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During his career in real estate lending, Mr. Shedd became
proficient at reading and analyzing financial statements of real
estate developers and in evaluating their creditworthiness.
Formation of Petitioner, Estes Co., and Estes Homes
Singer Housing Co. (Singer Housing), a subsidiary of the
Singer Sewing Machine Co., purchased all of the shares of Estes
Bros. during August 1972 and renamed it the Estes Division of
Singer Housing (Estes Division). Shortly thereafter, Estes
Division purchased Staggs Built Homes, a large builder located in
Phoenix, Arizona, and renamed it the Singer Housing Co. in
Phoenix (Phoenix Division).
Mr. Shedd and Mr. Estes entered into 5-year employment
agreements with Estes Division, commencing in 1972. Mr. Shedd
served as manager of Estes Division's Tucson business (Tucson
Division). In that capacity he was responsible for all phases of
Estes Division's activities in Tucson, but he concentrated on
financial matters related to marketing homes that Estes Division
built in Tucson.
During 1976, Mr. Shedd and Mr. Estes decided to purchase
Estes Division. To effectuate the purchase, the Shedds formed
petitioner, and Mr. Estes and members of his family formed WE 7,
Inc. (WE 7), an Arizona corporation. During January 1977,
petitioner and WE 7 formed a partnership known as Estes Co., of
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