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a bachelor of science degree in industrial engineering from
Oklahoma State University.
Mr. Meade concludes that the covenants had, at best, a
nominal value. Mr. Meade first valued State Supply by using a
discounted future earnings method which calculates the present
value of a base level of earnings. The starting point for Mr.
Meade's calculation is the base level of earnings of $850,000,
which he took from the initial credit memorandum prepared by the
bank. The base number is not an historical earnings number but
simply the "base level of return * * * which was required by
financial institution [sic]" in order to make the acquisition
loan to the buyers. Mr. Meade does not tell us why this number
has any significance or why it should form the basis of his
calculations. Mr. Meade concludes that State Supply's discounted
future earnings stream is worth $7,208,000. He then adds to that
number the amount of State Supply's cash or cash equivalents in
excess of the amount deemed needed for this type of business
($1.4 million) and arrives at a rounded value of $8.6 million as
the fair market value of State Supply. Mr. Meade's entire
analysis of the covenants' value is as follows:
Consideration of the allocation to the covenants in
regard to the fair market value of the stock [value of
State Supply] when the net price paid for both stock
and covenant[s] is $6.8 million [Mr. Meade's
calculation of the cash required to purchase the stock
and the discounted cost of the covenants] leaves, at
best, a nominal value for allocation to the covenants.
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