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Attorney Spotlight: Philip von Mehren on How an Interest in Latin American History and Policies Shapes His Cross-Border Transactions Practice

Tue, 09 Sep 2025 00:00:00 -0500

Partner Philip von Mehren has lived and worked in many countries around the world, which fueled his interest in cross-border deals in Asia, Europe, and Latin America. For the past decade, he has worked in Venable's New York office, negotiating U.S.-based and cross-border acquisitions, strategic partnerships, and dispositions. He has also advised governments on various legislative initiatives.

Crain's New York Business recently named Philip to its list of Notable M&A Dealmakers. In this Q&A, Philip discusses what's new in the cross-border space, challenges for clients, and how his development work in Asia led him to study the law.

Q: What are some trends you are seeing in the cross-border transactional space?

Philip: I've been doing cross-border deals for more than two decades, and years ago you would see a lot of privatization of assets, such as petrochemicals, telecommunications, mining, ports, or roads. Now a lot more cross-border focus is on technology, financial assets, as well as consumer-focused companies, such as fast food. There's been a tremendous growth in the middle class in developing economies that's also led to the expansion of companies that cater to the interests and desires of that group. Investment in education and other sectors is growing in places like Latin America, Africa, and parts of Asia. I spend a lot of time thinking about those trends, what they mean, and what will happen next in the global economy.

Q: What are some of the challenges for entities hoping to enter cross-border deals?

Philip: Cross-border transactions tend to be exponentially more complicated than transactions that take place wholly within a single jurisdiction. Therefore, you need to have lawyers and businesspeople who understand the nuances of negotiating a transaction that's governed by, for example, New York law, but then has to be drafted in a way that encompasses and recognizes the peculiarities of, say, Mexican law. You can't just regurgitate contractual provisions used in wholly domestic transactions. The lawyers have to customize the various parts of the transaction to reflect the reality on the ground and fit the provisions into the document that governs the sale transaction.

In the last year or so, some clients have sought to sell assets that they thought might be sensitive to some of the policies that Trump talked about, including, but not limited to, increasing tariffs. Some businesses are extremely sensitive to tariff rates, and, as a result, I think overall cross-border transactions have slowed down a lot since the election. As the new normal becomes clearer, cross-border deals should return in force. From a business perspective, a lot of people are also worried about the supply chain right now.

Q: When you think about your day to day, is there a particular part of your practice that you find most interesting or rewarding?

Philip: What I find most striking about cross-border transactions is the need to understand the nuances of local law and how these nuances will impact the transaction. You need to understand a lot about the law in these local jurisdictions and how the language in the acquisition agreement is impacted.

I also find this area rewarding because when you do cross-border transactions you inevitably end up dealing with lawyers and businesspeople from different backgrounds and countries. I've always found that the variety of people that you work with in these transactions makes it inherently engaging.

Q: How did you come to focus your practice on cross-border M&A?

Philip: I joined the Experiment in International Living when I was a teenager. I went to Mexico and lived with a family, then went to Bolivia twice and lived with two different Bolivian families. Those experiences had a profound impact on my interest in Latin America. In college I reoriented my courses to focus on Latin America and development. Subsequently I earned a master's degree in Latin American history from Cambridge University.

After graduate school, I spent several years working in Thailand and Nepal. I lived in small villages, implementing applied nutrition programs for pregnant and lactating women and children 0-5 years old. I found that work to be extremely rewarding, but decided to go to law school. Once I graduated from law school, focusing on cross-border M&A seemed a natural progression, given my background.

After law school, I ended up searching for opportunities to live in Mexico. In the wake of the passage of NAFTA, I lived in Mexico City for two years and wrote a book on the profound impact NAFTA had on Mexican law.

Q: Can you tell me about your work helping future generations of dealmakers?

Philip: When I was a young lawyer, one of the best M&A practitioners I worked for took me aside, and we literally spent every day for three or four weeks in his office discussing the finer points of an M&A transaction. He quizzed me on issues, which forced me to understand the big picture as well as each of the building blocks. Those sessions were invaluable to me as I came to see both the "big picture," as well as how the pieces all fit together.

What I find very useful with the associates I work with is that, often, I will have them look at individual parts of the transaction document, and I'll ask them, "What's the market practice with respect to XYZ issue?" or I will ask them to give me a presentation on various parts of the transaction. They then come back, and they not only have contributed to the specific transaction but have also gained a bigger insight into the building blocks of what makes up an acquisition agreement. Ultimately, mentoring associates is an incredibly important and rewarding part of the practice of law. I have been very lucky to have mentored some incredibly talented and insightful young lawyers.

