## Facts

- An early investor provided Ciena seed financing in 1993, including $190,000 and a $300,000 letter of credit, and later invested in Series A (1994) and Series B (1995) preferred stock.
- The Series B stock-purchase agreement granted Series B purchasers a contractual right of first refusal (preemptive right) to buy a pro rata portion of later, similar stock issuances to avoid dilution.
- The same Series B agreement provided that the preemptive right could be waived by holders of 67% of the outstanding preferred stock.
- Ciena later pursued a Series C preferred financing to raise significant additional capital and, according to the investor, excluded him from key communications related to that round.
- During the Series C financing, investors executed a Series C stock-purchase agreement that expressly waived the earlier right of first refusal; more than the contractual 67% threshold approved the waiver.
- The investor ultimately bought fewer Series C shares than he claimed he was entitled to under the original pro rata formula.
- The investor sued Ciena and certain directors, asserting that defendants wrongfully prevented him from exercising his contractual pro rata purchase right and asserting related fiduciary-duty theories.
- Defendants moved for summary judgment, contending the preemptive right was validly waived under the contractual supermajority mechanism.

## Issues

1. Whether a contractual preemptive (right-of-first-refusal) provision may be extinguished by a later waiver approved in the manner and by the supermajority percentage specified in the same contract.
2. Whether a dissenting investor can enforce the earlier preemptive right notwithstanding a supermajority waiver adopted in connection with a subsequent financing round.
3. Whether alleged exclusion from communications or pressure to accept fewer shares created a triable basis to invalidate the waiver or defeat summary judgment.

## Decision

- The court granted defendants’ motion for summary judgment.
- The court held the investor was not entitled to purchase additional Series C shares beyond what he obtained in the Series C round.
- The court enforced the contractual waiver mechanism: the preemptive right created by the Series B agreement was effectively waived by the contractually required supermajority through the Series C agreement.
- The court concluded the summary-judgment record did not support setting aside the waiver based on the investor’s complaints about process or pressure.

## Legal Principles

- Preemptive and right-of-first-refusal protections in private financings are contractual rights whose existence, scope, and modification depend on the parties’ agreements.
- Where an investor contract grants a preemptive right and also specifies an amendment or waiver mechanism (including a supermajority vote), courts generally enforce a waiver executed in compliance with that mechanism against dissenting holders.
- A party’s execution of a later financing agreement that expressly includes a waiver provision may preclude enforcement of an inconsistent prior contractual right absent a legally sufficient basis to avoid the later agreement.
- Absent a noncontractual source of entitlement (statute or other independent duty) or a proven basis to rescind or reform the waiver, the contractual waiver governs.

## Conclusion

The court enforced a supermajority-approved waiver clause contained in venture-financing documents, holding that the investor’s contractual preemptive right was extinguished by the later Series C agreement and awarding summary judgment to the company and related defendants.


Kimberlin v. Ciena Corp., No. 97 Civ. 5041, 1998 WL 603234 (S.D.N.Y. Sept. 10, 1998)