Affiliated Foods, Inc. - Page 15

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               Mr. Davis participated in the 1989 and 1990 food shows on              
          behalf of P&G.  He requested a cash disbursement from the P&G               
          promotional account to use at the food show.  Then he distributed           
          the cash product promotional allowances at the food show as an              
          incentive to buy P&G food brands.  The product promotional                  
          allowances available were set forth in the food-show book.  The             
          food show sales represented a significant portion of Mr. Davis'             
          annual sales; for example, he sold over 60 percent of his annual            
          volume of Pringle's Potato Chips at the food show.  If Mr. Davis            
          did not pass out the entire amount of the cash disbursed to him             
          for the food show, he returned the remainder to petitioner.                 
          Western/Clawson Transactions                                                
               Western is a corporation which buys and markets private                
          label products for the grocery industry.  It is called a                    
          "sourcing company", because it does not produce goods; rather, it           
          contracts with manufacturers to produce the goods it sells under            
          its private label.  Petitioner purchases Western's private-label            
          goods.  These goods are then shipped from Western to petitioner,            
          and petitioner sells them to its member stores.                             
               Petitioner owns approximately 7 percent of Western's stock.            
          In 1989 and 1990, Western made payments to petitioner of $60,000            
          and $100,000, respectively.  Petitioner did not include the                 
          $60,000 and $100,000 distributions in its income, but now                   

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Last modified: May 25, 2011