SV Investment Partners, LLC v. ThoughtWorks, Inc.
2011 Del. LEXIS 609
Del.2011Background
- SVIP filed suit against ThoughtWorks seeking a declaratory judgment on the meaning of “funds legally available” as it relates to SVIP’s redemption right under Charter Article IV(B), §4(a).
- Redemption right: upon fifth anniversary and if company has not issued public shares in a Qualified Public Offering, holders may require redemption out of funds legally available and not designated for working capital, at least equal to 100% of the holder’s shares; redemption price at least the greater of liquidation price or fair market value.
- Charter imposes two limitations: redemptions must be funded only from “funds legally available” and working capital designated for the first fiscal year cannot be counted.
- Board determined funds legally available were limited by a working capital set-aside; SVIP argued the proper measure is surplus under DGCL; Chancery ruled against SVIP, and the issue turned on whether ThoughtWorks had funds legally available under any definition.
- SVIP sought to recover the lesser of the full redemption obligation or funds legally available; the Chancery ruling was in ThoughtWorks’ favor, affirming that SVIP failed to prove funds legally available.
- Procedural posture included a two-day trial and post-trial briefing, with the appellate review de novo on law and deferential review of factual findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ‘funds legally available’ equals DGCL surplus. | SVIP contends it equals DGCL surplus. | ThoughtWorks argues it is cash on hand that can be legally disbursed without impairing capital. | Not reversible error; record supports Board and Court’s interpretation. |
| Whether SVIP proved funds legally available under either definition. | SVIP’s expert supports surplus/sufficient funds. | Board’s determination based on financials and going-concern impact shows insufficient funds. | SVIP failed to prove funds legally available under either definition. |
| Whether the Board acted properly in calculating surplus/funds legally available. | Board relied on incorrect legal advice. | Board used prudent process and independent advisors. | No reversible error; board acted within discretion. |
| Whether ThoughtWorks could secure funds to satisfy full redemption. | Market canvass would yield necessary funds. | No third-party funding available to satisfy full redemption. | No sufficient evidence to show availability of funds. |
Key Cases Cited
- ThoughtWorks v. SV Inv. Partners, LLC, 902 A.2d 745 (Del.Ch.2006) (addressing earlier definitions and context for ‘funds legally available’)
- Montgomery Cellular Holding Co., Inc. v. Dobler, 880 A.2d 206 (Del.2005) (deference to board determinations absent bad faith or fraud)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del.1995) (standard for reviewing weighing of expert testimony)