## Facts

- ThoughtWorks, Inc., a Delaware corporation, issued Series A Preferred Stock in 2000 to raise $26.6 million; SV Investment Partners and affiliates (SVIP) held over 94% of the Series A shares.
- The corporate charter granted Series A holders a right, after five years without an IPO, to require redemption “for cash out of any funds legally available therefor,” excluding amounts the board designated as required working capital.
- SVIP exercised the redemption right beginning in 2005 and demanded full redemption.
- ThoughtWorks made partial redemptions over time based on board assessments of available cash and operational needs, redeeming approximately $4.1 million of stock rather than the full demanded amount.
- SVIP claimed “funds legally available” equaled statutory “surplus” under Delaware law and asserted ThoughtWorks had sufficient surplus (based on SVIP’s valuation evidence) to redeem fully.
- ThoughtWorks argued that “funds legally available” did not simply mean surplus and that redemptions could not lawfully be made if they would jeopardize the company’s ability to continue operating or render it insolvent.

## Issues

1. Whether “funds legally available” in the charter must be construed as statutory “surplus” under the Delaware General Corporation Law for purposes of enforcing a preferred stock redemption right.
2. Whether the preferred holders proved that ThoughtWorks had sufficient “funds legally available” to satisfy the demanded redemption in full when the redemption was requested.

## Decision

- The Delaware Supreme Court, sitting en banc, affirmed the Court of Chancery’s judgment for ThoughtWorks.
- The Court held SVIP failed to carry its burden to prove that ThoughtWorks had sufficient “funds legally available” to redeem the shares in full.
- The Court concluded the record supported the trial court’s rejection of SVIP’s valuation evidence and its finding that ThoughtWorks could not meet the demanded redemption on the terms sought.
- Because SVIP failed on proof, the Court found it unnecessary to decide whether “funds legally available” is legally synonymous with statutory surplus as a general matter.

## Legal Principles

- A certificate of incorporation is construed as a contract among the corporation and its stockholders, interpreted against the background of statutory and common-law limits on corporate distributions and redemptions.
- Preferred stockholders seeking to enforce a redemption provision bear the burden of proving the corporation has “funds legally available” to perform the redemption.
- A redemption demand cannot be enforced through a damages award on a record that does not establish legally available funds to pay the redemption price.
- Even where statutory surplus may exist under an accounting or valuation approach, redemptions remain constrained by legal limits that bar distributions that would render a corporation insolvent or unable to continue as a going concern.
- Appellate courts may avoid deciding broader interpretive questions when the case can be resolved on narrower, record-based grounds.

## Conclusion

The Delaware Supreme Court affirmed denial of SVIP’s effort to compel or recover the full redemption price because SVIP did not prove ThoughtWorks had sufficient funds legally available to redeem in full, and the Court therefore declined to issue a categorical ruling equating “funds legally available” with statutory surplus.


SV Inv. Partners, LLC v. ThoughtWorks, Inc., 37 A.3d 205 (Del. 2011)