "Genesis" include Genesis Sub, Inc. 21. Omnicare, NCS, and Genesis are all in the same or similar lines of business. They all are providers of pharmacy services to long term health care institutions. CLASS ACTION ALLEGATIONS ------------------------ 22. Plaintiff brings this action on its own behalf and as a class action on behalf of all holders of Class A common stock of NCS and their successors in interest (except defendants, their families, and their affiliates) who are threatened with injury arising from defendants' actions. 23. This action is properly maintainable as a class action. a. The class is so numerous that joinder of all members is impracticable; approximately 18.5 million publicly held shares of NCS Class A common stock are held by hundreds, if not thousands, of shareholders throughout the country. b. There are questions of law and fact which are common to the class, including, inter alia, the following: i. are defendants breaching their fiduciary duties owned by them to plaintiff and the members of the class by failing to maximize shareholder value, in a sale of NCS? ii. are defendants breaching their fiduciary duties by failing and refusing to consider in good faith the vastly superior offer by Omnicare to acquire NCS? iii. are the NCS public shareholders entitled to injunctive relief or damages as a result of defendants' breaches of their fiduciary duties? 7 c. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff's claims are similar to those of the Class and plaintiff has no interests that are adverse to the Class. 24. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 25. Defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. SUBSTANTIVE ALLEGATIONS ----------------------- 26. Since July 2001, Omnicare and NCS have been in discussions about a possible acquisition of NCS or its assets by Omnicare. 27. 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. 28. 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. 29. On July 26, 2002, Joel F. Gemunder, President and CEO of Omnicare, sent a letter to defendant Outcalt 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 8 assume and/or retire existing $308 million NCS debt that is presently in default (as of March 31, 2002) at its full principal amount plus accrued interest. 30. 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' then current stock price of $.74 per share, which was already at its highest level in two years. 31. The letter also noted that this proposal would provide almost $400 million in cash to NCS's equity and debt holders, and reiterated Omnicare's continued belief that such a proposal provides exceptional value to the NCS security holders. 32. 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 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. 33. 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 9 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 securityholders 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. 34. Mr. Gemunder's letter concluded by expressing the hope that Defendant Outcalt and the other members of the NCS Board of Directors would view the proposal as 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. The letter concluded as follows: 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. 35. To date, no response from defendants has been forthcoming. 36. On August 1, 2002, Omnicare increased its offer to acquire the outstanding shares of NCS to $3.50 per share in a fully financed all cash tender offer for all the NCS shares. 37. Instead of responding to Omnicare's exceptionally attractive proposals, the Director Defendants approved the Genesis Merger Agreement which grossly undervalues NCS. The proposed Genesis merger in fact provides to NCS public shareholders less than half of what Omnicare has offered. 38. In further violation of their fiduciary obligations to NCS Class A stockholders, the 10 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 or its shareholders and that effectively preclude acceptance of any superior bid, including the premium offer made by Omnicare. 39. Although NCS stockholders will go through the formality of voting for or against the Genesis merger, 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 (principally Director Defendants Outcalt and Shaw) are allowed ten votes per share, Defendants Outcalt and Shaw possess overwhelming voting strength to ensure approval of the Genesis merger agreement. 40. 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"). 41. While the Director Proxy Lock-Up is ostensibly terminable if the Genesis Merger Agreement is terminated, the Genesis Merger Agreement prohibits 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, defendants have "locked up" the acquisition of NCS, to force this grossly inferior transaction on shareholders owning approximately 77% of the Company. 