REPORT FROM COUNSEL

SUMMER 2007 ISSUE

CELEBRATING 40 YEARS

It was 1967 when Jon C. Countess, Gary M. Gilbert, and Peter R. Andrews began practicing law together at Laucks & Monroe. At the time, Jon was named a partner in the firm and Gary and Peter joined the firm as associates. This year commemorates forty years the three individuals have been practicing law together. To celebrate CGA Law Firm is highlighting their legal service beginning with Jon C. Countess.

Jon C. Countess was born in Huntsville, Alabama on September 26, 1934. Following high school graduation he attended Auburn University where he received a bachelor's degree in Mechanical Engineering in 1958. Shortly after, Jon accepted a position as a mechanical engineer for York Corporation, a division of Borg-Warner. During his employment with York Corporation Jon had a calling from the military; he served in the army artillery at Fort Sill, Oklahoma. Upon return from the service he returned to his profession at York Corporation; he was then transferred to Chicago and various offices throughout the United States.

Traveling across the country with York Corporation was not everything Jon had planned for his future. He returned to the area and attended Dickinson School of Law. Jon excelled at law school, passing the Pennsylvania Bar with the highest score at Dickinson and the 13th highest in the state. He knew practicing law was the ideal career for him.

In 1964, Jon began his law career at Laucks & Monroe where he was an associate attorney for three years. Shortly after, in 1967, he was named a partner in the firm. Over the years, he continued to build his practice and the three attorneys formed the partnership of Countess Gilbert Andrews when Samaul Laucks withdrew from the firm in 1985.

During his early years Jon practiced general law with no focus on a specific area. As his law practice and experience grew, he began to focus on specific areas including corporate business, real estate, and estate planning and administration. He now represents several big name clients in the York and surrounding areas including: York County Recorder of Deeds, Eastern York County Sewer Authority, Kling Bros. Insurance, Associated Wholesalers, Collins & Wagner Insurance, PADE, J.H. Holley & Associates, Normandie Ridge, Gene Latta Ford-Buick, Orthopedic & Spine Specialists, and Boyce Heating and Air Conditioning.

Jon has been an active supporter and participant in numerous civic, social, and business organizations throughout his career. He formerly served on the Board of Directors for Catholic Social Services, Lutheran Social Services, the York Symphony Association and the York County Bar Association. He was Chairman of the Attorneys Section of the United Way of York and formerly on the Board of Governors for the York Country Club. Jon is also a past President of the York County Republican Men's Club and the Lafayette Club.

The biggest change in the legal profession that Jon has noticed throughout the years is the continuing technological advances. "CGA had the 1st automatic typewriter in York County," he said. One of the advantages of such technology is the ability to do research online as opposed to searching through numerous books in the library.

Even for those who do not plan to practice law, Jon encourages everyone to go to law school. He feels that it is extremely beneficial because it teaches reasoning and problem solving.

Congratulations Jon, Pete, and Gary on 40 years of successful legal professionalism.

FIRM UPDATES

CGA Law Firm is #1 in York County according to a reader's poll conducted by the York Daily Record. The survey polls readers on their favorite area businesses in a variety of categories, including restaurants, retail and services. This is the 5th year in a row that CGA has ranked at the top of the list for a full-service law firm.

Susquehanna Style Magazine named CGA Law Firm Who's Who in Business in 2007 as the leading law firm in York County according to a survey of consumer preference conducted in the York area by Polk-Lepson.

Thank you York County! We appreciate your confidence in our service and your trust in our firm.

Events and Speaking Engagements

Lawrence V. Young presented at the middle District Bankruptcy Bar Association (MDBBA) Annual Bankruptcy Institute. Larry is the immediate past president of the MDBBA and is also on their Board of Directors.

Thomas D. O'Shea and the honorable Joseph C. Adams presented a seminar to the Family Law Section of the York County Bar Association on custody law.

Sharon E. Myers spoke about "Female Attributes and Leadership" at a luncheon held by the Women's Network of York.

Benjamin L. Pratt, a faculty member of the PSBA's Institute for Collective Bargaining and Labor Relations, taught a course in "Understanding the Fundamentals of Collective Bargaining". The first in a three part series, the course provided an introduction to negotiation strategies.

A class of 3rd graders at AD Goode Elementary School learned first hand about the court systems from attorney Glenn J. Smith on Law Day.

Anne E. Zerbe discussed "Evaluations: Should you give a raise if the performance doesn't measure up?" at a round table discussion held by the Physicians Office Management Association of York for local managers.

Honors, Awards and Appointments

John D. Flinchbaugh has become a member of the Board of Directors of the York Area Development Corporation/Delphia Management Corporation, a non-profit housing development and management company.

