What does "net worth . . . as shown on the balance sheet" mean if the balance sheet doesn’t show anything it calls "net worth"? 

The Ninth Circuit held today that it means what people usually mean by it:  the difference between total assets and total liabilities.  Because under that definition the net worth of Merrimack Pharmaceuticals exceeded $5 million, the company’s articles of organization obligated it to redeem Albert D. Bolt’s shares of Series A Preferred Redeemable Stock.  Bolt v. Merrimack Pharmaceuticals, Inc., No. 05-16282 (9th Cir. Sept. 11, 2007) (applying Massachusetts law).

Merrimack did have some arguments.  It said that its balance sheet showed net worth but described it as "Total stockholders’ deficit".  The court made short work of that point.  But then the company urged that "generally accepted accounting principles" would classify about $12 million of Series B Preferred Redeemable Stock as a liability instead of an asset.  That forced Their Honors deep into the wily ways of GAAP, but they emerged with Mr. Bolt triumphant.

Barry Barnett

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