Norstam Veneers, Inc. A Kentucky Corporation - Page 4

                                                - 4 -4                                                 
            petitioner's boiler.  The cooked wood is sliced while warm by a                            
            veneer slicer.  The sliced sheets of veneer are placed on a                                
            conveyor belt that goes through a veneer dryer.  Depending on the                          
            type of wood, the veneer dryer reduces the moisture content of                             
            the sheets from as high as 70 percent to approximately 10 percent                          
            within 1 or 2 minutes.  The veneer dryer contains fin radiators,                           
            which are also heated with steam piped into the plant from                                 
            petitioner's boiler.  Air is blown across the fin radiators and                            
            used to dry the veneer.  After drying, the veneer is crated for                            
            sale and shipment.                                                                         
            II. Agreement Between Petitioner and Washington Trade Co.                                  
                  On September 20, 1988, petitioner and the Washington Trade                           
            Co. (WTC), an unrelated party, entered into a 1-year written                               
            contract (the Agreement).  The stated purpose of the Agreement                             
            was to allow WTC to furnish and install specified veneer-                                  
            processing equipment (the WTC Equipment) at petitioner's mill and                          
            to train some of petitioner's employees in the production methods                          
            preferred by WTC.  Petitioner was to use the WTC Equipment to                              
            produce veneer to WTC's specifications, furnishing the requisite                           
            personnel and incidentals, including utilities and insurance                               
            coverage.  WTC's process required the cooking of whole logs, the                           
            use of WTC's dryer, and the cutting of the veneer to a thickness                           
            greater than that generally used in the United States.                                     
                  Paragraph 4 of the Agreement is captioned "Testing".  It                             
            provided that WTC could conduct tests at petitioner's mill to                              




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