Knight Furniture Co., Inc. - Page 12




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          within a day to someone else.  In 1996, an old Wal-Mart building            
          in Bonham that was bigger than what petitioner needed became                
          available, but the lessor did not want to lease only a portion of           
          the building.  Properties were last reviewed in McKinney in 1996.           
               In 1997, the board again considered the possibility of a               
          store in Bonham, but most options would have involved the                   
          purchase of land and construction of a building, which the board            
          felt was cost prohibitive.  The board decided that consideration            
          would still be given for the right opportunity.                             
               At the February 24, 1995, and March 4, 1997, board meetings,           
          Bostwick advised the board that a safe level of cash reserves was           
          necessary to finance possible future store locations and that the           
          Board should set aside adequate retained earnings to fund such              
          projects.                                                                   
               Despite efforts to locate suitable property, petitioner did            
          not purchase or lease another store location during the years in            
          issue.  Petitioner had concerns regarding its expansion, because            
          it feared a possible rift in the family in 1995 when it removed             
          David Pedigo from the board and reduced his job responsibilities.           
          Also, Lay-Z-Boy, which was petitioner’s number one vendor and a             
          nationally recognized quality furniture manufacturer, would not             
          allow petitioner to put its products into the McKinney market               
          because Lay-Z-Boy already covered the McKinney market.                      








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