Versata and Selectica File Briefs in Appeal of NOL Pill Case

Editor’s Note: This post relates to the appeal from the decision in Selectica, Inc. v. Versata, Inc., which was discussed on the Forum here. The briefs in the appeal are available here and here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Versata, Inc. and Selectica, Inc. have filed briefs in Versata’s appeal of the Delaware Chancery Court’s decision in Selectica, Inc. v. Versata, Inc. [1].  That decision was discussed on the Forum in this post by David Katz.  In brief, Vice Chancellor Noble upheld the use by Selectica of a rights plan or “poison pill” that had a 4.99% threshold, which was designed to protect certain non-operating losses (NOLs) of Selectica.  Versata had deliberately triggered the rights plan by purchasing 6.7% of Selectica’s common stock.  After Versata refused to enter into a standstill agreement that would allow the Selectica board more time to consider their response, the board implemented the exchange feature of the rights plan, diluting Versata’s holding to 3.3%.

Vice Chancellor Noble’s opinion, as further discussed in Mr. Katz’s post, recognized that a rights plan can be an appropriate mechanism for protecting NOLs.  The decision acknowledged that reducing the threshold of Selectica’s rights plan to 4.99% to convert it to a NOL pill in response to a potential acquirer’s accumulation of shares is permissible under the Unocal standard.

Versata’s brief argues that Vice Chancellor Noble erred in holding (1) that Selectica’s board undertook a reasonable investigation in adopting the NOL pill with a 4.99% trigger, and (2) that Selectica’s NOL pill was not preclusive because it did not render a successful proxy contest a “near impossibility or else utterly moot”.

Versata’s brief is available here; Selectica’s answering brief is available here.

Endnotes

[1] C.A. No. 4241-VCN (Feb. 26, 2010).
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