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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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