Court Opinion

ID: 3050071
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:29:47.865607+00
Date Added: 2024-06-11T11:49:22.678737
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ALBERT D. BOLT,                                No. 05-16282
                  Plaintiff-Appellee,
                 v.                              D.C. No.
                                              CV-04-00893-WBS
MERRIMACK    PHARMACEUTICALS, INC.,
                                                  OPINION
               Defendant-Appellant.
                                          
       Appeal from the United States District Court
            for the Eastern District of California
      William B. Shubb, Chief District Judge, Presiding

                  Argued and Submitted
          May 18, 2007—San Francisco, California

                    Filed September 11, 2007

Before: Cynthia Holcomb Hall and Diarmuid F. O’Scannlain,
Circuit Judges, and Irma E. Gonzalez,* Chief District Judge.

                 Opinion by Judge O’Scannlain

   *The Honorable Irma E. Gonzalez, United States Chief District Judge
for the Southern District of California, sitting by designation.

                               12245
12248     BOLT v. MERRIMACK PHARMACEUTICALS, INC.

                        COUNSEL

Deborah S. Birnbach, Goodwin Procter LLP, Boston, Massa-
chusetts, argued the cause for the defendant-appellant, and
filed briefs; William F. Sheehan, Goodwin Procter LLP, Bos-
ton, Massachusetts, and Todd Noonan, Stevens & O’Connell
LLP, Sacramento, California, were on the briefs.

William R. Warne, Downey Brand LLP, Sacramento, Califor-
nia, argued the cause for the plaintiff-appellee, and filed a
brief; Rhonda Cate Canby, Downey Brand LLP, Sacramento,
California, was on the brief.
             BOLT v. MERRIMACK PHARMACEUTICALS, INC.         12249
                           OPINION

O’SCANNLAIN, Circuit Judge:

  We are called upon to interpret a corporation’s articles of
organization to decide whether it has an obligation to redeem
certain shares of its stock.

                                 I

  Albert D. Bolt owns 52,488 shares of Series A Redeemable
Preferred Stock (“Series A Stock”) issued by Merrimack
Pharmaceuticals, Inc. (“Merrimack”), a biotechnology com-
pany organized under the laws of Massachusetts. Bolt now
wants to redeem those shares.

  The relevant redemption provision of Merrimack’s
Restated Articles of Organization provides:

       At any time from and after December 31, 1997, if
    the net worth of the Corporation, determined in
    accordance with generally accepted accounting prin-
    ciples and as shown on the balance sheet of the Cor-
    poration as of the end of the fiscal quarter then most
    recently ended, equals or exceeds five million dollars
    ($5,000,000.00), then upon the request of the holder
    of [the Series A] Preferred Stock, the Corporation
    shall redeem at the Redemption Price any and all
    shares of [the Series A] Preferred Stock which such
    holder, by such request, offers to the Corporation for
    redemption.

  The following statement provides a snapshot of Merri-
mack’s balance sheet as of December 31, 2001:
    Assets
      Total assets                                  $11,331,070
    Liabilities, Redeemable Convertible Preferred
    Stock and Stockholders’ Deficit
      Total liabilities                             $ 1,270,230
12250       BOLT v. MERRIMACK PHARMACEUTICALS, INC.
        Redeemable convertible preferred stock:
          Series A redeemable preferred stock             $ 548,380
          Series B convertible preferred stock            $11,915,267
             Total redeemable convertible preferred
                  stock                                    $12,463,647
        Total stockholders’ deficit                      ( $ 2,402,807)1

        Total liabilities, redeemable convertible pre-
            ferred stock, and stockholders’ deficit       $11,331,070

   PricewaterhouseCoopers LLP audited Merrimack’s finan-
cial statements, and opined that Merrimack’s balance sheet
referred to above “presents fairly, in all material respects, the
financial position of Merrimack Pharmaceuticals, Inc. at
December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.”

