*1 finding statutory court’s of a aggravating OMNICARE, INC.,

factor.46 Plaintiff Below, Appellant, At hearing, the court instruct jury ed the they required were v. find the existence of the first factor as a matter HEALTHCARE, INC., H. Jon Out of law felony because of the murder conv calt, Shaw, Sells, Kevin B. Boake A. instructed, jury, iction.47 Thus the Osborne, Richard L. Genesis Health found the proved by State the first factor Ventures, Inc., Sub, Inc., and Geneva judge vote of 12-0. The was also bound Below, Appellee. Defendants finding.48 ruling today Our the court in convicting erred Williams Miles, Marti, Robert M. An Guillerma felony murder necessitates the conclusion thony Noble, Jeffrey Treadway, Tillie mandatory that the finding of this fact Saltzman, Dolphin Limited Partner jury was invalid as a matter of statuto I, ship L.P., Mehan, Ramesh Renee result, ry law. As a in order for the Mehan, Ira, Saroj Renee Mehan Me stand, penalty of death to another statuto han, Mehan, Mehan, Maneesh Rahul ry aggravating factor has to exist. Mehan, Lajia Mehan, Joel Darshan (Rollover Ira, statutory second Mehan aggravating factor Danshal Mehan jury Ira), found was that Williams Mehan, killed Arsh N. Arsh N. Mehan (Roth Mason in retaliation for calling Ira), her Mehan, Ashok K. and Ash police after argument. their The trial Ira, Below, ok K. Mehan Plaintiffs however, judge, ruled that the State did Appellants, not meet its burden of proof respect v. Thus, to this factor.49 this factor not Outcalt, Shaw, H. Jon Kevin E. Boake properly proven by required the State as Sells, Osborne, A. Richard L. by the statute. Ventures, Inc., Sub, Health

Conclusion Inc., Healthcare, and NCS Defen prove any State failed to Below, Appellees. dants statutory aggravating According- factors. 605, 2002, 649, Nos. 2002. ly, imposition of the death sentence Supreme Court of Delaware. was invalid as a matter of law.50 We re- verse the sentence of the trial court and Submitted: Dec. 2002. remand with direction that the court im- April Decided: pose upon Williams sentence of natural possibility life without the of parole on the

other homicide conviction for intentional

murder. Williams, § 4209(g)(2)(b). 46. 11 Del. C. 49.State ID No. at 3 (Del.Super.Ct.2001). 4209(e)(2). § 47. 11 Del. C. 4209(e). § 50.11 Del. C. Id. *3 Michael A. Weid- McNally, M. Edward Morris, Brown, of A. inger, Elizabeth Williams, James, Wilmington, Hitchens & Warner, Bright, R. and James Timothy G. Co., Bell, McCurdy & Newell Spieth, defendant, OH, B. Cleveland, Kevin Shaw. McTear, of Abramczyk, Brian J. E.

Jon Tunnell, & Nichols, Morris, Wil- Arsht Goins, and Frances Floriano mington, & Kovach, Squire, Sanders Thomas G. *4 defendant, Cleveland, OH, for Dempsey, H. Jon Outcalt. Carmella (argued), A. Rosenthal

Joseph Gross & Rosenthal, Monhait, Keener, of P. P.A., Goddess, Wilmington, Daniel A. Os- LLP, Osborn, New of Beatie born Bemporad, Low- City and Richard B. York & Bemporad Selinger, ey, Dannenberg, NY, Plains, LLP, plaintiffs. for White Jr., Kriner, & of Chimicles Robert J. Wolfe, (argued), Kevin R. Donald J. Jr. Tikellis, LLP, counsel Wilmington, liaison Shannon, M. Pittenger, Michael A. John plaintiffs. for Seaman, Renck, Potter, Richard L. of Corroon, LLP, Wilmington, Anderson & Justice, VEASEY, Chief Before Farber, Myers, Robert C. Seth C. James WALSH, HOLLAND, BERGER and III, Owens, P. F. Melanie R. Smith David Justices, STEELE, constituting the Court Moss, Ballantine, LLP, Dewey of New Banc. en City, appellant. for York Justice, HOLLAND, majority: for (argued), Edward P. Edward B. Welch Micheletti, Neikirk, A. Katherine J. James (“NCS”), Healthcare, Inc. a Dela- Slate, Skadden, Whitney, Arps, Meagh- of object of com- corporation, ware Flom, Wilmington, Phillips, er & Mark A. bids, one Genesis peting acquisition Friedlander, Benesch, Coplan & Aro- (“Genesis”), Ventures, a Penn- Inc. Health noff, Cleveland, OH, appellees, for by Om- corporation, and the other sylvania Healthcare, Inc., A. and Rich- Boake Sells (“Omnicare”), nicare, a Delaware cor- Inc. ard L. Osborne. before proceedings poration. cir- exigent due to expedited were Court Bruce L. (argued),

David McBride C. cumstances, including pendency Silverstein, Wright, Douglas Christian consider meeting to stockholders’ Poff, Conaway, Star- Young, Adam W. The de- merger agreement. Paul gatt & Taylor, Wilmington, Vizear- NCS/Genesis set forth this Court were terminations of rondo, Jr., (argued), N. Minds Theodore argu- oral following manner summary in a Gordon, Lauryn P. Lynch, John F. Mark certainty to clarity and provide ment to Rosen & Wachtell, Gouldin, Lipton, Those determi- going forward. parties Katz, Health City, York for Genesis New in this Sub, explicated opinion. Ventures, nations are Inc. Inc. and Geneva Opinion Thus, Overview er. the combined terms of the vot- ing agreements NCS, The board of directors of an insol- initio, guaranteed, ab that the transaction publicly vent corporation, traded Delaware proposed by Genesis would obtain NCS agreed to of merger the terms approval. stockholder’s Genesis. Pursuant that agreement, all paid NCS creditors would be in full The Court of Chancery ruled that the and the corporation’s stockholders would voting agreements, coupled when with the exchange their shares the shares of provision in the merger agree- Genesis, publicly Pennsylvania traded requiring presented ment that it be corporation. approv- Several months after pursuant stockholders for a vote to 8 Del. ing merger agreement, but before the 251(c), §C. constituted defensive mea- scheduled, stockholder vote was the NCS within meaning Corp. sures of Unocal board of prior directors withdrew its rec- v. Mesa Petroleum After applying Co.2 ommendation favor of the merg- judicial Unocal standard of enhanced scru- er. tiny, of Chancery Court held that fact, the NCS board recommended those defensive measures were reasonable. reject stockholders the Genesis that, We have concluded in the absence of deciding transaction after competing clause, an effective out those de- *5 proposal from Omnicare superior was a preclusive fensive measures are both and transaction. competing The Omnicare bid coercive. we hold that those Therefore^ offered the NCS stockholders an amount defensive measures are invalid and unen- equal of cash to more than twice the then forceable. current market value to be shares received merger. Genesis The The Parties transaction by offered Omnicare also treat- defendant, NCS, The is a Delaware cor- ed the corporation’s NCS other stakehold- Beachwood, poration headquartered equal ers on agree- terms with the Genesis Ohio. a leading independent pro- NCS is ment. pharmacy vider of long-term services to merger agreement The between Genesis including nursing care institutions skilled provision and NCS contained a authorized facilities, living assisted and facilities other 251(c) corpora- Section of Delaware’s institutional healthcare facilities. NCS tion required law. It the Genesis common stock A consists of Class shares placed corpora- before the and B B Class shares. The Class shares vote, tion’s stockholders for a even if the per are entitled to ten votes and share longer NCS of directors no recom- A Class shares are entitled to one vote per Genesis, mended it.1 At the insistence of virtually share. shares are identical agreed NCS board also to omit in every respect. other fiduciary effective clause from the The defendant H. is Jon Outcalt Chair- agreement. In connection Gene- man of the board of directors. Out- merger agreement, sis two stockholders of 202,063 calt owns A NCS, shares of NCS Class a majority voting who held of the 3,476,086 power, agreed common stock and unconditionally to vote shares of all their merg- shares in favor of the B Genesis Class common stock. The defendant 8, 251(c). 1361, (Del. § Corp., 1. Del.Code Ann. tit. Am. Gen. 1386-89 1995). Co., Corp. 2. Unocal v. Mesa Petroleum Unitrin, A.2d 946 See also Inc. v. BACKGROUND President, PROCEDURAL and B. Shaw is CEO Kevin At the time the director of NCS. from or- appeal This is a consolidated dispute in this agreement at issue in two Chancery the Court of ders of Genesis, 28,905 executed with Shaw owned proceeding proceedings. One separate A common stock and shares of NCS Class invalidate seeking to brought by Omnicare 1,141,134 B shares of Class common stock. between NCS fiduciary duty grounds. members, has two other NCS board challenges also proceeding, Omnicare L. Boake A. and Richard defendants Sells Voting Agreements between Har- graduate is a Osborne. Sells Shaw, B. two H. and Kevin Jon Outcalt vard Business School. He was Chairman stockholders, collectively who major NCS in Cleve- Drugstores and CEO at Reveo power of NCS own over 65% of the land, from 1987 to when he was Ohio Agreements irrevoca- Voting stock. The currently replaced by new owners. Sells to vote for commit these stockholders bly public pri- of both sits on the boards action was merger. The Omnicare full-time companies. Osborne is a vate Chancery in the C.A. No. 19800 Court at the Weatherhead School of professor in this Court. and is No. Management at Case Reserve Western University. university He has been at the is a class action proceeding The other thirty years. currently for over Osborne That ac- stockholders. brought corporate on at least seven boards sits merger primar- seeks to invalidate the tion other than NCS. the directors ily ground on the duty of care their NCS violated Pennsylvania The defendant Genesis is process an effective failing to establish corporation principal place with its of busi- *6 achieve the transaction designed to Square, Pennsylvania. in Kennett It ness highest value for produce would leading provider is a of healthcare and action stockholders. The stockholder NCS elderly. The de- support services to the in the Court of Chan- was C.A. No. 19786 Sub, Inc., wholly fendant owned Geneva 649, in this Court. cery and is No. Genesis, subsidiary corpo- of is a Delaware by acquire ration formed to NCS. Standing Decision in action plaintiffs the class own (the 605, 2002 “Omnicare Appeal In No. of shares of NCS unspecified number Chancery entered of appeal”) the Court They represent A Class common stock. and order The first decision two orders. A consisting holders of Class class of all (the Decision”), dated October “Standing 28, 2002, July common stock. As of NCS 2002, 25, dismissed Omnicare’s 18,461,599 5,255,- A had Class shares and standing to it lacked duty claims because outstanding. B shares Class of claims. The Court Chan- assert those declar- corporation is a Delaware to dismiss Omnicare’s cery Omnicare refused claim, Coving- holding that Omni- place atory judgment in principal business notwithstanding the ton, standing, in institu- had Kentucky. Omnicare is care of NCS stock business, purchase of its timing with annual pharmacy tional claim, bidder for as a bona fide assert its during billion its last sales in excess of $2.1 control, should be the NCS charter year. purchased fiscal Omnicare conver- an automatic interpreted to cause A stock on of NCS Class common shares B stock and Shaw’s Class 30, sion Outcalt’s July (with share) per ten votes AClass stock FACTUAL BACKGROUND (with share). per one vote parties are in substantial agreement regarding operative They facts. dis- Voting Agreements Decision however, agree, legal implica- about the The second decision and order of the tions. This recitation facts is taken Chancery Court of is before this primarily by from the opinion the Court of in appeal Court the Omnicare is the Court Chancery. Chancery’s order of October (the Decision”) “Voting Agreements adju- Restructuring Seeks NCS Alternatives dicating Voting Agree- the merits of the in Beginning changes late in the issue, ments. regard With to that timing and level of reimbursements Chancery Court of held Omnicare had government and third-party providers ad- standing, in as set forth the preceding versely affected market conditions in the paragraph. Voting Agreements de- result, industry. health care aAs NCS summary judgment, cision on the Court of began experience greater in difficulty Chancery interpreted the applicable NCS collecting receivables, accounts led which charter provisions adversely to Omnicare’s precipitous to a decline in the market value contention that proxies irrevocable of its stock. common shares that granted in agreements by those Outcalt traded in January above 1999 were $20 and Shaw to vote for the worth as little as at the of that end $5 resulted in an automatic conversion of all year. By early NCS was default of Outcalt’s and B Shaw’s Class stock into debt, approximately in- million $350 A Class stock. Omnicare’s claim with re- cluding million senior bank debt $206 spect was, to the Voting Agreements million of its % $102 Convertible 5.% therefore, dismissed the Court of Chan- (the “Notes”). Subordinated Debentures cery. defaults,