Q: What makes Venable the right platform for your practice?

Philip: Venable has an exceptional team for cross-border transactions: Our International Tax Group, led by Friedemann Thomma, has vast experience with structuring transactions for cross-border deals. Several Venable corporate lawyers were trained in civil law systems, which facilitates insights into how to draft a New York-regulated acquisition document governing the purchase and sale of non-common law entities. In addition, our IP, Labor and Employment, and Litigation teams all have extensive experience in supporting multijurisdictional transactions. All in all, our cross-border team is exceptionally capable and nimble.

Learn more about Venable's Mergers and Acquisitions Practice

How to Make a Deal

Wed, 27 Aug 2025 00:00:00 -0500

On August 27, Chuck Morton published "How to Make a Deal" in Law360’s series, Law School’s Missed Lessons. In this feature, Chuck shares insights on what law schools often overlook when preparing young lawyers for the complexities of transactional law. The following is an excerpt:

Law schools do many things well, but preparing lawyers for the nuances of a transactional practice is not among them.

Being a successful M&A lawyer requires an understanding of a broad spectrum of legal disciplines to assess and allocate risk. It also requires an ability to decipher applicable cases and statutory provisions, and to apply those lessons in documents with clarity.

While precision in drafting is essential, a basic understanding of finance and accounting principles can also be required. These challenges, and others, make the early years of practice particularly important for young lawyers in this field.

These six lessons are intended to help young M&A lawyers progress more rapidly toward becoming a seasoned, trusted adviser who guides clients confidently in complex transactions.

Click here for the full article.

Happy Birthday, Tysons: Joe Schmelter and Ked Whitmore on Celebrating 40 Years in Tysons Corner

Tue, 01 Jul 2025 00:00:00 -0500

This year, we have a lot to celebrate at Venable. Not only is it the firm's 125th birthday—it is also the 40th anniversary of our Tysons office. Staffed with nearly 40 attorneys offering a wide array of services, the Tysons office began as a four-lawyer team in 1985.

We spoke to former partner-in-charge of Tysons, Joe Schmelter, and current partner-in-charge, Ked Whitmore, to find out more about the evolution of the office and its important role in Venable's history.

Q: Joe, you've been at Venable for 35 years. Ked, you've been here 17 years. But, neither of you started at Tysons. What drew you to the office?

Ked: I started in the Towson office, but I grew up in Fairfax County. So, I came home to an area that I knew well, and that really suits my land use and zoning practice because it is related to local government. Having local knowledge and contacts gives you a real advantage in doing this kind of work. I also liked the small-office feel within a larger firm. It's a place where you can come in and know everybody but still have the tools, resources, and world-class legal knowledge in all facets and practice areas.

Joe: My first six or seven years I was in Venable's Baltimore office. Believe it or not, the entire time that I was working there, I was living in Vienna, Virginia and driving past the Tysons office on my way to Baltimore. That's because even in the mid-90s, Venable's Tysons office was still primarily focused on litigation and government contracts. There were no deal lawyers in Tysons. Once they brought on a lateral transactional partner, they were seeking a senior associate to work on some deals he brought over, so that was my opportunity to jump ship and come to Tysons.

Q: How have the service offerings of the Tysons office shifted since you joined? And how have the industries of clients based in Northern Virginia changed?

Joe: The founding partners focused on commercial and white collar criminal litigation, government contracts, and estate planning. But now, our Tysons office is really a microcosm of the Venable firm at large. Sure, there are a few practices that we don't have, but really, we are a general-practice office in a large general-practice firm that covers all major services.

Ked: Tysons is unique in that there are many places in the country where suburbs have sprung up around a city. Rarely does a suburb spring up and morph into a more urban area. You can track the trajectory of Tysons and Northern Virginia with the rise in government contractors over the last few decades. That's been a primary driver for the economy. The business environment is now morphing into one where a lot more private companies are diversifying the economy here. It's very different in terms of types of clients, and obviously is a different jurisdiction, which means it's going to be different in terms of the legal elements.

Q: What can you tell me about the office culture?

Joe: I told a story at our 40th anniversary reception about coming to Tysons from the Baltimore office, which was Venable's headquarters office at the time. There were 150 to 200 lawyers in Baltimore, and out of necessity it was a rather formal place. When I came out to Tysons, I noticed immediately that there were no name tags outside the individual offices of the lawyers. That has changed, of course, but at the time we didn't have them. [Tysons office founding partner] Bill Dolan was dead set against name tags, and his reasoning was we already knew who everyone was. That spirit has not changed.