42. In the Genesis merger agreement, NCS has agreed that its obligations to call, give 11 notice of, convene and hold a meeting of the holders of the common stock of the Company shall not be affected by the withdrawal, amendment or modification of the NCS Board of Directors' recommendation. 43. Furthermore, and most unusually, NCS has agreed that such obligations shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any acquisition proposal no matter how superior to the Genesis merger. Indeed, so intent are the Director Defendants to pursue the Genesis deal that they have agreed to forego any customary "fiduciary out" or to condition the transaction on the approving vote of the Class A shareholders voting as a separate class. 44. 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 (nearly 16% of its equity market value) 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 with a windfall, while betraying the interests of NCS stockholders by making it difficult for NCS to negotiate with third parties willing to offer NCS stockholders greater value than they will realize through the proposed Genesis Merger. 45. 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 12 impermissibly locked NCS stockholders into a transaction that denies them anything close to fair value for their shares. All this was done against the backdrop of a superior proposal from Omnicare. 46. Furthermore, if the Genesis merger agreement is consummated according to its terms, with NCS shareholders receiving .1 shares of Genesis common stock for each outstanding share of NCS common stock, NCS public shareholders would own only approximately 4.2% of the combined company and which would have approximately $874 million of pro forma net debt and preferred stock. Thus, any theoretical long-term benefits of the Genesis merger to NCS public stockholders would be de minimis, if they ever materialize. In fact, Genesis stock would have to currently trade at $35 per share to provide a market value equivalent to the Omnicare proposal - 2.2 times its current trading price. On the other hand, the Omnicare $3.50 cash offer provides an immediate real and substantial benefit. CLAIM FOR RELIEF 47. The Director Defendants owe fiduciary duties to NCS and its stockholders. These duties include, but are not limited to, the obligation to consider and fully evaluate all bona fide offers for NCS, the obligation to exercise due care in responding to such offers, the obligation not to put self-interest and personal or other consideration ahead of the interest of the Class A stockholders, and the obligation not to take unreasonable defensive measures that are disproportionate to any perceived threat posed to NCS or its shareholders. 48. 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 13 party from entering into an agreement that offers greater value to NCS stockholders than that offered by the proposed Genesis merger. 49. The Director Defendants have breached their duties of good faith, loyalty and care by agreeing to enter into the Genesis Merger Agreement and the Director Proxy Lock-Up. 50. Additionally, in further breach of their fiduciary duties, the Director Defendants have failed even to consider Omnicare's vastly superior offer. 51. The Director Defendants have further breached their fiduciary duties by, in effect, disenfranchising the public NCS Class A stockholders by not conditioning the Genesis merger on the approval of the Class A shareholders voting as a separate class. 52. The Director Defendants have purposely refused to explore Omnicare's bid even though Omnicare has specifically invited NCS representatives to engage in discussions with respect to that bid. The Director Defendants' blindness and refusal to fully inform themselves of Omnicare's superior offer constitutes a breach of the Director Defendants' fiduciary duties. 53. Unless enjoined by this Court, the Director Defendants will continue to breach their fiduciary duties to the detriment of the Class A stockholders, thereby preventing NCS's stockholders from even considering potentially superior merger proposals such as the Omnicare merger proposal. 54. Genesis has aided and abetted the Director Defendants in their breaches of fiduciary duty. As a direct participant in the Director Proxy Lock-Up and the Genesis Merger Agreement, Genesis 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 unreasonable features and "penalty" provisions of the Genesis Merger Agreement and the 14 Director Proxy Lock-Up, which were designed by Genesis to interfere with Omnicare's or any other superior merger proposals. 55. Unless enjoined in this action, Genesis will continue to aid and abet the Director Defendants' breaches of fiduciary duties to NCS and its Class A stockholders. 