Nathan P. and Geraldine V. Morton - Page 14

                                       - 14 -                                         
             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.                               




Page:  Previous  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  Next

Last modified: May 25, 2011