Q: What are you most proud of concerning the evolution of the Tysons office and the office today?

Ked: People tend to stick around a long time in the Tysons office. Law firms are always tested when they have to make a generational transition, and we've been lucky that folks have stuck around, allowing us to go 30 or 40 years before having to make a generational shift.

Joe: I'm proud simply that we've stayed on the map in Tysons. I've seen different waves of law firms come out to Tysons, and Northern Virginia generally, and open outposts only to stick around for five or 10 years and then close those offices. Venable has kept a steady presence this entire time. The number of lawyers and staff has ebbed and flowed over the years, but from the beginning we've recognized that Northern Virginia is a different market from across the river in DC. Our clients certainly share that view.

Q: What role do you feel the Tysons office has played in Venable's history and/or culture?

Ked: We exemplify being able to do world-class, high-level legal work with grace, familiarity, and friendliness. This is demonstrated by the fact that people stay here for a long time, which is something the firm actively promotes. It's a real testament to what a great place this is. People choose to make and spend their careers here.

125 Years Young

Want to keep the party going? Visit 125 Years Young to learn more about how we're marking the firm's 125th birthday, explore major milestones, and read about other anniversaries we're celebrating in our offices around the country.

Type F Reorganizations: General Overview and the Problem of Dissenting Shareholders

Wed, 19 Mar 2025 00:00:00 -0500

Choosing the type of entity to form and where to form it are two of the most common early legal decisions that founders make when they start their own businesses. Founders typically register their companies in the state where they conduct business, which is often the most logical choice. Legal considerations are likely to be secondary when the company is still ramping up and building its business operations. However, eventually, legal considerations may materially influence certain business decisions involving such factors as the applicable tax rates and reporting obligations, a shift in the company's business direction, the founders' exit strategies, and requests of potential investors. If it is determined that the company needs to change its entity type or jurisdiction of formation, it is critical to involve tax and legal advisors as soon as possible to map out the most efficient and advantageous structure and path thereto.

If a company desires to change its entity type or re-domicile to another location as its formation jurisdiction, there are several reorganization tools that companies can employ. One option is a tax-free "F Reorganization" under Internal Revenue Code (I.R.C.) §368(a)(1)(F), which defines the F Reorganization as a "mere change in identity, form, or place of organization of one corporation, however effected."^[1] The resulting corporation is considered the same as the original corporation, generally carries the same tax attributes as the original corporation, and may carry back a net operating loss or net capital loss to a taxable year of the original corporation. The I.R.C.'s vague F Reorganization definition of "however effected" aside, there are, in fact, six requirements that a series of transactions must satisfy to qualify as an F Reorganization:

The resulting corporation's stock must be distributed to the original corporation in exchange for the original corporation's stock.
1. Example: Stockholders Bob and Frank each own 50% of the original corporation. Each transfers his 50% in the original corporation in exchange for 50% in the resulting corporation.
The corporate ownership must remain the same.
1. Example: Only Bob and Frank can own stock in the resulting corporation immediately after the conclusion of an F Reorganization. If Chuck becomes a stockholder alongside Bob and Frank as a result of the reorganization, it does not qualify as an F Reorganization. If Bob ceases to be a stockholder as part of the reorganization, it does not qualify as an F Reorganization.
The resulting corporation cannot have assets or attributes prior to an F Reorganization (but note that there is a narrow de minimis exception).
1. Example: The resulting corporation cannot accept investments from anyone prior to an F Reorganization and cannot hold any material property.
The original corporation must liquidate, but please note that this is not the same as the legal dissolution of the corporation.
The resulting corporation is the only acquiring entity, and
The original corporation is the only acquired entity.
1. Example: Essentially, there can be only two corporations going through an F Reorganization. Only one company may initiate such an F Reorganization, and only one company may result from the F Reorganization. If multiple entities are involved at either end of this process, the reorganization does not qualify as an F Reorganization.

A tricky situation may arise if the original corporation has multiple stockholders, and one of those stockholders does not want to participate in the F Reorganization. This complicates the reorganization because the equityholders must collectively agree to contribute their shares in the original corporation to the resulting corporation. Typically, each equityholder signs the reorganization agreement and a stock power actually transferring his or her shares. What are the company's options if an equityholder does not want to participate in the F Reorganization?

If the equityholder wants to exit the company entirely, this can be done before or after the F Reorganization without jeopardizing the tax-free treatment of the F Reorganization. Using our example above, if Bob does not want to go through with the F Reorganization, then immediately before or after the F Reorganization, the company can pay Bob cash for his shares of stock. This would not jeopardize the tax-free treatment of the exchange of Frank's shares in the company with the resulting corporation's comparable shares. Regulations specifically allow for this scenario without invalidating the company's F reorganization efforts. The Regulations^[2] provide an example where the company redeemed 75% of its issued stock right before the reorganization.

