Tailored considerations for boards of directors and management in the current environment.

Key Points:

..Hostile takeover activity and stockholder activism often correspond with or follow periods of extreme market volatility and investor uncertainty. In the current environment, a significant uptick in adoptions of stockholder rights plans (so-called “poison pills”) is expected as companies confront a sharp decline in stock prices and face public valuations that may not be reflective of long-term intrinsic value.

..The terms of the rights plan — specifically duration, triggering thresholds, and timing of stockholder approval of the rights plan (if any) — should be tailored to the circumstances the board cites to justify the adoption of the rights plan.

..A narrowly tailored rights plan coupled with disclosure as to the specific threats the board is seeking to address should be sufficient to address the customary concerns of proxy advisory firms, governance advisory groups, and leading institutional investors, whose policies traditionally disfavor proactive adoption of rights plans.

..Companies impacted by significant stock price declines should proactively consider preparing rights plan materials, reviewing the rights plan with the board, and either adopting or putting the rights plan “on the shelf.”