Dissenters' Rights & Appraisal

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1 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 1 Bloomberg Law Reports January 26, 2011 Shares & Shareholders Dissenters' Rights & Appraisal Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value By Michael J. Zdeb, Holland & Knight LLP This two-part article discusses the relationship of the fair value legal concept used in appraisal actions and the valuation standards of various professional associations employed in providing expert testimony and reports. The first part identifies the primary standards employed and the relationship of the legal concept to the standard of value, the premise of value and the level of value of those standards. While the concept of "fair market value" is a familiar one to appraisers and lawyers, in matters involving dissenter's rights or a shareholder seeking relief for oppressive conduct, the determination of value is based on a less familiar concept either referred to as "fair price" or "fair value." In fact, the "fair value" concept (which will be used in this material for both notions of "fair price" and "fair value") is one not originating in appraisal practice or principals, but rather derived from judicial decisions and statutory language. It is an equitable or statutory remedy, and as such, is reflective of policy considerations in respect of the conduct and expectations of the parties. Since appraisers are regularly called upon to produce conclusions and reports in the context of dissent appraisal proceedings or oppression litigation, it is important that legal counsel and appraisers be aware of the points at which their work can be influenced or directed by the issues and law relating to fair value. As a practical matter, a professional appraiser submitting opinions and analyses and reports will be required to follow the Uniform Standards of Professional Appraisal Practice (USPAP). 1 The following presentation identifies a number of USPAP provisions where the issues or matters flowing from the "fair value" concept and the equitable nature of these proceedings impact those provisions and the work of the appraiser. Specifically, the standard of value, premise of value, level of value, valuation date, normalizing adjustments, effect of agreements and tax matters are identified as being affected by the equitable considerations inherent in fair value and these proceedings. Business Valuation Standards Various business valuation standards exist. Standards have been promulgated by The Appraisal Foundation (USPAP) (1987, updated 2006); American Society of Appraisers (ASA) (1992); Institute

2 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 2 of Business Appraisers (IBA) (1993); National Association of Certified Valuation Analysts (NACVA) (2008) and the American Institute of Certified Public Accountants (AICPA) (2007). With the exception of the AICPA's Statement on Standards for Valuation Services (SSVS), the standards of valuation of the other organizations reflect the content and terminology of Revenue Procedure (Rev. Proc.) 59-60, published by the Internal Revenue Service in SSVS does not use the same terminology as Rev. Proc , which leads back to a common issue raised about the hierarchy of the various standards and the potential differences. A detailed analysis of the similarities, differences and hierarchy among the various standards is beyond the scope of this article. However, some observations can be made for purposes of this discussion: USPAP tends to dominate whenever standards are the subject of legislation and judicial opinions. With the exception of SSVS, the standards, in particular USPAP, require precision in defining the standard of value and premise of value as well as the source of the definition in reports. USPAP is frequently seen as a common basis for all appraisal practices, and within its comments, it contemplates other "supplemental standards" being used or considered. ASA incorporates USPAP by reference (see General Preamble II). NACVA and IBA acknowledge USPAP without incorporation. SSVS does not refer to USPAP and only suggests that a valuator be aware of other standards. USPAP Standards In the following discussion, USPAP will be the primary reference, with endnotes, where applicable, citing to corresponding provisions of other standards. Standards Rule 10-3 requires that each written report for an interest in a business enterprise contain a signed certification that provides that to the best of the knowledge and belief of the appraiser that the analyses, opinions and conclusions, and the report were prepared in conformity with the USPAP. Pursuant to Standards Rule 10-2(a), Appraisal Reports and Restricted Appraisal Reports must, at a minimum, state certain factors relevant to the appraisal, including (i) the extent to which the interest appraised contains elements of ownership control, including the basis for the determination; (ii) the extent to which the interest appraised lacks elements of marketability and/or liquidity, including the basis for the determination; (iii) the standard (type) and definition of value and the premise of value and cite the source of the definition3; and (iv) the effective date of the appraisal and the date of the report. In developing the appraisal as reflected in the Report, an appraiser must identify a number of matters. Standards Rule 9-2 requires, among other things, that the appraiser identify the following: a. the client and the intended uses;

