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determined that Shen’s proposal was unacceptable, and Paullus was
authorized to terminate negotiations and “proceed with the sales
of lots in the Unit 10 subdivision.” On December 6, 1988, Shen’s
representative, Drosihn, and Paullus, however, signed a letter of
intent delineating the terms and conditions for Shen’s purchase
of Ridgemark’s outstanding shares. Ridgemark reserved the right
to structure a tax-free or tax-deferred exchange without any
added cost or risk to the buyer.
On December 7, 1988, Shen rejected the proposed stock sale
because of “an adverse unresolved tax problem”. Drosihn,
however, advised Paullus that Shen was still interested in
purchasing Ridgemark and sought a meeting of tax specialists to
structure the transaction in a mutually acceptable manner to
resolve the tax problem. It became evident that Shen was not
interested in purchasing the Ridgemark Golf and Country Club
unless Paullus agreed to manage the operation for a period of 10
years. Paullus was unwilling to continue the management of the
golf course and resort facilities. On December 13, 1988,
Ridgemark’s board of directors met to discuss Shen’s new offer to
purchase the 120 lots in the unit 10 subdivision.3 The tax
consequences of the proposed purchase were discussed in the
minutes.
3 The minutes for Aug. 23, 1988, reflect that due to a
boundary dispute, Ridgemark decided to exclude the disputed strip
of land and reduced the land in question from 164 to 120 lots.
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