Joseph and Susan L. Ferraro - Page 7




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          After the Sentinel EPE recyclers were placed in service, the                
          license required additional royalty payments based on a                     
          percentage of profits that might be realized on the sale or use             
          of the resin pellets produced by the Sentinel EPE recyclers.                
               FMEC Corp.'s sublicense to PI, the manufacturer, was on a              
          month-to-month basis for a royalty of $100,917 per month.  The              
          sublicense to PI was subject to most of the terms of the license            
          from Clearwater to FMEC Corp.                                               
               No arm's-length negotiations for the price of the Sentinel             
          EPE recyclers took place among PI, ECI Corp., F&G Corp.,                    
          Clearwater, and FMEC Corp.  All of the monthly payments required            
          among the entities in the above transactions offset each other,             
          and the transactions occurred simultaneously.  For convenience,             
          we refer to the series of transactions among PI, ECI Corp., F&G             
          Corp., Clearwater, and FMEC Corp. as the Clearwater transactions.           
               PI allegedly sublicensed the Sentinel EPE recyclers to                 
          entities that would use the recyclers to recycle plastic scrap.             
          These 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.               
          End- users were also required to use their best efforts to                  
          recycle 220 pounds per hour for 16 hours per week.  Profits could           
          then allegedly be made by lessees, such as Clearwater, in the               
          form of royalties calculated as the sale price of the resin                 





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Last modified: May 25, 2011