After these common stock range per traded $0.09 $0.50 Fiduciary Duty Decision days share until before announcement A enjoin class action to of the transaction at issue in this ease. brought by certain stockholders of NCS *7 in chancery Court of C.A. No. began explore strategic NCS alterna- Chancery The Court of prelimi- might denied a problems tives address the it injunction in nary effort, a decision and confronting. part order was As of this 22, 2002, 2000, dated November and February revised No- retained NCS UBS War- (the 25, “Fiduciary Duty vember burg, potential De- L.L.C. to identify acquirers cision”). That is possible equity decision now before this and investors. UBS War- upon interlocutory Court in Appeal burg fifty review contacted over different entities 649, standing No. 2002. The variety these to solicit their interest a injunctive to seek stockholders relief based transactions Warburg with NCS. UBS had alleged violations by marginal By duties success in its efforts. Octo- 2000, approving the NCS directors in pro- ber NCS had received one non- posed merger apparently challenged binding not indication of interest valued million, by the defendants. Accordingly, substantially the fidu- less than the $190 claims, ciary duty including those claims face value of senior debt. This NCS’s sought Omnicare to assert are being proposal as- was reduced 20% after the serted the class action plaintiffs. diligence offeror conducted its due review. It outstanding debt. of NCS’s Financial Deterioration face value NCS recovery only a small provided have would 2000, In December NCS terminated no recov- Noteholders and for Omnicare’s Warburg and re- relationship with UBS 2001, In October its stockholders. ery for Brown, Gibbons, Company Lang tained & Brown Gibbons Pollack of sent Glen NCS During financial advisor. as its exclusive advisor, financial with Omnicare’s to meet con- financial condition period, NCS’s inter- Omnicare’s Lynch, Merrill to discuss 2001, April In NCS tinued to deteriorate. it responded est in NCS. Omnicare and a formal notice of default received other transaction was not interested the trustee for holders of acceleration from bankruptcy. than an asset sale As NCS’s financial condition the Notes. worsened, the Noteholders formed a com- contact between was no further There their financial interests represent mittee to November and NCS between Omnicare (the Committee”). “Ad Hoc At about Instead, Omni- January time, began discussions with various NCS Judy began discussions with care secret regarding restructuring- groups investor Mencher, of the Ad representative K. did “pre-packaged” bankruptcy. in a NCS discussions, In Hoc these Committee. any proposal not receive that it believed a transac- pursue continued to Omnicare adequate consideration for its provided in bank- as a sale of assets tion structured time, recovery stakeholders. At that full 2002, In the Ad Hoc ruptcy. February pros- for NCS’s creditors was a remote board that notified the NCS Committee pect, any recovery for NCS stockhold- sale in proposed had an asset Omnicare impossible. ers seemed $313,750,000. bankruptcy for Negotiations Omnicare’s Initial Independent Board Committee 2001, In the summer of NCS invited January In Genesis was contacted Omnicare, to begin Inc. discussions with Hoc by members of the Ad Committee regarding possible Brown Gibbons trans- possible transaction with concerning Gemunder, July action. On Joel Omni- executed NCS’s standard NCS. Genesis CEO, care’s President and sent Shaw a due confidentiality agreement began in a proposal acquire written recently had diligence review. Genesis under bankruptcy sale Section 363 because, like bankruptcy from emerged Bankruptcy proposal Code. This was for NCS, dwindling gov- suffering it was from subject satisfactory comple- million $225 ernment reimbursements. diligence. tion of due NCS asked Omni- a confidentiality agreement care to execute bidding lost a war previously so that more detailed discussions could transaction. This a different Omnicare place.3 take princi- feelings between the led to bitter important- More pals companies. of both August Omnicare increased its *8 led to experience for Genesis ly, this bitter million, proposed but still to bid to $270 exclusivity agreements its insistence the deal as an asset sale bank- structure transaction million, lock-ups potential and Omnicare’s ruptcy. Even $270 than the with NCS. proposal substantially lower was that, engaged in an has customers. Omnicare Discovery had revealed at the same time, times, attempting away recently was to lure most Omnicare “NCS Blitz” a number through what it character- NCS’s customers were in discussions NCS and Omnicare while Blitz.” The "NCS Blitz” ized as the "NCS August July and target NCS's effort Omnicare to was an Improvement Financial

NCS thereby creating and an environment where Omnicare to maintain felt its com- operating performance NCS’s im- petitive monopolistic positions, they proving by early perfor- 2002. As NCS’s had to match and exceed that level.” mance improved, began the NCS directors Thus, degree Genesis “wanted a of certain- to might believe that it for possible ty that to willing [it] the extent to w[as] NCS to enter into a transaction would pursue negotiated merger agreement provide recovery some for NCS stockhold- ..., In equity. ers’ March decided would be [it] able to consummate the to form an independent committee of negotiated transaction and executed.” [it] board members who were neither NCS proposed June Genesis a trans- employees major nor NCS stockholders action place that would take outside the (the Committee”). “Independent The bankruptcy Although context. it did not thought necessary NCS board this was provide recovery full for NCS’s Notehold- because, precarious due to NCS’s financial ers, it provided possibility that NCS condition, it felt that duties were stockholders would be able to recover enterprise owed as a whole rather something for their As dis- investment. solely than to NCS stockholders. continued, proposed by cussions the terms Sells and Osborne were selected as the improve. Genesis continued to On June committee, members of the au- given 25, the economic terms of the Genesis thority negotiate possible to consider and proposal repayment included of the NCS transactions NCS. entire four full, full assumption senior debt of trade board, however, member NCS retained au- obligations, credit exchange offer or thority approve any transaction. The purchase direct of the NCS Notes provid- Independent Committee retained the same ing with a NCS Noteholders combination legal and financial counsel as the NCS equal cash and Genesis common stock board. (not par value of in- the NCS Notes The Independent Committee met for the interest), cluding accrued million $20 May first time on 2002. At that meet- in value for the NCS common stock. ing suggested Pollack that NCS seek a Structurally, proposal the Genesis contin- “stalking-horse merger partner” to obtain ued to include a significant consents from highest possible in any value transac- majority of the Noteholders as well as tion. Independent agreed Committee agreements support from stockholders suggestion. with the owning majority pow- er. Proposal Initial

Genesis later, 16, 2002, days Two on May Scott Exclusivity Agreement Genesis Gibbons, Berlin of Brown Glen Pollack and financial legal NCS’s advisors and coun- George Hager, Boake Sells met with CFO again legal sel met Genesis Genesis, Walker, and Michael who was 26, 2002, counsel on June to discuss a meeting, Genesis’s CEO. At that number of transaction-related At issues. made it if going clear that it were meeting, Pollack asked Genesis to in- NCS, engage any negotiations with it crease its offer to NCS stockholders. “stalking would not do so as a horse.” As agreed request. to consider this testified, one of its advisors didn’t “We *9 Thereafter, and Hager Pollack had further want to be someone who set forth a valua- agreed tion which in conversations. Genesis to offer a for NCS would result disclosed, being publicly that ... of valuation total million in consideration for the $24 that Genesis felt stock, explained A. [Pollack] an common additional $4 NCS hands of suffered at the million, they that had in the form of common Genesis maybe guess I and others. Omnicare stock. know much I don’t just Omnicare. repre- meeting, At the Genesis’s June history. acquisition [sic] about Genesis that, fur- demanded before sentatives before they But had suffered to agree take NCS negotiations place, ther a to have they and that wanted 11:59:59 exclusivity agreement into an with it. enter they deal or bulletproof much pretty it: Hager explained “[I]f As from Genesis go forward. going wei'e not they try to continue to to move wished us Q. say they suffered at the you When agreement, to a definitive process Omnicare, you do mean? what hands an they need to do it on exclusive would Well, that that was my expression A. to, going with us. We were and basis was related to related to—a deal that expense, already significant had incurred they, explained me or to me Gene- expenses but would incur additional we sis, suppose, I acquire, had tried to ..., external, bring internal and both I don’t remem- pharmacy, institutional signing. to a definitive this transaction had a Thought they of it. ber the name them to work with us on an We wanted minute, at the last Omni- deal and then a time to period exclusive basis for short company them for the care outbid agreement.” see if we could reach On they 27, 2002, thing, like 11:59 kind of legal counsel de- June Genesis’s once unhappy about that. And exclusivity agree- livered a draft form of were burned, shy. ment for review and twice consideration legal NCS’s counsel. exclusivity After NCS executed with a agreement, provided met on Genesis NCS Independent Committee 3, 2002, July merger agreement, a draft Notehold- proposed to consider the ex- draft voting and draft clusivity agreement. presented support agreement, Pollack ers’ Shaw, for Outcalt and who summary possible agreements of the terms of a Gene- majority voting pow- im- of the merger, together sis which had continued to held a prove. proposal The then-current er of the NCS common stock. Genesis (1) of the negotiated of the senior the terms repayment included NCS (2) full, three weeks. over the next payment par debt value for (without interest) Indepen- negotiations, those During the Notes accrued the Ad Hoc Commit- dent form of a combination of cash and Genesis Committee (3) improve stock, persuaded to NCS stockholders tee payment stock, merger. terms of its the form of million Genesis $24 (4) the trans- plus assumption, because negotiating still parties were merger, structured as a action was exclusivity period was and the July to trade and other additional liabilities July 26. At that automatically extended to creditors. unsecured to exe- were close point, NCS and Genesis related agreement and testified, cuting merger Pollack told director Sells proposed agreements. Genesis July at a Committee Independent agree- exclusivity of the extension the Ex- short meeting that Genesis wanted finalized. On the could be step ment so a deal Agreement to be the first clusivity 26, 2002, Independent July morning up locked transaction completely towards a an extension authorized higher bid from Committee preclude that would July 31. through exclusivity period Omnicare: *10 Proposes Negotiations Omnicare 26, 2002, Late in the afternoon July representatives NCS received voicemail By late July Omnicare came to messages from asking Omnicare to discuss believe that NCS was a negotiating trans- exclusivity agreement pre- letter. The action, possibly with Genesis or another of returning vented NCS from those calls. competitors, Omnicare’s poten- would In part, relevant tially precluded present competitive threat to Om- believe, “engag[ing] nicare. Omnicare also particpat[ing] came to in NCS.from light run-up of a in the price of NCS negotiations discussions or with re- stock, common that whatever transaction spect to Competing Transaction or a NCS was negotiating probably included a proposal for July one.” The 26 letter from Thus, payment for its stock. the Omni- Omnicare met the “Compet- definition of a care board of directors met on the morn- ing Transaction.” and, ing July on the recommendation Despite the exclusivity agreement, management, of its proposal authorized a Independent Committee met to consider a acquire that did NCS not involve a sale response to Omnicare. It concluded that in bankruptcy. assets discussions with July Omnicare about its 26, 2002, July On the afternoon of Om- presented 26 letter an unacceptable risk nicare faxed to outlining letter Genesis would abandon dis- proposed acquisition. The letter suggest- Independent cussions. The Committee aed transaction in which Omnicare would that, given believed past Omnicare’s bank- retire NCS’s senior and subordinated debt ruptcy proposals and unwillingness to con- interest, par plus pay accrued merger, sider a as well as its decision to NCS stockholders cash for their $3 negotiate exclusively with the Ad Hoc however, shares. Omnicare’s proposal, Committee, losing the risk of the Genesis was expressly conditioned on negotiating a proposal was too substantial. Neverthe- merger agreement, obtaining certain third less, Independent Committee instruct- consents, party and completing its due dil- Pollack ed to use Omnieare’s letter to ne- igence. gotiate improved terms with Genesis. Mencher saw the July 26 let- Omnicare that, ter and realized while its economic Merger Agreement Genesis And attractive, terms were diligence” “due Voting Agreements condition substantially undercut responded request to the NCS strength. get an effort to a better improve its offer aas result of the proposal Omnicare, from Mencher tele- day. Omnicare fax the next July On phoned Gemunder and told him that Omni- proposed substantially improved unlikely care was to succeed in its bid First, terms. it proposed to retire the unless it dropped diligence the “due outs.”

