This excerpt taken from the ZIOP DEF 14A filed Mar 20, 2006.
Reasons for and General Effect of Adoption of Amended and Restated Certificate of Incorporation
Blank Check Preferred Stock
If approved by the stockholders at the annual meeting, the proposed Amended and Restated Certificate of Incorporation will divide the Companys 280,000,000 shares of authorized capital stock into 250,000,000 shares of common stock and 30,000,000 shares of preferred stock, and authorize the Board of Directors, subject to limitations prescribed by law, to issue up to such 30,000,000 shares of preferred stock in one or more series without further stockholder approval. The Board of Directors will have discretion to determine the rights, preferences, privileges and restrictions of, including, without limitation, voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of, and to fix the number of shares of, each series of preferred stock. Accordingly, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest.
Blank check preferred stock provisions are provisions in a companys charter documents which authorize that companys board of directors to fix the number of shares constituting series of preferred stock and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative, participating, optional and other special rights, any qualifications, limitations or restrictions, of the shares of such series. The Board of Directors believes that amending and restating its Certificate of Incorporation to authorize the issuance of preferred stock and to provide for blank check preferred stock will provide the Company with increased flexibility in raising future capital. The creation of blank check preferred stock would permit the Board to negotiate with potential investors regarding the rights and preferences of a series of equity securities. In addition, the Board of Directors would not be required to seek stockholder approval for the creation of a series a preferred stock and, therefore, would be able to proceed expeditiously with a future plan of financing involving preferred stock. Because the development of new drug candidates is a time-consuming and capital intensive process, the Board of Directors believes that increased flexibility in capital raising is in the best interests of the Company and its stockholders, especially from a company without product revenue to date. Although the Board is recommending that stockholders vote for the proposed Amended and Restated Certificate of Incorporation in part to increase flexibility for future financings, the Company currently has no plans in place to utilize preferred stock in connection with any future financings.
If adopted, the blank check preferred stock provisions of the proposed Amended and Restated Certificate of Incorporation may have an impact upon the rights of stockholders and may be characterized as an anti-takeover measure which, if adopted, may tend to insulate management and make the accomplishment of certain transactions involving a potential change of control of the Company more difficult. See Provisions that May Have an Anti-Takeover Effect below. However, adoption of the Amended and Restated Certificate of Incorporation is not being recommended in response to any specific effort to which the Company is aware to accumulate the Companys stock or to obtain control of the Company or its Board of Directors. The Board of Directors has considered the potential adverse effects of creating blank check preferred stock and has concluded that such adverse effects are outweighed by the benefits that it would afford the Company and its stockholders.
Limitations on Directors Liability
The Companys bylaws currently contain provisions indemnifying the Companys directors and officers to the fullest extent permitted by law. If approved by the stockholders at the annual meeting, the proposed Amended and Restated Certificate of Incorporation will contain similar provisions. In addition, as permitted by Delaware law, the proposed Amended and Restated Certificate of Incorporation will provide that no director will be personally liable to the Company or its stockholders for monetary damages for breach of certain fiduciary duties as a director. The effect of this provision will be to restrict the Companys rights and the rights of its stockholders in derivative suits to recover monetary damages against a director for breach of certain fiduciary duties as a director, except that a director will be personally liable for:
any breach of his or her duty of loyalty to us or our stockholders;
acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law;
the payment of dividends or the redemption or purchase of stock in violation of Delaware law; or
any transaction from which the director derived an improper personal benefit.
This provision will not affect a director’s liability under the federal securities laws.
To the extent that the Company’s directors, officers and controlling persons are indemnified under the provisions contained in the Amended and Restated Certificate of Incorporation, Delaware law or contractual arrangements against liabilities arising under the Securities Act, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
The Board of Directors believes that the limitations on director liability and the indemnification of directors and officers that would apply to the Company upon adoption of the proposed Amended and Restated Certificate of Incorporation will heighten the Companys ability to attract and retain qualified directors and officers. Because charter provisions limiting director liability and requiring companies to indemnify their directors and officers are common for public reporting companies, the Board of Directors believes that the absence of such provisions in the Companys Certificate of Incorporation may hinder the Companys ability to attract and retain directors and officers who are averse to the risks associated with lawsuits alleging breach of fiduciary duties.