1. Zeltin v. Hanson Holdings 2013. 6. 20. DK Lee

2. Zeltin v. Hanson Holdings, Inc. Shareholders

3. Zeltin v. Hanson Holdings, Inc. Shareholders Changed Majorities(Hanson, et al.) sell there shares to Flintkote Co. for a price of $15 per share. Hanson, et al. Flintkote Co.

4. Zeltin v. Hanson Holdings, Inc. Price $7.38  At that time, the market value of share is $7.38  So the premium is $7.62 Plaintiff Zeltin insisted that he also have the right to receive those premium even if he doesn’t sell.

5. Zeltin v. Hanson Holdings, Inc. Why Zeltin’s insist is nonsense? –“Freedom of Contract” Doctrine : Even though Flintkote’s buying price is much higher than market price, nobody should interrupt in the contract between Flintkote and Hanson. Market price is not the problem. –Suppose that buyer’s offering price is lower than market price, then should Zeltin give compensation fee to Hanson? (It’s a block sale, so there may exist such a thing) $ 7.38 $ 15 Flintkote bought at this price $ 4 If Flintkote buys at this price?

6. Zeltin v. Hanson Holdings, Inc. Why Zeltin’s insist is nonsense? –The premium is for the Hanson Holdings – the shareholder, not for the Gable Industries – the Company. So, premium is not any income of the company. Even if he has a right, Company couldn’t afford to satisfy Zeltin’s insist, because Company doesn’t have any special income from premium. –The only way Zeltin can receive the premium is tender offer, but Flintkote wanted private contract. ?

7. Why premium exist? Additional matter

8. Zeltin v. Hanson Holdings, Inc. Paradigm 1 Suppose that ‘Milk’ Company have : 2 Shareholders : C(controlling shareholder) and M(minority shareholder) C have 1,000 shares and have 500 shares (2:1) There are only 1 manager(who is also the shareholder : C) Manager’s annual salary is $ 50,000 PER(Price-earning ratio) is 5 All the net earning is distributed by dividends. Annual Earning is Constant, $200,000

9. Zeltin v. Hanson Holdings, Inc. Premium Mechanism  The Milk Company’s balance sheet is like this ItemPrice Gross Earnings $ 200,000 Salary(Manager) $ 50,000 Net Earnings $ 150,000 C's Earnings $ 100,000 M's Earnings $ 50,000 If we apply PER 5, then from now on C’s earnings through 5 years will like this : Dividends : $ 500,000 ($ 100,000 * 5) Salary : $ 250,000 ($ 50,000 * 5) ※ Total : $ 750,000

10. Zeltin v. Hanson Holdings, Inc. Premium Mechanism If C sells his shares to B Now, B is major shareholder and only manger. B raises manager’s salary to $ 110,000  Now, B/S is like this ItemPrice Gross Earnings $ 200,000 Salary(Manager) $ 110,000 Net Earnings $ 90,000 B's Earnings $ 60,000 M's Earnings $ 30,000 B’s 5year earning will be $ 850,000 ($ 110,000 * 5 + $ 60,000 * 5)

11. Zeltin v. Hanson Holdings, Inc. Premium Mechanism $ 750,000 $ 850,000 $ 100,000 At the expense of M, the buyer can earn $100,000 more

12. Zeltin v. Hanson Holdings, Inc. Premium Mechanism 2 If B(the buyer) operate the company more efficiently than C so the company’s net profit is increased, then all the stakeholder are benefited. pp. 675 ~ 676 Thank you~