925 in merger agreement fee from in superior tive or transaction $10 future.” added). million to million. return for these (emphasis $6 concessions, stipulated that summary After to a listening transaction had to be mid- approved terms, the board then resolved night day, July the next or else Genesis merger agreement that the and the trans- would terminate discussions and withdraw thereby actions were advisa- contemplated its offer. ble and fair and in the best interests of all Independent The Committee and the the NCS stakeholders. The NCS board NCS board both meetings scheduled for further resolved to recommend the trans- July 28. The committee met first. Al- ap- actions to the stockholders for their though meeting lasted than less proval adoption. A definitive merger hour, Chancery the Court of determined agreement between NCS and Genesis and the minutes reflect that the directors were the stockholder voting agreements were fully informed of all material relating facts day. executed later that Court to the proposed transaction. After con- Chancery per held that it was not a se cluding that Genesis in was sincere estab- fiduciary duty breach of the NCS deadline, lishing midnight the commit- board never read the NCS/Genesis unanimously tee voted to recommend the for word word.4 transaction to the full board. The full board met thereafter. After Merger Agreement NCS/Genesis receiving similar reports and advice from Among things, other the NCS/Genesis advisors, legal its and financial the board merger agreement provided following: concluded that “balancing potential (cid:127) NCS stockholders would receive loss of the against Genesis deal the uncer- share of in Genesis common stock ex- tainty letter, of Omnicare’s in results change every conclusion that for com- reasonable shares of NCS alter- held; native for the Board of Directors is to mon stock approve the Genesis transaction.” The (cid:127) ap- NCS stockholders could exercise board first voted to voting authorize the 262; § praisal rights under 8 Del. C. agreements Shaw, with Outcalt and (cid:127) would redeem NCS NCS’s Notes purposes of Section 203 of the Delaware terms; accordance with their (“DGCL”). Corporation General Law (cid:127) merger agree- would submit the NCS legal was advised its counsel regardless ment to NCS stockholders “under the terms of the NCS board continued to whether and because NCS represent- shareholders merger; recommend the ing excess of 50% of the outstanding (cid:127) NCS would not enter into discussions voting power would required, by Gene- parties concerning with third an alterna- sis to enter into stockholder agree- NCS, acquisition provide tive or non- ments contemporaneously signing with the public parties, information to such un- merger agreement, of the agree and would (1) party provided less the third an un- vote their shares favor of the solicited, proposal bona written doc- agreement, approval shareholder fide umenting acquisition; the terms of the merger would be if the assured even (2) good faith the NCS board believed Board were to or change withdraw proposal likely that the was or was pre- recommendation. These would facts engaging superi- vent in an on terms acquisition altema- result from See, Gorkom, e.g., Smith Van 883 n. Superior Proposal Omnicare’s by the contemplated to those merger agreement; NCS/Genesis 29, 2002, after July hours On *12 (3) informa- non-public providing before executed, transaction was NCS/Genesis party third party, third tion to that restating a letter to NCS faxed Omnieare confidentiality agree- a would execute a attaching proposal and its conditional in the one as restrictive as Later that agreement. ment at least merger draft Genesis; and release press and issued a place morning, between NCS Omnieare disclosing proposal. publicly (cid:127) were to be If the terminated, 1, 2002, under certain circumstances filed August Omnieare On enjoin pay attempting Genesis lawsuit required would be NCS NCS/Gen- it intend- merger, and announced esis fee Gene- million termination $6 and/or a tender offer for NCS’s ed to launch mil- expenses, up to sis’s documented $5 per share. On price at a shares $3.50 lion. 8, 2002, began its tender Omnieare August day, dated that same Om- By offer. letter Voting Agreements to discuss the expressed nicare a desire Shaw, capacity as in their Outcalt and of the offer NCS. Omnicare’s terms with stockholders, entered into NCS proposal to condition its letter continued also NCS was agreements with Genesis. of a due dili- satisfactory completion on voting agree- party to be required of NCS. gence investigation agreements pro- Those by ments Genesis. 8, 2002, August again and August On vided, things, that: among other Comiqittee 19, 2002, Independent the NCS (cid:127) acting in their and were Outcalt Shaw separately met full board of directors and in execut- capacity as NCS stockholders tender offer to consider the Omnieare capacity not in their ing agreements, merger agreement. of the Genesis light officers; as NCS directors or counsel and NCS’s legal outside NCS’s (cid:127) would trans- Neither Outcalt nor Shaw meetings. financial attended both advisor to the stockholder to determine .that prior fer their shares was unable The board interest were expressions of agreement; Omnicare’s merger vote on the “Superior Proposal,” to a likely to lead (cid:127) all of agreed and to vote Outcalt Shaw defined the term was NCS/Genesis merger of the their shares favor 10, September agreement. On merger and agreement; a waiv- 2002, requested and received (cid:127) granted Genesis Outcalt Shaw allowing to enter from er Genesis to vote their shares proxy an irrevocable without Omnieare into discussions with agreement. merger in favor of the to determine that Omnicare’s having first (cid:127) specifically was voting agreement Proposal.” “Superior was a proposal enforceable Genesis. 2002, irrevoca- Omnieare October On provided agreement further itself to transaction bly committed if or Shaw breached either Outcalt propos- terms of its Pursuant to the NCS. Genesis voting agreements, of the terms all the out- al, agreed acquire Omnieare terminate be entitled to would B A shares Class and Class standing NCS receive a potentially $6 in cash. As share price per at a of $3.50 offer, million Such a fee from NCS. on October termination of this irrevocable result pro- its rec- since Section board withdrew impossible the NCS breach vote the stockholders were voting agreements ommendation vided that agree- favor enforceable Genesis. NCS/Genesis specifically whereby Messrs. Outcalt Shaw ment. financial advisor withdrew NCS’s agreed to vote their shares of NCS Class opinion its fairness of the NCS/Genesis B com- merger agreement as well. A common stock and NCS Class merger, mon stock favor of Genesis Rejection Impossible approval stockholder ensure NCS litigation was com- merger.” This merger agreement permits The Genesis the consummation of non-public prevent menced to the NCS directors to furnish to, transaction. information or enter into discussions the inferior Genesis with, “any Person in connection with an *13 ANALYSIS LEGAL Acquisition bona fide written

unsolicited person” that the Proposal such board Judgment or Enhanced Business likely “Superior deems a Pro- constitute Scrutiny posal.” provision absolutely That has no in “defining corporate gov- tension” merger agreement. effect on the Genesis characterized as today ernance has been “changes, Even if the NCS board with- “the tension between deference to di- recommendation, or modifies” its draws as judicial scope decisions and the of rectors’ did, it it must still submit the to a ju- of appropriate review.”5 The standard stockholder vote. party of which dispositive dicial review is A subsequent filing the Securities any proof litigation has the burden of as (“SEC”) Exchange Commission states: stage until there is proceeds stage from independent “the NCS committee and the on the merits.6 a substantive determination NCS board of directors have determined of the correct Accordingly, identification to withdraw their recommendations of the prop- to a analytical framework is essential and recom- judicial challenges er to the deci- review that mend the NCS stockholders vote corporation’s of a sion-making process against approval of the adoption board directors.7 merger.” In that same fil- SEC rule, judgment as “The business however, ing, explained NCS board review, judicial a standard of is a common- why the success of the Genesis had statutory authority recognition law already predetermined. been “Notwith- in manage corporation a that is vested standing the foregoing, indepen- the NCS business the board of directors.”8 The dent committee and the NCS board of in (1) a judgment “presumption rule is recognize directors existing making a decision the directors of business obligations contractual to Genesis current- basis, ly corporation a acted on an informed prevent from accepting Omni- (2) in the honest belief that good care irrevocable faith and merger proposal; and interests the existence of the the action taken was the best agreements en- Shaw, application tered into “An of the company.”9 Messrs. Outcalt and Unitrin, Corp., Veasey, Defining 5. E. 7. v. Am. Gen. 651 A.2d at Norman Inc. Tension America, Corporate Governance in 52 Bus. 1374. 393, (1997). Law. 403 Audio, Inc., Liquid Companies 813 8. MM v. Unitrin, Corp., Inc. v. Am. Gen. 651 A.2d 1127 See, (Del. 1995). e.g., Malpiede 1371 v. Townson, (Del.2001); 780 A.2d 1075 Emerald Unitrin, Corp., 651 A.2d at Inc. v. Am. Gen. Berlin, (Del.2001); v. 787 A.2d Partners Lewis, (quoting Aronson v. 473 A.2d Technicolor, Inc., Cinerama, Inc. v. (Del. 1984)). (Del.1995); Lynch Kahn v. Communica- (1994). Sys., tions 638 A.2d 1110 One of those circumstances places rule be invoked. judgment traditional business described in Unocal: when board the was ‘party challenging on the the burden response measures adopts defensive to establish facts rebut- decision [board’s] ”10 the board proposal hostile takeover ting the The effect of presumption.’ corpo- is a threat to reasonably determines proper judgment invocation of the business In Moran policy rate effectiveness.15 review, rule, judicial as a standard of Household, why a explained we Unocal deferentially. powerful operates because it analysis applied adoption also presumption of the procedural Unless the in the rights plan, even stockholder’s rebutted, a judgment business rule is threat.16 Other immediate absence judgment for “court will not substitute its judicial enhanced requiring circumstances that of the if the decision [board’s] scrutiny give rise to what are known can be ‘attributed to rational business ”11 duties, as when the board Revlon such purpose.’ into a transaction that will enters rule em judgment The business control, initi- change corporate cause the deference that is accorded to bodies bidding process seeking to ates an active *14 di managerial decisions of a board of up a break corporation, sell the or makes circumstances, normal rectors. “Under corporate entity of the inevitable.17 neither the courts nor the stockholders managerial with deci should interfere Merger Decision Review Standard are certain sion of the directors.”12 There The first decided issue circumstances, however, mandate “which Chancery addressed the standard Court that a court take a more direct and active judicial applied review that should be in overseeing role the decisions made and merge by the NCS board to the decision actions directors. In these situa taken held that a with This Court has Genesis. tions, subjects a court the directors’ con decision to enter into a board’s it scrutiny duct to enhanced to ensure that change transaction that does not involve 13 reasonable,” protections is “before the judicial in control entitled to deference judgment may rule be con the business and substantive pursuant procedural 14 ferred.” judgment rule.18 operation of business prior The of this Court have decisions to enter into When a board decides where board identified circumstances result in a merger transaction that will however, subjected judi- control, judi change action must be to enhanced enhanced the standard scrutiny presumptive pro- scrutiny cial before the cial under Revlon is judgment rule can of review.19 tection business Int’l, Inc., A.2d Moran v. Household 500 10. Id. 16. 1346, (Del. 1985). 1356 (quoting Corp. Id. at Unocal v. Mesa 11. 1373 Co., 946, 1985) (Del. 493 954 Petroleum A.2d QVC Inc. v. 17. Paramount Communications (citation omitted)). 47; Revlon, Inc., Inc. v. 637 A.2d Network Inc., Holdings, 506 MacAndrews & Forbes QVC Communications Inc. v. 12. Paramount 173, (Del.1986). A.2d 182 Inc., (Del.1993). 42 637 A.2d Network (footnote omitted). 13. Id. Communications, Inc. v. Time 18. Paramount Inc., (Del.1989). Co., Corp. Mesa Petroleum 14. Unocal at 954. A.2d Revlon, v. MacAndrews & Forbes Hold- Inc. ings, Id. at 954-55. that, Chancery appellants argue The Court of concluded that the Court of Chancery’s Revlon conclusions are without because the stock-for-stock be- contrary factual in the record and support did in a tween Genesis not result to Delaware law for at least two reasons. control, change the NCS directors’ First, they submit that NCS did initiate an triggered by duties under Revlon were not Second, they bidding process. active sub- merge the decision to with Genesis.20 mit that NCS did not “abandon” efforts Chancery recognized, Court of also howev- into the by entering to sell itself exclusivi- er, that Revlon duties are “when imposed ty agreement appel- with Genesis. The an corporation bidding initiates active once “to lants contend that NCS decided process seeking to sell itself.”21 The bidding process seeking initiate a to max- concluded, Chancery Court of then alter- value, imize short-term stockholder it can- natively, that Revlon duties had not been judicial scrutiny not avoid enhanced under triggered because did not start it simply Revlon because the bidder select- bidding process, active and the NCS board happens proposed ed to have [Genesis] “abandoned” its efforts to sell company merger transaction that does not involve exclusivity agree- when it entered into an change of control.” ment with Genesis. Chancery’s The Court of decision to re- merge view the NCS board’s decision to concluding After that the Revlon stan- judgment under the business judicial dard of enhanced review com- scrutiny rule rather than the enhanced pletely inapplicable, Chancery the Court of standard of Revlon is not outcome deter- then held that it would examine the deci- *15 minative for the purposes deciding this sion of the NCS board of directors to appeal. have arguendo We assumed approve merger pursuant the Genesis to judgment the business rule applied judgment business rule Af- standard. by merge decision the NCS board to with ter completing judgment its business rule arguen- Genesis.23 We have also assumed review, Chancery the Court of held that do that the NCS board exercised due care the NCS board of directors had not Independent when it: abandoned the Com- duty breached their by entering of care pursue mittee’s recommendation to a stalk- exclusivity into the merger agree- and ing strategy, trying horse without even to ments with Genesis. The Court of Chan- it; implement exclusivity executed an held, however, cery also that “even apply- Genesis; agreement to with acceded Gene- ing standard, exacting more Revlon twenty-four sis’ hour ultimatum for mak- the directors acted in conformity their decision; final ing merger and executed seeking duties in to achieve the merger that was summarized highest and best transaction that was rea- completely but by never read sonably available to board of [the stockholders].”22 directors.24 Healthcare, Inc., 20. See id. In re NCS 2002 WL 31720732, (Del.Ch. Nov.22, 2002). at *16 See Inc., Soc’y Bancorp, v. Arnold Sav. 650 for QVC Net- Paramount Communications Inc. v. 1270, (Del.1994) (quoting A.2d 1290 Para- Inc., 34, (Del.1993). work 637 A.2d 43 Communications, Inc., mount Inc. v. Time 571 (Del. 1989)); A.2d see also Mills Communications, 23. Paramount Inc. v. Time Macmillan, Inc., Acquisition Co. v. 559 A.2d 1287; Beran, McMullin v. (Del.2000) (finding 919-20 Revlon duties were Gorkom, 488 A.2d 24. But see Smith v. Van implicated agreed where the to sell the (Del. 1985). though company, even did entire control”). "change not involve a Require v. plaintiffs control.”28 The Paramount Deal Protection Devices that, Scrutiny although original argued Enhanced Time merger agreement did Time and Warner dispositive appeal issues control, change the use of not involve that protect involve the defensive devices clause, “dry-up” lock-up, no-shop merger agreement. ed the Genesis the Time board’s Rev- provisions violated corporation provides Delaware statute that “[t]he lon duties. This Court held to enter management the board’s decision safety devices alone adoption of structural into and recommend a transaction Rather, trigger not Revlon. as the does final ac ownership can become when stated, proper- such devices are Chancellor by tion is taken a vote of the stockholders. ly subject analysis.”29 to a Unocal Thus, corporation the Delaware law ex a balance of pressly provides power Time, footnote 15 of Paramount which between boards stockholders legality we stated that of the structural makes transactions a shared enter origi- safety adopted protect devices decision. prise ownership Conse Time and nal between quently, a board of directors’ decision to ap- a central issue on Warner were not adopt protect merg defensive devices to ap- peal.30 That is because the issue on agreement may implicate er the stockhold the “Time’s board peal [decision] involved right effectively contrary vote ers’ to recast its consolidation with Warner the initial recommendation of the board acqui- outright into an cash and securities favor the transaction.25 sition of Warner Time.”31 Neverthe- less, we determined that there was sub- It is well that conflicts established support stantial evidence on the record to of interest arise when a board of directors the conclusions reached Chancellor effec prevent acts stockholders from analysis to each of applying a Unocal con tively exercising right their to vote the structural devices contained board.26 The “om trary to the will of the merger agreement between Time original nipresent specter” may of such conflict and Warner.32 present adopts a board defen whenever *16 merger agreem a protect sive devices a There are inherent conflicts between ability to effec ent.27 The stockholders’ merger a protecting board’s interest reject merger agreement likely a tively approved, it has the stockhold- transaction inversely proportionate relation to bear statutory make the final deci- right ers’ ship to the structural and economic devices approve approve or not sion to either approved protect that the board has continuing re- merger, and board’s transaction. effectively exercise its fidu- sponsibility to Time, at all times after the ciary duties original In Paramount v. competing These is executed. agreement between Time require a threshold deter- “change not considerations Warner did constitute omitted) Audio, Inc., (footnote (emphasis Companies Liquid 29. Id. at 1151 25. See MM (Del.2003). added). 1120 26. Id. at 1129 30. Id. at 1151 n. 15. Co., Corp. v. Mesa

