Damron Auto Parts, Inc. - Page 8

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               From its incorporation until its purchase by LKQ, petitioner           
          consistently and rapidly increased in fair market value (FMV).              
          Under the guidance and management of Mr. Damron, a corporation              
          valued at $200,000 in 1984 grew to $12,500,000 in 1998.                     
          Respondent’s expert opined that FMV increased from $3,755,510 in            
          1993 to $6,267,846 in 1995.1  Moreover, respondent’s expert found           
          that the maximum compensation (i.e., including bonus) should be             
          $786,000, $1,145,000, and $1,144,000, relating to the respective            
          years in issue (i.e., 68, 133, and 121 percent more than                    
          respondent allowed, respectively).                                          
               In essence, Mr. Damron rendered extensive and intensive                
          services to petitioner that, according to petitioner’s expert,              
          resulted in a compound rate of return, from 1984 to 1998, of more           
          than 39 percent per year.  Respondent’s expert believed that                
          investors in a firm like petitioner would expect a 14.3-percent             
          return on their investment.  We conclude that an independent                

               1In an addendum submitted at trial, respondent’s expert                
          explained that when he prepared his original report he did not              
          know petitioner had been sold in 1998 for $12,500,000.  The                 
          expert stated:  “Given the subsequent price paid for DAP [i.e.,             
          petitioner], our original returns analysis underestimated the               
          value of DAP and, thus, overestimated the compensation available            
          to Mr. Damron between 1993 and 1995.”  Consequently, the expert             
          presented an alternative analysis indicating that FMV increased             
          from $7,357,619 in 1993 to $9,667,382 in 1995.  The expert added,           
          however, that “The analysis based on the subsequent sale of DAP             
          does not alter the conclusions in our original report”.                     
          Therefore, we do not accord great weight to the expert’s                    
          alternative analysis and accept his original conclusion that FMV            
          increased 67, rather than 31, percent from 1993 to 1995.                    

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