56. Plaintiff and the class have no adequate remedy at law. WHEREFORE, plaintiff demands judgment against the defendants jointly and severally, as follows: (1) declaring this action to be a class action and certifying plaintiff as the class representative and its counsel as class counsel; (2) enjoining, preliminarily and permanently, the proposal merger between NCS and Genesis, (3) directing defendants to condition the Genesis merger on the approving vote of the Class A stockholders voting as a separate class; (4) in the event that the transaction is consummated prior to the entry of this Court's final judgment, rescinding it or awarding plaintiff and the Class rescissory damages; (5) directing that defendants account to plaintiff and the other members of the class for all damages caused by them and account for all profits and any special benefits obtained as a result of their breaches of their fiduciary duties; (6) awarding plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of plaintiff's attorneys and experts; and (7) granting plaintiff and the other members of the Class such further relief the Court deems just and proper. ROSENTHAL, MONIIAIT, GROSS & GODDESS, P.A. BY: Illegible ------------ 919 North Market Street, Suite 1401 P.O. Box 1070 Wilmington, Delaware 19899-1070 Tel: (302) 656-4433 Attorneys for Plaintiff OF COUNSEL LOWEY DANNENBERG BEMPORAD & SELINGER, P.C. 1 North Lexington, 11th Floor White Plains, New York 10601 Tel: (914) 997-0500 16 EX-99.3 5 l95934aexv99w3.txt EXHIBIT 99.3 Exhibit 99.3 IN THE COURT OF CHANCERY OF DELAWARE NEW CASTLE COUNTY - ----------------------------------------X OMNICARE, INC., Plaintiff, -vs.- NCS HEALTHCARE, INC., JON H. OUTCALT, KEVIN B. SHAW, BOAKE A. SELLS, RICHARD L. OSBORNE, GENESIS HEALTH VENTURES, INC., and GENEVA SUB, INC., Defendants. - ----------------------------------------X FIRST AMENDED COMPLAINT Plaintiff Omnicare, Inc. ("Omnicare") 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"), Geneva Sub, Inc. ("Geneva Sub"), and NCS Healthcare, Inc. ("NCS"), dated as of July 28, 2002 (the "Genesis Merger Agreement"), NCS has agreed to merge with Geneva Sub (the "Proposed Genesis Merger"). Days before NCS entered into the Genesis Merger Agreement, under which stockholders would receive only about $1.60 per share in Genesis common stock, Omnicare made a substantially superior all-cash offer of $3.00 per share, 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 and statutory duties to NCS stockholders, declined even to consider that offer. Nor have they responded in any meaningful way to a cash tender offer Omnicare commenced on August 8, 2002 of $3.50 per share for all outstanding shares of NCS common stock. Moreover, they agreed to terms in the Genesis Merger Agreement that were intended to make it impossible for Omnicare's superior offer, or any other offer from any other bidder, to be accepted by NCS or its stockholders. 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 had previously offered and even less than half of what it is currently offering. 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 for a year, offered to acquire NCS for $3.00 per share in cash, with Omnicare assuming and/or retiring existing NCS debt. The Director Defendants never responded to that proposal, nor have they made any substantive response to Omnicare's new, higher offer of $3.50 per share in cash. 4. Instead, in violation of their fiduciary obligations to NCS stockholders, the Director Defendants approved the Proposed Genesis Merger and the Genesis Merger Agreement, which provide NCS stockholders with less than half the value being offered by Omnicare. In further violation of their fiduciary obligations to NCS stockholders, they 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. Specifically, Defendants have attempted to structure the Genesis Merger Agreement so that the stockholders will theoretically have the opportunity to vote on it, while making the outcome of that vote a foregone conclusion. -2- 6. The Genesis Merger Agreement is premised upon the concept that Messrs. Outcalt and Shaw control sufficient voting strength to ensure approval because, while holders of Class A shares are allowed one vote per share, holders of Class B shares (principally Mr. Outcalt, with 3,476,086 such shares, and Mr. Shaw, with 1,141,134) are allowed ten votes per share. Defendants have attempted to guarantee such approval by means of voting agreements executed in conjunction with the Genesis Merger Agreement, pursuant to which Messrs. Outcalt and Shaw have granted Genesis an irrevocable proxy to vote all their shares of Class B common stock (the "Locked-Up Shares") in favor of the Genesis Merger Agreement (the "Director Proxy Lock-Up"). While the Director Proxy Lock-Up is ostensibly terminable if the Genesis Merger Agreement is terminated, the Genesis Merger Agreement prohibits the Director Defendants from terminating the Genesis Merger Agreement prior to the stockholder vote to approve it (the "No Termination Provision"). 