27. See Unocal Petroleum 31. Id. at 1.148. Communications,

28. Inc. v. Time Paramount n. 15. Id. Inc., 571 A.2d at 1150. judicial mination that board-approved defensive involves “review reason- protecting devices transaction substantive merits of ableness are statutory within the limitations of its In that stan- applying board’s actions.”38 dard, authority and consistent with the directors’ we held that “a court should not fiduciary duties. Accordingly, ignore complexity in Para- of the directors’ Time, mount v. we held that the business task” the context which action was judgment applied rule Accordingly, Time board’s taken.39 we concluded that a original merge decision to applying judicial scrutiny with Warner.33 court enhanced held, however, We further that defensive should not decide whether the directors adopted by devices protect the board to made a perfect decision but instead should original merger transaction must with- decide whether “the directors’ decision was, balance, stand judicial scrutiny enhanced under range within a of reason- review, Unocal standard of even when that ableness.” merger transaction does not result Unitrin, In explained we the “ratio deci- change of control.34 ‘range dendi for the of reasonableness’ standard”41 when a applies court enhanced Scrutiny Generally Enhanced judicial scrutiny to pursu director action QVC, In Paramount v. this Court identi- holding ant to our It Unocal42 is a key fied the judi- features of an enhanced recognition that a board of directors needs scrutiny cial test. The first feature is a “latitude in discharging its duties “judicial determination regarding the ade- to the corporation and its shareholders quacy of the decisionmaking process em- defending against perceived when ployed by directors, including the in- threats.”43 “The concomitant requirement formation on which the directors based judicial Therefore, is for restraint.”44 if their decision.”35 The second feature is “a the board of directors’ collective defensive judicial examination of the reasonableness responses (preclusive are not draconian of the directors’ action in light of the cir- coercive) and are ‘range “within a of rea cumstances then existing.”36 We also held sonableness,’ a court not must substitute that “the directors have the burden of judgment [judgment].”45 for the board’s proving that they were in- adequately applies The same ratio decidendi formed and reasonably.”37 acted “range of ap reasonableness” when courts QVC, we explained that the applica- ply judicial scrutiny Unocal’s enhanced tion of an judicial enhanced scrutiny test standard to defensive devices intended to (citations omitted). 33. Id. at 1152. Id. *17 1151-55;

34. Id. Corp. Unocal v. Mesa Pe Unitrin, 41. A.2d at 651 Corp., Inc. v. Am. Gen. (Del. 1985); Co., 946 troleum see In 1388. Litiga Corp. re Santa Fe Shareholder Pacific (Del. 1995). tion, 669 A.2d 59 Co., 42. Corp. Unocal Mesa Petroleum (Del. 1985). A.2d 946 35. Paramount Communications Inc. v. QVC Network Unitrin, 43. 651 A.2d at Corp., Inc. v. Am. Gen. 1388. 36. Id. 44. Id. 37. Id. (citation omitted); (footnote 45. omitted). see also Unocal Id.

38. Id. Co., 493 A.2d at Corp. v. Mesa Petroleum 954-57. Id. Therefore, protect merger agreement applying judicial a that will not enhanced in change scrutiny designed result a of control. to defensive devices protect merger agreement, a a court must A protect board’s decision to its decision first determine that those measures are to enter a with defen- preclusive not or coercive its focus before against competing sive devices uninvited “range shifts to the of reasonableness” may emerge analogous transactions that is a making proportionality determination.50 to a board’s protect against decision to If the trial court determines that the de- dangers corporate policy and effective- merger a are protecting fensive devices adopts ness when it defensive measures coercive, preclusive not the proportion- a hostile takeover contest. In applying ality paradigm applicable. of Unocal is judicial Unocal’s scrutiny enhanced as- The board that it must demonstrate has sessing challenge a to defensive actions grounds reasonable that a believing by target taken corporation’s board danger corporation to the and its stock- context, in a directors takeover this Court merger holders exists if the transaction is held that the board not “does have unbri- not consummated.51 That burden is satis- dled perceived discretion to defeat threats “by showing good fied faith and reasonable by any Draconian means available”.46 investigation.”52 proof materially Such is Similarly, just statutory power as a board’s approved by enhanced if it is regard to a is not decision comprised majority of a di- of outside absolute, a board does not have unbridled independent rectors or an committee.53 any discretion to defeat perceived threat to merger by protecting any it with draco- judicial scrutiny When focus shifts nian means available. reasonableness, range to the Unocal Unocal,

Since requires “this Court has consis- defensive devices must tently recognized that defensive proportionate perceived measures to the threat to which preclusive corporation are either or coercive are and its stockholders if the law included within the common definition transaction is not consummated. ju- of draconian.”47 In applying protect merg- enhanced Defensive devices taken to scrutiny dicial to defensive actions under er executed a board of di- Unocal, a court give agree- must “evaluate the board’s rectors are intended to response, including justification any subsequent overall ment an over advantage measure, for each contested defensive and transactions that materialize before the thereby.”48 approved by results achieved If a the stockholders inextricably analogous “board’s defensive actions are and consummated. This is related, that a di- principles require of Unocal the favored treatment board of collectively may properly give encourage that such actions be scrutinized rectors initial unitary response perceived discharges bidder when it its fiducia- ry threat.”49 duties under Revlon. Co.,

46. Unocal Id. at 1367. Corp. v. Mesa Petroleum A.2d at 955. *18 Co., 51. Unocal Corp. v. Mesa Petroleum Unitrin, 47. Corp., Inc. v. Am. Gen. A.2d at 955. 1387. omitted). (citation 52. Id. 48. Id. (citation (citations omitted). omitted).

49. 53. Id. Id. 251(c) clause, Therefore, mandating its submission in the context of a vote even if the board’s rec- change a stockholder merger that does not involve control, ommendation was withdrawn. Genesis in the when defensive devices exe merger agree- further insisted that merger agreement challenged cuted are fiduciary out any ment omit effective subsequent their effect on a com vis-a-vis clause. transaction, merger peting alternative analysis in Court’s Macmillan is didactic.54 two stockholder gave also Genesis

In the context of a of defensive mea case board, of the Shaw and members bidder, existing taken we against sures Outcalt, time table to the same accelerated stated in Macmillan: voting agree- personally sign proposed treatment,

