## Facts

- NCS Healthcare, Inc. was a publicly traded Delaware corporation in severe financial distress and described as insolvent.
- Two directors and controlling stockholders, John H. Outcalt and Kevin B. Shaw, controlled about 65% of NCS’s voting power; the board formed a special committee of independent directors to negotiate a transaction.
- NCS previously approached Omnicare, Inc., which proposed acquiring NCS through a bankruptcy sale that would likely provide no recovery to equity holders.
- NCS negotiated a merger with Genesis Health Ventures, Inc. under an exclusivity agreement that barred negotiations with other bidders; Omnicare later sent a non-bankruptcy proposal during the exclusivity period, which NCS used as leverage to improve Genesis’s terms.
- Genesis required deal certainty, including (i) a merger agreement requiring a stockholder vote even if the board later changed its recommendation and (ii) unconditional voting agreements from Outcalt and Shaw to vote their shares in favor of the merger.
- After signing, Omnicare made a higher bid that the NCS board viewed as superior; the board withdrew its recommendation of the Genesis merger but believed the force-the-vote provision and majority voting agreements made approval of the Genesis deal virtually certain.
- Minority stockholders sued, alleging the directors breached fiduciary duties by approving a lock-up structure that foreclosed consideration of a superior later bid, and sought a preliminary injunction to stop the stockholder vote.

## Issues

1. Whether plaintiffs showed a reasonable likelihood of proving that the directors breached fiduciary duties, in a distressed sale context, by approving the merger and related voting agreements that effectively ensured stockholder approval.
2. Whether the combination of a force-the-vote provision and unconditional majority-stockholder voting agreements was impermissible under Delaware law because it prevented an effective response to later superior proposals.
3. Whether plaintiffs satisfied the requirements for a preliminary injunction: likelihood of success on the merits, irreparable harm, and a balance of equities favoring relief.

## Decision

- The Court of Chancery denied the motion for a preliminary injunction.
- The court held plaintiffs failed to show a reasonable likelihood of success on the merits that the directors breached fiduciary duties when they approved the Genesis merger and attendant voting agreements.
- The court found the merger’s force-the-vote provision was authorized by Delaware corporate law, and stockholder voting agreements were generally permissible.
- Even though a later proposal appeared economically superior, fiduciary compliance was assessed based on the circumstances at the time the board acted, not hindsight.
- Because the likelihood-of-success prong was not met, the court denied injunctive relief despite arguments about harm and equities.

## Legal Principles

- Fiduciary-duty review of board conduct focuses on the board’s information, process, and decisionmaking at the time of approval; a later superior bid does not alone establish a breach.
- In a sale-of-control or distressed-company transaction, directors may accept deal-protection measures if, ex ante, doing so is a reasonable exercise of business judgment consistent with duties owed to the corporation and its stakeholders.
- A “force-the-vote” provision requiring submission of a merger to stockholders despite a changed board recommendation is permissible when authorized by statute.
- Stockholder voting agreements, including commitments by controlling holders to vote for a merger, are not per se invalid; the key question is whether directors acted consistently with fiduciary duties in approving or facilitating the structure.
- Preliminary injunctive relief requires a reasonable probability of success on the merits; without it, the court will deny relief even where a challenged transaction may appear inferior in light of subsequent events.

## Conclusion

The court declined to enjoin the stockholder vote on the Genesis merger, concluding that the record did not show a reasonable likelihood that NCS’s directors breached fiduciary duties when they approved a distressed-company merger containing a statutory force-the-vote clause and controlling-stockholder voting commitments that later made a superior competing bid impracticable.


In re NCS Healthcare, Inc. S'holders Litig., 825 A.2d 240 (Del. Ch. 2002)