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In Mr. Heebink’s valuation analysis, he did not rely upon
the transaction involving the redemption of Mr. Kucklick’s
shares. However, Mr. Heebink prepared two additional reports and
a supplemental report, in which he concluded separate values for
Mr. Kucklick’s redeemed shares and the 8-year covenant. Mr.
Heebink determined the value of the 8-year covenant using an
income analysis estimating the opportunity losses (focusing on
HEI) that would occur if Mr. Kucklick were allowed to compete.
The opportunity losses were projected over an 8-year period
beginning after the completion of the 3-year period of the
employment agreement. Mr. Heebink applied a discount rate to
discount the future cashflows he determined to present value. He
concluded that the value of the 8-year covenant was $2 million.
He allocated $2 million of the purchase price stated in the
redemption agreement to the 8-year covenant, and he also
allocated $100,000 to the favorable financing contained in the
installment note. He determined that the redemption transaction
reflected a value of $104,000 per share for HII stock after
applying a 15-percent minority interest discount and a 30-percent
marketability discount.
We find Mr. Heebink’s attempts to quantify the value of the
8-year covenant flawed. His analysis fails to consider the
intentions of the parties to that agreement, and, instead, he
seeks to calculate the value of the covenant on the basis of
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