Delaware Court Upholds Poison Pill to Preserve NOLs


A recent decision of the Delaware Court of Chancery, Selectica, Inc. v. Versata Enterprises, Inc., Civ.A. No. 4241-VCN, 2010 WL 703062 (2/26/10), has upheld a corporation’s “poison pill” that was designed to protect the future availability of the corporation’s NOLs. The court held that a board of directors can validly conclude that the triggering stockholders’ acquisition of their company’s stock posed a threat to the company’s ability to use its NOLs under Section 382. Moreover, the court held that protecting a corporation’s NOLs can be a valid corporate objective. The case is expected to be widely discussed in the corporate/securities law literature, but its relevance to tax advisors and their clients is the focus of this column.

Brooks Giles,a corporate and securities law attorney with Katten Muchin Rosenman LLP in Chicago, gives us the following insight on Selectica.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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