On October 4, 2010, the Delaware Supreme Court issued an opinion affirming the Court of Chancery’s decision in Selectica, Inc. v. Versata, Inc., which upheld a board’s adoption of a poison pill rights plan with a 4.99% triggering threshold, designed to protect the usability of the corporation’s net operating losses (NOLs), and a special committee’s subsequent decision (following a deliberate trigger of the pill) to deploy the exchange mechanism in the rights plan to dilute the triggering stockholder. The Supreme Court largely affirmed the reasoning employed by the Court of Chancery and held that the board of directors had met its burden under the Unocal standard.
The Supreme Court upheld the Vice Chancellor’s post-trial rulings that the board of directors had a reasonable ground for concluding that a threat to the corporate enterprise existed, that the NOLs were an asset worth preserving and that their protection was an important corporate objective. The Supreme Court further held that the combination of a classified board and a rights plan did not constitute a preclusive defense. However, the Supreme Court stated that although the NOL pill was reasonable under the specific facts and circumstances of this case, it should not be construed as generally approving the reasonableness of a 4.99% trigger in the rights plan of a company with or without NOLs. The Supreme Court also stated that a potential future decision by the board to retain the NOL pill must be evaluated again under those specific circumstances.