Blank Check Preferred Stock
(DE)

Summary

This blank check preferred stock template provides a preferred stock classification provision that can be used to create blank check preferred stock in Delaware. This template includes practical guidance and drafting notes. The term "blank check preferred stock" refers to a class of preferred stock that is authorized in a corporation's charter and issuable at a later date in any number of series, each with rights to be determined by a company's board without stockholder approval. Blank check preferred stock facilitates the ability of the company to adopt a "white squire" defense when faced with a hostile bid, which involves sale to a friendly party (i.e., a party that is interested in making an investment in, but presumably is not seeking to gain control of, the target) of a block of the company's capital stock. Once issued, shares of blank check preferred stock are typically convertible into shares of common stock that the holder can vote on an "as converted" basis. These shares may also be redeemable upon a change of control of the corporation. As a defensive measure, blank check preferred stock can also be used to adopt poison pills in which existing stockholders are granted preferred stock that gives such stockholders (other than a hostile acquirer) the right to purchase the corporation's common stock, which is typically issued to existing stockholders at a 50% discount.To establish blank check preferred stock, a company authorizes a maximum number of shares of preferred stock that it may issue and also grants its board of directors the authority to determine the rights of the holders of such preferred stock. Upon the issuance of such preferred stock, the certificate of incorporation of the company is amended to specify the rights, powers, and preferences of each series of preferred stock, typically by a separate certificate of designation, which upon filing becomes part of the certificate of incorporation. The rights, powers, and preferences of such preferred stock can each operate to protect the company against hostile takeovers. For a broad collection of content related to hostile takeovers and shareholder activism, see Hostile Takeovers & Shareholder Activism Resource Kit. For a full listing of key content for in-house counsel and corporate secretaries when performing corporate functions, see In-House Corporate Secretary Resource Kit. For a full listing of related private equity and public merger transaction content, see Private Equity Transactions Resource Kit and Public Merger Transaction Resource Kit. For further discussion of how corporations use blank check preferred stock, see Takeover Attempt Key Strategies and Hostile Takeover Defense Strategies.