Alternatively, if a minority stockholder does not want to participate in the F Reorganization but isn't amenable to a buyout or redemption, such reorganization may still be achieved without the stockholder's consent if it is structured as a merger. Specifically, the original corporation can form a wholly owned subsidiary, HoldCo, which would then form another wholly owned subsidiary, MergerCo. These formations do not require unanimous consent of the original corporation's stockholders. HoldCo then can cause MergerCo to merge into the original corporation, with the original corporation surviving that merger as the resulting corporation. Such a merger transaction would need to be approved by the requisite percentage of the stockholders as required by applicable state law or the original corporation's bylaws, as applicable, but it is unlikely that it will require unanimity. As a result of such a merger, HoldCo will become a sole owner of the resulting corporation, and the stockholders of the original corporation will become owners of HoldCo. The corporation thus has undertaken the typical F Reorganization restructuring (i.e., the creation of a holding company above the operating company without incurring tax), but without the unanimous consent of the stockholders.

Even though the law offers a framework to resolve scenarios like the one described above, it is important to keep in mind that, if a stockholder takes a position that it does not want to participate in the F Reorganization and/or sell the stockholder's investment in the company, the chances of conflict are high, and the situation needs to be handled delicately. It is possible that a dissenting stockholder will not want to sell its shares and will prefer to stick with the status quo. In that case, the stockholders should take a close look at the entity's governing documents (e.g., operating agreement, stockholders agreement, etc.) and determine if they contain any redemption provisions and drag-along or call rights. The redemption option may not be available if the governing documents are silent on the matter. The merger option discussed above may be available, depending on the ownership percentage held by the dissenting stockholder. Finally, the stockholders may consider bringing a legal action forcing the straggling stockholder to sell its shares, but that would entail a protracted legal process with uncertain results and potentially significant costs—most would consider such legal action a "last resort."

In sum, business owners should consider an F Reorganization whenever there is a need to convert a corporation into another legal entity or change its jurisdiction. This type of restructuring is a popular strategy in M&A contexts because it permits a buyer to buy equity in the resulting corporation, with such transaction being deemed an asset sale and offering the buyer better tax treatment, among other benefits. However, an F Reorganization requires taking specific legal steps in a particular order, such that coordination among the business principals and their legal and tax advisors is crucial and should be initiated sooner rather than later.

Questions? If you have questions or concerns regarding this client alert, please contact the authors, any member of Venable's Corporate Group, or your regular Venable contact.

[1] I.R.C. § 368(a)(1)(F).

[2] Example 2 of Prop. Reg. §1.368-2(m)(4)

Event in Review: Major Fraud and Abuse Laws: Anti-Kickback and Self-Referral Prohibitions and False Claims

Tue, 19 Nov 2024 00:00:00 -0600

Investment in the healthcare industry requires careful consideration, as it involves numerous distinct areas of the law. Venable's Private Equity Investment in Healthcare webinar series explores the unique issues and timely developments that shape deals within the industry.

In the third webinar in this series, partner John Roberts moderated a conversation between partner Valerie Cohen and associates Morenike Oyebade and Sophia Porotsky in a discussion of the major federal fraud and abuse laws, and the risks involved in private equity investments in the healthcare sector.

The False Claims Act

The False Claims Act (FCA) is a powerful tool for regulators and whistleblowers seeking to punish fraud against the government, particularly in the healthcare sector. In fiscal year 2023, the U.S. Department of Justice (DOJ) reported that nearly 67% ($1.8 billion) of the $2.68 billion in FCA settlements and judgments involved healthcare organizations. In fiscal year 2022, healthcare was involved in nearly 80% ($1.7 billion) of the more than $2.2 billion in FCA settlements and judgments.

Under the FCA, any person who knowingly submits, or causes to be submitted, false claims to the government (or makes a statement material to a false claim) is liable for three times the government's damages plus civil monetary penalties of up to $27,000 for each false claim. The FCA also allows individuals a private right to file qui tam lawsuits on behalf of the government against those who have defrauded the government. Whistleblowers, known as "relators," who bring these cases and succeed may receive 15% to 30% of the amount recovered.

In addition to the federal FCA, more than 30 states have enacted their own FCA statutes. These state-level laws are of particular concern to healthcare organizations that deal with Medicaid payments. In November 2023, the U.S. Department of Health and Human Services Office of Inspector General released non-binding General Compliance Program Guidance (GCPG) to help healthcare entities understand fraud and abuse laws, strengthen compliance programs, and mitigate risks associated with fraud and abuse.

