On November 5, 2010, the Court of Chancery in Ion Geophysical Corp. v. Fletcher International, Ltd., C.A. No. 5050-VCP, read decision here, addressed cross-motions for summary judgment in a dispute about the interpretation of a preferred stock purchase agreement (“SPA”) under New York law. Kevin F. Brady of Connolly Bove Lodge & Hutz LLP provided this summary.
Plaintiff ION Geophysical Corp. (“ION”) brought an action for declaratory judgment against Fletcher International LTD to determine its rights under the SPA. The dispute focused on whether Section 6(b) of the SPA which sets forth a notice procedure for Fletcher, under certain circumstances, to increase the total number of ION common shares into which it may convert its preferred shares. The dispute was whether the language of that section of the SPA permitted Fletcher to issue only one notice or multiple notices. ION claimed that Fletcher had the right to issue only one notice in order to designate a larger number of shares it may receive upon converting its Preferred Stock while Fletcher argued that the SPA shows that Fletcher had the right if it chose to issue multiple notices and get multiple increases in the number of shares it would get. Fletcher also argued that ION breached the SPA by not complying with the second notice and as a result. Fletcher is entitled to reimbursement and indemnification for its reasonable legal fees and expenses.
After an in-depth of the particular language discussing whether the SPA was ambiguous or not, the Court sided with Fletcher’s interpretation of the SPA that under Section 6(b), that Fletcher may issue one or more notices. The Court found that Fletcher was entitled to summary judgment in its favor regarding the language of the SPA but that Fletcher was not entitled to be indemnified or reimbursed for its legal fees and expenses because it had not shown that ION had committed an anticipatory repudiation of its obligations under the SPA or that it failed to deliver securities to Fletcher that it was entitled to receive.