Labelgraphics, Inc. - Page 4

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               In June 1980, petitioner was incorporated to conduct the               
          sole proprietorship label and printing business that Mr. Martin             
          had operated.  Upon petitioner's incorporation, 450 shares of               
          petitioner's outstanding shares of stock were issued to Mr.                 
          Martin and the remaining 50 shares of petitioner's outstanding              
          stock were issued to another individual.  In January 1986, this             
          other individual's 50 shares were redeemed, and Mr. Martin became           
          petitioner's sole shareholder.  Mr. Martin continued to be                  
          petitioner's sole shareholder until 1992, when he sold all of his           
          shares in petitioner to Mike.  During its fiscal year ended June            
          30, 1990, petitioner's board of directors consisted of Mr.                  
          Martin, Mrs. Martin (Mr. Martin's wife), and Jerry Crispe (who              
          was then petitioner's executive vice president).                            
               In conducting his and later petitioner's label and printing            
          business, Mr. Martin concentrated on selling to companies in the            
          electronics industry, a number of which are located in the                  
          Pacific Northwest.  Since its incorporation in 1980, all of                 
          petitioner's products have been custom designed and produced for            
          particular customers.  Most of petitioner's sales are to                    
          electronics companies, like Compaq and Hewlett-Packard, who                 
          demand high quality products from their suppliers.                          
               Over the years, Mr. Martin has been extremely successful in            
          operating petitioner profitably and in expanding its business and           
          sales.  Petitioner has enjoyed high profit margins in selling its           
          custom-designed products to a number of high-technology                     

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Last modified: May 25, 2011