In disparate the face of voting agreements commit- ments. These trial court must first examine whether irrevocably majority ted them to vote their properly perceived the directors merger and further power favor shareholder interests were enhanced. 6 that provided Section any event the board’s action must be be agreements specifically enforceable. advantage reasonable relation to the required that Genesis also NCS execute it sought [by merger to be achieved the voting agreements. conversely, or approved], to the threat twenty-four hour ultimatum Genesis’ [competing poses

which a to transaction] that, merger agree- unless both the stockholder interests. If on the basis of voting agreements ment and the were scrutiny this enhanced Unocal the trial signed requested, with the terms it court is satisfied that the test has been going offer was to be withdrawn. Accord- met, then the directors’ actions neces- ing attorneys, “were un- Genesis’ these sarily are protections entitled to the willingness alterable conditions to Genesis’ judgment the business rule.55 proceed.” insisted on the exe- Genesis interlocking voting rights cution of the The latitude board will in either have merger agreements because it feared maintaining using or the defensive devices superior merger Omnicare would make a adopted protect it has it merger proposal. signed The NCS board the vot- approved vary will according degree ing rights merger agreements, without of benefit detriment or to the stockholders’ clause, any fiduciary out to ex- effective presented by interests that is or value pressly guarantee that the Genesis terms of subsequent competing trans- approved, superior even if a would action.56 presented transaction was from Day Genesis’ One Ultimatum any entity. other Omnicare The record reflects two of the four Deal Protection Devices members, Outcalt, NCS board Shaw and devices, were also the same two NCS stockholders Defensive as that term is used majority combined to who control opinion, synonym in this is a for what are voting power. gave stockholder protection to as “deal frequently referred person the four NCS board less than twen- Both are used inter- devices.” terms pro- in favor of its measure or ty-four changeably hours vote to describe agreement. insist- of measures that are intended posed merger combination of a protect ed the include a Section to the consummation (citation omitted). Acquisition Id. 54. Mills Co. v. Macmillan (Del. 1988). Id. *19 locked-up

transaction. devices can eco- that the acts Defensive which Genesis 251(c) nomic, structural, or provi- both. transaction were the Section voting sion and “the execution of the protection Deal devices need not all be agreement by Outcalt and Shaw.” In merger agreement itself. this 251(c) case, example, provi- the Section that With the assurance Outcalt and sion in the was com- irrevocably agree to Shaw would exercise voting bined with separate agreements majority voting power their in favor of its to provide a structural defense for the transaction, Genesis insisted merger agreement against any Genesis merger agreement reflect the other two subsequent superior transaction. Genesis defense, i.e., aspects of its concerted made NCS board’s defense of its 251(c) provision inclusion of a Section by insisting transaction absolute on the any fiduciary the omission of effective out omission of effective out aspects merger clause. Those dual merger agreement. clause the NCS agreement provided would not have Gene- complete sis with a defense in the absence argues voting Genesis that stockholder voting agreements Shaw and agreements cannot be construed as deal Outcalt. protection devices taken a board of directors because stockholders are entitled These Deal Protection Devices

to vote then own interest. Genesis cites Unenforceable v. v. Williams Geier57 Stroud Grace58 voting case, for the proposition agreements In this the Court of Chan subject cery correctly are not to the Unocal standard of held that the NCS directors’ cases, however, review. Neither of those adopt decision to defensive devices to com operative voting holds that the effect of a pletely up” merger “lock man Genesis disregarded per must be se “special scrutiny” dated under the two- Unocal,59 analysis applied when Unocal test forth in That con part set comprehensive and combined de- holding clusion is consistent with our plan. fense “safety Paramount v. Time that devices” that did adopted protect transaction case, In voting the stockholder in a change not result of control are sub agreements inextricably were intertwined ject judicial scrutiny to enhanced under aspects with the defensive of the Genesis not, analysis.60 Unocal The record does fact, In merger agreement. however, Chancery’s support the Court of agreements with Shaw and Outcalt were conclusion the defensive devices linchpin proposed tripartite of Genesis’ adopted by protect the NCS board to Therefore, defense. made the ex- pro were reasonable voting agreements ecution of a non- those portionate per to the threat that NCS negotiable precedent condition to its exe- potential ceived from the loss of the Gene merger agreement. cution of the In the us, Chancery case before the Court of held sis transaction. (Del. Communications, Geier, A.2d 1368 v. 60.See Paramount Inc. v. Williams 1996). (Del.1989) Inc., Time (holding safety that "structural devices” in (Del. 1992). Grace, 58. Stroud v. 606 A.2d 75 properly subject agreement are to a analysis). Unocal Healthcare, 2002 WL re (Del.Ch. Nov. 22,2002). at *16 See Co., Corp. Mesa Unocal Petroleum

935 pro- the Unocal standard judicial aspect This scrutiny Pursuant disjunctive If de- analysis. for a two-stage analy under Unocal’s vides required or sis, preclusive measures are either directors must first demon fensive imper- and they are draconian they grounds strate “that had reasonable coercive case, protec- In this the deal believing danger corporate for that a missible. both ....”61 tion of the NCS board were policy and existed To devices effectiveness burden, preclusive and coercive. satisfy that the NCS directors are they good acted in required to show faith This enunciated the standard Court conducting investigat a reasonable after in the determining stockholder coercion by ion.62 The threat identified the NCS A stockholder case of v. Geier67 Williams possibility losing board was may by wrongful nullified coercion vote being left with no com Genesis offer party or some other “where parable alternative transaction. have the effect of caus takes actions which ing the stockholders to vote favor of the stage The second of the Unocal proposed transaction for some reason oth requires the directors to demon test er than the merits of that transaction.”68 response strate that their defensive was Corporation, In v. Bell Atlantic we Brazen in relation to the threat “reasonable coercion applied that test for stockholder posed.”63 inquiry two-step This involves although the termination and held “that analysis. NCS directors must first may fee have influenced provision protection establish that the deal vote, ‘no structur stockholder there were adopted response devices to the threat factors’ that ally situationally coercive “preclusive,” were not “coercive” or im- provision made an otherwise valid fee response then demonstrate that their pres the facts permissibly coercive” under “range responses” within a of reasonable ented.69 Unitrin, perceived.64 threat In we stated: Brazen, concluded “the we (cid:127) A if response is “coercive” it is aimed particular determination of whether a forcing upon manage-

at stockholders a of its stockholder vote has been robbed ment-sponsored to a alternative hostile coercion impermissible effectiveness offer.65 the case.”70 In depends on the facts of (cid:127) case, Chancery A if did not response “preclusive” it de- the Court of prives right stockholders of the to re- address the issue of “coercion” expressly It did find as a precludes analysis. ceive all tender offers or in its Unocal fact, however, public from stock seeking bidder control funda- that NCS’s (who mentally restricting proxy or holders owned 80% of NCS contests supported Omnicare’s of- overwhelmingly otherwise.66 Co., Corp. 66. 61. Unocal v. Mesa Petroleum 493 Id. (Del. 1985) (citation omitted). A.2d 955 (Del. Geier, A.2d 1368 67. Williams v. 1996). 62. Id. omitted). (citations 68. Id. at 1382-83 63. Id. Unitrin, Corp., Bell Atl. 695 A.2d Corp., Gen. 69. v. 64. Inc. v. Am. Brazen 1997). (Del. 1387-88 Communications, 1387; Corp., 695 A.2d at 70. v. Bell Atl. at Paramount Id. Brazen Geier, 1383). at (quoting 671 A.2d Williams Inc. v. Time *21 fer) ceed, superior propos- no the accept will be forced to the Genesis matter how al.72 merger because of the structural defens- approved by es the NCS board. Conse- adopted by The deal devices protection quently, any the record reflects that designed board were to coerce NCS stockholder have vote would been robbed merger the consummation of the Genesis impermissible of its effectiveness any and of su- preclude the consideration predetermined coercion that the outcome perior transaction. The directors’ NCS merger regard without to the mer- defensive are not within a reason- devices at the its of Genesis transaction time range responses perceived able to the taken.71 vote was scheduled to be losing threat of the Genesis offer because protection in Deal devices that result they preclusive are and coercive.73 Ac- such coercion cannot withstand Unocal’s cordingly, protec- we hold that those deal judicial scrutiny enhanced standard of re- tion devices are unenforceable. they

view because are not within the range of reasonableness. Fiduciary Required Effective Out

