Advanced Delivery and Chemical Systems Nevada, Inc. - Page 9

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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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