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fees was better than the plan could have received from another
source. Estes Co. pledged no collateral to secure the loan.
The proceeds from the loan were used by Estes Co. for
general working capital needs. When the loan was made, Estes Co.
could have obtained funds from several other sources.
As of December 31, 1986, Estes Co. and Estes Homes had a
revolving line of credit with Wells Fargo that expired during May
1987, and which was under negotiation for renewal on December 31,
1986. The revolving credit agreement granted Wells Fargo a first
deed of trust on essentially all real estate properties not
pledged as security for other borrowing and an assignment of
Estes Co.'s and Estes Homes' interests in all other assets except
for the investment in affiliates. The agreement imposed certain
restrictions on Estes Co. and Estes Homes, including limitations
on partner distributions and other borrowing, maximum debt-to-
equity ratios, and restrictions on various real estate inventory
levels. Mr. Shedd was not involved in negotiating Estes Co.'s
line of credit, and he had no control over the terms of the line
of credit.
When the loan was made, Estes Co.'s line of credit from
Wells Fargo had an available balance equal to or greater than the
amount of the loan. At that time, the plan would have had to
obtain a waiver from Wells Fargo in order to secure the loan.
Mr. Shedd thought that it was not necessary to seek a waiver from
Wells Fargo in order to secure the loan, because he believed that
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