In Building Trades Pension Fund of Western Pennsylvania v. Desktop Metal, a stockholder plaintiff brought derivative claims against Desktop Metal, Inc., alleging that a provision of the company’s rights plan, which was adopted in connection with a proposed merger transaction, impermissibly chilled the free exercise of stockholder voting with respect to the merger agreement at an upcoming stockholder meeting.

Rights plans, sometimes referred to as “poison pills,” are commonly used defensive devices that a board of directors may deploy to deter potential threats to the corporation or its business and its stockholders. A rights plan deters rapid accumulations of a corporation’s shares and hostile takeover attempts by imposing the risk of severe dilution upon anyone who acquires beneficial ownership of shares in excess of a certain triggering threshold (usually, 10%, 15% or 20% of the outstanding stock). A typical definition of “beneficial ownership” in a rights plan covers shares of stock a person owns directly as well as shares that the person owns or controls indirectly or has the right to acquire. One common way to attribute ownership in this manner is through inclusion of an “agreement, arrangement or understanding” provision (AAU provision) pursuant to which a person is deemed to beneficially own any shares held by another person with whom such person has an “agreement, arrangement or understanding” for purposes of acquiring, holding, voting or disposing of such shares. Customarily, AAU provisions will include certain exceptions, including an exception for a situation where an agreement, arrangement or understanding arises solely from a revocable proxy or consent given to the person in response to a public proxy or consent solicitation contest.