Donald N. and Rosemarie F. Merino - Page 15

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               of the machines, made the popcorn material.  Had a very                
               small-barrelled extruder.  They ran it through the                     
               extruder.                                                              
                    And they took the pellets that came out of the                    
               extruder and they put it back in the process, which was                
               very difficult to do, by the way, because they used                    
               cyclone feeding.                                                       
                    So, getting the pellets back in the process wasn't                
               easy.                                                                  
          Petitioner observed at the demonstration:  "It worked.  You know,           
          on the scale that they gave, everything worked."                            
               Attorneys from the law firm of Windels, Marx, Davies & Ives            
          (WMDI) visited the PI plant on the same day as petitioner.  WMDI            
          prepared the offering memorandum, tax opinion, and other legal              
          documents for all of the 1981 Plastics Recycling partnerships,              
          including Northeast.  During a lunch break, petitioner asked the            
          attorneys some questions about the legal aspects of the venture,            
          such as whether the transactions qualified for the recently                 
          enacted safe-harbor leasing provisions of section 168(f).                   
          Petitioner "knew that the government was not happy with"                    
          nonrecourse leveraged lease transactions, and he considered the             
          Northeast transaction to be "a classic leveraged lease deal."               
               After lunch petitioner questioned Bambara, particularly with           
          respect to factors bearing on the price of resin, which he                  
          purportedly considered "the crucial part of the economics of this           
          deal".  Petitioner understood that PI purchased resin at "a                 
          volume discount", but Bambara did not indicate the amount of the            
          discount.  Petitioner also learned that because PI received resin           
          shipments by truck instead of rail, it paid a penalty that                  




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