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Prior to and during the years in issue, petitioner sold and
leased guidance instruments that, when attached to drilling
equipment, allow the direction and depth of drilling to be
electronically controlled. Petitioner’s customers included
companies involved in utilities construction, pipeline river
crossing drilling, and oil and gas well drilling.
Petitioner was founded in 1984 by Frank C. Forest (Forest)
and Thomas M. Wagner III (Wagner) pursuant to articles of
incorporation naming Forest and Wagner as directors. Forest
served as president and Wagner as vice president. Forest and
Wagner each took 40-percent interests in petitioner at
incorporation, and they bought out the remaining shareholders in
September 1990, after which Forest and Wagner each held 50
percent of petitioner.
Prior to forming petitioner, Forest and Wagner each had
extensive experience in drilling technology in the United States
and overseas, both in engineering and in marketing such
technology to and servicing customers. The two had previously
worked together for more than 15 years at Sperry Sun Well Survey
Company (Sperry Sun), a subsidiary of Sun Oil Company, Wagner
having started with Sperry Sun in 1960 and Forest in 1966.
Forest left Sperry Sun in late 1982 after the company was
acquired by N.L. Industries. Forest's departure was influenced
by the fact that he had refused to sign, unless additional
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