Delaware chancery court, nol rights plan, shareholder rights plans, poison pills, hostile takeover attempts, selectica, versata enterprises the delaware chancery courts recent decision in selectica, inc. Court of chancery validates adoption of unique poison pill. Jan 28, 2014 the risk is real, and companies have used this risk to justify adopting poison pills that deter shareholders from acquiring as much as a 5 percent stake. Litigation ensued in delaware court of chancery over the propriety of the. Second, trilogy and versata argued that the court of chancery erred in holding that the two nol poison pills, either individually or in combination with a charterbased classified board, did not have a preclusive effect on the shareholders ability to pursue a successful proxy contest for control of the companys board. A bnas bna insights corporate shareholder rights plans. Highlights versata enterprises triggered selecticas poison pill in december 2008, becoming the first stockholder to have intentionally swallowed a modern poison pill. In late 2008 selecticas net operating loss poison pill was triggered by trilogyversata. Torres, and refers to the recent delaware supreme court decision in versata enterprises inc. Selectica is a california based sales execution and contract management software. In late 2008 selectica s net operating loss poison pill was triggered by trilogy versata. It provides enterprise software solutions for contract management and. Delaware supreme court upholds poison pill in versata. Vc nobles opinion for the delaware chancery court involved what steven davidoff calls frankly odd facts.
Some nol poison pills include additional provisions imposing an outright. Highlights in selectica, the first delaware decision involving the triggering of a modern poison pill, the delaware court of chancery reaffirmed the value of the poison pill in protecting. Delaware broadens standards for poison pills the new york times. Before creating an nol poison pill, companies should note a pending case, selectica, inc.
Highlights in selectica, the first delaware decision involving the triggering of a modern poison pill, the delaware court of chancery reaffirmed the value of the poison pill in protecting and maximizing stockholder value. Unocal and unitrin to nol poison pills, such as in selectica. Trilogy and its subsidiary versata enterprises, inc. Modernizing the poison pill lessons from selectica, inc. Delaware chancery court upholds adoption and use of poison. Also, isnt an nol really just an asset of a company, so why should there be a different standard if a company is protecting an nol versus trying to protect any other asset, be it cash reserves. Oct 06, 2010 on monday, in versata enterprises, inc. The most notable case regarding an nol poison pill is versata enterprises, inc. These poison pills set lower trigger limits, typically between 4. Delaware supreme court affirms nol poison pill under unocal by claudia k. Since 2009, 141 companies have included nol specific provisions as part of a poison pill and 89 total nol poison pills are presently inforce. Selecticas nol poison pill was designed to protect its nol asset against the threat. Oct 04, 2010 second, trilogy and versata argued that the court of chancery erred in holding that the two nol poison pills, either individually or in combination with a charterbased classified board, did not have a preclusive effect on the shareholders ability to pursue a successful proxy contest for control of the companys board. Selectica case before creating an nol poison pill, companies should note a pending case, selectica, inc.
Delaware supreme court upholds validity of nol rights plan. Since 2009, 141 companies have included nolspecific provisions as part of a poison pill and 89 total nol poison pills are presently inforce. In most cases, these poison pills have relatively low trigger limits, usually around 4. According to factset sharkrepellent, 162 public companies have such poison pills, which are sometimes known as nol poison pills, including citigroup and krispy kreme. Selectica provides enterprise software solutions for contract management and sales configuration systems. Mar 04, 2010 this case has already gotten lots of attention, as the first instance of the triggering of a poison pill. In his decision of february 26, 2010, 2010 wl 703062, vice chancellor noble concluded that selecticas board acted reasonably in adopting a lowthreshold 4. Selectica never selectica decision upholds adoption and use of 4. An nol poison pill is designed to discourage persons from becoming 5% shareholders and. The poison pill strategy works by offering shareholders special rights to buy further shares if a person or group acquires more than 20% of the company. Delaware supreme court upholds net operating loss poison pill. And where a poison pill is permissible, it can be a powerful means of protecting shareholder value, as illustrated by the airgas situation. Selectica, a microcap software company, completed its initial public offering in 2000 and adopted a rights plan with a 15 percent trigger in 2003.
Versata decision is on appeal to the delaware supreme court. Versata counterclaimed that the nol poison pill, the reloaded nol poison pill, and the exchange were unlawful on the grounds that, before acting, the board failed to consider that its nols were unusable or that the two nol poison pills were unnecessary given selectica s unbroken history. Professor, i think the references to versata in the fifth paragraph under selecticas poison pill should be changed to selectica. Delaware supreme court upholds nol poison pill 10062010 on monday, in versata enterprises, inc. Jan 16, 2015 in most cases, these poison pills have relatively low trigger limits, usually around 4. Lessons from the first triggering of a modern poison pill. Highlights versata enterprises triggered selectica s poison pill in december 2008, becoming the first stockholder to have intentionally swallowed a modern poison pill. Thus, while selectica clearly establishes that the use of a 4. Versata in late 2008 selectica s net operating loss poison pill was triggered by trilogy versata.
