Medchem (P.R.), Inc. - Page 4




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          the stipulated facts and exhibits.  We find the stipulated facts            
          accordingly, and we set forth the relevant facts in this                    
          background section.                                                         
               MedChem Products, Inc. (MedChem U.S.A.), is a Massachusetts            
          corporation whose principal place of business is in Woburn,                 
          Massachusetts (Woburn).  MedChem U.S.A. succeeded MedChem P.R.              
          following the subject years through a merger of the latter into             
          the former.  MedChem P.R. was incorporated in Delaware on                   
          December 8, 1987, as MedChem Puerto Rico, Inc., it changed its              
          name on December 22, 1987, to BioChem Products, Inc., it changed            
          its State of incorporation on March 1, 1992, to Massachusetts,              
          and it changed its name on November 25, 1992, to MedChem P.R.               
          MedChem P.R. and its predecessors (each hereinafter referred to             
          as MedChem P.R.) were always wholly owned subsidiaries of MedChem           
          U.S.A.                                                                      
               The original books and records of MedChem P.R. and MedChem             
          U.S.A. are maintained in Woburn on an accrual method of                     
          accounting and on the basis of a fiscal year ending on August 31.           
          During each of MedChem P.R.’s taxable years ended on August 31,             
          1990, 1991, and 1992, all of its reported income was “intangible            
          property income”, sec. 936(h)(3), attributable to the sale of               
          Avitene, a pharmaceutical manufactured in Puerto Rico by Alcon              
          Puerto Rico Inc. (Alcon P.R.), an unrelated entity.  Avitene is a           
          blood clotting drug that is manufactured from the interior                  






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