3 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 3 b. c. d. e. the intended use of the opinions and conclusions; the standard (type) and definition of value and the premise of value; the effective date of the appraisal; the characteristics of the subject interest that are relevant to the standard and definition of value and the intended use of the appraisal, including the following: i. the subject business enterprise; ii. the interest in the business enterprise or equity to be valued; iii. all agreements or restrictions that might have an influence on value; iv. the extent to which the interest contains elements of control; and v. the extent to which the interest is marketable and/or liquid. Standard of Value Dissenters' rights and oppression cases generally resolve in the purchase of the subject interest at "fair value." As such, one of the most important decisions to be made regarding assignments in such cases is to define "fair value" as the standard of value. As noted above, USPAP Standards Rules 9-2 and 10-2(a)(vi) require the standard of value and premise of value to be defined with citation to the source of the definition, as do other standards.4 SSVS does not require the standard to be defined. SSVS does require the written report to include information regarding the standard and premise of value. In any event, the standard of "fair value" will have to be clearly understood and reflected in the analysis and testimony. In addition, the "fair value" standard of value will have an effect on a number of the subsections of Standards Rule Fair Value and Background as a Standard of Value Because fair value is a legal concept, the determination of it is both a question of law (the definition) and a question of fact (the determination of it) for the court. The definition of the concept is derived from case law and statutory provisions and the interpretations of them. As a consequence, whenever an assignment calls for fair value, it will be critical to get guidance from legal counsel as to the particular jurisdiction s definition and how it is applied. The use of "fair value" as a standard has been included in statutory provisions regarding dissenters rights appraisal since the early 1930s. While the standard has existed for many years, there is no uniform definition or interpretation of it. No Discounts for Lack of Control or Lack of a Market One of the earliest cases interpreting the standard is Cavalier Oil v. Harnett.5 In Cavalier Oil, the Delaware Supreme Court, in effect, set the pattern now followed in many states when viewing the standard.6 As a general statement, the court found that the standard required that the value of the

4 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 4 shares represent a proportional interest in the enterprise without discounts for lack of control or lack of a market. The Model Business Corporation Act (MBCA) Section now follows the Cavalier Oil formulation.7 It provides that fair value is a proportional interest without discounts for lack of control or lack of a market. At this time, six states have adopted MBCA Section 13.01, although only one court case has addressed the nuances involved.8 Interestingly, while MBCA Section has been adopted in the State of Florida, Florida prohibits those discounts only in respect of entities with 10 or fewer shareholders.9 Discount for Lack of a Market Possible While the majority view now is that the definition reflects a proportional interest, with the effect of negating the application of a discount for lack of control, the question of the discount for a lack of a market remains in some jurisdictions. Until recently, Illinois did not have an express definition of fair value, although its business corporation acts have used the term since about In Illinois, prior to 2007, the determination of its definition and its application were left to the court as a question of fact. 10 In effect, it was the court s view of value and decision how to determine it and whether to apply any discounts, etc. A review of Illinois decisions would demonstrate that no appellate court overruled a trial court determination of fair value. One of the few statements that could confidently be said about fair value was that it was not necessarily fair market value. 11 Effective January 1, 2007, a statutory definition now exists in Illinois. In effect, it provides for a proportional interest in the business without a discount for lack of control, or except in extraordinary circumstances, a discount for a lack of market.12 This definition allowing for the possibility of a discount for lack of market in extraordinary circumstances follows a pattern established in the American Law Institute s (ALI) corporate governance study.13 In Section 722 of the ALI, the language acknowledges that there can be times when a discount for lack of market is appropriate.14 This approach has found its way into a number of judicial decisions.15 The legal standard of what are such extraordinary circumstances is still being developed and may represent no more than another tool for the court to apply when fairness requires a particular result. In other jurisdictions, while the fair value standard excludes the discount for lack of control, the court may consider and apply a discount for lack of marketability. The discount's potential application is to be expressly considered. This approach to "fair value" as a standard is most notable in the State of New York.16 Under USPAP Standards Rule 9-2(e)(iv) and (v), the extent to which the subject interest may exhibit control is to be considered, as well as the existence of marketability in respect of the interest. As a result, the conclusion as reflected in a report (Standards Rule 10-2(c)(iv) and (v)), would be influenced by the particular version of the definition of fair value. Where the discount for lack of control or market may be allowed, the analysis and report will have to state the elements and extent

