Richards Layton Team Wins Landmark Decision
October 4, 2010
WILMINGTON, Delaware (October 4, 2010) – Richards, Layton & Finger announces that the Delaware Supreme Court today confirmed that, under appropriate circumstances, a Delaware corporation can act to protect corporate net operating loss (“NOL”) assets from an external threat by adopting—and then using—a “poison pill” with a 4.99 percent trigger. The Supreme Court’s decision affirms the Court of Chancery’s February 26, 2010, post-trial opinion, which was the first court review of the actual use of a modern poison pill. Firm directors Gregory V. Varallo, Lisa A. Schmidt and John D. Hendershot were members of the trial and appellate team representing Selectica, Inc. and its board of directors, the successful parties in the case.
A poison pill is an instrument by which a board can prohibit a stockholder from owning more than a certain percentage of stock. Devised in the 1980s to discourage hostile takeovers, poison pills are typically triggered when the acquiring party purchases 15 percent of a corporation’s stock. This is the first case in which the court has addressed the use of a poison pill with a 4.99 percent trigger, and the first Delaware case addressing a stockholder’s intentional triggering of a poison pill.
Jamie Arnold, co-chairman of the board of Selectica, said, “We are pleased that the Delaware courts have validated our use of the pill to protect our NOLs and appreciative of the hard work of our Richards Layton team.”