Brian L. and Carole J. Nahey - Page 7

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          corporations, and the remainder was owned by Mr. Beda.  Since the           
          inception of Venturedyne and Carnes,  petitioner has served as the          
          chairman of the board of directors, president, and chief executive          
          officer of both entities.                                                   
               Following the purchase of Wehr's assets and the assumption of          
          Wehr's liabilities by the S corporations, Wehr was liquidated.  The         
          S corporations continued to operate the same businesses as operated         
          by Wehr prior to its liquidation.                                           
               Among the assets acquired by the S corporations were all               
          lawsuits brought by Wehr, including the claim against Xerox.  The           
          liabilities assumed by the S corporations included all lawsuits             
          brought against Wehr, including Xerox's counterclaim.  Because the          
          parties to the buy out of Wehr did not allocate the purchase price          
          to specific assets, the S corporations engaged two accounting firms         
          to assist in that process.  The accounting firms attempted to               
          determine a value for the Xerox lawsuit, but no value was assigned          
          to Wehr's claim against Xerox because the accountants determined            
          that the value of such claim was "too speculative".  Thus, no               
          portion of the purchase price for Wehr's assets was allocated to            
          the Xerox lawsuit, and neither of the S corporations booked the             
          lawsuit as an asset.  (However, a footnote in the S corporations'           
          audited financial statements identified the existence of the claim          
          against Xerox.) In a Closing Agreement On Final Determination               
          Covering Specific Matters between the S corporations, petitioners,          





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