August 2012 Archives

Property Taxes: California Property Owners Should Consider an Appeal

August 29, 2012,

As a business and real estate attorney in Santa Clara County, I have often heard our Tax Assessor, Larry Stone, talk about how hard his office is working to reappraise properties to make sure the property tax assessment roll is correct. However, I just spoke with a California homeowner who is close to losing her home and is being forced to list it for sale. As we spoke, I looked up her address online and found that her property taxes were based on a value far in excess of the amount her real estate agent has told her she should be able to sell for. This is costing her thousands of dollars per year in extra property taxes.

This conversation came at a time that my own property tax assessments from Santa Clara County have just arrived in the mail, reminding me that I need to reconsider the comparable sales in my area and decide whether it is time to contact the Assessor's Office with the information. When you get that yellow notice in the mail, do not ignore it. Take a close look at the information on the card and see if it is in line with what you think your property is worth. If it is not, you should call the Assessor's Office, provide them with any supporting documentation, and see if you can get the staff to agree with you. If they do not, in Santa Clara County you have until September 17, 2012 to file an appeal. Under Proposition 13, your base-year value (the value when you bought your property) can be increased by no more than 2% per year. However, if the market value has fallen below the adjusted base-year value as of a January 1st lien date, you can get a Proposition 8 assessment which is the lesser of the Prop. 13 adjusted base-year value or the market value. Keep in mind that once you get a Prop. 8 assessment, you are no longer limited to a 2% increase per year. If the value jumps up, your assessment can recover up to the Prop. 13 level at any time. For example, if you buy a home for fair market value of $1 million and the value goes up $50,000 immediately after you buy it, the assessment is limited to a 2% increase over the base-year value, or $1,020,000 (instead of $1,050,000). However, if the value of your property falls to $900,000 the following year, you can get a Prop. 8 assessment of $900,000. The following year, your assessment is not limited to $900,000 plus 2%, but can recover all the way up to the base-year plus 2% per year for each year since the purchase year.

During the appeal process, you must pay the assessed property taxes. Then, if you get the value reduced, you must actually call and ask for your refund check.

Santa Clara County includes the cities of Santa Clara, San Jose, Sunnyvale, Cupertino, Milpitas, Monte Sereno, Palo Alto, Mountain View, Los Altos, Los Altos Hills, Saratoga, Campbell, Los Gatos, Morgan Hill, and Gilroy.

For information on how to file an appeal, see the Board of Equalization website, there is a video to assist you available at www.boe.ca.gov/info/AssessmentVideo/AppealAssessmentIndex.html. To contact the Santa Clara County Assessor's Office, go to http://www.sccgov.org/sites/scc/Contacts/Pages/default.aspx.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

Your Company Has Just Signed an Acquisition Agreement - Now What?

August 6, 2012,

As a Silicon Valley corporate attorney who often represents the selling company in mergers and acquisitions, I know that a huge amount of effort goes into signing an acquisition agreement. As I have discussed in past blogs, issues from earnouts to preparing exceptions schedules will have turned into countless hours of negotiations, documentation, and late night telephone calls for both the seller and the acquiring company and their corporate lawyers. In the end, the agreement is signed and everyone gets some well-needed sleep, only to wake up to the final sprint to closing.

In this blog, I will discuss what happens when a deal does not close simultaneously with the signing of the acquisition agreement. Similar to a contract for buying a house, many merger and acquisition deals require the buyer and seller to sign an agreement, and then perform additional items before the final closing.

At the same time as the deal team pours over the necessary closing tasks, there is still a business to run. Even though the seller remains in control of the business, the buyer wants to make sure it eventually acquires a company that is in good working order. For this reason, commitments are designed to guide business operations pending the closing.

Many aspects of the "operational covenants," as they are sometimes called, are fairly standard. Material actions, such as entering into major contracts or making substantial capital expenditures, are called out as matters requiring the buyer's consent before proceeding. The parties will negotiate the thresholds that are required for materiality and will typically allow exceptions for activities in the ordinary course of business.

In addition to the operational issues, there are a number of deal-oriented provisions. The first is our old friend the no-shop provision, explained in a prior blog ("Merger and Acquisition Letters of Intent - Binding the Nonbinding," May 30, 2011). These provisions may become more involved than those in a letter of intent, and arguments revolve around, among other things, exceptions for unsolicited offers which a board believes must be accepted to satisfy its fiduciary duties, and the length of time the no-shop restriction will exist.

A buyer will typically want to continue to have access to the seller's books and records. Once the deal is signed, the desire of the buyer to speak directly with the seller's employees and customers increases. Sellers are reticent to allow a buyer to speak directly with the seller's material customers, even if the deal has been publicly announced. To the extent the buyer needs to speak with the seller's customers, the specific customers to whom the buyer can speak are usually specifically negotiated. The buyer will also want to speak directly with the seller's key employees. Negotiations often focus on the buyer's ability to terminate the transaction if certain key employees do not continue with the business.

A key aspect of deal-oriented provisions is the parties' commitments to secure the necessary stockholder and regulatory approvals. As part of the stockholder approval process, the buyer will usually require that the seller's Board of Directors unanimously recommend stockholder approval. Often, voting agreements are signed as part of the acquisition agreement signing to lock-up the votes of the major stockholders.

Regulatory approvals can run the gamut from simple bulk sales notices and escrows (for small, asset-based transactions), to Premerger Notifications to the Federal Trade Commission and Department of Justice (for multi-million dollar acquisitions). Timing issues on these matters need to be considered carefully, due to the need to prepare necessary filings and provide appropriate notice.

A critical post-signing activity is the Seller's need to secure consents to the transaction from important suppliers and customers. Often, a seller's material contracts will contain provisions that require the other party to approve a transaction to prevent the contract from being breached. Securing this consent can be a quick formality, or a delay ridden nightmare. It is very important for the seller to determine which contracts require the approval of the other party to the contract, and the process, and time required, to secure the necessary approval. The best approach is for the seller to review all of its materials agreements even before the deal starts, so that the approval process can begin very quickly after the acquisition agreement is signed.

Although signing an acquisition agreement is a giant step forward in any transaction, there can be a number of tasks ahead that must be handled very carefully to ensure the long sought closing actually will occur. An experienced team is essential in this regard

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific Questions relating to this article should be addressed directly to the author.