Addison Distribution, Inc. - Page 3

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                  In 1983, Mr. Emert founded and incorporated AEI, and it                                
            commenced business.  AEI is an S corporation, and Mr. Emert has                              
            always been its sole shareholder and corporate officer.  AEI                                 
            sells silicon wafers3 and printed circuit boards (the electronic                             
            materials) to high-technology companies.                                                     
                  In 1986, Mr. Emert incorporated Distribution.  Distribution                            
            maintains an inventory of goods.4  Distribution and AEI have                                 
            never had any written contract describing the business                                       
            transactions between them.                                                                   
                  During the years in issue, a typical transaction among AEI,                            
            vendors, subcontractors, and customers occurred as follows:                                  
            Customers contacted AEI for the sale of electronic materials from                            
            AEI to the customer.5  The customer executed a purchase order for                            
            the purchase of electronic materials, and the customer forwarded                             
            the purchase order to AEI.  The purchase order identified AEI as                             
            the seller and the customer as the buyer.                                                    

                  3  Silicon wafers are thin slices of silicon that are used                             
            for making semiconductor devices.                                                            
                  4  In a small number of transactions, Distribution had goods                           
            which subcontractors could manufacture into electronic materials                             
            for AEI's customers.  In these cases, upon AEI's acceptance of a                             
            customer's purchase order, AEI purchased the goods for the                                   
            customer's order from Distribution, AEI shipped the goods to a                               
            subcontractor, and the subcontractors used these goods to                                    
            manufacture electronic materials for AEI's customers.                                        
                  5  AEI also solicited orders from customers.                                           

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Last modified: May 25, 2011