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petitioner a total of 5,200 shares.1 Petitioner’s original cost
basis in the shares was $116,504.
Petitioner never physically possessed the shares, which were
held in “street” name in petitioner’s security account with
Drexel. Petitioner’s shares were not registered pursuant to the
Securities Act of 1933, and there was no market on which they
could be traded. In accordance with the “buy-back provision”
contained in Drexel’s Restated Certificate of Incorporation
(certificate), the shares were nontransferable and generally
could only be sold to Drexel upon an employee’s termination from
Drexel. Pursuant to the certificate, the price Drexel would pay
for the shares was set at their aggregate net book value.
Pursuant to the recommendation of a consultant that its
retail securities operation be sold, Drexel announced on or about
April 18, 1989, that it was disposing of the operation, of which
petitioner was an employee, to Smith Barney Harris Upham, Inc.,
and the sale occurred on May 19, 1989. As a consequence of the
sale, petitioner’s employment with Drexel was terminated, which
precipitated the mandatory redemption of the shares pursuant to
the terms of the certificate. Drexel notified petitioner by
letter dated August 11, 1989, that pursuant to the “buy-back
1
We accordingly do not accept the suggestion in the parties'
stipulation that petitioner owned only 1,300 shares of Drexel
stock throughout the period that he held the shares. Cal-Maine
Foods, Inc. v. Commissioner, 93 T.C. 181, 185 (1989).
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