Affiliated Foods, Inc. - Page 8

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          had with Mr. Davis, whether or not the activities giving rise to            
          payment were covered by the written agreements.  Mr. Davis                  
          determined how petitioner could use the funds to best promote P&G           
          products, and petitioner decided if it would accept the terms of            
          Mr. Davis' offer.                                                           
               With respect to advertising activities petitioner could                
          perform to become entitled to withdraw funds from the promotional           
          accounts, Mr. Davis would inform petitioner that he was offering            
          an advertising program to promote certain P&G products and the              
          terms of the offer.  After providing the advertising, petitioner            
          would then deduct the moneys to which it was entitled under the             
          terms of Mr. Davis' offer from the P&G promotional accounts.  To            
          validate the deduction from the P&G promotional accounts,                   
          petitioner provided Mr. Davis with proof of performance, e.g., a            
          copy of an advertisement.  Mr. Davis also used promotional                  
          account funds to make cash payments to petitioner's member stores           
          at petitioner's annual food show.                                           
               Under the Ajax Line Special Event Merchandising Contract and           
          the Special Event Merchandising Contract with Colgate (Colgate              
          agreements), Colgate agreed to create a promotional account for             
          special event promotional services.  The promotional account was            
          infused with capital every 6 months, and the amount contributed             
          was based on a fixed price per case of specified products shipped           
          to petitioner during the same period for the prior year.  The               

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Last modified: May 25, 2011