   During 2001, Merrimack had issued 3,315,201 shares of
Series B Redeemable Convertible Preferred Stock (“Series B
Stock”) with a book value of $11,915,267. The Series B Stock
is redeemable at the option of the holder upon a “deemed liq-
uidation,” defined as (1) a merger with another company,
after which the Merrimack stockholders would no longer hold
a majority of the voting power, or (2) the sale of Merrimack’s
business assets. The Series B Stock appears in the “mezza-
nine” of the balance sheet, between the liabilities section and
the stockholders’ deficit (equity) section. See David R. Her-
witz & Matthew J. Barrett, Accounting for Lawyers 505 (4th
ed. 2006) (explaining that the “section between liabilities and
equity on the balance sheet” is commonly referred to as the
“mezzanine”).

  On April 11, 2001, and again on March 28, 2002, Bolt sent
written requests to Merrimack for the redemption of his
shares of Series A Stock. In a letter dated June 13, 2002, Mer-
rimack rejected Bolt’s demands for redemption. Bolt filed suit
  1
    We employ parentheses throughout the disposition to represent a nega-
tive number.
           BOLT v. MERRIMACK PHARMACEUTICALS, INC.       12251
in federal district court seeking a declaratory judgment that
Merrimack’s net worth exceeded $5 million as of December
31, 2001. On cross-motions for summary judgment, the dis-
trict court granted summary judgment for Bolt, concluding
that Merrimack’s net worth exceeded $5 million as of that
date.

  Merrimack timely appealed.

                              II

   We are faced with the task of interpreting Merrimack’s
Restated Articles of Organization to determine if it indeed has
an obligation to redeem the Series A Stock held by Bolt. The
dispositive issue, of course, is whether Merrimack’s net
worth, determined in accordance with generally accepted
accounting principles (“GAAP”) and as shown on the balance
sheet, equaled or exceeded $5 million as of December 31,
2001. The district court held that it did. We agree.

                              A

   [1] We must first determine the meaning of the term “net
worth,” the threshold yardstick to determine whether Merri-
mack has an obligation to redeem the Series A Stock as Bolt
requests. Merrimack’s Restated Articles of Organization fail
to define that term. Nor does GAAP define that term. And no
item on Merrimack’s balance sheet is specifically labeled “net
worth.”

   [2] Merrimack is organized under Massachusetts law, and
therefore we apply that state’s body of law here. See Order of
United Commercial Travelers of Am. v. Wolfe, 331 U.S. 586,
614 (1947). Moreover, because articles of organization are
contractual in nature, see Willson v. Laconia Car Co., 176
N.E. 182, 184 (Mass. 1931), we look to Massachusetts gen-
eral contract principles. “Where the language of a contract is
not ambiguous,” we are instructed to give words “their plain
12252        BOLT v. MERRIMACK PHARMACEUTICALS, INC.
meaning, or their well established meaning.” City of Haverhill
v. George Brox, Inc., 716 N.E.2d 138, 141 (Mass. App. Ct.
1999) (internal citations omitted); see also Erhard v. F.W.
Woolworth Co., 372 N.E.2d 1277, 1279 (Mass. 1978); Free-
lander v. G. & K. Realty Corp., 258 N.E.2d 786, 788 (Mass.
1970); Restatement (Second) of Contracts § 202(3) (1981).

   [3] The common and well-established meaning of the term
“net worth” is the difference between a corporation’s total
assets and its total liabilities.2 Merrimack’s total assets and
total liabilities, as shown on its December 31, 2001 balance
sheet, equal $11,331,070 and $1,270,230, respectively.
Accordingly, employing the well-established meaning, Merri-
mack’s net worth equals $10,060,840, well in excess of the $5
million threshold set by the Restated Articles of Organization.

