Advanced Delivery and Chemical Systems Nevada, Inc. - Page 7

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                    parties) certain patents, intangibles, and other                  
                    stock interests in other business entities owned                  
                    by ADCS were retained by ADCS;                                    
               6.   Holdings LLC and Operating LLC then both                          
                    contributed to ADCS-Limited the operating assets                  
                    they had received from ADCS in exchange,                          
                    respectively, for the receipt of a 99-percent                     
                    limited partnership interest and a 1-percent                      
                    general partnership interest in ADCS-Limited.                     

               After the above six steps in the reorganization of ADCS were           
          implemented, ADCS filed with respondent an election for                     
          subchapter S status, effective April 1, 1996.                               
               In June of 1996, petitioner was formed as a Nevada                     
          corporation.  Upon its formation, petitioner filed with                     
          respondent an election for subchapter S status, effective                   
          June 13, 1996.  On July 9, 1996, ADCS was merged into petitioner.           
               In 1996, the initial shareholders in petitioner and their              
          respective ownership interests in petitioner were as set forth              
          below:                                                                      
          Percentage                                                                  
                  Name                 Interest                                       
          Stephen H. Siegele             68.4                                         
          Frederick H. Siegele           11.5                                         
          Bernard McKeown                11.5                                         
          Stuart F. Siegele               3.8                                         
          Frederick J. Siegele            3.3                                         
          Robert Jackson                  1.6                                         
                                                                                     
               Before ADCS’ merger into petitioner, the shareholders in               
          ADCS and their respective ownership interests in ADCS were                  
          identical to petitioner’s initial shareholders as set forth                 






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