Charles B. and Teresa A. Thompson, et al. - Page 12

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          Missouri, Kansas, Illinois, Tennessee, Mississippi, Wyoming,                
          Colorado, New Mexico or Utah" for the 3-year period commencing              
          November 1, 1987.  No one other than Beaurline and Holliday was             
          offered a noncompete agreement.                                             
               Also on October 29, 1987, State Supply executed employment             
          agreements with Beaurline and Holliday.  Under the employment               
          agreements, neither Beaurline nor Holliday had the authority or             
          responsibility without prior approval of the board of directors             
          to hire or fire employees, determine employee compensation, or              
          make capital expenditures.  The employment agreements could be              
          terminated without cause by State Supply, and specifically                  
          acknowledged the existence of the noncompete agreements.  The               
          employment agreements provided that:                                        
               The Employee shall devote his entire time, attention                   
               and energies to the Employer's business and shall not                  
               during the term [one year] of his employment be engaged                
               in any other business activity whether or not such                     
               business activity is pursued for gain, profit, or other                
               pecuniary advantage. * * *                                             
          State Supply's Deductions for Amortization of Noncompete                    
          Agreements                                                                  
               State Supply, on its U.S. Income Tax Return for an S                   
          Corporation (Forms 1120S), claimed amortization deductions for              
          the noncompete agreements as follows:                                       
                    Taxable Year             Deduction Claimed                        
                    1987                     $166,667                                 
                    1988                     958,333                                  
                    1989                          673,560                             
                    1990                          548,560                             





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