George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 4

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            clothing designed by Georgiou.  The wholesale division sold                                    
            merchandise to two other corporations, which then sold the goods                               
            at retail.  The two other corporations were Naturelle                                          
            International, Inc., which was owned by Georgiou, and Alexia                                   
            Clothing, Inc. (Alexia), in which Georgiou was a minority                                      
            shareholder through 1988.  Alexia had a supply contract with                                   
            Kolonaki that required Alexia to purchase all of its merchandise                               
            from Kolonaki.                                                                                 
                  During 1988, Georgiou became interested in selling shares in                             
            the retail division of Kolonaki to the public.  GRS was                                        
            incorporated on approximately September 23, 1988, in California                                
            to take over Kolonaki's retail operations.  GRS acquired                                       
            Kolonaki's retail division pursuant to a two-part plan set forth                               
            in a document titled "Agreement and Plan of Corporate Separation                               
            and Reorganization" (the plan).  As the first part of the plan                                 
            required, Kolonaki transferred to GRS certain business assets and                              
            liabilities associated with Kolonaki's retail clothing business.                               
            The assets included all operating retail stores and the assets                                 
            associated with those stores.  The assets were transferred under                               
            section 351, and the stock of GRS was issued in the name of                                    
                  The second part of the plan provided that the GRS stock                                  
            would be distributed to Georgiou as part of a tax-free corporate                               
            separation and exchange pursuant to sections 355 and 368.  The                                 
            reorganization was subject to a condition precedent that required                              

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