7. As explained below, the Director Proxy Lock-Up violates NCS's Amended and Restated Certificate of Incorporation ("the NCS Certificate") and, by transferring all control of their Class B shares, Messrs. Outcalt and Shaw have irrevocably converted their Class B shares into Class A shares. Nonetheless, as designed, the Director Proxy Lock-Up and the No Termination Provision constitute blatant violations of fiduciary duty which improperly seek to preclude any possibility of NCS stockholders receiving the benefit of superior offers. 8. The Genesis Merger Agreement also prevents the Director Defendants from even considering alternative offers (the "No Shop Provision"). Specifically, they may not: (i) solicit, initiate, encourage (including by way of furnishing information), facilitate or induce inquiries with respect to any competing proposal; (ii) discuss, negotiate or furnish non-public information with respect to any competing proposal; -3- (iii) approve, endorse or recommend any competing proposal; or (iv) enter into any letter of intent or similar document or any contract, agreement or commitment contemplating or relating to any competing proposal. 9. While the Genesis Merger Agreement purports to provide a "fiduciary out," it is a mere pretense. The Director Proxy Lock-Up is designed to ensure that the "out" can never actually be exercised and that no other offer, regardless of its superiority, can displace the collusive deal the Directors Defendants struck with Genesis. 10. To clinch the coercive, onerous and preclusive effects of these actions, the Genesis Merger Agreement further provides that if the Proposed Genesis Merger does not obtain the required stockholder approval, thus preventing consummation of the merger (an unlikely event if the other provisions described above have their intended effect), 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 Geneva Sub with a windfall, while betraying the interests of NCS stockholders by making it difficult for NCS to negotiate with third parties willing to offer NCS stockholders greater value than they will realize through the Proposed Genesis Merger. 11. Thus, the Director Defendants, by agreeing to the Director Proxy Lock-Up, the No Termination Provision, the No Shop Provision, 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 sought to lock NCS stockholders into a transaction that denies them anything close to fair value. In effect, they decided not only to take a "fiduciary holiday," but to put their fiduciary duties into permanent receivership. -4- 12. Ultimately, however, this entire scheme must fail because it violates not only the Director Defendants' duties under Delaware law, but also the NCS Certificate, which prohibits Messrs. Outcalt and Shaw as Class B stockholders from transferring their voting power to Genesis and provides that, as a result of their doing so, those Class B shares (having ten votes per share) automatically and irrevocably converted into Class A shares (having one vote per share). 13. Accordingly, Omnicare brings this action to secure (i) declaratory relief with respect to the illegal Director Proxy Lock-Up and (ii) declaratory and injunctive relief against the Director Defendants' breaches of fiduciary duty and Genesis and Geneva Sub's aiding and abetting of such breaches. PARTIES 14. 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 a leader 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. 15. 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 acute care facilities, including skilled nursing centers, assisted living facilities and hospitals. 16. Defendant Jon H. Outcalt has been Chairman of the Board of NCS since 1986. As such, he owes fiduciary duties to NCS stockholders. -5- 17. Defendant Kevin B. Shaw has been President, Secretary and a Director of NCS since 1986, and Chief Executive Officer of NCS since 1995. As such, he owes fiduciary duties to NCS stockholders. 18. Defendant Boake A. Sells has been a member of the Board since 1993. As such, he owes fiduciary duties to NCS stockholders. In addition to his director's fee, he has been receiving a $10,000 per month consulting fee from NCS. 19. Defendant Richard L. Osborne has been a member of the Board since 1986. As such, he owes fiduciary duties to NCS stockholders. 20. 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. 