Selectica Inc a Delaware corporation provides enterprise software solutions to
Selectica, Inc., a Delaware corporation, provides enterprise software solutions to business. It has never been profitable and has amassed net operating losses (NOLs) that it may use to offset future income for tax purposes. Trilogy, Inc., a Delaware corporation, also specializes in enterprise software solutions. Versata Enterprises, Inc., is a Delaware corporation and a subsidiary of Trilogy, providing technologypowered business services to clients. Versata and Trilogy owned 6.7 percent of Selectica's common stock. After they intentionally triggered Selectica's Shareholder Rights Plan through the purchase of additional shares, Versata's and Trilogy's joint beneficial ownership was diluted to approximately 3.3 percent. Selectica thereafter reduced the trigger of its poison pill to 4.99 percent of Selectica's outstanding shares and capped existing shareholders who held a 5 percent or more interest to a further increase of only 0.5 percent. Selectica's reason for taking such action was to protect the company's NOL carryforwards. When Trilogy, Inc., purchased shares above this cap, Selectica filed suit in the Delaware Court of Chancery, seeking a declaration that the poison pill was valid. Trilogy and its subsidiary Versata counterclaimed that the poison pill was unlawful on the grounds that, before acting, Selectica's board of directors failed to consider that its NOLs were unusable or that the poison pill was unnecessary given Selectica's unbroken history of losses and doubtful prospects of annual profits. Trilogy and Versata also asserted that the poison pill was impermissibly preclusive of a successful proxy contest for control of Selectica's board of directors, particularly when combined with Selectica's staggered director terms. What rule did the court apply to judge the actions of Selectica's board of directors? Did the court conclude that the board complied with that rule?

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