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Benchmark Capital Partners IV, L.P. v. Vague
Delaware Court of Chancery
2002 WL 1732423 (2002)
Benchmark Capital Partners IV, L.P. (Benchmark) (plaintiff) was the initial investor in Juniper Financial Corp. (Juniper) (defendant). Benchmark received Series A Preferred Shares. Juniper then raised additional capital by issuing Series B Preferred Shares, including some to Benchmark. Both Series A and Series B Preferred Shares were protected by provisions in Juniper’s certificate of incorporation, sometimes referred to as a charter. Relevant here, there was a protective provision saying the holders of Series A and B stock were entitled to a vote as a class before Juniper could issue any equity senior to or equal with Series A or B stock. Juniper then negotiated an additional investment from Canadian Imperial Bank of Commerce (CIBC) (defendant) in exchange for Series C Preferred Shares. As part of this investment, CIBC obtained the right to waive the protective provision for the Series A and B stock – unless CIBC’s waiver would diminish the financial rights of the Series A and B stockholders. Then Juniper needed yet more capital funding. CIBC and Juniper agreed to a transaction that would mean: (1) merging Juniper into a subsidiary corporation, (2) adopting a new certificate of incorporation for the newly merged company, and (3) then issuing Series D Preferred Stock in exchange for an additional investment from CIBC under the new certificate of incorporation. The new, post-merger certificate of incorporation would make the Series D stock senior to both the Series A and Series B Preferred Shares and otherwise significantly devalue the Series A and Series B shares. Benchmark sued Juniper and CIBC, seeking to prevent the transaction.
Rule of Law
Holding and Reasoning (Noble, J.)
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