21. Defendant Geneva Sub, a wholly owned subsidiary of Genesis, is a corporation organized and existing under the laws of the State of Delaware. Geneva Sub was formed by Genesis to acquire NCS. FACTS Omnicare's Attempts to Negotiate with NCS 22. Since approximately April 2000, NCS has been in default under its senior credit facility. Thereafter, NCS elected not to make an interest payment due February 15, 2001 on its outstanding bonds and began a series of discussions with its banks and with a committee of bondholders (the "Ad Hoc Committee") regarding a possible restructuring of its debt. 23. In July 2001, Omnicare President and CEO Joel F. Gemunder expressed an interest in acquiring NCS. Mr. Shaw responded that the Director Defendants would review Omnicare's interest. In a July 20, 2001 letter to the Director Defendants, Mr. Gemunder stated -6- that Omnicare was prepared to offer approximately $225 million in cash to acquire NCS's assets, was willing to discuss the details of its proposal, and would need only limited due diligence. 24. An August 9, 2001 letter from NCS's counsel directed Omnicare to conduct all further communications with NCS's advisors, rather than directly with NCS. 25. On August 29, 2001, frustrated by the slow pace of negotiations with NCS's advisors, Omnicare sent NCS, the Ad Hoc Committee and their respective legal and financial advisors a written offer to pay $270 million in cash to acquire NCS, excluding cash and certain liabilities. Given NCS's then-existing financial situation, the proposal contemplated a purchase pursuant to Section 363 of the United States Bankruptcy Code, but Omnicare made clear that it was open to other alternatives. NCS never responded. 26. In late September 2001, the parties' advisors agreed to the terms of a confidentiality agreement. Nonetheless, NCS never provided the detailed financial information that Omnicare needed (and repeatedly requested) to evaluate a transaction. Indeed, in October 2001, NCS's financial advisors proposed that Omnicare buy NCS, make a modest cash payment to stockholders and pay off bondholders at a modest discount to par, but NCS refused to provide the financial data Omnicare needed to analyze the proposal. 27. Because NCS would not respond to Omnicare, Omnicare met in November 2001 with the Ad Hoc Committee and its financial and legal advisors to discuss Omnicare's interest in NCS. After the Ad Hoc Committee stated that it believed that it could obtain NCS's support for a transaction, Omnicare and the Ad Hoc Committee negotiated such a transaction over the ensuing months. However, those negotiations were unsuccessful, as NCS refused to participate directly or meaningfully in the process. -7- The Omnicare Merger Proposal 28. In July 2002, Omnicare began to suspect that NCS was negotiating with other parties. Accordingly, on July 26, 2002, Mr. Gemunder sent Mr. Outcalt a letter, with copies to the other Director Defendants, proposing a merger transaction in which Omnicare would pay NCS stockholders $3.00 per share in cash and assume and/or retire existing debt. 29. On July 29, 2002, compelled by NCS's failure to respond, Mr. Gemunder sent another letter, which Omnicare made public, expressing disappointment that NCS continued to refuse to meet with Omnicare and noting that Omnicare's $3.00 per share offer represented more than four times NCS's current stock price, which was already at a two-year high. 30. The letter pointed out that this proposal would provide an excellent opportunity to realize more value than was likely available in the marketplace. 31. The letter further recited that Omnicare had secured its own Board's authorization, was prepared to negotiate quickly and execute a mutually acceptable definitive merger agreement and would need only confirmatory due diligence consisting of a review of certain non-public information typical for such a transaction. The letter stated that, with the Director Defendants' cooperation, an agreement could be executed in a week. To facilitate matters, Omnicare enclosed a draft merger agreement with customary provisions. 32. Omnicare's proposal contained no financing contingency and -- consistent with Omnicare's belief that NCS stockholders should be able to choose a transaction providing the greatest value with no impediment to, or penalty for, that choice -- no request for voting agreements or a break-up fee that might deter other bids. 33. The letter further stated 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 -8- 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 trust that you and the other members of the NCS Board of Directors will give this proposal immediate and serious consideration....... 34. NCS never responded to that letter. The Genesis Merger Agreement 35. Indeed, 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 of a share of Genesis. This offer purportedly represented a value of $1.60 per share of NCS stock at the time the transaction was announced (far less than the $3.00 per share in cash then being offered by Omnicare). The Director Defendants simply ignored Omnicare's all-cash proposal with a value of four times NCS's current stock price. 