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Rare Poison Pill Trial Set to Begin in Delaware
The American Lawyer
April 27, 2009
For more than a quarter century, poison pills were the M&A equivalent of nuclear deterrence. No stockholder had ever swallowed a modern poison pill, and the mechanics of what would trigger a poison pill were purely academic. That all changed in December, when Versata Enterprises, a software provider, intentionally triggered a poison pill adopted by Selectica. A trial starting today in Delaware Chancery Court will test the validity of Selectica's poison pill. (Here's Selectica's amended complaint and here's a helpful primer and analysis of the complicated dispute by Latham & Watkins.)
Selectica, the plaintiff in the litigation, seeks to protect what are called net operation loss carry forwards, or "NOLs." A NOL is a technique that applies the current year's net operating losses to future years' profits in order to reduce tax liability. Corporations lose this tax benefit in the event of a change of ownership, hence the poison pill. (NOL poison pills engage at a much lower level of change in share ownership -- about five percent -- than more traditional poison pills, which engage at 10 to 20 percent.)
Versata wants the court to declare the pill invalid. "The amended pill measures hastily adopted by the Selectica board are in fact indiscriminately lethal weapons that preclude any attempt to acquire a controlling interest in the company, preclude any possibility of accountability through a proxy challenge, and otherwise inflict collateral damage in multiple directions," the company says in its counterclaim.
The case is in Wilmington, Del., before Vice Chancellor John Noble. Selectica is represented by Johnathan Kitchen of San Francisco's Cox, Castle and Nicholson and local counsel Gregory Varallo of Richards, Layton & Finger. Versata has Noel Hensley and Nicholas Even of Haynes and Boone, along with Martin Tully and Leslie Polizoti of Wilmington's Morris, Nichols, Arsht & Tunnell.
Courtroom View Network is carrying the trial live. As always, they've promised to provide free clips for Litigation Daily readers. Check the Courtroom View web site for details.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