Private equity (PE) firms need to pay attention. Since at least 2019, many PE firms have settled FCA enforcement actions and litigations for government claims that those firms failed to adequately address practices of their portfolio companies that, according to the government, may have run afoul of healthcare laws.

The Anti-Kickback Statute

The federal Anti-Kickback Statute (AKS) is a criminal statute that bars requesting, receiving, offering, or paying "remuneration," such as kickbacks, bribes, or rebates, directly or indirectly, in exchange for referrals or payments for the provision of (or for arranging the provision of) a drug or medical service for which any portion is paid by a federal healthcare program. For purposes of the AKS, "remuneration" includes anything of value, whether in cash, in kind, or other form. The AKS goes hand in hand with the FCA: a civil FCA claim can be predicated on a violation of the AKS, and, conversely, a claim for payment resulting from an AKS violation is per se false.

When looking at PE firm investments through the lens of the AKS, government scrutiny and enforcement have often focused on the corporate structure and economic incentives of the PE firm model. While, traditionally, the PE firm structure has shielded fund managers and investors from liability related to their portfolio companies, the DOJ has recently been targeting both the portfolio company and the PE firm. For example, in 2019, a company reached a $21 million dollar settlement with the DOJ, on behalf of both the portfolio company and the PE firm, to resolve DOJ accusations that the PE firm aided the portfolio company in orchestrating a kickback scheme to prescribe compound creams and vitamins reimbursed by TRICARE, a federal healthcare program.

The Stark Law

The Physician Self-Referral Law, commonly known as the Stark Law, broadly prohibits physicians from profiting from self-referrals for "designated health services" (DHS), payable by Medicare or Medicaid, to entities with which they have or their immediate family member has a financial relationship, through either ownership or compensation arrangements. The Centers for Medicare and Medicaid Services (CMS) publishes an annual updated list of all DHS, so providers are aware of what falls under the Stark Law.

The Stark Law imposes strict liability on defendants without requiring proof of intent to violate the law. However, there are dozens of statutory and regulatory exceptions that allow otherwise prohibited referrals. To qualify for any one of those exceptions, all elements of that exception must be satisfied. Common exceptions include renting office spaces, bona fide employment relationships, personal services arrangements, and in-office auxiliary services.

Recently, there has been an upward trend in using Stark Law violations as a predicate for civil FCA claims. For example, in June 2022, Steward Health Care System (a for-profit hospital system owned by a private equity firm) and several of their related corporate entities agreed to pay $4.7 million to resolve allegations that they had relationships with several physicians and physician practice groups that violated the Stark Law, the FCA, and the AKS. Since then, Steward Health Care has struggled—filing for bankruptcy, defending against litigations, and addressing congressional concerns. Penalties for violating the Stark Law can include both fines and exclusion from participating in Medicare and Medicaid.

Mitigating These Risks

There are many steps private equity firms can take to mitigate risk.

Prior to acquisition, buying PE firms should perform a compliance assessment of the target entity's billing, compensation, and referral practices, and of its vendor relationships to identify potential risks under the Stark Law, the AKS, and the FCA. In turn, target entities should perform their own pre-acquisition compliance check-ups to be ready to address questions that may arise during diligence
When identifying an arrangement that may implicate the Stark Law, the AKS, or both, it is generally best to start with a Stark assessment, as it is a strict liability statute. If the arrangement complies with the Stark Law, it must then be evaluated for compliance with the AKS
Structure employment agreements to align compensation arrangements with fair market value and evaluate whether arrangements are commercially reasonable and independent of referral volume or value. Avoid incentive structures that link clinical decisions with financial gain
Assess the applicability of safe harbors and exceptions under the Stark Law and the AKS
Keep records of compensation decisions and compliance efforts, including analyses of transactions, fair market value assessments, and documentation supporting decisions. This can provide critical evidence in regulatory audits, investigations, or litigations
Perform routine internal reviews to evaluate controls for compliance with Stark, the AKS, and the FCA
Establish mechanisms for reporting compliance concerns. Implement protections against retaliation for whistleblowers to comply with FCA whistleblower provisions

Before entering any kind of deal, talk to one of our experienced attorneys. We invite you to learn more about Venable's Healthcare Group and Private Equity teams.

In the next session of this webinar series, members of our Healthcare and M&A teams discuss healthcare services licensure and change of ownership issues. If you are a healthcare investment professional and would like to learn about future sessions, please email Ari Markenson at ajmarkenson@Venable.com.

