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January and July. Eligible employees could participate in the
ESPP by completing a Subscription Agreement authorizing payroll
deductions. During a 24-month offering period, employees could
contribute to the plan through payroll deductions in any amount
between 2 and 15 percent of their total compensation. Upon
exercise, petitioner would deduct the exercise price from the
employee’s accumulated payroll deductions. The exercise price
was equal to the lower of 85 percent of the stock’s market price
on the offering date (i.e., the first day of each offering
period), or 85 percent of the stock’s market price on the
exercise date. Stock could be purchased twice a year (i.e., on
June 30 and December 31).
Petitioner also maintained a stock buy-back program.
Pursuant to the program, petitioner, during 1997, 1998, and 1999,
purchased stock from stockholders and transferred such stock
(i.e., treasury shares) to employees who had exercised options or
purchased stock pursuant to petitioner’s ESPP.
IV. Petitioner’s Stock Option Intercompany Agreements With XI
On March 31, 1996, petitioner and XI entered into The Xilinx
Ireland/Xilinx, Inc. Stock Option Intercompany Agreement. The
purpose of the Stock Option Intercompany Agreement was to allow
XI employees to acquire stock in petitioner. The Stock Option
Intercompany Agreement provided that the cost incurred by
petitioner for the grant or exercise of options by XI employees
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