substantial benefit

In 1839 the Commonwealth of Virginia established the Virginia Military Institute as one of the nation's first state military colleges. VMI has remained financially supported by the state and subject to the control of the Virginia General Assembly. The school enrolls approximately 1,300 male cadets and offers academic programs in the liberal arts, sciences, and engineering that are also available at other Virginia public institutions. Its distinctive mission is to produce citizen-soldiers through an adversative method featuring physical rigor, mental stress, absolute equality of treatment, absence of privacy, minute regulation of behavior, and indoctrination in desirable values. Cadets live in spartan barracks, participate in drills, endure the rat line, and operate under a strict honor code. VMI graduates have included military generals, members of Congress, and business executives, and the school maintains the largest per-student endowment of any public undergraduate institution in the nation. In 1990 a female high-school student filed a complaint with the Attorney General seeking admission to VMI. The United States then sued the Commonwealth of Virginia and VMI, alleging that the exclusively male admissions policy violated the Equal Protection Clause. Trial consumed six days and involved expert witnesses on each side. In the two years preceding the lawsuit VMI had received inquiries from 347 women but responded to none. The District Court ruled in VMI's favor in 1991, finding that single-gender education yields substantial benefits and that VMI's methods are inherently suited to men. The Court of Appeals for the Fourth Circuit reversed in 1992 and remanded the case for selection of a remedy. On remand Virginia proposed the Virginia Women's Institute for Leadership, a four-year state-sponsored undergraduate program located at the private Mary Baldwin College and open initially to twenty-five to thirty students. VWIL would share VMI's mission of producing citizen-soldiers but would employ a cooperative method rather than an adversative one, would not require barracks living or uniforms during the school day, and would offer a narrower range of academic programs. The average combined SAT score of Mary Baldwin entrants was about 100 points lower than VMI's, its faculty held significantly fewer Ph.D.s and received lower salaries, and its endowment was substantially smaller. The District Court approved the VWIL plan in 1994, and the Fourth Circuit affirmed in 1995. The United States petitioned for certiorari, which the Supreme Court granted in 1995. Some women could meet VMI's physical standards. VMI's methodology could be used to educate women. VWIL students would not experience the rigorous military training, faculty, facilities, alumni network, or prestige associated with VMI.

NCS Healthcare, Inc., a Delaware corporation headquartered in Beachwood, Ohio, provided pharmacy services to long-term care institutions. Its capital structure included Class A common stock with one vote per share and Class B common stock with ten votes per share. Jon H. Outcalt, NCS chairman, and Kevin B. Shaw, NCS president and CEO, together held a majority of the voting power through their Class B shares. By early 2001, NCS had defaulted on approximately $350 million in debt, its stock traded between $0.09 and $0.50 per share, and the company faced the prospect of bankruptcy with little or no recovery for stockholders. Beginning in late 1999, NCS began to explore strategic alternatives after changes in government reimbursements harmed its business. NCS retained UBS Warburg in February 2000 to solicit acquirers and investors, contacting over fifty entities. NCS later retained Brown, Gibbons, Lang & Company as its exclusive financial advisor. Omnicare, Inc., a Delaware corporation and NCS competitor with annual sales exceeding $2.1 billion, proposed only asset purchases in bankruptcy at prices that would not fully repay NCS creditors. In January 2002, Genesis Health Ventures, Inc., a Pennsylvania corporation, was contacted through the Ad Hoc Committee of NCS noteholders. Genesis insisted on exclusivity and lock-up protections because of its prior loss of a transaction to Omnicare. In March 2002, NCS formed an independent committee consisting of directors Boake A. Sells and Richard L. Osborne. On May 16, 2002, Genesis stated it would not participate as a stalking horse. Negotiations produced improving offers from Genesis that included full repayment of senior debt, payment at par for subordinated notes, and $24 million in Genesis stock for NCS common stockholders. On June 27, 2002, NCS executed an exclusivity agreement with Genesis. The agreement was extended through July 31, 2002. On July 26, 2002, Omnicare submitted a letter proposing to retire NCS debt at par plus accrued interest and pay $3 cash per NCS share, but the proposal remained conditioned on due diligence. On July 27, 2002, Genesis delivered a final proposal requiring execution of definitive documents by midnight on July 28. The proposal included a Section 251(c) provision mandating a stockholder vote on the merger even if the NCS board withdrew its recommendation. The proposal also included a $6 million termination fee and no effective fiduciary out clause. On July 28, 2002, the NCS board approved the merger agreement and authorized voting agreements with Outcalt and Shaw. Those agreements irrevocably committed the two stockholders to vote their shares in favor of the Genesis merger and granted Genesis an irrevocable proxy. The agreements were executed the same day. On July 29, 2002, Omnicare publicly announced a revised proposal and later commenced a tender offer at $3.50 per share. On October 6, 2002, Omnicare delivered an irrevocable commitment to acquire all NCS shares for $3.50 cash. On October 21, 2002, the NCS board withdrew its recommendation in favor of the Genesis merger. On October 25, 2002, the Court of Chancery dismissed Omnicare's fiduciary duty claims for lack of standing. On October 29, 2002, the court adjudicated the merits of the voting agreements. On November 22, 2002, the court denied a preliminary injunction against the merger. Consolidated appeals followed to the Delaware Supreme Court.