The chancery court conceded that nol poison pills with lower than 5% triggers, in general, may have. Delaware chancery court validates use of nol pill in the recent decision of selectica, inc. In december 2008, versata enterprises became the first stockholder to swallow a modern poison pill intentionally. Versata countered that the nol poison pill was invalid and that. Using net operating losses as a poison pill defense. Selectica, a microcap software company that had experienced losses each year following its initial.
Versata matter, for their assistance with this article. Second, an nol poison pill plan is generally set to be triggered, thus allowing implementation, right before a purchaser achieves a 5% ownership interest in the company. Data sources include ibm watson micromedex updated 10 apr 2020, cerner multum updated 6 apr 2020, wolters kluwer updated. Stay current delaware supreme court affirms nol poision pill. Razzano on october 4, 2010, the delaware supreme court affirmed the delaware court of chancerys decision in selectica inc. Delaware supreme court affirms adoption of antitakeover. Court of chancery validates adoption of unique poison pill to. Scott davis is the head of the us mergers and acquisitions group at mayer brown llp. Oct 19, 2010 versata, the first poison pill case decided by the delaware supreme court in a number of years, indicates that, despite the decreasing use of poison pills by public companies, the pill remains a sustainable defense tactic when the courts are convinced that the pill genuinely i protects a legitimate corporate interest, ii represents a. In response, selectica adopted a lowthreshold, netoperatingloss poison pill that would be triggered. The board amended selectica s shareholderrights plan to reduce the stockpurchase threshold that would trigger the poison pill from 15 percent to 4. Delaware supreme court upholds nol poison pill lexology. Trilogy and versata also asserted that the nol poison pill and the reloaded. Other posts about poison pills, including more information about the versata case, can be.
Much discussion in the corporate blawgosphere of selectica, inc. Implications for the next generation of poison pills. At a time when the number of corporations with stockholder rights plans poison pills is declining sharply and poison pills are heavily criticized by stockholder governance proponents and proxy advisory firms, the delaware court of chancery, in selectica, inc. Selectica had put the poison pill in place to protect one of its largest assets net operating loss carryforwards nolsafter a number of companies, including versata, had become large block holders of its stock. Delaware court upholds use of nol rights plan corporate. Company, a microcap company that provides enterprise software solutions for. Stay current delaware supreme court affirms nol poision. Vc nobles opinion for the delaware chancery court involved. Some commentators scrutinize poison pills because it can cause management to become entrenched. Shareholder rights plans, or poison pills as they are commonly referred to, emerged as popular defensive measures in the hostile takeover era of the 1980s. Takeover law and practice practising law institute. Covid19 hostile takeovers, poison pills, nol poison pills. Two interesting moves in a quiet week the new york times. A poison pill meant to preserve a companys tax advantages could have exceptions and allowances for share.
Mar 05, 2010 in his 71page opinion, vice chancellor noble validated selecticas adoption of the nol pill as a valid exercise of the boards business judgment under unocal corp. Implications of selectica for nextgeneration poison pills. This material is provided for educational purposes only and is not intended for medical advice, diagnosis or treatment. Net operating loss nol poison pill plans have their roots in 172 and 382. Delaware supreme court upholds net operating loss poison pill in versata enterprises inc. Selectica, inc the delaware supreme court upholds adoption and use of nol pill as proper exercise of directors business judgment under unocal october 4, 2010. Selecticas nol poison pill was designed to protect its nol asset. Jan 16, 2015 these poison pills set lower trigger limits, typically between 4. Mar, 2010 the delaware chancery courts recent decision in selectica, inc.
Data sources include ibm watson micromedex updated 4 may 2020, cerner multum updated 4 may 2020, wolters kluwer updated. In his 71page opinion, vice chancellor noble validated selecticas adoption of the nol pill as a valid exercise of the boards business judgment under unocal corp. Selectica is a delaware corporation and microcap company whose common shares trade on the nasdaq global market, and it is in the business of providing enterprise software solutions for contract management and sales con. This case has already gotten lots of attention, as the first instance of the triggering of a poison pill. Versata argued that the nol poison pill was a preclusive measure. Selectica s board of directors then met with financial experts and determined that selectica s poison pill needed to be adjusted to preserve the nols. Protecting your nol carryforward with a poison pill. Jun 07, 2010 selectica sought a declaratory judgment that the boards actions were proper and that the nol poison pill was enforceable. Versata counterclaimed that the nol poison pill, the reloaded nol poison pill, and the exchange were unlawful on the grounds that, before acting, the board failed to consider that its nols were unusable or that the two nol poison pills were unnecessary given selecticas unbroken history. Delaware supreme court upholds net operating loss poison.
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