Merrill Lynch & Co., Inc. & Subsidiaries - Page 12




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          sophisticated to handle the lease portfolio; (2) a purchaser                
          should be able to finance the transaction; and (3) a purchaser              
          should have a net operating loss (NOL) carryforward and,                    
          therefore, should be indifferent to the fact that the lease                 
          portfolio was about to turn for tax purposes.                               
               In or around April 1986, Mr. Sands contacted Inspiration               
          Resources Corp. (Inspiration).  Inspiration was a diversified               
          natural resources company whose stock was publicly traded on the            
          New York and Toronto stock exchanges.  Inspiration was controlled           
          by Minerals & Resources Corp., Ltd. (MINORCO), a Bermuda                    
          corporation headquartered in London, England.  Mr. Sands had                
          worked with Inspiration on other matters before 1986 and was                
          aware that Inspiration had a significant NOL.                               
               Petitioner provided to Inspiration a document entitled                 
          “MERRILL LYNCH LEASING INC. Proposed Sale of Equity Investment              
          Assets” dated April 1986 (ML Leasing offering memorandum).  The             
          ML Leasing offering memorandum described the assets that would be           
          owned by ML Leasing at the time of the sale and the pretax                  
          cashflows expected to be derived from the portfolio of leases.              
          The ML Leasing offering memorandum described the proposed                   
          transaction as follows:                                                     
               Prior to the sale of Leasing’s stock, any of Leasing’s                 
               assets which are not to be sold will be dividended to                  
               MLCR.  Assets remaining in Leasing will be the equity                  
               investments in real estate and equipment net leased to                 
               major corporations, tax benefits purchased under the                   
               1981 Tax Act, unused ITC carryover, and any state net                  





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