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Petitioner bought 6,800 shares of Dondi Financial stock
on January 1, 1985. Petitioner paid $727,600 for the stock.
Petitioner paid $109,140 in cash and executed a note for
$618,460. The cash consisted of $6,975 from deferred
compensation, $3,083 from interest on the deferred compensation,
$30,600 from accrued dividends, and $68,482 from a loan from
Vernon. The loan from Vernon was evidenced by a 5-year note for
$68,482 and secured by petitioner's savings account. Petitioner
paid the $68,482 note in 1986.
The $618,460 note was payable to Dondi Financial. The note
required petitioner to make quarterly payments and had an
interest rate of 11.25 percent. The note was fully recourse.
Petitioner pledged his Dondi Financial stock as security for the
note. From February 28, 1985, to July 14, 1986, petitioner paid
$107,160.92 on the note.
Petitioner agreed to give Dixon, Dondi Financial, and the
other Dondi Financial shareholders an option to buy petitioner's
Dondi Financial stock if he stopped working for Dondi Financial.
Dixon had the first right to buy the shares. If Dixon did not
buy the stock within 30 days, Dondi Financial could exercise its
option. If Dondi Financial did not do so, the shareholders could
buy the stock pro rata. If neither Dixon, Dondi Financial, nor
the other shareholders exercised their option, Dondi Financial
had to buy the stock.
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