Donald N. and Rosemarie F. Merino - Page 18

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          Petitioner claims that after analyzing the projections on an                
          equity and cash basis, he concluded that the economics of the               
          transaction made sense.                                                     
               Petitioner explained his consideration of the fair market              
          value of the Sentinel EPE recycler as follows:                              
                    When I looked at the price of the machine and the                 
               business deal, I looked at it as a business deal.  From                
               a business perspective, * * * it's not just the price                  
               of the machine.  It's really the price of the business                 
               deal, of which the machine is one part of it.                          
                         *    *    *    *    *    *    *                              
                    So, when you looked at it, you didn't look at it                  
               to see whether or not it costs $50,000 or $100,000 to                  
               build the machine.  You looked to see whether or not                   
               the overall economics justified that kind of investment                
               and made sense.                                                        
                    So it was really a systems, or a group look at the                
               whole thing.                                                           
          When asked for his assessment of the fair market value of the               
          machine, petitioner replied:  "As part of the overall system, it            
          was worth the million dollars that was in the prospectus."                  
          However, petitioner claimed that he could not properly place a              
          value on the Sentinel EPE recycler if considered in isolation               
          from "the overall system".                                                  
               Price difficulties arose soon after petitioner invested in             
          Northeast.  He recalled that even though the price of crude oil             
          continued to rise during the latter part of 1981 and into the               
          next year, the price of low density polyethylene actually                   
          decreased.  Petitioner visited PI to inquire about the machines             
          during his summer vacation trips to Cape Cod, but became "very              




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