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Bell, Ferguson, and Wood organized petitioner in November
1968, and they each owned one-third of petitioner's outstanding
shares of stock. Initially, Bell, Ferguson, and Wood served as
petitioner's entire sales force, and each one was responsible for
a particular sales territory. In its first full year of
operation, petitioner employed six people, which included the
three founders, had gross sales of $225,199, and had net income
after taxes of $14,838.
Petitioner prospered in the 1970's. It soon outgrew the
rented warehouse where its operations began and moved to a
warehouse and office facility in Irondale, Alabama, a suburb of
Birmingham. By the end of 1979, petitioner employed 33 people
and had gross sales of $4,455,133.
In 1979, Bell and Ferguson discovered that Wood had
organized a corporation in Jacksonville, Florida, to compete with
petitioner. At the time, Wood was still an officer, director,
and employee of petitioner. Bell and Ferguson, as a majority of
petitioner's board of directors, fired Wood and sued him for
breach of fiduciary duty. Wood counterclaimed against
petitioner, and they eventually settled the litigation. Although
Wood's employment with petitioner was terminated, he remained a
shareholder. From 1979 through January 1988, Wood owned
approximately 33 percent of petitioner's outstanding shares of
stock.
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