Jerry S. Payne - Page 7




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               Beginning in 1987, petitioner became gradually more involved           
          in the business operations and finances of 2618 and the club,               
          principally out of concern that Helmle might not be able to pay             
          legal fees owed to petitioner in excess of $500,000.  During                
          1987, petitioner entered into agreements with Helmle and others,            
          which, in consideration of a management fee, gave petitioner the            
          right “to control and manage the activities of the club CALIGULA            
          XXI”, and placed him “in total control of all financial and                 
          managerial decisions at the club”.  The agreements also enabled             
          2618 to redeem the stock of the other 50-percent shareholder                
          (making Helmle the sole shareholder) with the proceeds of a                 
          $275,000 bank loan to petitioner that, pursuant to the                      
          agreements, was to be repaid (including interest) by means of               
          scheduled monthly payments from 2618 to petitioner.                         
               On February 15, 1988, ownership interests in the following             
          tangible and intangible personal property relating to the club              
          were transferred to petitioner in satisfaction of $35,000 in                
          legal fees owed to him:  (1) 2618's leasehold interest in the               
          building in which the club operated; (2) furniture, furnishings,            
          fixtures and leasehold improvements in the building; and (3) the            
          right to use the Caligula XXI name.  Petitioner then leased such            
          property back to 2618.                                                      
               On March 15, 1988, petitioner agreed to acquire Helmle’s               
          stock in 2618 and, thereby, become the sole shareholder in 2618.            






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