   Merrimack suggests that net worth is sometimes referred to
as stockholders’ equity.3 This reference is often accurate
because a balance sheet generally involves only three basic
accounting elements—assets, liabilities, and equity—and
equity by definition equals the residual interest in the assets
after subtracting liabilities.4 Yet, under this reasoning, Merri-
mack’s net worth would still exceed $5 million.
   2
     See, e.g., Herwitz & Barrett, supra, at 3 (“The difference between what
a business owns—its assets—and what it owes—its liabilities—represents
its net worth, which accountants sometimes refer to as equity.”); Black’s
Law Dictionary (4th ed. 2004) (defining net worth as “[a] measure of
one’s wealth, usu. calculated as the excess of total assets over total liabili-
ties”); see also Am. Pac. Concrete Pipe Co., Inc. v. N.L.R.B., 788 F.2d
586, 590-91 (9th Cir. 1986) (calculating net worth for purposes of the
Equal Access to Justice Act by “subtracting total liabilities from total
assets”); Overnite Transp. Co. v. Comm’r of Revenue, 764 N.E.2d 363,
365 n.1 (Mass. App. Ct. 2002) (defining net worth for purposes of Massa-
chusetts’s tax revenue laws as “the book value of [the company’s] total
assets less its liabilities”).
   3
     See, e.g., Howard v. Everex Sys., Inc., 228 F.3d 1057, 1064 (9th Cir.
2004) (equating net worth with shareholders’ equity); Nelson v. Serwold,
687 F.2d 278, 280 (9th Cir. 1982) (same); Herwitz & Barrett, supra, at 3.
   4
     Elements of Financial Statements, Statement of Fin. Accounting Con-
cepts No. 6 § 49, at 21 (Fin. Accounting Standards Bd. 1985) (“Equity or
              BOLT v. MERRIMACK PHARMACEUTICALS, INC.                    12253
   [4] But Merrimack goes further, arguing that the definition
of net worth for purposes of its Restated Articles of Organiza-
tion equals only Merrimack’s total stockholders’ deficit of
$2,402,807, excluding Merrimack’s total redeemable convert-
ible preferred stock of $12,463,647.5 Merrimack contends that
limiting the meaning of net worth to this amount is appropri-
ate here because the Restated Articles of Organization point
to net worth “as shown on the balance sheet” and call for no
further calculations. While this argument has surface appeal,
we ultimately are unpersuaded. The Restated Articles of
Organization indeed point us to “net worth . . . as shown on
the balance sheet.” (emphasis added.) But there is no item so
labeled on the balance sheet involved here. Thus, such an
interpretation of net worth is “shown” on the balance sheet
only to the extent that we accept an additional premise neces-
sary to connect it to the net worth reference in the Restated
Articles of Organization. Either we accept Merrimack’s prem-
ise that net worth is limited to total stockholders’ equity (defi-
cit) on the balance sheet, or we accept Bolt’s premise that net
worth is commonly defined as the difference between total
assets and liabilities. Regrettably, the Restated Articles of
Organization provide no further guidance as to the proper def-
inition of the term. Given the common and well-established
meaning of the term “net worth” as the difference between
total assets and total liabilities, we cannot accept that the doc-
ument reflects an intentionally narrower, more nuanced defi-
nition of that term that would equal only total stockholders’
equity (deficit) simply because it employed the phrase “as

net assets is the residual interest in the assets of an entity that remains after
deducting its liabilities.”) [hereinafter “Concept No. 6”]; id. § 50, at 21
(“The equity or net assets of both a business enterprise and a not-for-profit
organization is the difference between the entity’s assets and its liabili-
ties.”).
   5
     We agree with the district court and likewise reject Merrimack’s
renewed attempt on appeal to tie Bolt’s hands to this limited definition of
net worth based on allegations in his complaint.
12254        BOLT v. MERRIMACK PHARMACEUTICALS, INC.
shown on the balance sheet.” We therefore decline to adopt
Merrimack’s definition here.

