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that Estes Co. was in a strong financial condition, and by the
previous loan history between Estes Co. and the plan. He felt
comfortable about the plan's making the loan because of the
demand feature in the note and the Wells Fargo line of credit.
When the loan was authorized, Mr. Shedd believed Estes Co.
maintained a proper ratio of land held as inventory to land held
for investment, a proper ratio of assets to liabilities, and a
proper ratio of current assets to current liabilities. He
believed that the demand feature provided sufficient liquidity
for the loan.
Mr. Shedd did not consult with counsel or with the plan's
actuarial firm about making the loan before the plan lent the
money to Estes Co. He would not have suggested the loan to Estes
Co. had he suspected that it would not be repaid. When the loan
was made, Mr. Shedd believed that Estes Co. was creditworthy.
Mrs. Shedd concurred with Mr. Shedd's opinion that the loan would
be a good investment for the plan. There was no connection with
termination of petitioner's management contract with Estes Co.
and the extension of the loan by the plan to Estes Co.
During 1987, after speaking with the retirement portfolio
department of Merrill Lynch & Co., Inc., Mr. Shedd asked Estes
Co. to make periodic installment payments of principal on the
loan so that the plan could diversify into other investments.
Estes Co. orally agreed to make semiannual principal payments on
the note in the amount of $250,000, commencing March 1988 and
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