Tuesday, March 9, 2010

Selectica's poison pill upheld

The Delaware Court of Chancery recently dismissed a challenge to Selectica's shareholder rights plan, i.e. its "poison pill."

The facts of this case take us back to November 11, 2008, when Versata Enterprises, Inc. and related parties filed a Schedule 13D disclosing a 5.1% ownership position in Selectica common stock. Selectica had a poison pill plan in place at that time, but it had (as is/was the custom) a 15% triggering threshold, so Versata had no reason to believe that this was an epochal moment.

Six days later, though, apparently because of concern that futher share accumulation would have an impact on its own net operating loss carry forwards (NOLs), Selectica amended its pison pill to reduce the triggering threshold to 4.99%. Holders who had more than that before the adoption of the new plan were exempted, providing they didn't thereafter acquire another half percent.

On November 19, Versata updated its 13D filing to disclose a 6.1% ownership interest. It is unclear whether Versata was aware of the reduction in the triggering threshold two days earlier. From there we got to this, the board pulled the trigger (swallowed the pill, whatever the pertinent metaphor might be) on January 2, 2009.

Key takeaways fgrom the Chancery Court decision upholding Selectica:

1. Loss of NOLs is a legally cognizable threat under Unocal Corp. v. Mesa Petroleum Co.
2. There is nothing de jure about a 15% threshold, it has been simply a custom.
3. A decision to lower the trigger in the face of a legally cognizable threat is not per se invalid under Delaware law.

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