8
year 1, and $445,711.80 in each of years 2 through 5, plus a
further payment by Micro-Bio to Lone Star of $140,000 per annum
over the 5-year period. At the end of the 5-year lease period,
Micro-Bio could purchase the chlor-alkali system from Lone Star
for $500,000, or Micro-Bio could lease the system for the next
succeeding 5 years for $140,000 per annum.
Lone Star entered into a lease agreement with Miro-Bio's
subsidiary, Electro (Lone Star-Electro lease), in which Lone Star
agreed to lease the chlor-alkali system to Electro. The Loan
Star-Electro lease is not dated. The Lone Star-Electro lease
provided for monthly payments of $19,349.16 for the first 6
months and $37,142.65 for the following 54 months, for total
payments of $2,121,798.06.
Around May 1984, Electro installed and put into service the
chlor-alkali system. Problems plagued Electro's operation of the
chlor-alkali system, and it never operated properly. In 1984,
Electro stopped making rental payments to Lone Star under the
Lone Star-Electro lease, and in turn, Lone Star stopped making
payments to Eltech. Lone Star depreciated the chlor-alkali
system in the taxable years 1984, 1985, and 1986 and passed the
depreciation deductions through to its partners.
The poor operation of the chlor-alkali system led to
disputes between Lone Star, Eltech, Micro-Bio, and Electro.
These disputes were settled in 1989.
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Last modified: May 25, 2011