36. As designed by Defendants, in flagrant violation of Delaware law and the NCS Certificate, the Genesis Merger Agreement and the associated Director Proxy Lock-Up would have the effect of locking up NCS for Genesis and precluding superior offers. The Director Proxy Lock-Up, for example, requires that Messrs. Outcalt and Shaw, who collectively held approximately 65% of the voting power of all NCS stockholders through their holdings of Class B common stock, (a) grant Genesis a proxy to vote their respective shares 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 prior to consummation of -9- the Proposed Genesis Merger. In addition, the No Shop Provision was designed to prevent the Director Defendants from even considering alternative offers. 37. NCS's ability to negotiate with third parties willing to offer NCS stockholders greater value is further hampered by the requirement that NCS pay the $6 million Break-Up Penalty if it enters into an acquisition agreement with another company, if any such an acquisition is consummated, or if the Board recommends that NCS enter into such an 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. 38. The Director Proxy Lock-Up, the No Termination Provision, the No Shop Provision and the Break-Up Penalty (a) impede Omnicare's (and any other third party's) ability to conclude a merger with NCS for greater value than the Genesis Merger Agreement provides and, therefore, (b) are designed to preclude stockholder consideration of superior proposals to acquire NCS. Events Subsequent to the Announcement of the Genesis Merger Agreement 39. By August 1, 2002, in light of the Director Defendants' continuing refusal even to respond to (let alone consider) its proposal, Omnicare reluctantly concluded that it had no choice but to commence this action to prevent ongoing irreparable injury to Omnicare and all other NCS stockholders. 40. In a press release that day announcing Omnicare's intention to commence a tender offer for all outstanding shares of NCS common stock and to raise its offer to $3.50 per share in cash, Mr. Gemunder said, We are taking these steps after continued refusals by NCS to discuss Omnicare's offer to acquire the company. We believe that the board of directors of NCS has breached its fiduciary duties by entering into the Genesis agreement while they were fully aware of our superior offer. -10- Omnicare's offer will deliver more than twice the value to NCS stockholders, and the NCS board should not prevent their stockholders from accepting this offer. 41. On August 8, 2002, Omnicare, through a wholly-owned subsidiary, commenced its tender offer for all outstanding shares of NCS common stock at $3.50 per share in cash. 42. That same day, Mr. Gemunder sent the Director Defendants a letter stating that their refusal even to discuss Omnicare's offer and their apparent disregard of their fiduciary duties had left Omnicare no alternative but to take its offer directly to NCS stockholders. That letter reiterated that Omnicare would prefer to work with NCS toward a transaction maximizing value for stockholders, bondholders and creditors, and remained willing to discuss all aspects of its offer, including structure, price and type of consideration, and to execute a merger agreement substantially identical to the Genesis Merger Agreement, except that it would include neither a break-up fee, voting agreements nor any other feature designed to deter competing bids. 43. Mr. Gemunder further noted that Omnicare could consummate such a transaction very quickly, and would need only matter of days to complete confirmatory due diligence if provided with reasonable access to certain customary non-public information. 44. To date, Omnicare has received no response to that letter or to its tender offer other than a meaningless August 9, 2002 press release in which NCS states as follows: Omnicare's tender offer is under consideration by NCS HealthCare's Board of Directors. On or before August 22, 2002, NCS HealthCare will advise its stockholders of its position with respect to the tender offer, along with the reasons for its position. NCS HealthCare requests its stockholders to defer taking any action with respect to Omnicare's tender offer until they have been advised of NCS HealthCare's position. -11- Count I Declaratory Judgment that the Director Proxy Lock-Up Violates the NCS Certificate and that the Locked-Up Shares Have Converted into Class A Shares (Against All Defendants) 45. Omnicare realleges each preceding allegation as if set forth fully herein. 46. There exists an actual, substantial and immediate controversy within this Court's jurisdiction, resulting from the conduct alleged herein, which will be redressed by a judicial decision favorable to Omnicare and the other NCS stockholders. 47. The Court, thus, may properly declare the rights, obligations and other legal relationships of the parties to this action with respect to the Director Proxy Lock-Ups, the status of the Locked-Up Shares and all other matters alleged herein. 