## Facts

- Benchmark Capital Partners IV, L.P. (Benchmark) invested in Juniper Financial Corp. (Juniper) and received Series A Preferred Shares, later purchasing additional Series B Preferred Shares.
- Juniper’s certificate of incorporation contained protective provisions for the Series A and Series B holders, including a class-vote right before Juniper could issue equity senior to or on parity with Series A or Series B.
- Juniper later raised capital from Canadian Imperial Bank of Commerce and affiliates (CIBC) through a Series C financing that gave CIBC substantial governance power and included a negotiated right for CIBC to waive certain protective provisions applicable to the Series A and Series B—subject to an express limitation tied to specified “financial or economic rights” of those junior series.
- Facing additional capital needs, Juniper and CIBC structured a new financing (the “Series D Transaction”) that contemplated: (1) merging Juniper into a wholly owned subsidiary, (2) adopting a new post-merger certificate of incorporation, and (3) issuing Series D Preferred Stock to CIBC under the new charter.
- The contemplated Series D Preferred Stock would be senior to the Series A and Series B and would materially reduce the value of Benchmark’s investment.
- Benchmark sued Juniper, CIBC, and various Juniper directors and sought a preliminary injunction to stop the Series D Transaction, arguing that the structure was an end run around the protective provisions and that CIBC could not waive the Series A/Series B protections for a transaction that harmed Benchmark economically.

## Issues

1. Did Juniper’s certificate of incorporation require a separate class vote of the Series A and Series B holders to approve the merger-and-recharter structure and the issuance of Series D Preferred Stock senior to Series A and Series B?
2. Did CIBC’s contractual waiver right from the Series C financing permit CIBC to waive the Series A/Series B protective provisions for the Series D Transaction, or did the transaction fall within the limitation on waiver (i.e., an action that would “diminish or alter” specified financial or economic rights of Series A/Series B)?
3. Did Benchmark satisfy Delaware’s requirements for preliminary injunctive relief, including showing a reasonable probability of success on the merits?

## Decision

- The Court of Chancery denied Benchmark’s motion for a preliminary injunction.
- The court concluded Benchmark had not shown a reasonable probability of success on its claim that the Series A and Series B protective provisions required a class vote for the challenged merger-and-recharter transaction as structured.
- The court also determined that, on the preliminary record, CIBC could exercise its negotiated waiver right with respect to the Series A/Series B voting protections, because the asserted harm reflected dilution and priority effects rather than a qualifying alteration of the specific rights protected by the waiver limitation.

## Legal Principles

- Rights of preferred stockholders are contractual in nature; Delaware courts interpret charter-based preferences and protective provisions according to their text and do not expand them beyond what the certificate clearly provides.
- A merger structured within statutory and charter terms is treated distinctly from a direct charter amendment or direct issuance analyzed under an existing charter; class-vote rights must be drafted to reach the specific transaction form a holder seeks to constrain.
- A negotiated waiver mechanism affecting class-vote protections will be enforced as written; limits on waiver tied to defined “financial or economic rights” are evaluated by reference to the rights set out in the charter, not simply by the magnitude of the economic impact on a holder.
- Preliminary injunction relief in Delaware requires, among other elements, a showing of a reasonable probability of success on the merits; failure on that element warrants denial even where the moving party claims substantial harm.

## Conclusion

In *Benchmark Capital Partners IV, L.P. v. Vague*, the Delaware Court of Chancery refused to preliminarily enjoin Juniper and CIBC’s Series D recapitalization, holding that Benchmark had not shown a reasonable probability that Juniper’s Series A/Series B protective provisions (as drafted) required a separate class vote for the merger-and-new-charter structure or that CIBC’s negotiated waiver authority was unavailable under the waiver’s stated limitation.


Benchmark Capital Partners IV, L.P. v. Vague, 2002 WL 1732423 (2002)