Albert D. Bolt v. Merrimack Pharmaceuticals, Inc.

503 F.3d 913 (2007)

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Albert D. Bolt v. Merrimack Pharmaceuticals, Inc.

United States Court of Appeals for the Ninth Circuit
503 F.3d 913 (2007)

Facts

Albert D. Bolt (plaintiff) owned 52,488 shares of Series A redeemable preferred stock in Merrimack Pharmaceuticals, Inc. (Merrimack) (defendant). Merrimack’s restated articles of incorporation specified that its Series A shares were redeemable if the company’s net worth equaled or exceeded $5 million at the end of the most recent fiscal quarter as determined through generally accepted accounting principles (GAAP). Bolt sought to redeem his shares in April 2001 and March 2002, but Merrimack rejected his requests. As of December 31, 2001, Merrimack’s balance sheet showed total assets of $11,331,070 and total liabilities of $1,270,230. A professional accounting firm deemed these and other Merrimack financial statements to be in accordance with GAAP. Bolt brought suit in federal district court, seeking a declaratory judgment that Merrimack’s net worth was more than $5 million. Merrimack argued that it defined net worth as stockholders’ equity, which was at a deficit of $2,402,807, but this definition did not appear in the restated articles of incorporation. The court concluded that Merrimack’s net worth exceeded $5 million and granted summary judgment in favor of Bolt. Merrimack appealed. The United States Court of Appeals for the Ninth Circuit granted certiorari.

Rule of Law

Issue

Holding and Reasoning (O’Scannlain, J.)

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