Margaret "Mieke" Driscoll has become a member of the Board of Directors of the YWCA and Crispus Attucks. She was also elected as President of the Junior Board of Directors for the YWCA.

Glenn J. Smith was recently named to the York County Crime Stoppers Board of Directors.

Professional Development

Lawrence V. Young attended the Southeastern Bankruptcy Law Institute's 33rd annual seminar on Bankruptcy Law and Rules in Atlanta, GA. Leading experts in the field, including judges, law professors and attorneys, reviewed the current issues and cases in the field of bankruptcy law.

Timothy J. Bupp, Margaret "Mieke" Driscoll, and Glenn J. Smith attended the 2007 Pennsylvania Municipal Law Colloquium.

Margaret "Mieke" Driscoll attended a recent training seminar offered by the Pennsylvania Bar Institute on commercial real estate documents.

Christian J. Dabb attended a Civil Law Update course through the Pennsylvania Bar Institute. The course focused primarily on strict liability and suits against licensed professionals along with Certificates of Merit.

Jeffrey L. Rehmeyer II and Andrew M. Paxton attended the Security Title Spring Seminar on PA Title Insurance that covered updates on the new Mechanic's Lien law on April 5, 2007.

Announcements

Christian J. Dabb and Glenn J. Smith passed the Maryland Bar to become the first attorneys at CGA Law Firm to practice law in the state of Maryland.

The Bar Stools took to the stage once again at the York Little Theatre for their bi-annual production of Lullaby of Lawyers, written and directed by Thomas D. O'Shea. Over 50 lawyers were in the show including our very own Richard K. Konkel and Craig S. Sharnetzka. Proceeds from the show support the York County Bar Foundation and York Little Theatre.

BULK SALES COMPLIANCE WITH RESPECT TO PENNSYLVANIA TAXES

By Andrew M. Paxton

When buying a business, both the buyer and seller must agree upon which form the acquisition should take; either a stock purchase, or asset purchase. There are many legal and tax considerations to be analyzed when making this decision, one of which being the assumption of liabilities from the business, as previously operated by the seller. The general rule under an asset purchase structure is that the buyer becomes liable only for those pre-closing liabilities arising from the operation of the business which the buyer expressly elects to assume in the asset purchase agreement. Those liabilities that are not expressly assumed by the buyer continue to reside with the seller. One very important, and often overlooked, exception to this general rule in Pennsylvania is the bulk sales laws with respect to all Pennsylvania state taxes, including corporate taxes, personal income tax withholding, and sales and use tax (collectively "Taxes").

In accordance with Pennsylvania bulk sales laws, every corporation, joint-stock association, limited partnership, and/or company, including limited liability companies, which sells or transfers 51% or more of any category of its assets must comply with the bulk sales laws under 43 Pa.C.S.A. §788.3, 69 Pa.C.S.A. §529, and 72 Pa.C.S.A. §1403(a), 7240, 7321.1 (collectively the "Bulk Sales Transfers Laws"). It is important to note that the bulk sales laws are interpreted disjunctively with respect to any category of assets. For example, a corporation may own real estate, and that real estate may constitute less than 51% of the corporation's total assets; however, the sale of 51% or more of all real estate owned by the corporation would require the buyer and seller to comply with Bulk Sales Transfer Laws. Failure to comply may result in the buyer assuming joint liability for any of the seller's Tax liabilities that are accruing and unpaid as of the date of the sale. These Taxes need not be assessed as of the closing date, but the mere obligation of the seller will give rise to buyer's liability.

With respect to the Bulk Sales Transfer Laws, the burden falls squarely on the buyer to force the seller to comply in order for the buyer to be exonerated from the seller's Tax liabilities. To our knowledge, there is no penalty on the seller for failure to comply with Pennsylvania Bulk Sales Transfer Laws. Failure of the parties to comply with the Bulk Sales Transfer Laws does not invalidate the sale of assets, but may result in the buyer becoming jointly liable for any unpaid Taxes owed by, or arising out of, the business's operations prior to the closing date.

In order to comply with the Bulk Sales Transfer Laws and prevent the Tax liability from being assumed by the buyer, notice of the transaction must be provided to both the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor and Industry. The seller must apply for, and receive a tax clearance certificate indicating that all Taxes arising out of seller's operation of the business have been paid to the Commonwealth of Pennsylvania.

In a Pennsylvania Bulk Sales compliance situation, either party may provide notice of the sale to the Pennsylvania Department of Revenue at least 10 days prior to closing. Again, the buyer must take an active role in either delivering this notice on their own or confirming that the seller has complied with this notice requirement. It is always prudent to order a tax lien certificate to see if any Pennsylvania tax liens are in place. However, it is important to note that the buyer may also be liable for any Taxes that are accruing and unpaid as of the date of closing, but not yet liened.

