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In 1997 and in 1998, ADCS-Limited spent a total of
approximately $3.4 million on equipment and improvements to its
manufacturing plant in Burnet, Texas, including additional clean
rooms, a new research and development lab, a quality control
department, and a new computer system.
In July of 1997, ADCS-Limited began looking for additional
office space to accommodate the growth of its sales and executive
offices. Management estimated that it would cost ADCS-Limited
$400,000 to relocate its administrative offices.
The chemical products manufactured by ADCS and by ADCS-
Limited constituted hazardous materials, and the liability risks
associated with such materials were significant for petitioner
and for petitioner’s affiliated companies. For example, in 1998
a former employee sued ADCS-Limited and ADCS for damages in
excess of $35 million relating to exposure to hazardous
materials. To avoid the high insurance premiums associated with
such risks, during 1996 and 1997, petitioner retained funds in
the range of $3 million to self-insure against such risks.
As indicated, ADCS had obtained a number of valuable patents
relating to ADCS and to ADCS-Limited’s chemical manufacturing
processes. Petitioner anticipated that litigation would occur
involving petitioner and its affiliated companies relating to the
scope of the patents. Petitioner estimated the cost of filing a
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