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business activities included mechanical, electrical, and plumbing
engineering services. In 1987, Thor acquired 100 percent of the
issued and outstanding stock of S&B. S&B's board of directors
included LaVelle D. Fender, David M. Fender, and Sol M.
Shefferman. LaVelle D. Fender is David M. Fender's mother, and
she served as chairman of the board of directors of S&B.
During the tax year ending January 31, 1989, S&B was a
member of an affiliated group of corporations, as defined under
section 1504, and Thor was the common parent of that affiliated
group. Thor filed a consolidated return with the affiliated
group for the tax year ending January 31, 1989, which included
S&B for the period beginning February 1, 1988, and ending
November 17, 1988. Thor owned 100 percent of the S&B stock
during the entire period that S&B was a member of the affiliated
group.
In March 1988, Thor began negotiating with a management
group of S&B employees (the management group) regarding the
management group's desire to acquire S&B from Thor. The
management group intended that an employee stock ownership plan
would hold the S&B shares after they were acquired from Thor.
The management group formed S&B Acquisition Co. (the Buyer) to
purchase the S&B stock.
The S&B board of directors held a telephone conference
special meeting on April 26, 1988, and discussed the status of
the management group's proposal to purchase the S&B stock from
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