                                     B

   Nevertheless, our analysis does not end with our construc-
tion of the term “net worth.” The Restated Articles of Organi-
zation specify that the balance sheet relied upon must be
determined in accordance with GAAP.6 If the balance sheet
  6
    Unfortunately, GAAP is not found in a single source. See Herwitz &
Barrett, supra, at 182. Instead, in the United States, GAAP consists of a
hodgepodge of accounting sources, which find their respective places in
the hierarchical structure established by the American Institute of Certified
Public Accountants (“AICPA”). See The Meaning of “Present Fairly in
Conformity with Generally Accepted Accounting Principles” in the Inde-
pendent Auditor’s Report, Statement on Auditing Standards No. 69 § 7
(Am. Inst. of Certified Pub. Accountants 1992). There are five categories
in the GAAP hierarchy. Officially established accounting principles,
referred to as Category (a) authority, are the highest level and include the
Financial Accounting Standards Board (“FASB”) Statements of Financial
Accounting Standards and Interpretations, Accounting Principles Board
(“APB”) Opinions, and AICPA Accounting Research Bulletins. Id. § 10.
Moreover, Securities Exchange Commission (“SEC”) rules and interpreta-
tive releases take an authoritative weight similar to Category (a) authority
for companies registered with the SEC. Category (b) authority, the next
highest level, consists of FASB Technical Bulletins and, if cleared by
FASB, AICPA Industry Audit and Accounting Guides and AICPA State-
ments of Position. Id. The third level of authority, Category (c), consists
of AICPA Accounting Standards Executive Committee Practice Bulletins
that have been cleared by FASB and consensus positions of the FASB
Emerging Issue Task Force. Category (d), the fourth level of authority,
consists of AICPA accounting interpretations and implementation guides
published by the FASB staff, and practices that are widely recognized and
prevalent either generally or in the industry. Id. In the absence of estab-
lished accounting principles, auditors may consider accounting literature
in the fifth and final level of authority, which includes FASB Statements
of Financial Accounting Concepts; APB Statements; AICPA Issues
Papers; International Accounting Standards of the International Account-
ing Standards Committee (“IASC”); Governmental Accounting Standards
Board (“GASB”) Statements, Interpretations, and Technical Bulletins;
pronouncements of other professional associations or regulatory agencies;
AICPA Technical Practice Aids; and accounting textbooks, handbooks,
and articles. Id. § 11.
           BOLT v. MERRIMACK PHARMACEUTICALS, INC.         12255
incorrectly reports total assets or total liabilities under GAAP,
our determination of net worth necessarily would be affected.

   To determine whether the balance sheet is prepared in
accordance with GAAP, we do not take off our judicial black
robes and reach for the accountant’s green eyeshade. Rather,
because “ ‘generally accepted accounting principles’ are far
from being a canonical set of rules that will ensure identical
accounting treatment of identical transactions[, and] tolerate
a range of ‘reasonable’ treatments,” we generally defer to the
professional judgment of the accountant who audited or pre-
pared the financial statements, unless a GAAP authority
demands a contrary accounting treatment. See Thor Power
Tool Co. v. Comm’r, 439 U.S. 522, 544 (1979); see also
United States v. Basin Elec. Power Coop., 248 F.3d 781, 798
(8th Cir. 2001) (en banc); Godchaux v. Conveying Tech-
niques, Inc., 846 F.2d 306, 315 (5th Cir. 1998).

                               1

   Merrimack argues on appeal that the Series B Stock, which
is presented in the mezzanine section of the balance sheet, is
akin to a liability under GAAP authorities. Of course, if the
Series B Stock were considered a liability, Merrimack’s net
worth would not equal or exceed $5 million. But Merrimack’s
balance sheet does not show the Series B Stock to be part of
total liabilities. Nor do we believe that GAAP requires such
accounting classification.

                               a

   First, Merrimack claims to find support in Regulation S-X
of the SEC, which requires certain stock to be presented on
the balance sheet under the caption “redeemable preferred
stock” and expressly prohibits including such stock under a
general caption “stockholders’ equity” or combined in a total
with non-redeemable preferred stocks, common stocks, or
other stockholders’ equity. Regulation S-X, 17 C.F.R.
12256      BOLT v. MERRIMACK PHARMACEUTICALS, INC.
§ 210.5-02. That regulation applies to any class of stock with
the following characteristics:

    (1) it is redeemable at a fixed or determinable price
    on a fixed or determinable date or dates, whether by
    operation of a sinking fund or otherwise; (2) it is
    redeemable at the option of the holder; or (3) it has
    conditions for redemption which are not solely
    within the control of the issuer, such as stocks which
    must be redeemed out of future earnings. Amounts
    attributable to preferred stock which is not redeem-
    able or is redeemable solely at the option of the
    issuer shall be included under § 210.5-02.29 unless
    it meets one or more of the above criteria.

