Loren F. Paullus and Donna Paullus - Page 19

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          the unit 10 lots, Paullus outlined a plan to the board for a                
          joint venture with outside investors.  Ridgemark would contribute           
          the unit 10 lots that would be utilized for the venture.  The               
          purchase and transfer of the unit 10 property was completed on              
          March 27, 1989, for a final gross selling price of $11,250,000.             
               On April 7, 1989, Paullus exercised his option to purchase             
          the outstanding shares of his fellow shareholders in Ridgemark.             
          After the transaction, petitioners personally owned 36.32 percent           
          of Ridgemark's outstanding shares.  Paullus, along with his wife,           
          were also the trustees of the Loren and Donna Paullus Family                
          Trust, which owned 35.02 percent of Ridgemark’s outstanding                 
          shares.  In 1990, Ridgemark sold its golf courses, clubhouses,              
          and recreational facilities for $12 million to the members of               
          Ridgemark Golf and Country Club.                                            
               The property acquired by Ridgemark as an exchange consisted            
          of approximately 2,261 acres (the Paicines property).  The                  
          Paicines property was acquired with the intention of developing a           
          new and expanded golf course and resort facility.  Approximately            
          1,000 acres were contemplated for five or six golf courses,                 
          clubhouses, and appurtenant buildings.  To obtain a better                  
          financing note, the Paicines property was zoned for residential             
               From 1980 to 1993, Ridgemark filed statements with the State           
          of California, and in the space for the “type of business”, the             
          following was reflected:                                                    

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