Stay current on changes and developments in corporate law with a wide variety of resources and tools.
April 26 — A federal appeals court April 26 declined to determine how much the sellers of KOR Electronics are required to pay Mercury Systems Inc., which bought KOR in 2011, for a “purely hypothetical tax loss”.
Judge Kermit V. Lipez from the U.S. Court of Appeals for the First Circuit said the merger agreement provision at issue entitling Mercury to tax liabilities was ambiguous.
Under the parties' agreement, the sellers were required to indemnify Mercury for tax liabilities as calculated without certain merger-related tax deductions—even though Mercury would pay KOR's actual taxes with the deductions taken into account.
“Having thus agreed to an ambiguous contract, the parties now must shoulder the costs of additional litigation in the district court to clarify its meaning, through consideration of negotiating history and other extrinsic evidence probative of the intentions of the parties, consistent with Massachusetts law,” the judge wrote.
Mercury purchased KOR for $70 million, in a deal that closed on the last day of KOR's federal tax year. After taking the deductions into account, KOR operated at a loss for tax purposes and was refunded $1.76 million in federal and state taxes.
The parties disputed whether KOR's $1.76 million in prepayments and credits should offset the seller's indemnification obligation.
In vacating the lower court's judgment on the matter, the First Circuit concluded that the indemnification provision was unclear on this point and that the dispute couldn't be resolved without further factual findings.
“This ambiguity is remarkable given the sophistication of the parties,” Lipez wrote. “Mercury and the former owners of KOR agreed to a seemingly novel contract provision, incorporating elements of an indemnity and a purchase price adjustment.” Although the parties knew that KOR had tax prepayments and credits and anticipated a 2011 tax refund, they failed to clarify how these would impact the indemnification provision, he said.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
The opinion is available at http://src.bna.com/era.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)