Id. § 210.5-02.28(a) (emphasis added).

   The parties do not dispute on appeal that Merrimack’s
Series B Stock falls within the scope of Regulation S-X and
therefore is presented properly in the mezzanine section of the
balance sheet. Merrimack, however, places great weight on
the fact that Regulation S-X requires such stock to be pre-
sented “outside” of stockholders’ equity, implicitly suggest-
ing, Merrimack urges, that it should be considered akin to a
liability for purposes of determining net worth.

   [5] In our view, Merrimack reads too much into Regulation
S-X, which only requires that the Series B stock be presented
in a separate caption in the mezzanine section of the balance
sheet, not that such stock be classified as part of total liabili-
ties. Indeed, in Accounting Series Release No. 268, the SEC
expressly emphasized that these “rules are intended to high-
light the future cash obligations attached to redeemable pre-
ferred stock through appropriate balance sheet presentation
and footnote disclosure. They do not attempt to deal with the
conceptual question of whether such security is a liability.”
Presentation in Financial Statements of Redeemable Preferred
Stock, Accounting Series Release No. 268, [1937-1982 Trans-
           BOLT v. MERRIMACK PHARMACEUTICALS, INC.         12257
fer Binder] Fed. Sec. L. Rep. (CCH) ¶ 72,290, at 62,751 (July
27, 1979) (emphasis added). Accordingly, we are not per-
suaded that Regulation S-X requires the Series B Stock to be
classified as part of total liabilities on the balance sheet for
purposes of calculating net worth. By reporting the Series B
Stock in the mezzanine section, the balance sheet properly
followed the presentation requirements set forth in Regulation
S-X, which forms part of GAAP.

                                b

   [6] Second, both parties claim to draw support from
Accounting Standards No. 150. See Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity, Statement of Fin. Accounting Standards No. 150
(Fin. Accounting Standards Bd. 2003) [hereinafter “Statement
No. 150”]. We recognize, as does Merrimack, that Statement
No. 150 was not effective until after the balance sheet
involved in this case was prepared. However, we believe that
this statement offers helpful guidance that confirms our con-
clusion. Statement No. 150 requires that a mandatorily
redeemable financial instrument, defined as a financial instru-
ment that “embodies an unconditional obligation requiring the
issuer to redeem the instrument by transferring its assets at a
specified or determinable date (or dates) or upon an event cer-
tain to occur,” be reclassified as a liability. Id. § 9, at 10
(emphasis added). Even if Statement No. 150 applied in this
case, the parties agree that it would not require the Series B
Stock to be classified as a liability because redemption of that
stock is conditional and expressly beyond the statement’s
scope. See id. at 5. A redeemable preferred stock conditioned
“upon an event not certain to occur becomes mandatorily
redeemable—and, therefore, becomes a liability—if that
event occurs, the condition is resolved, or the event becomes
certain to occur.” Id. § 10, at 10 (emphasis added). Thus,
while not applicable to the balance sheet at issue in this case,
Statement No. 150’s requirement that conditionally redeem-
able stock be classified as a liability upon the resolution of the
12258        BOLT v. MERRIMACK PHARMACEUTICALS, INC.
conditional event suggests that under GAAP such stock, like
the Series B Stock here, should not be classified as a liability
before that event.

