Loren F. Paullus and Donna Paullus - Page 13

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          Department.  The tentative map for the unit 10 property was                 
          approved on April 6, 1988.                                                  
               On May 5, 1988, the board investigated the advantages                  
          inherent in having Ridgemark perform as the subdivider of unit 10           
          as compared with selling the property to Construction and having            
          it act as the subdivider.  The board determined that the                    
          development of unit 10 by Construction would be preferable.                 
               On August 2, 1988, Joseph Drosihn (Drosihn), a                         
          representative of Y.L. Shen (Shen), contacted Ridgemark regarding           
          the purchase of all the developable land owned by Ridgemark.                
          Drosihn and Paullus agreed that land that had been formerly                 
          conveyed to Financial would be reconveyed to Ridgemark and                  
          included within its assets upon sale.                                       
               On August 8, 1988, Ridgemark represented that it intended to           
          subdivide land that was covered under prior agreements with the             
          local water utility.  Consequently, the unit 10 property needed             
          sewer and water service installed.  Ridgemark was referred to as            
          “Subdivider” in the agreement and agreed to pay $290,465 for                
          installation of water facilities and $282,559 for the                       
          installation of sewerage facilities.                                        
               On August 12, 1988, Ridgemark’s board of directors met to              
          discuss the offer by Shen.  The minutes of the meeting state:               
               The President [Paullus] advised the meeting that his                   
               legal and tax advisors are developing a transaction                    
               structure to include a tax free exchange in the sale of                
               the Corporation and the purchase of the Paicines Ranch,                

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