The Delaware Supreme Court has unanimously affirmed a lower court decision which upheld a board of directors' adoption of a poison pill rights plan with 4.99% triggering threshold designed to protect the availability of the company's net operating losses ("NOLs") and a special committee's subsequent decisions to trigger the rights plan and use the exchange procedures in the rights plan to dilute the triggering stockholder.
The Delaware Supreme Court reviewed the board of directors' actions under the two-pronged Unocal/Unitrin standard. First, the court found that the board of directors had reasonably identified the potential impairment of the NOLs as a threat to the company. Second, the court ruled that the rights plan was not preclusive and within the range of reasonableness under the circumstances. In particular, the rights plan did not render a successful proxy contest realistically unattainable. The court did caution, however, that its holding should not be viewed as generally approving the reasonableness of a 4.99% trigger in a company's rights plan with or without NOLs.
Selectica, Inc. v. Versata, Inc., No. 193,2010 (Del. Sup. Ct. Oct. 4, 2010)