Johann T. and Johanna Hess - Page 28

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               Stockholders Agreement Method                                          
               Mr. Engstrom relies upon the valuation formula contained in            
          the September 1, 1989, stockholders agreement as an indication of           
          the fair market value of HII stock.  Applying the valuation                 
          formula, he determined that the value of the company was equal to           
          $38 million, or $380,000 per share,27 as of November 15, 1995.              
          This amount represents the value he derived under the net worth             
          (book value) formula; i.e., the higher value derived under the              
          formula in the stockholders agreement.                                      
               Respondent argues that although the redemption agreement               
          terminated the stockholders agreement, the values derived under             
          it reflect an agreed methodology for establishing fair market               
          value between knowledgeable parties and as such are part of the             
          facts and circumstances that may be taken into consideration in             





               27Mr. Engstrom determined that the valuation formula would             
          most likely be applied to transactions involving minority                   
          interests, because the owner of a controlling interest would most           
          likely liquidate his ownership interest through a sale of the               
          entire company.  Mr. Engstrom opined that the formula price, 2              
          times book value, contained built-in marketability and minority             
          interest discounts.  We are not persuaded that this is the case.            
          The formula provision by its terms applies to both the majority             
          shareholder, Mr. Hess, and the minority shareholder, Mr.                    
          Kucklick, in the circumstances specified in the agreement.  We              
          also point out that Mr. Engstrom applied discounts in his net               
          asset value analysis.  Respondent submits that the indicated                
          value under the stockholders agreement would be $242,250                    
          ($380,000 x .85 x .75), if the discounts determined by Mr.                  
          Engstrom were applied.                                                      




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