5 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 5 of the effect as the standards require. Where one or both of such discounts is not allowed as a matter of law or is conditioned, the response to the USPAP standard will have to reflect the instruction of counsel as to the law and a decision by the appraiser as to the impact of such instruction. Premise of Value Premise of value is generally defined as the assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation. The two most generally stated examples are going concern and liquidation premises.17 The USPAP standards of practice require that the premise be set out, as well as the source of the definition for an assignment.18 As with most statements regarding "fair value," there is a lack of uniformity as to the premise of value, and there are nuances depending on the jurisdiction. This arises from the complexity of the interaction of the standard of value, the premise of value, the level of value and the judicial determination of "fairness." The minority interest subject of the appraisal proceeding will have no ability to direct the disposition of the enterprise to capture going concern value or liquidation value in instances where it may be the greater of the two. This lack of control would, in most circumstances, produce a premise that would ignore the potential ability to capture a particular transaction or a greater liquidation value on disposition of the entire enterprise. In addition, with the going concern value, the minority will not be in a position to require or direct changes or improvements in operations, finances, etc., that might be appropriate when the subject business is compared to benchmarks of its peers. As a result, in an appraisal, the premise and level of value generally would have to consider the subject noncontrolling interest in the business as it existed under the direction of the controlling interests. Fair value as a standard and related premise to be assumed in different jurisdictions may not take such lack of control into account. In the instance of a fair value appraisal action, a variety of formulations exist regarding the legal standard to be considered when evaluating the requisite premise of value. For example, in California, the definition of "fair value" is referred to as the "liquidation value of the enterprise." This definition would appear to require the premise of value to be a liquidation-based value. This statement is qualified by the statutory direction to consider the possibility, if any, of the sale of the entire business as a going concern.19 Consequently, a question will exist in an assignment as to the position of the parties being asserted regarding the possibility of a sale and its implications in what would otherwise appear to be a liquidation premise. In California, this approach has lead to a number of cases in which courts have determined "fair value" based on a piecemeal liquidation of the assets, as well as cases in which the court applied the premise of the sale of a going concern value to a hypothetical unrelated purchaser.20 In another instance, the liquidation value was to reflect the value of a derivative action, in effect reflecting the conduct of the majority and minority interests' inability to direct corporate level activity.21 As a result, at the beginning of the assignment, the appraiser has to understand the nature and the circumstances of the business to be presented to the court and the impact of such in establishing the premise to be applied.

6 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 6 In Delaware, most reported cases involve appraisal actions arising under the dissenters' rights statute and not oppression cases. As a result, much of the language of opinions regarding fair value reflects the backdrop of a merger or other fundamental change in the nature of the shareholders' interests. In such appraisal proceedings, the premise is that the shareholder is entitled to be given a proportionate interest in that which has been taken that is, the "intrinsic value of his share in a going concern" essentially as it existed and may have been expected to continue.22 In determining this intrinsic value, the court is to take into account elements that affect value, such as the nature of the assets, market value, earnings, future prospects and "any other element that affects the intrinsic or inherent value."23 The strong preference in Delaware is the use of income approaches to value, such as the discounted cash flow analysis. Most likely, a liquidation premise would not be respected for a solvent enterprise, and while it can be considered, it cannot be the sole basis of value.24 Even if liquidation value may not be permitted as premise, the impact of liquidation could find its way into a value. For example, in the analysis of cash flows, the liquidation value of the assets might affect the terminal value and the time frame selected for the projected cash flows.25 Again, while a going concern premise would be required, the nuance with fair value is that the potential impact of liquidation on the cash flows could be considered. New York takes the approach that the award of "fair value" is based on what a willing purchaser will pay for the enterprise ("the intrinsic value of the shareholders' economic interest in the corporate enterprise").26 It is the going concern value as a whole and not a liquidation value. The purchaser is viewed as acquiring the business as it had been conducted. In determining what a willing purchaser would pay for the enterprise, the three appraisals of net asset, investment, and market can be considered. As a result, net asset and market might have a limited effect on the result.27 In Illinois, dissent and appraisal proceedings utilize a statutory definition of "fair value".28 As of this date, the statutory definition has not been the subject of extensive judicial interpretation since it became effective. It can be argued that reference to a "proportionate interest" will mean a proportionate interest in the enterprise on a going concern basis. The use of the going concern approach may not, however, preclude a net asset or liquidation approach depending on the circumstances of the enterprise or the case. For example, a recent case addressed the determination of fair value in a dissent case arising from a vote to sell the primary asset and liquidate. Generally, in dissent cases, fair value does not consider the impact of or the effects of the corporate action giving rise to the right to dissent. The dissenting shareholder argued that fair value, therefore, should be on a "going concern" basis as the business existed the day before the sale. The argument was intended to avoid the impact of the capital gains taxes and costs resulting from the sale. The trial court agreed. The appellate court reversed the trial judge and determined that a net asset or liquidation value should apply in a case where the corporate action would involve a sale of the sole corporate asset to be followed by voluntary dissolution.29 In effect, the imposition of the gains tax and costs on the majority only was not equitable where the impact was proportional to all. As the above discussion indicates, the premise of value in an appraisal proceeding will require a careful discussion between the appraiser and legal counsel at the commencement of the assignment. The particular legal standard and the evidence to be offered will have to be understood and articulated early in order to be effective in presenting a report and testimony in support of a