Although minority were stockholders pro The defensive measures that not forced merger, to vote for the Genesis tected the transaction are unen were it they required accept it because not they preclu- forceable because are accompli but, a record reflects alternatively, they sive and coercive fait employed by that the defensive devices they are because are invalid unenforceable preclusive board are they operate coercive this case. Given the they accomplished specifically the sense that a irrevocable enforceable fait case, accompli. despite agreements, provision In this the fact in the agreement requiring the NCS board has withdrawn its the board to submit a recommendation for the Genesis transac- the transaction for stockholder vote rejection by fiduciary tion and its of a out clause in recommended the omission stockholders, completely prevent the deal protection devices fiduciary approved by operated discharging ed the board from its minority a preclusive responsibilities concert to have and coercive stockhold presented superior ers tripartite effect. Those defensive mea- when Omnicare 251(c) [merg “To the extent that a provision, sures —the Section transaction. contract, thereof, , voting agreements, provision pur and the absence of an or a er] fiduciary ports require it a board to act or not act effective out clause—made “mathematically and “realis- such a fashion as to limit the exercise of impossible” duties, fiduciary it is invalid and unen tically unattainable” the Omnicare 74 to suc- forceable.” proposal transaction or other explicitly provides "prom- § a A.2d at 193 71. See 695 Corp., tracts v. Bell Atl. Brazen duty by fiduciary fiduciary ise a to violate his promise a that tends to induce such a viola- or Unitrin, 651 Corp., Inc. Gen. See v. Am. grounds public tion is unenforceable 1388-89; A.2d at Carmody see also v. Toll section indi- The comments to that policy.” (Del.Ch. Bros., Inc., 723 A.2d cate that and other officials of "[d]irectors (citations 1998) omitted). corporation capacity act subject to the rule stated in this Section.” are Unitrin, Corp., 73. See Inc. v. Am. Gen. (Second) § of Contracts Restatement A.2d at 1389. added). (1981) (emphasis 74. Paramount Communications v. QVC Inc. (Del.1993) (cita- Network omitted). (Second) tion Restatement Con- the stock- the outcome of that made QVC',75 recognized power this Court foregone conclusion. majority corporation’s of a vot- holder vote a “[w]hen by single person ing acquired shares are Chancery noted that Sec- The Court growp acting entity, or a cohesive 251(c) Corpo- of the Delaware General tion case], signifi- in this there is a together [as agree permits ration Law now boards voting power in the cant diminution for a stock- submit *22 thereby minority become stock- those who vote, later with- if the Board holder even Therefore, acknowledged holders.”76 we agreement for that support its draws protect- the absence of devices “[i]n reject recommends that the stockholders stockholders, minority stockholder ing the also noted Chancery of it.80 The Court formali- likely votes are to become mere are voting agreements that stockholder ties,” group acting to- where cohesive refusing Delaware law. permitted by majority voting powers to gether exercise certify interlocutory appeal, the to this already have decided the outcome.77 Con- Chancery simply stated “it is Court mi- we concluded that since the sequently, say a board of directors nonsensical to power stockholders lost the to in- nority manage the ‘busi- abdicates its duties to corporate through direction the fluence under corporation ness and affairs’ of a ballot, “minority rely stockholders must 141(a) by agreeing to Section of the DGCL solely fiduciary protection agreement of a merger the inclusion owed them duties directors.”78 251(c) §by of the same term authorized presented Under the circumstances statute.” case, a cohesive of stock- group where le Taking action that is otherwise majority voting holders power was however, gally possible, ipso does not facto irrevocably merger committed to the fiduciary comport responsibilities with the “[ejffective transaction, representation in all circumstances.81 The of directors the financial minority interests that resulted synopsis to the amendments imposed upon shareholders the [NCS 251(c) in the in the enactment of Section responsibility an affirmative pro- board] corporation specifi law statute Delaware minority tect shareholders’ those inter- 79 cally provides: “the amendments are not ests.” board could not abdi- of wheth question intended to address the fiduciary minority cate duties to the requirement appro er such a submission leaving ap- it to the stockholders alone to cir priate any particular set of factual prove disapprove merger agreement provisions, 251 like cumstances.” Section already because two stockholders had com- QVC, examined in majority no-shop provision to establish a bined QVC not their v. to a vote of stockholders whether or Paramount Communications Inc. Inc., (Del. 1993). Network 637 A.2d 34 transac directors continue to recommend the amendment, Section 251 Before this tion. added). (emphasis at 42 76. Id. precluding interpreted as a stockholder was directors, approving the board of after vote if (footnote omitted). 77. Id. agreement merger but before the stock 78. Id. at 43. vote, longer no to recommend holder decided Gorkom, 488 A.2d it. See Smith v. Van Beran, v. 79. McMullin (Del. 1985). 887-88 Audio, Liquid Companies 251(c) 81. MM 80. Section was amended in 1998 omitted). (Del.2003) (citation the inclusion in a allow for requiring agreement put a term that the at a time when board’s ry obligations ab- valid “presumptively are i.e. re- judgment important,85 is most in a own provisions stract.” Such superior offer. not, however, ceipt subsequent of a “validly de- may agreement fiduciary duties limit the directors’ fine or authority give Any board has prevent [NCS] law or under Delaware of a recommended proponent carrying out their directors from and eco- reasonable structural law.”83 duties under Delaware incentives, defenses, fair com- nomic complet- not if the transaction is pensation the NCS admits that when conditions, that defensive measures ed. To the extent agreed to its reasonable, they may that the are economic seeking to assure NCS board proponent an increased cost to the full and that become paid creditors were any subsequent transaction. Just highest received the the NCS stockholders *23 draconian, fact, measures cannot be In defensive available for their stock. value however, limit circumscribe they cannot or “bulletproof’ merger defends its Genesis fiduciary duties. Notwith- that the directors’ that basis. hold agreement on We condi- corporation’s insolvent authority standing did not have the NCS board tion, authority to board had no an abso- the NCS to the Genesis demand for accede that subse- merger agreement execute a “lock-up.” lute effectively dis- prevented it from quently of a Delaware cor The directors ongoing fiduciary responsibili- charging its obligation to continuing have a poration ties. fiduciary responsibilities, discharge their Dela of a The stockholders develop, circumstances after as future rely upon entitled to corporation ware are is announced. Genesis merger agreement fiduciary duties discharge of the board to its superior of a anticipated the likelihood of a fiduciary all duties was an at times.86 after its fer be ef unremitting are and must mea director and demanded defensive nounced specific in the context fectively discharged completely that from the NCS board sures required with re actions that are Instead of of the its transaction.84 protected or its stockholders gard corporation to the defense of the to the absolute agreeing offer, change.87 The stockhold as circumstances superior from a Genesis majority voting power, with Shaw however, required to ers the NCS board was Outcalt, right an to sell had absolute fiduciary protect out clause to negotiate a party their with a third exchange trans shares if the Genesis the NCS stockholders was not known any price. right This By offer. acced an inferior action became NCS, it became other directors of complete to the ultimatum ing to Genesis’ agreement. of the Genesis integral part board dis futuro, protection brief, candidly answering Genesis In its exercising its own fiducia- itself from abled Brincat, (Del. QVC 10 85. See Malone Inc. v. Communications 82. Paramount Inc., 1998) (directors’ oper fiduciary do not duties A.2d at 48. Network intermittently). v. House See also Moran ate 83. Id. (Del. 1985). Int'l, A.2d 1346 hold improvements NCS's finan- 84. The marked Brincat, 722 A.2d at 10. 86. Malone v. during negotiations cial situation strongly suggests the NCS board Int’l, Inc., Id.; v. Household Moran prospect of alert to the should have been (use occurred, if and of defense evaluated or, at 1357 eventually competing offers arises). when the issue bidding contest. respect to the Vot- that its offer “came with a condi- tion is reversed. With states Decision, the order of the stalking ing Agreements tion—Genesis would not be a agree Chancery horse and would not to a transaction dated October Court controlling to which NCS’s shareholders that decision is reversed to the extent committed.” Voting were not of the permits implementation ruling Agreements contrary to this Court’s required NCS board was re- Fiduciary Duty on the claims. With fiduciary contract for an effective out to this of that spect appeal to the Court continuing fiduciary clause to exercise its constitut- portion Standing Decision minority responsibilities stockholde Chancery ing the order of Court rs.88 The appeal issues this do not 25, 2002, granted dated October general validity stock involve either motion to dismiss the remainder of the voting agreements authority holder or the complaint, holding Omnicare that Omni- 251(c) of directors to insert a pro Section standing fiduciary care lacked to assert in a merger agreement. vision arising out of the action of the duty claims case, the those NCS board combined two the date preceded board of directors otherwise valid actions and caused them to stock, acquired on which Omnicare operate in up, concert as an absolute lock dismissed as appeal is moot. the absence of an out effective clause in the merger agreement. immediately. The mandate shall issue *24 In the preclusive context of this and Justice, VEASEY, Chief with whom case, lock up protection coercive of STEELE, Justice, joins dissenting. expectations Genesis’ contractual must beauty corporation The of the Delaware yield supervening to the responsibility of law, it and the reason has worked so well the directors to their discharge fiduciary stockholders, officers, continuing duties on a directors and basis. The agreement and that the framework is on an en- voting agreements, they based operate abling Chancery were combined to in with the of concert statute Court case, this are Supreme applying principles inconsistent with the and the Court NCS fiduciary extent, directors’ fiduciary duty duties. To that in a common law mode on they we hold that are case-by-case Fiduciary duty invalid and unen- basis. cases and, forceable.89 inherently are fact-intensive there- fore, unique. unique This case is two Conclusion First, important respects. peculiar presented facts render this case unlike- respect Fiduciary Duty With De- cision, ly repetition. candidate for substantial Chancery the order of the Court of 22, 2002, Second, rare split dated November this is a 3-2 decision denying plain- application preliminary injunc- Supreme tiffs’ for a Court.90 QVC Communications, 88.See Paramount 89. Inc. v. Communications Inc. v. Paramount Network,Inc., QVC A.2d at Merg- Network 637 A.2d at 42-43. agreements ownership er involve an decision Court, Split by especially in decisions this and, therefore, become without cannot final law, corporation few and far the field of are approval. stockholder Other contracts do not example between. One is our decision in require fiduciary they out clause because Gorkom, (Del. 488 A.2d 858 Smith v. Van judgments within involve business that are 1985), supported only three Justices where province di- the exclusive of the board of reversing Chancery’s decision. the Court of power manage rectors’ the affairs of the recently and David Skeel As Justice Holland Donald, corporation. See Grimes noted, decisionmaking process fos while our 1214-15 consensus, dissenting opinions "illustrate ters case, present agreement we are faced with a membered is that this and the controlling and stock- voting commitments Outcalt Shaw holders’ commitment assured stock- lengthy concluded a search and intense ne- approval holder before the gotiation process the context of insol- emergence subsequent of a transaction of- vency and oth- pressure creditor where no fering greater value to the stockholders. emerged. Accordingly, er viable bid had adequately This does not summarize the we endorse the Vice Chancellor’s well-rea- us, unique facts before however. Refer- analysis soned that the action NCS board’s ence is made to the Vice Chancellor’s emerged before the hostile bid was within opinion summary and the factual in the the bounds of its duties under Majority Opinion adopts the Vice these facts. findings.91 Chancellor’s Majority We share with the and the The process by which this independent board of directors the joint came about involved a de- carefully good motivation to serve by controlling cision stockholders faith corporate the best interests of the ap- the board of directors to secure what and, enterprise thereby, the stockholders peared only value-enhancing to be the course, known, of NCS. It is now after company transaction available for a over, case is the stockholders of of bankruptcy. Majority adopts brink substantially will receive more prohibi- a new rule of law that imposes tendering topping their shares into the bid ability tion on the act in NCS board’s they of Omnicare than would have received controlling concert with stockholders to merger, the Genesis as a result of the lock up merger. Majority this reach- in- post-agreement Omnicare bid and the es this by analyzing conclusion the chal- junctive Majority relief ordered lenged protection deal measures as isolat- cannot, jurisprudence Court. Our Majority ed board actions. The concludes *25 however, seen as turning on such ex that duty the board owed a to the NCS Rather, post felicitous results. the NCS minority stockholders to ac- refrain from subject good board’s faith decision must be ceding to the Genesis demand for an irre- to a real-time review of the board action lock-up notwithstanding vocable the com- agree- before the NCS-Genesis pelling confronting circumstances the ment was entered into. disinterested, in- board and board’s formed, good faith exercise of its business Analysis Leading An the Process to the judgment. Quintessential, Lock-up Reflects Because we believe this Court must re- Disinterested and Board Informed spect judgment the reasoned of the board Decision Reached in Faith Good give of directors and effect to the wishes Majority adopted The has Vice stockholders, controlling respect- we ar- findings Chancellor’s and has assumed fully with disagree Majority’s reason- that guendo the NCS board fulfilled its ing that results in a that the con- holding care, loyalty, good and faith duties fluence of board and stockholder action merger agree- into fiduciary duty. entering a breach of the Genesis constitutes Indeed, always indisputa- The essential fact that must be re- ment. this conclusion is principled Majority Opinion opinion about at 920-27. differences compromised the law ... for the [are] never unanimity.” Randy J. Holland & sake of Skeel, Jr., Deciding David A. Cases Without (2002). Controversy, 5 Del. L.Rev. was, a sine understandably, is that But there problem The ble on this record. offering exchange for non. qua prop- from their Majority has removed equity return on their NCS stockholders merger protec- the contractual er context demanded Genesis payment, and creditor here cannot lock-ups The provisions. tion If would close. that the certainty A court should be reviewed a vacuum. have acceded board would not the NCS process to deter- bidding review the entire 251(c) if Outcalt provision, the Section ac- independent board’s mine whether voting agree- agreed not to the had Shaw inform the directors to permitted tions a fidu- had insisted on ments and if NCS options of their available themselves out, no would have been Gene- ciary there faith.92 they good whether acted Thus, value-enhancing only sis deal! Genesis, negotiations into with Going disap- have available would transaction that, up knew until NCS directors had knew that Omnieare peared. NCS time, potential had found one NCS acquisition past,93 in the spoiled a Genesis bidder, had refused Omnieare. Omnieare Majority disputed by it not price fire buy except at a sale NCS deci- made a reasoned the NCS directors through bankruptcy. an asset sale Om- threat to as real the Genesis accept sion to stage at that proposal nicare’s best would away.94 walk off all creditors and would paid not have condition- submitted its When Omnieare provided nothing have for stockholders. bid, board had al eleventh-hour the NCS Noteholders, represented by the Ad propos- terms of the weigh the economic Committee, willing oblige were Hoc Om- uncertainty completing against al if bankruptcy nicare and force NCS into be- Importantly, deal Omnieare.95 pay would in full the NCS debt. Omnieare on bid was conditioned cause Omnicare’s efforts, board’s Through its due dili- satisfactorily completing increasing- interest that became expressed NCS, the NCS board saw review of gence ly Negotiations attractive. with Genesis condition, the Ad as did crippling this as a paying to an offer off and led creditors a matter of business As Hoc Committee. mil- stockholders conferring negotiating $24 with Om- judgment, the risk infinitely superior point amount at that losing lion-—an nicare and possible benefits.96 outweighed the prior proposals. Omnieare Macmillan, See, Townson, Acquisition Co. e.g., Malpiede v. 780 A.2d 95. See Mills *26 ("In assessing n. 29 (Del.2001) 1282 (concluding the responsibility, a the bid and the bidder's board made an informed decision to refrain consider, proper among various may board returning to solicit from to a rival bidder the risk of nonconsumma- factors ... another offer because the board conducted Citron, ("We tion....”); A.2d at 68-69 spanned “lengthy process" that one sale predominantly target board of will not hold a year). allegedly fail- directors liable disinterested Majority does Opinion ing at 923. due care when the bidder to exhibit target a definitive provide board with not bid.”). In Citron v. Fairchild Camera & Instrument the constraints Corp., we noted that "whether Nabisco, Litig., 1989 Inc. S’holders bargaining 96. See RJR self-imposed or attributable to are RJR, (Del.Ch.). the Court at *19 seeking WL 7036 adversary an a final resolu tactics of board Chancery that the RJR Nabisco held process must be consid of a belabored tion highest it re- justifiably accept the bid target’s decision to could analyzing the ered” in KKR, bidder, than rather ceived from one a bidder. 569 A.2d accept an ultimatum from the other 1989). higher offer from (Del. prior inquire about a Based on Genesis's suitor, Omnieare, management group, because KKR good dealings had rea with Id. at *19. its bid. seriously. might have withdrawn take the Genesis ultimatum son to bidder, lock-up indisputably qua equally a sine non to ed the NCS board was any deal with “exchanging Genesis. concerned about certainties” If the creditors decided to Genesis. A lock-up permits target and a board bankruptcy, force NCS into which could bidder to “exchange certainties.”97 Cer- happened have time as NCS was tainty acquirer-may itself has value. The obligations, unable to service its the stock- pay higher price target for the if the nothing. would have The holders received acquirer is assured consummation of the if NCS board also did not know the NCS target company transaction. The also prospects business would have declined certainty completing benefits from the again, leaving NCS less attractive to other losing transaction with a bidder because bidders, Omnicare, including which could acquirer perception creates the that a tar- changed again have its mind and insisted get damaged goods, is reducing thus its bankruptcy. on an asset sale in value. Situations will arise where business real- approved recognition by This Court lock-up ities demand a so that wealth- Chancery the Court of value enhancing may go certainty in Rand v. Western Air Lines.98 transactions forward. Accordingly, any bright-line prohibit- rule The Chancery upheld Court of the decision could, ing lock-ups in circumstances such Air grant board of Lines to Western these, permissible chill otherwise con- only its bidder a stock option acquire duct. 30% of Western’s stock for an representing closing price amount Jurisprudence Compel Our Does Not trading day

the last before execution of the This Court to Invalidate the Joint agreement.99 recog- The Court Action of the Board and the Control- lock-up agreement nized that “fore- ling Stockholders bidding,” further noted that elose[d] but market, had canvassed found Majority The invalidates the NCS Western, only party willing acquire one by announcing action a new rule board’s and made a decision calculated to maxim- represents juris- an extension of our ize pursuing stockholder value “the can prudence. narrowly That new rule prospect that remained.”100 viable A merger agreement stated as follows: that, Court also noted in return for the search, market entered into after a before limit lock-up, acquirer agreed to emerged, any prospect topping of a bid has prevent own “outs” that would consumma- up approval which locks stockholder merger. merging parties, tion of the “fiduciary out” provi- does not contain then, “exchanged by locking certainties” sion, per signifi- invalid a later se when deal, up approved by which was emerges. As have topping cant bid we Chancery Court of and affirmed this noted, bright-line, per se rule would Court.101 (1) the circumstances apply regardless *27 (2) the leading up to the and present

