## Facts

- In 2000, SV Investment Partners, LLC and related funds (SVIP) bought over 94% of ThoughtWorks, Inc.’s Series A Preferred Stock for about $26.6 million.
- The corporate charter granted preferred holders a mandatory redemption right starting five years after issuance, payable “for cash out of any funds legally available therefor.”
- The charter permitted the board to designate certain funds as “working capital,” excluded from funds available for redemption.
- SVIP exercised its redemption right in 2005, but ThoughtWorks lacked sufficient cash to redeem all preferred shares at once and had limited ability to raise cash.
- ThoughtWorks’ board adopted a quarterly review process to determine whether it had surplus, had or could obtain cash, and could redeem without endangering the company as a going concern.
- Over sixteen quarters, ThoughtWorks made eight partial redemptions totaling about $4.1 million, far below SVIP’s demanded amount.
- SVIP contended that “funds legally available” meant statutory surplus and offered expert testimony estimating surplus between $68 million and $137 million; SVIP claimed roughly $66.9 million was due as of April 2010.

## Issues

1. Whether a charter’s “funds legally available” requirement for mandatory redemption is equivalent to statutory “surplus,” or also requires actual available funds and compliance with insolvency limits.
2. Whether SVIP proved ThoughtWorks had legally available funds to redeem SVIP’s shares in full, and whether SVIP was entitled to a money judgment for the full redemption price.

## Decision

- The Court of Chancery held that “funds legally available” is not synonymous with balance-sheet surplus.
- The court interpreted the phrase to require cash or other immediately available resources that may be distributed consistent with Delaware’s surplus requirement and the prohibition on insolvency-causing redemptions.
- The court found SVIP failed to prove ThoughtWorks had sufficient legally available funds to complete a full redemption without risking insolvency or impairing its ability to operate.
- The court denied SVIP’s request for a money judgment approximating the full redemption price.
- The Delaware Supreme Court later affirmed, concluding SVIP did not meet its burden to show legally available funds on the record presented.

## Legal Principles

- A mandatory redemption right payable “for cash out of any funds legally available” is constrained by Delaware capital-maintenance rules, including the statutory surplus requirement and the common-law bar on redemptions that would render the corporation insolvent.
- Corporate “surplus” may be necessary for a lawful redemption but does not, by itself, establish that funds are available; liquidity and lawful ability to pay without threatening solvency matter.
- The preferred stockholder bears the burden to prove the corporation had legally available funds to satisfy the demanded redemption.
- A charter redemption provision does not function as an unconditional debt obligation if the corporation lacks legally available funds to perform.

## Conclusion

The court refused to equate “funds legally available” with accounting surplus and held that mandatory redemptions may be made only from actual, lawfully distributable resources consistent with solvency limits; because SVIP did not prove ThoughtWorks could fund a full redemption without insolvency risk, SVIP was not entitled to the requested money judgment.


SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973 (Del. Ch. 2010)