Residual clauses in an NDA for M&A transactions, tax rules driving impact investments, and more in this issue of Fund Forum

Residual Clauses in an NDA for M&A Transactions

Residual clauses in the context of a non-disclosure agreement (NDA) for an M&A transaction are increasingly common and raise important issues for sellers in particular. A typical residual clause insulates a party receiving confidential information from being liable if it uses information retained in the unaided memory of an employee or other representative of the receiving party. Thus, a residual clause is an exception to the basic thrust of the NDA that the receiving party cannot, subject to certain fairly standard exceptions, use any information disclosed by the disclosing party. From a seller's perspective, the best approach is to fight against the inclusion of any type of residual clause in an NDA. Nonetheless, this may not be possible in all contexts, and practical considerations often require compromise. This article analyzes two model clauses and attempts to highlight issues that sellers should attempt to address in a residual clause.

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Tax Rules Driving Impact Investments

Mainstream funds have recently embraced the concept of impact funds, or funds focused on generating social and economic returns. A recent article estimates that approximately $230 billion has been invested in impact funds. These funds are being managed by some of the largest and best-known managers in the private equity world. These managers are responding to demands from potential investors, as more and more people are animated by a desire to invest in impact funds and satisfy their twin goals of capital returns and creating a beneficial impact on the local, regional, and global economies. Part of the basis for limited partner investment in impact funds is the need for U.S.-based private foundations to satisfy minimum annual payout requirements imposed by the Internal Revenue Code. While many foundations fulfill these quotas via charitable grant making, many foundations also seek to do so by making "program-related investments.”

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So You Want to Buy or Sell a Biologics Company? The Impact of Vanda on Biologics IP Due Diligence

Conducting IP due diligence for biologics products can require some significant forethought. In addition to properly valuing the existing IP from a validity, infringement, and financial perspective, there's also concern regarding potential IP obstacles to commercialization that require not only a thorough freedom to operate search, but creative application and analysis of the results, as the attorney is tasked with predicting how those results might be used offensively against the target product and/or portfolio. Recently, however, the Federal Circuit made this task even more complicated in its April 13, 2018 decision in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals, 887 F.3d 1117 (Fed. Cir. 2018).

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A Safe Harbor for PE Funds in FIRRMA

The National Defense Authorization Act for 2019 (NDAA), which includes the Foreign Investment Risk Review Modernization Act (FIRRMA), was signed into law by the president on August 13, 2018. FIRMMA is designed to "modernize and strengthen" the Committee on Foreign Investment in the U.S. (CFIUS), an interagency committee led by the U.S. Department of Treasury, which reviews proposed foreign investments in U.S. businesses and can advise the president to block such deals on national security grounds. In response to concerns from the private equity industry, the final version of the bill signed into law created a "safe harbor" for private equity funds. This article analyzes the changes in the bill, the safe harbor, and how funds with foreign investors may want to structure funds.

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Opportunity Zone Guidance Released – The Gateway to OZ Funds Opens

On October 19, 2018, the IRS released eagerly awaited regulations, a revenue ruling, and a tax form that provide guidance needed to implement the Opportunity Zone Fund program, which was enacted as part of the 2017 tax reform legislation. The Opportunity Zone Fund program offers substantial tax benefits to taxpayers that reinvest capital gains from the sale of existing investments into a Qualified Opportunity Fund (QOF). A QOF must invest in property or businesses in certain low-income communities, identified as Qualified Opportunity Zones. Timely investment in a QOF makes taxpayers eligible for deferral of tax on and a partial basis stepup with respect to the rolled-over old gain and an exclusion of 100 percent of gain attributable to the taxpayer's new investment in the QOF. Please join us on December 12 for a complimentary webinar, "Opportunity Zones: A New Tax Incentive," on this topic.

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Note From the Editors

Thank you for subscribing to Venable’s Fund Forum newsletter. We are pleased to re-launch this newsletter with a broader and more transactional focus, with attorneys from a range of practice areas contributing. If there are specific topics you’re interested in or if you have any questions, please feel free to reach out to us or the contributing authors.