While the case does not involve control attempt to hold on to one interest- fact that stockholders who Lines, at 97. See Rand v. Air 1994 WL 100. Id. *7. Western (Del.Ch.). 89006 at *6 ("Western gained 101. Id. at *6 a substantial (Del.Ch.) by keeping WL 659 A.2d the 98. 1994 benefit for its stockholders aff'd (Del. 1995). only party expressing any at the table interest achieving while its own assurances that the consummated.”). transaction would be 99. Id. at *3. of Genesis emergence the them- and —but-for power irrevocably had committed stockholders, no via- selves, for the have been to vote would the scene—there stated, rule is Narrowly this new merger. ble deal. that now judicially-created a “third rail” the NCS held that The Vice Chancellor the given one of the “rules of becomes held He even satisfied Unocal. directors by the to be taken into account game,” Revlon, if it have they would satisfied merger agree- and negotiators drafters of Indeed, he it did not. applied, had which view, rule is an ments. In our this new rec- undisputed on the concluded—based of existing precedent. unwise extension experience ord and his considerable —that: it is Unocal Although debatable whether by testimony given quality “The overall we the better applies believe that —and strongest among the the NCS directors business rule in this situation is that the ever All four NCS court has seen. will, rule

judgment apply102 should —we deposi- deposed, and each directors were nevertheless, arguendo assume —as attention makes manifest the care and tion applies. did—that Unocal Vice Chancellor every member given project by to this Therefore, di- under Unocal the NCS fully with agree We board.”103 forward going rectors had burden of conclusions, and findings Chancellor’s Vice with the evidence to show that there was judgment have and we would affirmed corporate policy threat to and effectiveness on that basis. Chancery of the Court of that their actions were reasonable view, . Majority misapplies our to that Chan- response threat. Vice preclu- concept of “coercive and Unitrin reasonably correctly they cellor found that pro- preempt proper measures to sive” threat not perceived the that NCS did Thus, Majority balancing. portionality have a viable offer from Omnicare—or judicial applying that “in enhanced asserts creditors, anyone pay else—to cure off its designed to to devices scrutiny insolvency provide payment some defensive agreement, ... a court protect to stockholders. ac- The NCS board’s measures ... determine that those must correctly the Vice tions—as Chancellor preclusive not or coercive....”104 are held—were in relation to the reasonable Here, were protection the deal measures threat deal was the because town,” unilaterally by the board adopted not “only game the NCS directors existing deal off an hostile offer got they the best could from Genesis fend merger, original Time-Warner basis for the doctrine is stock-for-stock 102.The Unocal "omnipresent specter” Court held was entitled the board's self-in- which this rule, judgment presumption of the entrench Unocal business terest itself in office. Co., jettisoned parties in the face was Corp. v. Mesa Petroleum 1985). topping at 1152. The (Del. bid. Id. Paramount’s plagued was not replaced with a new transaction was specter of Unlike the Unocal self-interest. Time situation, was an all cash tender offer which here a hostile offer did not arise It was the acquire of the Warner stock. 51% the market search and the locked- until after agreement, original not the revised up with Genesis. deal "defense- agreement, that was found to be unilateral applies doctrine The Unocal subject Id. to Unocal. motivated” defensive and reactive board actions are Thus, analysis Healthcare, nec- in nature. Unocal Li Inc. S'holders In re NCS (Del.Ch.) ("Chancery, Time essary in Paramount Communications tig., 2002 WL 31720732 restructured Fiduciary Duty Opinion") Inc. because Time and Warner *15 n. 46. *28 merger to an original from a their transaction sup- (emphasis Opinion Majority at 932 response Paramount bid. 104. acquisition in to the Time, 1140, 1989). (Del. plied.). In the 1148 571 A.2d 944 corporate very Majority effec- policy

threatened the and The measures the cites as by approved “coercive” were Shaw and They adopted tiveness of NCS.105 were through the of their indepen- Outcalt lens game because in “only Genesis—the merits of dent assessment of the the trans- NCS, town”—would not save its creditors in action. The case is proper inquiry and its provi- stockholders without these had taken actions whether NCS board sions. ¡ofcausing that “have the effect the stock- Majority incorrectly, The view— our — to of the proposed holders vote favor on Unitrin analysis. relies to advance its transaction for some reason other than the discussion “draconian” measures of that merits transaction.”109 Like the action, Unitrin dealt with unilateral board fee a valid upheld liquidated termination repurchase designed fend off program, to a claim damages against clause of coercion an existing by hostile offer American Gen- Corp., Brazen Bell Atlantic the deal Unitrin recognized eral.106 In we protection measures at here issue were “an need police preclusive to and coercive ac- integral part of the of 'the transac- merits board to delay tions initiated struggled tion” as the board to se- existing retard so cure—and did deal avail- an hostile bid as to secure—the able.110 ensure that the stockholders can benefit negotiations from the the bid- board’s fully Outcalt and Shaw were informed der or and to effectively others exercise stockholders. As the NCS controlling as the check on franchise ultimate stockholders, they made informed board action.107 Unitrin the effect polices voting power to choice commit their of board on existing action tender offers merger. minority stockholders were and proxy contests ensure when controlling deemed know that permanently cannot its will impose they stockholders have 65% of vote can stockholders, on the leaving the stockhold- approve merger without the need for the Moreover, minority voting rights.108 ers no recourse to their votes. to the extent a Geier, 1368, Majority mocracy.” 105.The states that our decisions Williams v. (Del. 1996). Williams v. and Stroud v. do not Geier Grace operative hold that "the effect of Unitrin, 106. Corp., Inc. v. American General disregarded per be se when a must 1995). (Del. 651 A.2d applied analysis comprehensive Unocal to a Majori plan." and combined defense 107. ("We begin at 1379 our Id. examination Grace, ty Opinion howev at 934. Stroud v. Program Repurchase of Unitrin’s mindful of er, clearly we noted that record indi "The special import protecting the share- cates, concedes, [plaintiff] ... that over require- Unocal’s holder's franchise within outstanding [the of the shares of ... 50% be ment that defensive measure reasonable corporation] under control of are the direct (citation omitted). proportionate.”) defendants]_ con [the These directors corporation trolled the in fact and law. This (upholding at 1383 the Unitrin board’s Id. contemplated obviates Uno threat defensive measures because board actions (Del.1992) (empha cal. ...” 606 A.2d preclusive appear not "would have effect Stroud, then, supplied). According sis ability upon successfully American General's enter Shaw’s and Outcalt's decision to into enough votes to win a to marshal shareholder subject voting agreements should not contest.”). proxy analysis they to a because controlled Unocal corporation "in Far fact and Id. law.” Geier, (citations 671 A.2d 1382-83 duty, joint from a breach of action omitted). represents stockholders and directors here 1997). (Del. 110. highest corporate "the best form of de- *29 case, abundantly it made felt In this minority may stockholder have willing negoti- to merger, early “coerced” vote for the which on that it was to clear it was a the already accompli, only was a on a deal with NCS but ate fait meaningless “stalking coercion—or no coercion not be a that it would condition votes, controlling all—because the those Thus, to be certain it wanted horse.” Shaw, already were “cast.” Outcalt use its with party could not deal a third Although controlling that the votes the fact a begin a floor which to against merger “precluded” were committed to the negotiat- of this bidding war. As a result overriding against merger an vote the ac- “fiduciary a out” not was ing position, stockholders, A pejorative the Class the Opin- Majority to The ceptable Genesis. applicable in a Unitrin “preclusive” label negotiating position, holds that a ion such no here. application fact situation has agreement, in the is invalid implemented if Therefore, no minor- meaningful there was lock-up. an absolute se where there is per ity stockholder to coerce. decision in authority jurispru- our know no We rule, applying scrutiny, In we believe new and we supporting Unocal this dence Majority incorrectly preempted the the unwarranted. it is unwise and believe view, inquiry. the proportionality our our Majority The relies on decision proportionality inquiry account must fiduciary QVC to assert that the board’s reality the that the contractual measures negotiat- from prevent the directors duties agreement protecting this were providing without ing agreement a necessary to obtain the deal. The QVC for Rebanee escape provision. on Majority has not demonstrated that however, our proposition, confuses director re- disproportionate action was responsibilities of a board’s statement Indeed, it is sponse posed. the threat superior confront a when the directors negoti- clear to us that the board action to away from it to lock and turn transaction reasonably ate the best deal available with dif- very with the up a less valuable deal (Genesis) merger partner viable here, where the board ferent situation could satisfy who the creditors and benefit only value-enhanc- itself to the committed stockholders, in rela- reasonable The transaction available. decision ing threat, by any yard- tion to the practical QVC prior is an extension of decisions stick. prevent and Mills that board Revlon willing who ignoring a bidder is from Lock-up An Absolute is a Per Se Not of- the favored bidder’s match exceed Duty Fiduciary Violation of “con- application of Majority’s fer.111 respectfully disagree the Ma- We here a further fiduciary duties” tinuing jority’s conclusion that board the NCS permits, and thus concept of this extension A breached its duties to the Class view, a court to second- wrongly our failing to a “fidu- negotiate stockholders analysis the risk and return guess ciary merger agree- out” in the Genesis weigh must make to value practical import ment. What is against pros- only viable transaction “fiduciary provi- out?” It is contractual not an offer that has materiahzed. pect sion, negoti- in a manner to articulated mistakenly relies Majority also ated, permit that would the board QVC notion support decision our acquired exit without corporation being should have retained the NCS board in the breaching minority stock- fiduciary out to save of a superior event offer. work, QVC Net- 49-50 111. Paramount Communications v. *30 Nevertheless, appear.