7 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 7 conclusion of value to be used in the proceeding. Level of Value While not expressly stated in USPAP, the level of value of the interest is reflected in the analysis and written report in response to the requirement of describing the extent to which an interest represents control or is marketable.30 Level of value frequently is broken down into three general levels: controlling, marketable minority and non-marketable minority. A familiar chart of the levels of value based on the characteristics of the ownership exists in the various works of Shannon Pratt.31 Discounts and premiums are generally applied to indications of value on the basis of the subject interest's particular level of value. From the perspective of control, a controlling level of value can be further differentiated from a 100 percent position to a less than 50 percent position that nonetheless can direct policy and operational decisions. A controlling position can demand a premium to reflect the ability of the holder to control management, acquisitions and dispositions, distributions, employment, etc. As the degree of control may vary, so may the premium, which is frequently expressed as a percentage of the value. In addition, a purchaser of a control position may be motivated in pricing by expectations of synergistic value that would accrue to the position. Lack of control results in the consideration of a discount, which is seen as the inverse of a control premium. The control premium being referred to is the percentage difference between acquisition prices in announced transactions of public companies and the trading price of shares at a predetermined earlier date. The minority discount is derived from the data on control premium with a mathematical function applied to create the inverse of the premium.32 The level of value also is reflective of the degree of marketability of the particular interest. The lack of a ready market as a characteristic for closely held interests, in particular a non-controlling position, will indicate the use of a discount in determining the fair market value of the interest Guideline transaction and direct market data for minority or controlling interests in closely held businesses is frequently not available. To the extent that data is available, the basis for comparison would require analysis of the purchaser, the reliability of the data, the nature and terms of the sale transaction and any allocations of the purchase price. As a practical result, guideline transaction data will be derived from publicly traded company information, and the data will be reflective of the controlling level of value (with an analysis required to determine whether there is strategic control with a synergistic elements or a financial level of value, i.e., marketable minority level). Guideline public company market information presents the usual issues of the comparability of the subject companies. It also presents a level of value issue in terms of the data potentially reflecting a lack of control or the minority status of the share or stock position. As discussed above, depending on the particular jurisdiction s definition of fair value, the characteristics of control, or a lack thereof, will not be considered. In addition, the application of a discount for lack of a market for the interest will vary.

