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the unused portion of Estes Co.'s line of credit with Wells Fargo
and the general conservative attitude of Estes Co.'s management
provided sufficient protection for repayment of the loan.
Mr. Shedd understood the difference between secured and
unsecured loans. He knew that real estate loans often are
secured loans. While Mr. Shedd worked for First National and for
Arizona Trust, neither company had lent 80 percent or more of its
assets to one borrower on an unsecured basis. Mr. Shedd was
aware that Mission Mortgage had lent more than 80 percent of its
assets to Lusk, and that Lusk subsequently became bankrupt.
Before making the loan, Mr. Shedd did not perform written
calculations or prepare notes in which he recorded an analysis of
Estes Co.'s financial statements. Mr. Shedd thought the loan
offered a good rate of return from a sound company with good
management.
When the loan was made, the Shedds were the only active
participants in the plan. At that time, Mr. Estes was not a
shareholder, director, officer, or employee of petitioner or a
trustee of the plan. Mr. Shedd suggested that Estes Co. borrow
money from the plan, because the plan had money it could invest,
and he believed that a loan with Estes Co. would be the best use
of that money.
Mr. Shedd's decision to have the plan extend the loan to
Estes Co. was influenced by the good track record of Estes Co.
and the individuals who were managing that company, by his belief
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