holder from Shaw’s and Outcalt’s if voting holding the is QVC, agreements. reasoning facts, Our in which unique negotiators confined to these recognizes minority stockholders must may navigate be to able around this new rely protection fiduciary the duties hazard. directors,112 owed to them does not we dissent. Accordingly, respectfully

create a special duty protect to the minori- ty from consequences stockholders the of a STEELE, Justice, dissenting. controlling stockholder’s ultimate decision I respectfully dissent the majority from unless the controlling stockholder stands opinion, join the Chief Justice’s dissent in transaction,113 on both sides of the which is respects all dissent separately order Indeed, certainly not the case here. the crystallize my objec- the central focus of a minority discussion stockholders’ lack majority tion to the view. QVC voting power impor- notes the I would affirm the Chancellor’s Vice scrutiny tance of enhanced in change of injunctive holding denying relief. control precisely transactions because the minority stockholders’ interest in the new- Here the board directors acted self- ly entity merged hinge thereafter will on lessly pursuant careful, to a fair process controlling course set stockhold- in good and determined faith that the ben- QVC, er.114 In Redstone Sumner owned efits to corporation the stockholders and Viacom, voting 85% of the stock flowing merger agreement from contain- corporation.115 surviving Unlike stock- ing protection provisions reasonable deal holders who are with a confronted transac- outweigh speculative benefits that tion relegate that will to a minority them might entertaining from a putative result in the corporation, status A Class higher A court offer. asked examine purchased stockholders stock decisionmaking process of the board knowing provided Charter Class should decline interfere with the con- B stockholders control. summation and execution otherwise of an valid contract. Conclusion view, unim- my Vice Chancellor’s It regrettable split is that the Court is peachable findings preclude factual further this important hopes case. One that the judicial scrutiny of the NCS board’s busi- rule Majority though announced here — judgment negotiated ness the hotly clearly erroneous in in- our view—will be terms of were nec- terpreted narrowly be and will seen as sui essary company order to save the from generis.116 By from deterring bidders en- financial collapse, repay pro- creditors gaging negotiations like those present vide some benefits NCS stockholders. requiring always here and that there must out, concurring A dissent not a useful be a potential the universe of reasonably restating bidders who could mechanism for the facts Vice expected significant, particularly to benefit shrink stockholders could or dis- Chancellor found QVC, at 47. A.2d at 47-48. 112. 114. Curtiss-Wright Corp., 113. See Bershad v. Id. at 38. 115. (Del. 1987) (noting that absent arising standing fiduciary duties on both from Importantly, we decide case be- transaction,'"stockholders sides of a in Dela QVC, fore 637 A.2d at us. corporations right to ware have a control and interest."). vote their shares in their own in- concludes that Unocal’s majority majority accepts those facts when ju- compels dissent, of review termediate standard compelling highly persuasive, *31 to whether determine squarely per- in the correct dicial interference them places to terms, refers majority to that the far less clear me is spective. What is contract de- protection and majority adopt the those facts times “deal how can at various devices,” vices,” board “defensive conclude that the NCS breach- then “defensive devices,” fiduciary minority any duty safety to NCS’ ed or “structural measures” endorsing voting majori- a simply by The stockholders and coercive. preclusive are majority the stock- from substantially departs between ty’s conclusion carefully up negotiat- holders that locked the con- appraisal of a common sense both merger agreement with ed and essential Dela- of this and landscape case textual Genesis. stan- applying the Unocal ware case law dard. law my opinion,

In Delaware mandates judgment under the business deference case, the context factual of the of decision that is rule to a board directors’ the canvassed thoroughly had NCS board interest, made with care free from self due acquirer, attempt to find an market in an faith. good and and repay creditors company, save the law, judg- the business Under Delaware stock- financial benefit to provide some of the offspring ment rule is funda- the silence, so in face of They holders. did the 141(a), § principle, codified mental hostility from outright to tepid interest of that the and affairs a Dela- business only credible fide, The bona Omnieare. corporation managed by are ware during NCS could find partner directors.... under its board of Genesis, compa- process exhaustive judgment rule exists protect business desir- that less than ny experienced had full and free exercise of promote the past. in the with Omnieare able relations managerial granted Dela- power the viable only Small wonder NCS’ ware directors.117 demands and concessions partner made as- Gorkom, enhanced acquire contract terms that cor- Importantly, Smith Van merger would close. the court surance that the rectly casts focus on review up to lock alleged agreed for NCS board challenged of action board protection provisions duty “only of with contractual fiduciary of the care breach prospect of Genesis information order to avoid the basis then upon of leaving NCS walking away from deal reasonably available to the directors ne- position of woefully in the undesirable Though their relevant to decision....”118 company had worked imposition gotiating of particularly criticized for ne- NCS’ interests against for months liability for personal on directors breach ne- Those NCS’ creditors. care, gotiating with duty of Gorkom still Van no for NCS’ suggested regard gotiations recognizing importance stands for interests, only out and held for inter- stockholders’ limited circumstances court structuring a hope purchase focusing on the importance and the vention environment. bankruptcy in a attacked. timing decision Recommendation, 96 Gorkom, Merger and the 872 Measures v. Van 117. Smith (2002) (an presaging article Nw. U.L.Rev. discharge of appropriate between the conflict sanctity of contract 874; duty and the also R. Franklin Balotti 118. Id. see III, negotiated). fairly provisions Sparks, Deal-Protection and A. Gilchrist The contract terms that NCS’ board their clients’ decision—sound at the agreed insidious, to included no camou- economically time but later less beneficial flaged deals for side the directors or the post-decision, because of unforesee- majority transparent stockholders nor pro- respected by able events—will be visions for control premi- entrenchment or courts, law, Delaware courts that ums. At the time the and the it, expound may questioned. well be I majority agreed stockholders board, would not shame the NCS which lockup, the terms were the best reasonably every acted in accordance with fine instinct stockholders, available all the balanced to encourage, invalidating we wish *32 against genuine a risk of no deal at all. approving their action Genesis merger the The cost analysis by benefit entered into they upon because failed to insist a fiducia- an independent board, of committee the ry out. I use “shame” here because the approved the full by indepen- board and majority finds no loyalty breach of or care dently agreed majority to stock- but these nonetheless sanctions directors holders cannot be guessed by second for upon fiduciary their failure to insist a no expertise courts with business that out as if regard those directors had no for qualify would them to substitute their disinterested, the effect their of otherwise careful, judgment that for of a selfless careful decision on The majority others.119 board or majority stockholders who seeks to deter future boards from similar significant had the most economic stake in by declaring agreements conduct ne- the outcome. gotiated under similar circumstances will We encourage proscriptive should not be unenforceable. rules that invalidate or render unenforcea- corporate Delaware citizens now face precommitment ble strategies negotiated in every prospect circumstance, between parties two to a who contract will price, boards obtain the highest must even presumably, the absence of conflicted if requires a breaching contract en- interest, bargain intensely over every tered a time no into at when one could meaningful provision of a contract after a reasonably have truly “Superior foreseen a careful cost analysis. benefit Where could Proposal.” The majority’s proscriptive plain approach common sense be more rule a scope limits of board’s cost board, wisely than invoked where a free of benefit analysis taking bargaining conflict, informed, fully supported by the chip foregoing of out “off equally largest conflict-free holders table” in all For that circumstances. new transaction, economic interest reach- principle to arise from the context of this es the voting lockup conclusion that a case, Omnicare, striving buy when after to strategy is the best course to obtain the cheap by NCS on the off buying its credi- most for all benefit stockholders? tors, fray, slinked back into the reversed principle This fundamental Delaware antagonistic strategy historic and of- law so eloquently put the Chief Justice’s fered a “Superior Proposal” conditional dissent, particularly applicable here entirely seems counterintuitive. where the NCS board had no alternative if majority fairly nego- declares that If company were to be saved. attor- motivated, neys counseling careful, exchange tiated is invalid well consideration theory and well-advised boards cannot be assured and unenforceable on the that its Jr., expansive thoughtful Symposium Corporate 119. For a more ex- Norms Law: & Law, planation concept “shaming” Shaming Corporate U. in the Pa. L.Rev. law, Skeel, (2001). corporate context of see David A. Here, one may be called. from matter what it preclude minority stockholders terms scrutiny it deferring applying or that Unocal accepting superior alternative one into an inferior When accepting coerces them reach the same conclusion. would faith, objection- that the presupposing good deal while agrees rationally, Gene- able terms of NCS’ reasonable care conflict and with without The ma- sis are measures.”120 “defensive pre- in a contract to provisions include jority equates provisions those contract one, a better in the absence of a deal serve affirmatively adopted with measures not be sec- judgment should their business party third from prevent a bidder frustrat- de- invalidate or ond-guessed in order to with which ing acquirer deal with valid an otherwise clare unenforceable management may to deal without choose majority fact that merger agreement. The being informed or for their own self fully have a of conflicts choice free stockholders effect, majority In has interest. avail- every get the best incentive in- adopted theory “duck” of contract judg- a rational deal and then make able view, my just all ducks terpretation. unfairly so as well neither ment do wary have season and the hunter their minority shareholder choice impinges upon *33 carefully the air to determine which scans of a shareholder “democra- concept or the a may may duck and which not be shot at significance any independent nor has it cy” day, a given time on the same certain of the bearing on the reasonableness holds for con- distinguishing true between separate and exercise of board’s distinct in provisions tract that could another con- judgment. text be measures truly deemed defensive majority’s I reliance on cannot follow scrutiny a court. demanding enhanced QVC.122and Paramount Paramount v. certain, When or when doubt that QVC, v. Time.123 is con- Communications season, courts, pru- like “duck” is not underlying facts waterfowlers, trolled of dent should defer. not The Paramount did transaction. I sugges- believe that absence of a market, exclusively negotiated canvass the of compels tion self-interest or lack of care QVC’s in- announced despite with Viacom a court to defer to what is a business QVC an give oppor- to terest refused a to judgment qualified court is not Arguably, tunity top the Viacom offer. However, I guess. recognize second QVC’shigh- board shunned the Paramount judge might prefer another view the up to lock a deal er offer and then turned of reasonableness the board’s action to stockholders less valuable Viacom through prism the Unocal before defer- a grant of flexible, along with an unreasonable ring.121 readily Some discernable option review no a stock unlimit- applied right standard of must be exercise em- majority analytical tool which should be refers to "defensive mea- sures,” devices,” recognize protection ployed. I do that critics view “deal "structural safety judgment as rule as no framework devices” and "defensive devices” business demanding heightened analysis presupposes That interchangeable, at all. view each course, equal greater judges regulators have an or scrutiny. the mere fact that the "Of judgments exercising as expertise mean business court a 'duck' a ‘duck’ does not calls provisions up- imposing policy. social that such defense will not long they not held are draconian.” so Communications, QVC n. Inc. v. Intercargo, Paramount McMillan 1993). Network, Inc., (Del. (Del.Ch.2000). 637 A.2d 34 Time, Communications, Inc. v. appears ample enough aca- 123. Paramount to be 121. There utility 571 A.2d 1140 demic debate over the effectiveness QVC not, view, ed in my charged fiduciary duty value. does of loyalty both support policy decrying pro- and then and care in good faith seems most unfor- scribing precommitment strategies gener- majority tunate turn. Does the mean to ally the supposition that in fact every line, signal mandatory, bright per se situation they “disable” a board from an analysis post efficient breach ex all chal- efficient breach. lenged merger agreements? Knowing the

Paramount v. Time “orig- majority’s discussed the general, genuine concern to do inal” and the “revised” so, Time-Warner I equity, trust not. If our courts and agreements. reviewing Both courts structure our law that we have “original” concluded that it from resulted develop strived so hard to and perfect will appraisal an “exhaustive of Time’s future board, prevent responsible Dela- under corporation” as a and that the “Time precisely ware law to make kind original board’s decision” to enter into the here, faith, good decision made free of agreement (containing preservation deal interest, self after exercising scrupulous provisions) with Warner “was entitled to honoring due care from its contract obli- protection judgment of the business gations. view, In my rule.”124 strategic policy Therefore, I respectfully dissent. protected original decision in the Time- cannot, Warner like the NCS- here, necessity be con- a responsive

sidered “defensive measure” analysis.

compelling By Unocal con-

trast, both courts concluded that the “re-

vised” was “defense-motivated” and as applies result “Unocal alone WRIGHT, Bruce Isaiah Defendant determine whether the judgment business Below, Appellant, rule attaches.”125 Lockup provisions attempt to assure parties that opportuni- have lost business Delaware, STATE of Plaintiff

ties and incurred substantial costs that Below, Appellee. their I deal will close. am concerned 233,2002. No. majority decision will cer- remove the tainty that adds value to rational Supreme Court of Delaware. plan. Perhaps business transactions that voting agree- include “force-the-vote” and Submitted: Dee. 2002. provisions ment approval make Decided: March 2003. foregone conclusion will be the deals so, invalidated Even there- prospectively. the problem. thought- lies Instead of

ful, retrospective, flexibility restrained fo-

cused on the existing circumstances at the decision,

time of have we now moved bright

to a line regulatory alternative? majority adopt

For the to articulate and

an inflexible rule where a board has dis- Id. 1152. Id. at 1151. Notes accordance with the terms of the explained She this was the way a bid indenture, eliminating thus the need for at the last minute would be able to suc- Noteholders to consent to the transaction. ceed. Gemunder considered Mencher’s change This all paying involved accrued real,” warning “very up followed with plus redemption premium. interest small however, They, his advisors. insisted that Second, exchange Genesis increased the diligence he retain the due condition “to ratio for NCS common stock to one-tenth protect from doing something [him] fool- heart, of a Genesis common share for each Taking ish.” this advice to Gemun- share, Third, der decided not common an 80% increase. drop diligence the due it condition. agreed proposed to lower the termination