Forward-Looking Statements: Safe Harbors Compliance Guidelines

Tue, 03 Sep 2024 00:00:00 -0500

The securities law disclosure framework has evolved to encourage^[1]; companies acting in good faith to disseminate relevant projections pertaining to their businesses to the general public "without fear of open-ended liability."^[2] Sharing financial projections and other information about anticipated events and developments—in press releases, earnings calls periodic filings, and prospectuses of registered offerings—has become a routine practice for reporting issuers, but so have the stockholders' lawsuits alleging that such statements were fraudulent when forward-looking statements did not come to fruition or when they contain an error. Many issuers struggle to effectively leverage relevant safe harbors and craft appropriate safe harbor language, potentially inviting plaintiffs to capitalize on such errors.

Key Takeaways

Available defenses are not always interchangeable.
Projections must be non-misleading and be made in good faith, which sometimes means following the SEC's understanding of such terms, including the guidelines on the manner of presentation of such projections.
The most straightforward approach to protecting good faith non-misleading projections is to consistently comply with the Private Securities Litigation Reform Act of 1995 (PSLRA) requirements in drafting safe harbor legends.
Safe-harbor language should be incorporated not only in SEC filings but also in all other forms of communication containing forward-looking statements, including oral communications and social media posts.
Safe-harbor language must be meaningful, which necessitates regular review of and adjustment to PSLRA safe harbor templates.

Available Protections

There are three principal defenses available to immunize issuers from liability for forward-looking statements (should the anticipated result not come to pass) and to discourage frivolous litigation by private plaintiffs:

Rule 175^[3] promulgated by the SEC under the Securities Act of 1933 (Securities Act) and corresponding Rule 3b-6^[4] under the Securities Exchange Act of 1934 (Exchange Act);
amendments to the Securities Act (Section 27A)^[5] and the Exchange Act (Section 21E)^[6] enacted by Congress with the passage of the PSLRA; and
the judicially-formulated bespeaks caution doctrine.

The two safe harbor defenses and the bespeaks caution doctrine supplement and do not substitute for each other.^[7] Each provides a powerful liability-insulation tool. Issuers that implement them correctly and develop robust compliance practices will enjoy the maximum protection in the event of litigation. Issuers may also wish to use more than one approach for protecting their forward-looking statements, layering protections where available.

Rules 175 and 3b-6

Enacted under the Securities Act and the Exchange Act, respectively, Rules 175 and 3b-6 shield issuers (excluding registered investment companies) from liability for forward-looking statements contained in documents filed with the SEC. That means that forward-looking statements are devoid of the safe harbor protection:

in oral statements (other than those affirmed in SEC filings);
in documents furnished rather than filed with the SEC (such as information furnished under Items 2.02 and 7.01 of Form 8-K); and
in documents that are neither filed nor furnished with the SEC (such as press releases, social media posts, and other documents not posted on EDGAR).

To invoke protection under Rules 175 or 3b-6, a forward-looking statement must be made in "good faith" and with a "reasonable basis," in compliance with the instructions provided in Regulation S-K Item 10(b). Among other things, Item 10(b) of Regulation S-K (in its post-July 1, 2024 iteration)^[8] clarifies what constitutes a reasonable basis and gives examples of projections that would be considered misleading (and, therefore, outside the Rules 175 and 3b-6 safe harbor). For example, elective projection of only favorable items or presentation of sales or revenue projections without at least one of the measures of income—net income (loss) or earnings (loss) per share—would generally be considered misleading. The SEC Staff also generally considers it misleading to present projections based on historical financial results or operational history without presenting the relevant historical financial results or operational history with equal or greater prominence. Although before July 1, 2024, a legend identifying forward-looking statements and containing meaningful cautionary statements would be sufficient to qualify for safe harbor protection, the issuers should be careful to comply with the new presentation rules.

PSLRA Safe Harbor

The PSLRA provides that, "in any private action … based on an untrue statement of material fact or omission of a material fact necessary to make the statement not misleading [an issuer or controlling person] shall not be liable with respect to any forward-looking statement, whether written or oral."^[9] In addition to protection from liability, the PSLRA has the corollary effect of a stay of discovery (other than discovery that is specifically directed to the applicability of the safe harbor) in all federal and some state courts.^[10] This bestows a major advantage because the cost of discovery is often the main factor causing issuers to settle, and plaintiffs may seek to use discovery to find a sustainable claim rather than to support claims initially alleged in the complaint. The PSLRA safe harbor is available for both oral and written forward-looking statements regardless of the media. Although providing the most extensive protection, the PSLRA safe harbor is available only to public companies and cannot be invoked by certain issuers or in certain circumstances and transactions:

Excluded Issuers	Excluded Transactions and Circumstances
"Bad actor" issuers ^[11]	IPOs
Penny stock issuers	Offerings of securities by blank check companies^[12]
Investment companies	Roll-up transactions
Partnerships	Going private transactions
Limited liability companies	Tender offers
Direct participation investment programs	Financial statements prepared in accordance with GAAP^[13]
	Section 13 filings

A forward-looking statement within the scope of the PSLRA can enjoy the safe harbor protection if it is (i) made without knowledge that the statement is false or misleading or^[14] (ii) accompanied by meaningful safe harbor language, which is close to the formula of the bespeaks caution doctrine discussed below^[15] and consistent with the requirements of Rules 175 and 3b-6 for cautionary language.

Bespeaks Caution Doctrine

The bespeaks caution doctrine, established, in some form, in every judicial circuit,^[16] is a judicially-created defense insulating forward-looking statements from liability. It is an important line of defense if Rules 175 and 3b-6 or the PSLRA safe harbor is not available. In order to enjoy the safe harbor, the statements must generally be accompanied by sufficient cautionary language and be made without intent to deceive investors. Although the exact standards vary from circuit to circuit, forward-looking statements made by issuers and the accompanying legends prepared in compliance with the PSLRA safe harbor are unlikely to fail to meet the requirements of the bespeaks caution doctrine in any circuit.^[17] Accordingly, compliance with PSLRA safe legending harbor requirements will almost certainly satisfy the cautionary language standards of the bespeaks caution doctrine.^[18] Unlike sister safe harbors, the bespeaks caution doctrine is available to both public and private companies. Hence, such legending should be included in any offering materials, regardless of whether the issuer is a reporting company or whether the offering is registered.

Puffery as an Additional Line of Defense

Immaterial statements cannot form the basis of a false or misleading statement supporting a securities fraud claim. Generally, non-specific expressions of optimism that are not objectively verifiable (not subject to being either proved or disproved) are considered to be mere puffery and, therefore, not actionable as a matter of law, because no reasonable investor would rely upon such statements. This includes vague statements of optimism, obvious qualitative buzzwords, and other statements not specific enough to be objectively verifiable are considered immaterial by default and, consequently, are not actionable.^[19]

As a defense, puffery may give some additional comfort to issuers in freely expressing their general goals and aspirations. For instance, the conclusion that "[at home fitness] is a trend that's here to stay" and the anticipation of a "fantastic year" characterized by "continued momentum in the foreseeable future" as a result of such a conclusion was deemed to be "'textbook cases' of corporate optimism[;]"^[20] the description of a drug or an invention as a "breakthrough" is also likely to be considered a puffery.^[21] Likewise, statements setting a general demeanor of the narrative (for instance, statements such as "successfully executing our growth strategy" and "do[ing] an outstanding job"^[22]) will more likely than not be deemed "puffery.". However, unlike the aforementioned defenses, reliance on a puffery defense should be approached with caution during the review and analysis of an issuer's documents. The effectiveness of a puffery defense heavily depends on specific facts and circumstances as well as potentially subjective interpretation by the trier of fact, evidenced by the wide range of statements that some circuits regard as puffery and other circuits do not.^[23] Moreover, to the extent that statements considered puffery are forward-looking, they can likely be protected by the three previously mentioned defenses with a higher degree of certainty. Despite these considerations, "puffery" provides an additional layer of insulation against potential securities fraud claims, and while not a primary line of defense, it can still be useful in specific situations (for example, in the case of unscripted oral communications). Finally, "puffery" serves as an important reminder that neither the market nor courts expect corporate officials to "present an overly gloomy or cautious picture of current performance and future prospects."^[24]

Maximizing the Safe Harbor Coverage

Issuers should seek to protect each forward-looking statement with the maximum number of available defenses. In an ideal-case scenario, all three protections may be invoked (but see below whether it is worth filing a document to rely on Rules 175 and 3b-6). To achieve this effectively, consider the following strategies.

A PSLRA-compliant safe harbor legend will be sufficient for all three safe harbors

The PSLRA safe harbor offers the broadest protection and an important procedural advantage—a stay of discovery—making it an optimal starting point. It should always be invoked when available. Compliance with the PSLRA legend requirements and ensuring that the forward-looking statements are made in good faith lay the foundation that meets the criteria of both remaining defenses. The bespeaks caution doctrine's protection is assured if the cautionary statement language aligns with the PSLRA safe harbor requirements. Similarly, a PSLRA-compliant safe harbor legend meets the criteria of Regulation S-K Item 10(b) for Rules 175 and 3b-6.^[25] Therefore, the forward-looking statement safe harbor compliance exercise should always start with the preparation of a PSLRA-compliant safe harbor. In situations where the PSLRA is not applicable (e.g., in the case of an IPO), simply removing the reference to the PSLRA in the legend, while keeping the rest unchanged, is the only necessary modification of the legend.

