Shedco, Inc. - Page 6

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               After the formation of Estes Homes, Mr. Shedd continued as             
          manager of the Tucson Division of Estes Co.  During September               
          1980, a decision was made to transfer key management personnel              
          from Estes Co. to petitioner in order to provide certain fringe             
          benefits to those individuals.  In furtherance of that decision,            
          petitioner and Estes Co. entered into a management contract on              
          September 20, 1980, in which petitioner agreed to employ certain            
          management employees of Estes Co., including Mr. Shedd, Mr.                 
          Estes, and Jon Grove (Mr. Grove), among others, and through them            
          to provide management services to Estes Co.  Mr. Estes was                  
          designated president of Estes Co., Mr. Shedd was designated its             
          executive vice president, and Mr. Grove was designated it vice              
          president--finance.  The management contract was amended on                 
          January 5, 1981, to state specifically that the provision of                
          management services by petitioner was not to be construed as                
          creating a partnership between petitioner and Estes Co.                     
               Mr. Shedd served as executive vice president of Estes Co.              
          until his retirement from that company during 1981.  To                     
          effectuate his retirement, petitioner and WE 7 amended their                
          partnership agreement to provide, in effect, for the buyout of              
          petitioner's interest in Estes Co.  Under the terms of the                  
          amended partnership agreement, dated January 5, 1981, WE 7 agreed           
          to distribute petitioner's capital account over a 10-year period            
          commencing August 31, 1981, as well as to pay interest on the               
          outstanding balance at a rate of 9 percent until the capital                



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