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value of the 70-Acre Tract, or (3) 100 percent of actual
development costs. In exchange, State Savings required
(1) repayment with interest calculated on a floating rate with a
14-percent floor and (2) a 50-percent interest in net profits
from the sale of the 70-Acre Tract. By separate letter on the
same date, State Savings offered to purchase the 70-Acre Tract
and give BCI a 50-percent interest in net profits in the event
that State Savings could not lend the necessary funds to BCI and
BCI was otherwise prepared to purchase the land.
On March 25, 1983, the purchase of the 70-Acre Tract closed.
On the same date, BCI sold 25 acres of the 70-Acre Tract (the 25-
Acre Tract) for $6,950,978 in cash. The remaining 45 acres were
never sold by BCI. Some of the funds from the sale of the 25-
Acre Tract were applied to closing expenses, and the remainder
was used to satisfy the cash portion of the 70-Acre Tract
purchase price. BCI purchased the 70-Acre Tract for $13,228,021
and took title solely in its name. It paid $6,334,514 in cash
and issued two nonrecourse promissory notes payable to REI for
the balance. The promissory notes were secured by a deed of
trust on part of the 70-Acre Tract, and Hal Pettigrew, BCI's
president and founder, personally guaranteed payment.
Also on March 25, 1983, BCI issued a promissory note payable
to State Savings in exchange for a $1,800,000 nonrecourse loan.
This amount was later increased to $2,830,000. The funds were
necessary to build roads and install utilities on part of the 70-
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