                                     c

   [7] Finally, we have two additional GAAP authorities to
consider. Merrimack points us to International Accounting
Standards No. 32. See Financial Instruments: Disclosure and
Presentation, International Accounting Standards No. 32 (Int’l
Accounting Standards Bd. amended 2004) [hereinafter “Inter-
national Standard No. 32”]. That standard provides that condi-
tionally redeemable preferred stock, like the Series B Stock in
this case, should be classified as a liability.7 While Interna-
tional Standard No. 32 is on point, we do not believe that it
compels Merrimack to restate the Series B Stock, which is
presented in the mezzanine section of the balance sheet, as
part of total liabilities. International Accounting Standards fall
on the lowest rung of the GAAP hierarchy in the United
States. See supra n.6. Moreover, FASB, the organization
charged with establishing GAAP in the United States, has
expressly declined to adopt International Standard No. 32’s
position with respect to classifying conditionally redeemable
preferred stock as a liability.8
  7
     See id. § 18(a) (“[A] preference share that provides for mandatory
redemption by the issuer for a fixed or determinable amount at a fixed or
determinable future date, or gives the holder a right to require the issuer
to redeem the instrument at or after a particular date for a fixed or deter-
minable amount, is a financial liability.” (emphasis added)); id. § 19(b)
(“[A] contractual obligation that is conditional on a counterparty exercis-
ing its right to redeem is a financial liability because the entity does not
have the unconditional right to avoid delivering cash or another financial
asset.”).
   8
     See Statement No. 150, supra, § B79, at 53 (“IAS 32 requires the same
accounting for conditional redeemable instruments as for mandatorily
redeemable instruments. This Statement does not go that far. The Board
acknowledges that the conditional obligation embedded in such shares
may, if accounted for separately, meet the definition of a liability; how-
ever, the accounting for such compound instruments is beyond the scope
of this Statement.” (emphasis added)).
             BOLT v. MERRIMACK PHARMACEUTICALS, INC.                 12259
   [8] The parties also direct us to FASB’s Concept No. 6. But
we do not believe the conceptual definitions found therein
require a conclusion that the Series B Stock must be classified
as part of total liabilities, contrary to the presentation on Mer-
rimack’s balance sheet. Concept No. 6 defines “liabilities” as
“probable future sacrifices of economic benefits arising from
present obligations of a particular entity to transfer assets or
provide services to other entities in the future as a result of
past transactions or events,” id. § 35, at 18, and “equity” as
“the residual interest in the assets of an entity that remains
after deducting its liabilities,” id. § 49, at 21. Moreover, and
more importantly, Concept No. 6 recognizes the conceptual
difficulties with classifying certain hybrid securities like the
Series B Stock at the nub of this case,9 and instructs in such
cases that the conceptual definitions are the starting point and
“provide a basis for assessing, for example, the extent to
which a particular application meets the qualitative character-
istic of representational faithfulness, which includes the
notion of reporting economic substance rather than legal
form.” Id. § 59, at 24 (emphasis added).

   Merrimack argues that the Series B Stock should not be
considered equity pursuant to Concept No. 6 because that
stock is not a “residual interest.” We appreciate, as do the par-
ties, that the Series B Stock has a number of hybrid character-
istics: Series B stockholders have (1) a right to vote, together
with the common stock as a single class, on all actions to be
taken by the stockholders; (2) a right to elect one board mem-
ber; (3) a dividend of four percent per annum of purchase
  9
    Id. § 55, at 23-24 (“Although the line between equity and liabilities is
clear in concept, it may be obscured in practice. Applying the definitions
to particular situations may involve practical problems because several
kinds of securities issued by business enterprises seem to have characteris-
tics of both liabilities and equity in varying degrees or because the names
given some securities may not accurately describe their essential charac-
teristics. . . . Preferred stock [for example] often has both debt and equity
characteristics, and some preferred stocks may effectively have maturity
amounts and dates at which they must be redeemed for cash.”).
12260        BOLT v. MERRIMACK PHARMACEUTICALS, INC.
price; (4) a liquidation preference before common stock, but
after debts and liabilities and the Series A Stock preference;
(5) a cash redemption right upon a “deemed liquidation” and
at the election of the holder; (6) a right to convert such stock
into common stock at any time according to a specified for-
mula; (7) covenants and restrictions on certain actions by
Merrimack; and (8) a preemptive right. However, while rec-
ognizing that the Series B Stock does not fit neatly into either
the definition of liabilities or equity under Concept No. 6, we
are unpersuaded that Merrimack’s balance sheet, by not clas-
sifying that stock as part of total liabilities, is contrary to
GAAP.

