Three brothers, Joseph, Myer, and Samuel Sugarman, owned equal amounts of the shares of Statler Tissue Corporation.
Question:
Three brothers, Joseph, Myer, and Samuel Sugarman, owned equal amounts of the shares of Statler Tissue Corporation. Over time, Myer's son Leonard became the majority shareholder of the corporation: Samuel gave some of his shares to his son Hyman and to Hyman's children, James, Marjorie, and Jon Sugarman; Hyman sold his shares to Leonard; Joseph Sugarman's shares were repurchased by the corporation. By 1974, Leonard owned 61 percent of the shares and was president and chairman of the board. James, Marjorie, and Jon Sugarman owned 22 percent of the shares. Marjorie had sought employment with the corporation but was not hired. Jon was employed from 1974 until his discharge in 1978.
James never sought employment with the company. After 1975, Myer's value to the corporation was nearly zero because he had Alzheimer's disease; nonetheless, Myer was employed by the corporation and received a salary equal to Hyman's salary. In 1980, Leonard caused the company to double Myer's salary. Hyman received no such increase. When Myer retired in 1982, Leonard caused the corporation to pay Myer a yearly pension of $75,000. When Hyman retired in 1980, he received no pension. The corporation paid no dividends. In 1980, Leonard offered to buy Jon's and Marjorie's shares for $3.33 per share. At that time, Price Waterhouse had advised Leonard that the book value of the corporation's shares was $16.30 per share. Does Leonard have liability to Jon and Marjorie?
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta