Norman H. Fawson and Mary Jane B. Fawson - Page 9

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          U.S. Agri was the contractor selected to carry out the R&D                  
          program under an R&D agreement.  The offering included the R&D              
          agreement and the license agreement.                                        
               The partnership entered into the exclusive R&D agreement               
          with U.S. Agri on December 31, 1982.  The license agreement                 
          between the partnership and U.S. Agri was executed concurrently             
          with the R&D agreement, granting U.S. Agri the exclusive right to           
          utilize technology developed for the partnership for 40 years in            
          exchange for a royalty of 85 percent of all products produced.              
               The R&D agreement, according to its terms, expired upon the            
          partnership’s execution of the license agreement.  Because the              
          two agreements were executed concurrently, amounts paid to U.S.             
          Agri by the partnership were not paid pursuant to a valid R&D               
          agreement but were passive investments.  The partnership never              
          engaged in research or experimentation either directly or                   
               We noted that Mr. Kellen exhibited a lack of concern about             
          the details of the partnership’s operations.  He hastily signed             
          the R&D agreement and licensing agreement prepared by CFS and               
          admitted he did not read the offering until preparing the case              
          for trial.  Mr. Kellen also never took any legal action to                  
          enforce promissory notes signed by limited partners who had                 
          purchased subscriptions in the partnership and defaulted.                   
               We found in Utah Jojoba I Research v. Commissioner, supra,             

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