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Petitioner believed that leaving a secure position
with Home Depot to join SWI was a risky move, and he would
not have joined SWI without obtaining a significant equity
interest in the company. On July 13, 1989, after some
negotiation concerning the amount of stock petitioner would
receive pursuant to the stock plan, he and Dubin Clark
entered into a "Stock Purchase Agreement" (hereinafter
referred to as the agreement) under which petitioner agreed
to purchase 500 shares of SWI stock for $60.98 per share.
This is the same price that Messrs. Jacobson and
Henochowicz paid for their shares, and is the initial
price established under the stock plan. Neither SWI nor
petitioner obtained an independent valuation of the stock
prior to or at the time of this purchase. Petitioner
believed that the shares were fairly valuable and would
have purchased more if he had been given the opportunity.
The stock petitioner purchased pursuant to the
agreement was subject to certain restrictions. Petitioner
could not sell, assign, transfer, pledge, or dispose of the
stock to any person or entity other than SWI. In addition,
all of the shares were initially "unvested". However, 20
percent of the shares received were to become vested on the
anniversary of the purchase each year, so that all of the
shares would be vested 5 years from the date of sale.
The agreement also required SWI to repurchase all of
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