48. Section 7(a) of the NCS Certificate prohibits transfers of Class B shares, or any interest in those shares, to anyone, including Genesis, who is not a permitted transferee. Thus, Section 7(a) states as follows: no person holding any shares of Class B Common Stock may transfer, and the Corporation shall not register the transfer of, such shares of Class B Common Stock or any interest therein, whether by sale, assignment, gift bequest, appointment or otherwise. 49. In violation of this provision, Messrs. Outcalt and Shaw entered into the Director Proxy Lock-Up and thereby (a) granted Genesis an irrevocable proxy, coupled with an interest, to vote their respective Class B shares (i.e., the Locked-Up Shares), and (b) agreed not to transfer their shares of NCS common stock prior to consummation of the Proposed Genesis Merger, which, in light of the No Termination Provision, would be a foregone conclusion. As a result, Messrs. Outcalt and Shaw have improperly transferred not only an interest in, but all meaningful indicia of ownership in and rights to, their Class B shares to Genesis. -12- 50. That transfer automatically and irrevocably converted those Class B shares into Class A shares. Pursuant to Section 7(d) of the NCS Certificate: [a]ny purported transfer of shares from Class B Common Stock other than to a permitted transferee shall automatically, without any further act or deed on the part of the Corporation or any other person, result in the conversion of such shares into shares of Class A Common Stock. (emphasis added). 51. Accordingly, Omnicare is entitled to a judgment declaring that Messrs. Outcalt and Shaw's grant of irrevocable proxies with respect to, and conveyance of interests (indeed, effectively their entire interests) in, their respective Class B shares violates Section 7 of the NCS Certificate and that, by operation thereof, the Locked-Up Shares have been irrevocably converted into Class A shares. 52. Omnicare has no adequate remedy at law. COUNT II Violation of 8 Del. C. 'SS' 141 (Against the Director Defendants) (In the Alternative to Count I) 53. Omnicare realleges each preceding allegation as if set forth fully herein. 54. By virtue of their positions as directors of NCS, the Director Defendants owe duties to NCS stockholders pursuant to 8 Del. C. 'SS' 141, including, but not limited to, managing NCS's business and affairs and not taking steps to disable themselves from doing so. 55. By agreeing to the terms of the Director Proxy Lock-Up and the Genesis Merger Agreement, the Director Defendants have surrendered any ability to fulfill these statutory duties to NCS and its stockholders. 56. Their decisions with respect to the Director Proxy Lock-Up and the Genesis Merger Agreement constitute a series of deliberate actions undertaken for the purpose of disabling themselves from managing the business and affairs of NCS. -13- 57. The Director Defendants have thus violated 8 Del. C.'SS' 141. 58. Unless enjoined by this Court from taking further actions with respect to the Director Proxy Lock-Up and/or the Genesis Merger Agreement, the Director Defendants will continue to violate 8 Del. C.'SS' 141 to the detriment of NCS and its stockholders. 59. Omnicare has no adequate remedy at law. COUNT III Breach of Fiduciary Duty (Against the Director Defendants) (In the Alternative to Counts I and II) 60. Omnicare realleges each preceding allegation as if set forth fully herein. 61. By virtue of their positions as directors of NCS, the Director Defendants owe fiduciary duties to NCS stockholders including, but not limited to, considering and fully evaluating all offers for NCS, exercising due care in conducting NCS's affairs, not putting self-interest and personal or other consideration ahead of NCS stockholders' interests, and not taking unreasonable defensive measures that are disproportionate to any perceived threat posed to NCS. 62. 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 offering NCS stockholders greater value than the Proposed Genesis Merger. 63. The Director Defendants have breached their fiduciary duties by approving and agreeing to enter into the Genesis Merger Agreement, of which the Director Proxy Lock-Up is an essential component. 64. In further breach of their fiduciary duties, they have also failed, in any meaningful way, even to consider Omnicare's superior offer. -14- 65. 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. Their belated, half-hearted assertion that they are now supposedly "considering" Omnicare's tender offer cannot mask the fact that they have already committed themselves to an alternative course of action that is intended to consign NCS stockholders to the vastly inferior offer put forward by Genesis. 66. In further breach of their fiduciary duties, the Director Defendants waived, with respect to all transactions contemplated by the Genesis Merger Agreement, all protections afforded by the provisions of 8 Del. C. 