Robert D. and Patricia K. Kaliban, et al. - Page 8

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            leased for the above amounts under the structure of simultaneous                          
            transactions, the fair market value of a Sentinel EPE recycler in                         
            1981 and up to the end of 1982 was not in excess of $50,000.                              
                  PI allegedly sublicensed the recyclers to entities that                             
            would use them to recycle plastic scrap.  The sublicense                                  
            agreements provided that the end-users would transfer to PI 100                           
            percent of the recycled scrap in exchange for a payment from FMEC                         
            Corp. based on the quality and amount of recycled scrap.                                  
                  Like Clearwater, Poly Reclamation leased Sentinel EPE                               
            recyclers from F & G Corp. and licensed those recyclers to FMEC                           
            Corp.  Apart from the entity that leased the machines from F & G                          
            Corp. and licensed them to FMEC Corp., the transactions of the                            
            Partnerships do not differ in any substantive respects.                                   
                  For convenience, we refer to the series of transactions                             
            among PI, ECI Corp., F & G Corp., each of the Partnerships, FMEC                          
            Corp., and PI as the Partnership transactions.  In addition to                            
            the Partnership transactions, a number of other limited                                   
            partnerships entered into transactions similar to the Partnership                         
            transactions, also involving Sentinel EPE recyclers and Sentinel                          
            expanded polystyrene (EPS) recyclers.  We refer to these                                  
            collectively as the Plastics Recycling transactions.                                      
            B.  The Partnerships                                                                      
                  Clearwater and Poly Reclamation are New York limited                                
            partnerships.  Both partnerships closed during the last few                               

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