Immediately after closing, the seller should file a fully completed application for bulk sales tax clearance certificate with the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor and Industry, as well as file short year tax reports and returns for any and all applicable Taxes. It is important to note that while the seller does not have to file a short year return with the Internal Revenue Service for federal tax purposes, the Pennsylvania Department of Revenue requires that the seller submit a short year federal return with the short year Pennsylvania report and return in order to process the request for the bulk sales tax clearance certificate.

The buyer should require some security and assurance that the Taxes of seller are current, and that the seller obtain the appropriate clearance certificates post-closing, as the liability of any unpaid Taxes will be assumed by buyer. One avenue to provide security for bulk sales compliance by the seller is to escrow some of the asset sale proceeds in an amount equal to, or in excess of, the seller's estimated Taxes that are accruing but unpaid as of the date of closing. To determine this, it is prudent to request a letter from the seller's regular accountant certifying exactly what that number will be, said number to include any Taxes that are generated based on the asset sale. Once the seller provides to buyer a copy of the tax clearance certificate from both the Departments of Revenue and Labor and Industry, buyer will cause the escrowed proceeds to be released.

The Pennsylvania courts have held that the duty imposed by the Bulk Sales Transfer Laws upon the purchaser of business assets is not overly burdensome. The Commonwealth Court has held that the buyer of a corporation's assets must require the seller to present a certificate from the Department of Revenue showing that all state taxes were paid. The failure of the buyer to require such a certificate renders that buyer jointly liable to the Commonwealth for the unpaid Taxes.

One challenge here may be that, in certain situations, the potential tax liability may meet or exceed the sales price. For example, where a buyer is purchasing more than 51% of a class of assets from a distressed business for a relatively low purchase price, it would not be difficult for the outstanding tax liabilities of the seller to exceed the total purchase price. In effect, the buyer would have inadvertently assumed liabilities greater than the total value of the assets purchased. It is important to note that the Bulk Sales Transfer Laws may not be applicable to certain sales or transfers, such as those made under any order of court, by assignees for the benefit of creditors or by any officer of a court.

Although an asset purchase agreement may contain indemnification language, the Department of Revenue will pursue the party holding the assets. A buyer may be stuck paying the seller's unpaid Taxes and then have to seek relief directly from the Seller. It is best to comply with the Bulk Sales Transfer Laws and escrow a portion of the sales proceeds at closing in order to avoid prolonged and costly litigation with the seller to recover Taxes paid. It is not difficult to prevent the inadvertent assumption of this liability for Taxes if the parties comply with the Bulk Sales Transfer Laws. It is therefore important, even for seemingly simple asset purchases, to seek counsel from your attorneys at CGA Law Firm and your accountant prior to closing such a transaction.

CGA LAW FIRM'S TITLE INSURANCE COMPANY CELEBRATES 5TH ANNIVERSARY

By Frank H. Countess

Chair of the Real Estate Division of CGA Law Firm

In April of 2007, the CGA Law Firm's title insurance company celebrated its 5th anniversary since its inception. CGA Law Firm created a title insurance company so we could handle our client's matters related to the provision of title insurance for residential and commercial real estate acquisitions and refinancings in-house. We now employ two full-time title searchers, commonly known as abstractors, and five full-time real estate paralegals with combined real estate experience in excess of 100 years. For your benefit these full-time real estate professionals are accessible at a moment's notice and can meet the most stringent time deadlines residential and commercial real estate purchasers face.

In addition to ensuring your real estate transaction proceeds in an expeditious and professional manner, our highly skilled staff is able to access our attorneys immediately when a problem arises that requires a legal solution. The end result is that your transaction typically proceeds in a fashion that is so seamless you may not have been aware that a legal obstacle was encountered and resolved in the first place.

While real estate purchasers may select from a variety of different types of title insurance companies: stand alone title companies, bank-owned title companies, and realtor/real estate agency owned title companies; only CGA's title insurance company offers you immediate access to settlement services from a licensed Pennsylvania attorney at no additional charge. CGA has expanded its services to better assist you with various title insurance matters; the development includes the following items: 60 year title search; one-owner title search; individual lien searches (in both local and state records); corporate lien searches (in both local and state records); document retrieval of matters recorded of public record; and certificates of title. If you have any further questions or needs regarding your acquisition or financing of commercial or residential real estate please feel free to contact CGA Law Firm at (717) 848-4900 and we will be more than happy to assist you.