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petitioner did not officially begin working for SWI until
May 31, 1989. Because of his outstanding business
credentials, petitioner's employment with SWI increased the
value of SWI stock almost immediately.
Dubin Clark realized that to attract desirable
managers to SWI, it needed to offer management candidates
ownership interests in the company. Therefore, on June 1,
1989, SWI's board of directors adopted a "Share Compensa-
tion Plan" (hereinafter referred to as the stock plan).
This stock plan authorized the board of directors to allow
employees to purchase stock in SWI at a predetermined
price. The stock plan did not require that the stock be
sold at fair market value. In fact, Dubin Clark
contemplated that most of the shares would be sold for less
than fair market value. Under the terms of the stock plan,
the price was originally set at $60.98 per share, and
SWI's board of directors was authorized to make subsequent
adjustments to this price. Although the stock plan
provided that the price could not violate applicable State
law, it provided no other specific criteria for making
these adjustments. No valuation of SWI's stock was made
at the time the stock plan was adopted. At this time, it
appears that there were 7,100 shares of SWI capital stock
outstanding, and an additional 1,800 stock purchase
warrants held by two lending institutions.
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