Delaware Supreme Court Affirms NOL Poison Pill Under Unocal
By Claudia K. Simon & Elizabeth A. Razzano
On October 4, 2010, the Delaware Supreme Court affirmed the Delaware Court of Chancerys decision in Selectica Inc. v. Versata Enterprises, Inc. and Trilogy, Inc., which upheld the use of a shareholder rights plan with a 4.99% ownership trigger designed to protect the corporations ability to utilize its net operating losses (NOLs) in response to an ownership change under Section 382 of the Internal Revenue Code. This case is important in that the Delaware courts address for the first time the actual use of an NOL rights plan.
Applying the standard under Unocal Corp. v. Mesa Petroleum Co., the Supreme Court affirmed the Chancery Courts conclusion that the protection of company NOLs may be an appropriate corporate policy meriting a defensive response when threatened. The Supreme Court noted that while Selecticas NOL rights plan was reasonable under the particular facts and circumstances, the decision was not an affirmation that a 4.99% ownership trigger was, in and of itself, reasonable and that a particular response to a takeover bid would be judged by the actions of the board at that time.