SV Investment Partners v. ThoughtWorks, Inc.

ThoughtWorks, Inc. (defendant), a tech company, issued preferred stock in exchange for investment funds. SV Investment Partners, LLC, and an affiliated group (collectively, SVIP) (plaintiff) acquired nearly 3 million shares of the preferred stock in exchange for $26.6 million. ThoughtWorks amended its certificate of incorporation to give the preferred shareholders a right of redemption, effective after five years. The amended certificate provided that the redemption would be made using funds legally available to ThoughtWorks, which excluded funds necessary to meet the requirements of operation. Five years later, ThoughtWorks was unable to afford redemption of the preferred stock in its entirety. However, SVIP repeatedly demanded full redemption. ThoughtWorks was able to make only partial redemptions of the preferred shares—including 214,484 of SVIP’s shares—over the next few years. SVIP brought an action in the Delaware Court of Chancery for a declaratory judgment of the meaning of “funds legally available,” which SVIP asserted meant “surplus.” SVIP relied on the Delaware code, which prohibited corporations from redeeming stock if capital was impaired and defined impairment as redemption costs exceeding a surplus. SVIP also presented an expert who used various methodologies to assess the value of ThoughtWorks’ equity but did not take into account ThoughtWorks’ costs of operation. The court ruled in favor of ThoughtWorks, holding that SVIP had failed to carry its burden. SVIP appealed to the Delaware Supreme Court.