6
and (7) Micro-Bio would pay a fee for any technical assistance
provided by Eltech during the lease period.
No purchase price was set forth in the letter agreement, but
the parties agree that the purchase price due Eltech from Micro-
Bio for the chlor-alkali system was $2,121,798. The letter
agreement purports to be a lease between Eltech and Micro-Bio;
however, we find that the terms of the transaction constitute a
sale in which Eltech retained a security interest. See generally
Bowen v. Commissioner, 12 T.C. 446, 459-460 (1949).
The letter agreement provided that the conditions set forth
therein "together with ELTECH's other required lease conditions"
shall be formalized in a lease document entered into between
Eltech and Micro-Bio. No such lease document has been made part
of the record. Based on Murphy's description of the transactions
and from other documents that incorporate by reference the
September 1983 agreement, we find that Eltech and Micro-Bio did
enter into an agreement in September 1983 (September 1983
agreement) in which Micro-Bio agreed to purchase the chlor-alkali
system from Eltech for a purchase price of $2,121,798. Eltech
financed the purchase with a nonrecourse debt of $2,121,798. The
record does not state whether the debt was recourse or
nonrecourse. We find for purposes of this opinion that the debt
was nonrecourse, since there apparently was no attempt by Eltech
to recover from Lone Star or the general partners personally
after Lone Star assumed Micro-Bio's obligations to Eltech (as
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