'SS' 203 and any other state takeover law or state law limiting or restricting business combinations or the ability to acquire or vote shares. 67. 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 stockholders from even considering potentially superior merger proposals, such as Omnicare's Proposal. 68. Omnicare has no adequate remedy at law. COUNT IV Aiding and Abetting Breach of Fiduciary Duty (Against Genesis and Geneva Sub) (In the Alternative to Counts I and II) 69. Omnicare realleges each preceding allegation as if set forth fully herein. 70. By virtue of their positions as directors of NCS, the Director Defendants owe NCS stockholders fiduciary duties. -15- 71. The Director Defendants have breached those duties to the detriment of NCS stockholders. 72. Genesis and Geneva Sub have aided and abetted these breaches. As direct participants in the Director Proxy Lock-Up and the Genesis Merger Agreement, Genesis and Geneva 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 unreasonable features and penalty provisions of the Genesis Merger Agreement and the Director Proxy Lock-Up, which were designed by Genesis, Geneva Sub and NCS to interfere with Omnicare's or any other superior merger proposals. 73. Unless enjoined, Genesis and Geneva Sub will continue to aid and abet the Director Defendants' breaches of fiduciary duties to NCS and its other stockholders. 74. Omnicare has no adequate remedy at law. Count V Declaratory Judgment that the Break-Up Penalty Is Unreasonable, Invalid and Unenforceable (Against All Defendants) 75. Omnicare realleges each preceding allegation as if set forth fully herein. 76. There exists an actual, substantial and immediate controversy within this Court's jurisdiction, resulting from the conduct alleged herein, which will be redressed by a judicial decision favorable to Omnicare and the other NCS stockholders. 77. The Court, thus, may properly declare the rights, obligations and other legal relationships of the parties to this action with respect to the Break-Up Penalty and all other matters alleged herein. 78. By virtue of their positions as directors of NCS, the Director Defendants owe fiduciary duties to NCS stockholders including, but not limited to, considering and fully -16- evaluating all offers for NCS, exercising due care in conducting NCS's affairs, not putting self-interest and personal or other consideration ahead of NCS stockholders' interests, and not taking unreasonable defensive measures that are disproportionate to any perceived threat posed to NCS. 79. The decisions of the Director Defendants with respect to the Break-Up Penalty 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 offering NCS stockholders greater value than the Proposed Genesis Merger. 80. The Director Defendants have breached their fiduciary duties by approving to the Break-Up Penalty. 81. Accordingly, Omnicare is entitled to a judgment declaring that the Break-Up Penalty is unreasonable, invalid and unenforceable. 82. Omnicare has no adequate remedy at law. WHEREFORE, Omnicare prays for judgment as follows: a. Declaring that the Director Proxy Lock-Up violates Section 7 of the NCS Certificate and by operation thereof the Locked-Up Shares have been irrevocably converted into Class A shares; b. In the alternative, declaring that the Director Defendants violated 8 Del. C. 'SS' 141 in agreeing to the terms of the Genesis Merger Agreement and the associated Director Proxy Lock-Up, and, therefore, that the Genesis Merger Agreement is null and void; c. In the alternative, preliminarily and permanently enjoining (i) NCS, the Director Defendants, Genesis, Geneva 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 the Director Proxy Lock-Up and/or the Genesis Merger Agreement; and (ii) Genesis and -17- Geneva Sub, and their respective officers, directors, employees, agents and all persons acting on their behalf from aiding and abetting the Director Defendants' breaches of their fiduciary duties; d. Declaring that the Break-Up Penalty is unreasonable, invalid and unenforceable; and e. Granting Omnicare such further relief as may be just and proper, including the costs and disbursements of this action and reasonable attorneys' fees. Respectfully submitted, POTTER ANDERSON & CORROON LLP By: /s/ Donald J. Wolfe, Jr. ------------------------------ Donald J. Wolfe, Jr. Kevin R. Shannon Michael A. Pittenger John M. Seaman Hercules Plaza 1313 N. Market Street P. O. Box 951 Wilmington, DE 19899 (302) 984-6000 Counsel for Plaintiff Omnicare, Inc. Of counsel: Robert C. Myers Seth C. Farber James P. Smith III David F. Owens Melanie R. Moss DEWEY BALLANTINE LLP 1301 Avenue of the Americas New York, New York 10019-6092 Telephone (212) 259-8000 August 12, 2002 -18- -----END PRIVACY-ENHANCED MESSAGE-----