                                      2

   [9] In sum, finding no GAAP authority that requires classi-
fying Merrimack’s Series B Stock as part of total liabilities,
we defer to PricewaterhouseCooper’s conclusion that Merri-
mack’s balance sheet “presents fairly, in all material respects,
the financial position of Merrimack Pharmaceuticals, Inc. at
December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.” We
therefore agree with the district court’s conclusion that Merri-
mack’s balance sheet as of December 31, 2001 was deter-
mined according to GAAP.10
   10
      Merrimack’s argument that the district court’s decision must be inter-
preted to have concluded otherwise is unpersuasive. Merrimack selec-
tively alters a quotation from the decision to assert that the district court
ruled expressly, in direct conflict with Regulation S-X, that Merrimack’s
“argument that the Series B shares should be classified outside [equity] is
an argument against generally accepted accounting principles.” (alteration
in brief) But the district court actually stated that the “Series B shares must
be classified as either an asset, a liability, or equity. Defendant’s argu-
ment that the Series B shares should be classified outside those categories
is an argument against generally accepted accounting principles.” (empha-
sis added.) Because FASB has expressly declined to expand on those three
accounting elements on the balance sheet, Merrimack missteps by latching
onto this statement to allege that the district court concluded that the bal-
             BOLT v. MERRIMACK PHARMACEUTICALS, INC.                  12261
                                     III

  [10] Merrimack has an obligation to redeem Bolt’s Series
A Stock if its net worth equals or exceeds $5 million. Because
we conclude that the term “net worth” for purposes of the
Restated Articles of Organization should be given its well-

ance sheet was not prepared in accordance with GAAP. See Statement No.
150, supra, §§ B56 & B57, at 47 (“Certain financial instruments were
presented between the liabilities section and the equity section of the state-
ment of financial position before the issuance of this Statement. Because
Concepts Statement 6 does not accommodate classification of items out-
side the elements of assets, liabilities, and equity, developing a model that
would permit that practice would require the Board to define a new ele-
ment of financial statements. The Board elected not to pursue that course
of action, in part because, among other concerns, adding another element
would set an undesirable precedent of adding elements whenever new
instruments are created that are difficult to classify. The Board instead
elected to develop an approach that would address the issues related to
determining the appropriate classification of financial instruments with
characteristics of liabilities, equity, or both. . . .” (emphasis added)).
   Nor is Merrimack’s argument that the district court afforded no defer-
ence to PricewaterhouseCoopers, its auditors, of any moment. Pricewater-
houseCoopers simply certified that the balance sheet—which reflects total
assets of $11,331,070, total liabilities of $1,270,230, total redeemable con-
vertible preferred stock of $12,463,647, and total shareholders’ deficit of
($2,402,807)—presents Merrimack’s financial position as of December
31, 2001 fairly in all material respects in accordance with GAAP. Even in
a subsequent declaration submitted for purposes of this lawsuit, Price-
waterhouseCoopers never opined that net worth equaled stockholders’
equity or that the Series B Stock should be classified as a liability, but
simply reaffirmed that “the classification of the Series B convertible pre-
ferred stock outside of permanent equity, or stockholder’s [sic] equity
(deficit) was presented in conformance with GAAP.” As such, contrary to
Merrimack’s argument, we have no opinion by PricewaterhouseCoopers
that net worth equals stockholders’ equity to which to defer. Accordingly,
we defer only to PricewaterhouseCoopers’s conclusions that the balance
sheet presents fairly in all material respects Merrimack’s financial position
as of December 31, 2001, in conformity with GAAP, and that the Series
B Stock was properly presented outside of stockholders’ equity in compli-
ance with GAAP.
12262      BOLT v. MERRIMACK PHARMACEUTICALS, INC.
established meaning as the difference between total assets and
total liabilities, and because Merrimack’s total assets and total
liabilities equaled $11,331,070 and $1,270,230, respectively,
as shown on the December 31, 2001 balance sheet calculated
in conformity with GAAP, Merrimack’s net worth exceeded
$5 million. Accordingly, the district court’s grant of summary
judgment in favor of Bolt is

  AFFIRMED.