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shares of petitioner's stock from petitioner. After these
transactions, Grecco, Colbert, and Tiedemann each owned 50 shares
of petitioner's stock, and Grecco was president, Tiedemann was
vice president, and Colbert was secretary/treasurer.
2. The Stock Purchase Agreement
On November 6, 1986, Grecco, Colbert, and Tiedemann signed
a stock purchase agreement with petitioner. The agreement gave
petitioner the option to repurchase its stock owned by a
terminated employee. The agreement included a formula that set
the purchase price for the stock. If petitioner exercised the
option, the employee/stockholder would transfer the stock to
petitioner and would be bound by a covenant not to compete for
3 years. The agreement provided that payments would be reduced
by 25 percent if a party breached the covenant.
On February 18, 1988, Grecco transferred her stock in
petitioner to herself, as Trustee of the Grecco Trust, a
revocable living trust. Colbert, Tiedemann, and petitioner
consented to the transfer.
3. Grecco's Departure From Petitioner
In early June 1988, Colbert and Tiedemann told Grecco that
they were concerned about her management style. They thought
that she lacked the respect of some of the employees, and that
she was habitually late to work. Colbert thought that she had
become paranoid and was too critical of the other employees. On
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