8 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 8 The definition of fair value that refers to a proportional interest in the enterprise brings into focus an issue that exists with the level of value and the application of a premium to reflect control. Indications of value derived from minority share traded positions will inherently reflect the minority status of the position. Interesting questions have arisen as to whether such characteristics must be adjusted in order to reflect a proportional interest in the enterprise. The argument is that since the enterprise presumably is a control level of value, any minority or lack of control element inherent in the data or analysis must be eliminated. The issue has been confronted in several cases with differing results in jurisdictions that view fair value as a proportional interest without a discount for lack of control. For an example of how courts have addressed it in similar circumstances, consider New Mexico Banquest Investors Corp. v. The Peters Corp. and Northwest Investment Corp. v. Wallace.33 Both cases involved bank holding companies and freeze-outs of minority shareholders. In both decisions, the courts purported to apply a definition of fair value that was reflective of a proportional interest, and both rejected an outright discount for lack of control. One court, however, disregarded the expert opinion applying a premium to offset the minority position of the guideline public company data used. The other court allowed the adjustment. The New Mexico decision was based on a case law and a case-by-case factual determination approach to fair value. The court expressly considered the elements of control of the respective shareholder positions and found none with the minority. The opinion contains an extensive discussion of the dissenter position's lack of control. As a result, it appears that the court s analysis was more reflective of a minority share level of value.34 By contrast, in Northwest, the fair value definition originated in a version of the MBCA which the court presumed included a going concern and control level of value (enterprise level) being proportionally allocated. An adjustment to the indication of value, called a control premium, was allowed based on the testimony and analysis of the dissenting shareholder s expert. Where a valuation indication is derived from guideline market data, Delaware courts have considered the necessity of an adjustment to negate the element of a lack of control. This adjustment is made to offset the implied minority discount seen as inherent in the market comparable data derived from public comparable entities.35 This adjustment or premium has not been without controversy and has raised issues regarding the extent to which the discount is inherent or actually present. 36 Where the market data was used in the determination of an appropriate discount rate used in an income approach, no adjustments have been allowed.37 The theory behind this is that the cash flows or income used already should have been adjusted to reflect a control level of decisions.38 Michael J. Zdeb is a partner in the Chicago office of Holland & Knight LLP. Mr. Zdeb is the founding member of Holland & Knight's Shareholder Rights, Relations, and Dispute Resolution Group. His practice involves both the Business and Private Wealth practice areas in his representation of closely held businesses and their owners. Michael Grill assisted in the preparation of this article. Mr. Grill is an associate in the Chicago office of Holland & Knight LLP. Mr. Grill practices in the field of commercial litigation and is a member of

9 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hollan... Page 9 Holland & Knight's Shareholder Rights, Relations, and Dispute Resolution Group. Complete biographies for Mr. Zdeb and Mr. Grill, and more information regarding Holland & Knight and the Shareholder Rights, Relations, and Dispute Resolution Group, can be found at 1 Uniform Standards of Professional Appraisal Practice, (Appraisal Standards Bd ed.). 2 See id., Standard 9-4; ASA Business Valuation Standards, Standard I-iii (Am. Soc'y of Appraisers 2009); Business Appraisal Standards, Standard 5.3 (Inst. of Bus. Appraisers 2001); NACVA Professional Standards, Standard 3.4 (Nat'l Ass'n of Certified Valuation Analysts (2008). 3 Stating the definition of value also requires any comments needed to clearly indicate how the definition is applied. 4 USPAP, supra note 1, Standard 9-4, 10-2(a)(vi); NACVA, supra note 2, Standard 4.3.a.7; ASA, supra note 2, BVS-I.II.B.9; IBA supra note 2, Standard 4.3, 5.3; but see Statement on Standards for Valuation Services, 52, 71 (Am. Inst. of Certified Pub. Accountants (2007). 5 Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989). 6 Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353, (Col. 2003) (surveying the influence of the Cavalier Oil decision among several states). 7 Model Bus. Corp. Act (3d ed. 2002) (4)(iii) (explaining that fair value means "without discounting for lack of marketability or minority status... "). 8 Northwest Investment Corp. v. Wallace, 741 N.W.2d 782, (Iowa 2007). 9 Fla. Stat (4). 10 Stanton v. Republic Bank of South Chicago, 581 N.E.2d 678, 681 (Ill. 1991). 11 Independence Tube Corp. v. Levine, 535 N.E.2d 927, 931 (Ill. App. Ct. 1988); Stewart v. D.J. Stewart & Co., 346 N.E.2d 475, (Ill. App. Ct. 1976) ILCS 5/ ALI Principles of Corporate Governance, 7.22 (1994). 14 Id. 15 Balsamides v. Protameen Chemicals, Inc., 734 A.2d 721, (N.J. 1999); Advanced Communications Design, Inc., v. Follett, 615 N.W.2d 285, (Minn. 2000); Profinish USA, Ltd. v. Johnson, 63 P.3d 288, (Ariz. Ct. App. 2003); Swope v. Siegel-Robert, Inc., 74 F. Supp.2d 876, (E.D. Mo. 1999). 16 Friedman v. Beway Realty Corp., 661 N.E.2d 972, (N.Y. 1995). 17 International Glossary of Business Valuation Terms (Am. Inst. of Certified Pub. Accountants 2001). 18 USPAP, supra note 1, Standards 9-2(e), 10-2(a)(iv).

10 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hol...Page Cal. Corp. Code 2000(a). 20 See, e.g., Trahan v. Trahan, 99 Cal.App.4th 62 (Cal. App. 2002) (liquidating a small value construction business without adding value for the potential profit of the contracts); Abrams v. Abrams-Rubaloff & Assoc. Inc., 170 Cal. Rptr. 656, 661, 114 Cal.App.3d 240 (Cal. Ct. App. 1980) (viewing value as based on a sale of the going concern to a hypothetical buyer). 21 Cotton v. Expo Power Systems, Inc., 170 Cal.App.4th 1371, , 2009 BL (Cal. App. 2009). 22 Tri-Continental Corp. v. Battye, 74 A.2d 71, 76 (Del. 1950). It is a "bedrock principle" of Delaware appraisal law that a shareholder receives a proportionate share of the fair value in the going concern value on the date of merger, rather than on a liquidated basis. Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553, 555 (Del. 2000). 23 Weinberger v. UOP, Inc. 457 A.2d 701, 711 (Del. 1983). 24 In re Vision Hardware Group, Inc., 669 A. 2d 671, 677 (Del. Ch. 1995). 25 See Ng v. Heng Sang Realty Corp., C.A. No (Del. Ch. May 27, 2004) (liquidation may factor as a component in the valuation; generally not the sole basis). 26 Friedman, supra note 15, 661 N.E.2d at Endicott Johnson Corp. v. Bade, 338 N.E.2d 614, (N.Y. 1975) ILCS 5/11.70; 5/ Brynwood Co. v. Schweisberger, 913 N.E.2d 150, , 2009 BL (Ill. App. Ct. 2009). 30 USPAP, supra note 1, Standards Rule For an example of the breakdown of the levels of value, see Shannon P. Pratt, The Market Approach to Valuing Businesses 144 (2d ed. 2005). 32 See Shannon P. Pratt & Roger J. Grabowski, Cost of Capital, Applications and Examples 688 (3d ed. 2008) (describing the Mergerstat/BVR Control Premium Study). 33 New Mexico Banquet Investors Corp. v. Peters Corp., 159 P.3d 1117 (N.M. 2007); Northwest Investment Corp., supra note 7, 741 N.W.2d The opinion also appears to reject the Delaware approach regarding the existence of an inherent or implied discount and, with a certain degree of skepticism, any theories that relate to the need for an adjustment. New Mexico, 159 P.3d at Agranoff v. Miller, 791 A.2d 880, (Del. Ch. 2001) (use of public company share data gives an equity value with an inherent minority discount, as the method relies on comparisons to market multiples derived from trading minority blocks of the comparable companies). 36 See generally, e.g., Lawrence A. Hamermesh and Michael L. Wachter, The Short and Puzzling Life of the "Implicit Minority Discount" in Delaware Appraisal Law, U. Pa. L. Rev. 156, 1 (2007). 37 Dobler v. Montgomery Cellular Holding Co., C.A. No (Del. Ch. Sept. 30, 2004) ("A DCF is a final valuation that does not need any additional connection, such as a control premium."); Berger v. Pubeu, 33 Del. J. Corp. Law 873 (Del. Ch. 2008). 38 Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988). Use of CAPM is not reliant on

11 Equitable Considerations in Dissent Appraisal and Oppression Valuation Proceedings Regarding Fair Value, By Michael J. Zdeb, Hol...Page 11 minority market share pricing. "Information and insight not communicated to the market may not be reflected in stock prices; thus, minority shareholders being cashed out may be deprived of part of the true investment value of their shares." Cede & Co. at Legal Topics: Shares & Shareholders Shareholder Rights Dissenters' Rights & Appraisal Valuation Methods Disclaimer The discussions set forth in this report are for informational purposes only. They do not take into account the qualifications, exceptions and other considerations that may be relevant to particular situations. These discussions should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Any tax information contained in this report is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. The opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entities do not take responsibility for the content contained in this report and do not make any representation or warranty as to its completeness or accuracy. Print ISSN: Online ISSN: Bloomberg Finance L.P. All rights reserved. Bloomberg Law Reports is a registered trademark and service mark of Bloomberg Finance L.P.