(b) What parts of the agreement should be considered in light of the fact that Sandra is a new, inexperienced owner of this type of business. Hint to get you going: one relevant point is restraint of trade. We will discuss this in detail.Memorandum MEMORANDUM To: (student) From: Hamish McDonegal (partner) Subject: Carter. Purchase of assets of Sun-Fun Pools Limited Date: ;Yeslard a | have been approached by an old client of mine, Sandra Carter, to act for her and her friend Joanne Tilton, in relation to the proposed purchase of the assets of a business called Sun- Fun Pools. | formerly acted for Sandra and her husband Jeff, who died about three years ago of cancer. Before he became ill Jeff owned a landscaping supplies business and Sandra assisted him guite a bit. She took care of all the business affairs and did a good job of it, as | recall. It turned into quite a profitable little enterprise. When Jeff was diagnosed with cancer, Jeff and Sandra sold the assets of their business (Growth Landscaping Limited) to their weekend manager, Joanne Tilton. The terms of the sale were pretty favourable. Of course, they needed to get rid of the business so Joanne was in a fairly good situation, as purchaser, | do not mean to say that she took advantage of them, but she probably obtained it for a bit less than it would have been worth on the open market, Sandra and Joanne remained friends. They feel that this business is very complementary to Growth Landscaping and that the synergies between the businesses will mean increased profitability for each. They are planning to buy Sun-Fun Pools jointly (50% each). Jeff left his will not with our firm but with Public Trust, and so | have not seen Sandra since Jeff's death. However, she has contacted me to act for her and her friend Joanne on a proposed purchase of the business, Sandra apparently collected a large sum on Jeff's death from his life insurance policy (about $700,000). In addition to the life cover, it transpires that Jeff had cleared the mortgage on their lifestyle block in Candia Rd, Ranul. Sandra tells me that the neighbouring block recently sold for $950,000. Sandra has not worked since Jeff's death. Sandra has sent me the attached letter which sets out quite a bit of information but this is what | have gleaned so far. {a) The vendor is Sun-Fun Pools Limited. This company, which runs the business of Sun- Fun Pools, is apparently owned by Jack and Lindsay Coster, who now run a large motel business, also in West Auckland, They are both involved in the local community board and have long standing contacts in the area. {b) The asking price is $1.5 million. Sandra and Joanne are intending to pay half this price each. Sandra can fund most of this from money that she has in hand, but apparently Joanne will need to raise her share against either her business or her home, | am not sure which at this stage. Sandra's letter discusses this a bit more. () Sandra has two children, Steven (21) and Catherine (19). Catherine is studying to be an occupational therapist and is very bright and \"together\{d) Sun-Fun Pools apparently does not manufacture Pools but rather sources them from various manufacturers, then supplies and installs them. There are six full time staff. The business has been operating in West Auckland for about 20 years under the same name, and so the name is very important. There is one other thing that you should know. This is a private sale. We used to act for the Costers about 10 years ago, but they fell out with the partner of the firm who was responsible for their work at that time. The business was not officially for sale, but our firm's receptionist, Lottie, who happens to know both the Costers and Sandra, heard from the Costers that they would really like to get rid of the business and somehow it came up in conversation with Sandra, and it all went from there. The Costers are now represented by James and Co in New Lynn. Sandra has sent in a draft agreement that she received from the vendors directly. She was told that it was drafted by James and Co. | have not had a chance to look at the agreement yet so you will need to do that. Latter from client Dated (3 days ago) S . andra Carter 4 Sandhurst Rd Glen Eden, Auckland Dear Hamish, As promised, | make a list below of the various pieces of information that | have gathered while in negotiations/discussions with the Costers. Enclosed is a draft sale and purchase agreement that the Costers have given me. They told me that their lawyers drafted it, but then they also said that they had not yet instructed their lawyers, so | was quite confused about that. Lottie told me that they had been trying to sell the business for a while. They were a bit cagey about that actually, when | asked themn why they were selling. They basically said that they had too much on their plates and needed to simplify things. * Joanne is keen on going into this business with me as she sees it as a useful adjunct to Growth Landscaping. She suggested at one stage that Growth Landscaping should buy the business and that | should lend her company the money and take the role of manager, but | was not keen on that idea. | would rather be an owner. One of the reasons for this is that | want a say in what happens and how the business is run. + Although Joanne and | have in principle agreed to pay half the purchase price each, | feel that perhaps | should have a larger share in ownership of the business after all, Joanne would not be in the financial position she is in now if it had not been for the fact that she acquired Growth Landscaping from Jeff and me for such a good price. Part of me feels that this is the time for her to recognise that fact, but | have not raised this with her yet. | think Joanne and | should set up a separate company to own this business. | would like to be the person primarily responsible on a day to day basis for the running of the business because | think that Joanne has enough on her hands with Growth. Also, as you know, my son Steven has been a concern to me of late and | would like to get him involved in the company as soon as possible. Joanne is not very happy about this, but | am adamant that | need to get him involved. | feel that if he has an ownership role and a stake in the business, he will really commit to it. + The premises from which the business is currently run seems to be leased informally from the chicken processing factory next door. The vendors tell me that there are some letters in existence that set out terms, rental etc, but | have not seen these. The rent is currently very cheap for the area, about 520,000 pa, but we would need to be sure that it was not going to increase too much. We also need to ensure that the term is long enough, preferably about 5-10 years in total. + | have also heard through local sources that the chicken plant may be shifting its operations to another site due to planned roading redevelopment outside the site which will make it too restrictive on access for trucks. | wonder what impact these road changes would have on Sun-Fun, as there is often the necessity to move a swimming pocl on the back of a truck. Joanne and | have not seen any financial information about the business yet. Mr Coster keeps telling me that his accountant will fax me some stuff, but | have seen nothing as yel. Joanne keeps telling me not to worry, she says that $1.5m is conservative for this business, especially as there is a contract in the offing to supply 20 pools to a new subdivision at Treehaven Place, Western Heights. Mrs Coster mentioned this contract to me, however she said that the agreement in relation to Treehaven has not yet been signed. Lastly, | wanted to let you know that | would like to keep Joanne's partner, Jeremy, from being involved if | can. We don't get on, and although he is a shareholder in Growth Landscaping, | don't want him getting his sticky hands on Sun-Fun. | am concerned that he will have to find out if Joanne needs to fund her share of the purchase price by borrowing against the house that they own together, or Growth Landscaping. Thanks for all your help Chmu"'m Sandra Carter