John S. Halpern - Page 5




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          turn, resold the recyclers to F&G Equipment Corp. (F&G Corp.) for              
          $1,162,666 each.  F&G Corp. leased the recyclers to the                        
          Clearwater Group partnership, which then licensed the recyclers                
          to First Massachusetts Equipment Corp. (FMEC) which sublicensed                
          them back to PI.  PI allegedly sublicensed the recyclers to                    
          entities (the end-users), which 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 payment from FMEC based on the quality and amount of              
          recycled scrap.  All of the foregoing transactions were executed               
          simultaneously.                                                                
               The sale of the recyclers from PI to ECI was financed with                
          nonrecourse notes.  Approximately 7 percent of the sales price of              
          the recyclers sold by ECI to F&G Corp. was paid in cash, and the               
          remainder was financed through notes.  The notes provided that 10              
          percent of the amount thereof was recourse but that the recourse               
          portion was due only after the nonrecourse portion had been paid               
          in full.  All of the monthly payments required among the entities              
          in the above transactions offset each other.  In Provizer v.                   
          Commissioner, supra, we found that the market value of a Sentinel              
          Recycler in 1981 did not exceed $50,000 and that the nuts and                  
          bolts, or manufacturing, cost was $18,000.                                     
               The Provizers were limited partners in a partnership named                
          Clearwater Group (Clearwater) and the general partner was Samuel               






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