Macmillan, Inc. is a publishing, educational and informational services company with approximately 27,870,000 common shares traded on the New York Stock Exchange. In May 1987 its chairman and CEO Edward P. Evans and president and COO William F. Reilly began exploring defensive measures including a restructuring that would give management majority control of a restructured entity through restricted shares, options and an ESOP whose trustee they would control. The board approved related transactions on June 11, 1987, including golden parachute agreements for Evans and Reilly and a poison pill exempting the ESOP. The Robert M. Bass Group acquired 7.5 percent of Macmillan stock and made an initial $64 per share offer in May 1988. After the board rejected that offer and approved a management restructuring valued at $64.15 per share, Bass raised its bid to $73 per share. On July 14, 1988 the Court of Chancery preliminarily enjoined the restructuring in Macmillan I. Hours later Evans and Reilly authorized investment advisors to explore a sale of the company and began discussions with KKR for a management-sponsored leveraged buyout. On July 20, 1988 Robert Maxwell proposed an $80 all-cash merger and later made an $80 per share tender offer conditioned on receiving the same non-public information previously given to KKR. Maxwell increased its bid to $84, then $86.60, and then $89 per share. KKR submitted competing blended bids of $85, $89.50 and finally $90.05 per share. Throughout the process Evans and Reilly met repeatedly with KKR, provided KKR detailed due diligence information weeks before Maxwell received equivalent data, and on September 26 Evans telephoned KKR to disclose the price and form of Maxwell's $89 bid. On September 27, 1988 the Macmillan board approved a merger agreement with KKR that included a lockup option to purchase seven subsidiaries for $865 million, a $29.3 million breakup fee, and a no-shop clause. The next day Maxwell raised its cash offer to $90.25 per share conditioned on invalidation of the lockup. On October 4 the board rejected the new Maxwell bid. After a hearing the Court of Chancery on October 17, 1988 denied Maxwell's motion to enjoin the lockup, breakup fees and expenses, finding that KKR had been favored but that Maxwell had not been prevented from submitting a higher bid. Maxwell appealed. The Supreme Court of Delaware accepted the interlocutory appeal and on November 2, 1988 announced its decision reversing the denial of injunctive relief, with the full opinion issued May 3, 1989.

Petitioners were shareholders of the Electric Auto-Lite Company until 1963, when it was merged into Mergenthaler Linotype Company. They brought suit on the day before the shareholders’ meeting at which the vote was to take place on the merger, against Auto-Lite, Mergenthaler, and a third company, American Manufacturing Company, Inc. The complaint sought an injunction against the voting by Auto-Lite’s management of all proxies obtained by means of an allegedly misleading proxy solicitation. However, it did not seek a temporary restraining order, and the voting went ahead as scheduled the following day. Several months later petitioners filed an amended complaint seeking to have the merger set aside. In Count II of the amended complaint, petitioners alleged that the proxy statement sent out by the Auto-Lite management to solicit shareholders’ votes in favor of the merger was misleading, in violation of § 14 (a) of the Act and SEC Rule 14a-9 thereunder. Before the merger, Mergenthaler owned over 50% of the outstanding shares of Auto-Lite common stock, and had been in control of Auto-Lite for two years. American Manufacturing in turn owned about one-third of the outstanding shares of Mergenthaler, and for two years had been in voting control of Mergenthaler and, through it, of Auto-Lite. Petitioners charged that in light of these circumstances the proxy statement was misleading in that it told Auto-Lite shareholders that their board of directors recommended approval of the merger without also informing them that all 11 of Auto-Lite’s directors were nominees of Mergenthaler and were under the control and domination of Mergenthaler. On petitioners’ motion for summary judgment with respect to Count II, the District Court for the Northern District of Illinois ruled as a matter of law that the claimed defect in the proxy statement was, in light of the circumstances in which the statement was made, a material omission. After holding a hearing on the issue of causation, the court found that under the terms of the merger agreement an affirmative vote of two-thirds of the Auto-Lite shares was required for approval of the merger, and that the respondent companies owned and controlled about 54% of the outstanding shares. At the stockholders’ meeting, approximately 950,000 shares, out of 1,160,000 shares outstanding, were voted in favor of the merger, including 317,000 votes obtained by proxy from the minority shareholders that were necessary and indispensable to the approval of the merger. The District Court concluded that a causal relationship had thus been shown and granted an interlocutory judgment in favor of petitioners on the issue of liability. The Court of Appeals affirmed the District Court’s conclusion that the proxy statement was materially deficient but reversed on the question of causation, ruling that the issue was to be determined by proof of the fairness of the terms of the merger. Claiming that the Court of Appeals had construed this Court’s decision in J. I. Case Co. v. Borak in a manner that frustrates the statute’s policy of enforcement through private litigation, the petitioners sought review in this Court. The Supreme Court granted certiorari, believing that resolution of this basic issue should be made at this stage of the litigation.