The Delaware Supreme Court recently issued its opinion affirming the Chancery Court decision in Selectica, Inc. v. Versata, Inc. The Chancery Court held earlier this year that a “poison pill” shareholder rights plan with a 4.99% trigger, implemented by the board of Selectica to protect against the company’s net operating loss carryforwards (NOLs), met the Unocal standard of review and is valid under Delaware law. For a previous discussion by this blog of the Chancery Court’s decision, click here.
Versata and its parent, Trilogy, appealed the Chancery Court decision, asserting that the court erred in applying the Unocal test for enhanced judicial scrutiny and that the NOL poison pill, either individually or in combination with a classified board of directors, had a preclusive effect on the shareholders’ ability to pursue a successful proxy contest for control of the Company’s board. The Supreme Court affirmed the Chancery Court’s conclusion that Unocal is the appropriate test, concluding that (1) the board had reasonable grounds for concluding that the NOLs were an asset worth protecting, and (2) the use of the poison pill was not preclusive or coercive and was a reasonable response in relation to the threat identified. However, the Court cautioned that its holding is fact specific, noting “the fact that the [4.99% poison pill] was reasonable under the specific circumstances of this case, should not be construed as generally approving the reasonableness of a 4.99% trigger in the Rights Plan of a corporation with or without NOLs.”