Vitamin Village, Inc. - Page 4

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          B.   Spinoff Corporations                                                   
               To reduce petitioner’s potential liability and to increase             
          efficiency and growth, Mr. Reeves organized two new corporations            
          out of petitioner, Club Tan Centers of Oregon, Inc. (CTC), and              
          Universal Marketing, Inc. (UMI).  In December 1994, petitioner              
          transferred the assets used by Club Tan to CTC, and on June 1,              
          1995, petitioner transferred the assets used by Universal                   
          Graphics to UMI.  All of the stock issued by CTC and UMI was                
          transferred to Mr. Reeves in a section 355 reorganization                   
          (spinoff) resulting in petitioner, CTC, and UMI becoming brother-           
          sister corporations.                                                        
              Mr. Reeves was the president, secretary, treasurer, and sole           
          shareholder of CTC and UMI.  Although his obligations to                    
          petitioner decreased as a result of the spinoffs, as the sole               
          officer and manager of three corporations, Mr. Reeves had                   
          significantly increased responsibilities.                                   

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