Evaluating the benefit of filing documents to obtain Rules 175 and 3b-6 protection

Forward-looking statements accompanied by a PSLRA-compliant statement or legend and made in good faith will likely be protected under the bespeaks caution doctrine. If such a forward-looking statement is made in a document filed with the SEC, it will also automatically receive protection under Rules 175 and 3b-6. For instance, if the issuer is not eligible for the PSLRA safe harbor protection because it is a limited liability company, its forward-looking statements (made in good faith and accompanied by a PSLRA-compliant legend) in Forms 10-Q and 10-K will be protected under Rules 175 and 3b-6 because periodic reports are filed with the SEC. Analogously, an issuer desiring to include forward-looking statements in its IPO prospectus (REITs, for example, commonly include projections showing future cash available for distribution in the so-called "magic page") can simply prepare a PSLRA-compliant safe harbor legend without the PSLRA reference^[26] to enjoy the protection of Rule 175 because the IPO prospectus is filed with the SEC.

The next consideration is whether to invoke the protection available under Rules 175 and 3b-6 when the forward-looking statement does not otherwise need to be filed. Specifically, the question is whether it is worth applying the protection of the rules to a forward-looking statement, thereby subjecting the statements to liability under Section 18 of the Exchange Act. For instance, an issuer ineligible for the PSLRA safe harbor wishes to discuss its future plans in a press release. Unless the press release is filed with the SEC, the issuer can rely solely on the bespeaks caution doctrine to protect its forward-looking statements. The issuer may elect to file the press release under Item 8.01 of Form 8-K, thereby availing the forward-looking statements in the press release of the protection of Rules 175 and 3b-6, but will face increased risk of exposure to private lawsuits under the higher liability standard of Section 18 of the Exchange Act. This decision is not straightforward, and issuers not eligible to rely on the PSLRA may wish to engage in further examination of the bespeaks caution doctrine case law in the applicable judicial circuit.

General Compliance with the Requirements of the PSLRA Safe Harbor Legend

The requirements of the PSLRA safe harbor legend for both oral and written statements are comprised of two components:

forward-looking statements should be meaningfully identified; and
the legend must contain "meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."

Neither component can be effectively addressed with boilerplate language.^[27] Resorting to a generic approach will jeopardize the availability of both the PSLRA safe harbor and the bespeaks caution doctrine.

Create a template of the PSLRA safe harbor legend

Although boilerplate PSLRA safe harbor language may be ineffective, a de novo preparation of the PSLRA safe harbor language for each instance is neither feasible nor sensible. Instead, issuers should develop at least one adaptable template for any oral or written forward-looking statements and edit it as necessary to fit the circumstances. Different formats might necessitate slight modifications to comply with the safe harbor requirements. Therefore, it is advisable to prepare templates for:

periodic filings (easily adjustable into a prospectus-related template);
press releases;
social media posts; and
oral presentations.

In special circumstances, such as a registration statement in connection with a merger and the corollary Rule 425 filings, additional tailored templates may be necessary.

Avoiding misuse of the PSLRA safe harbor legend

While it might seem straightforward, it is crucial to avoid the inclusion of the PSLRA safe harbor language in documents or oral presentations that do not contain forward-looking statements. This practice, though it may not directly affect the specific document, can lead to allegations that the issuer is not meaningfully employing the PSLRA safe harbor, thus potentially exposing unrelated statements to vulnerability under "boilerplate" attacks.

Identifying Forward-Looking Statements

The key issue in identifying forward-looking statements in a document or oral speech with the intent of ensuring PSLRA protection is whether the boilerplate-esque disclosures such as "all statements, other than statements of historical facts are forward-looking statements" and "you can identify forward-looking statements by the use of words such as 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'believe,' 'continue,' or other similar words" are sufficient to meet the statutory requirements. While specific facts and circumstances (including different SEC forms) of each disclosure can influence this determination, some general guidance can be offered.

Examples of forward-looking words and phrases are a better approach than a negative definition

Purported identification of forward-looking statements by means of a negative definition (i.e., stating the forward-looking statements are statements other than "the statements of historical fact") may not be optimal. This method places the burden of identification on investors and, therefore, appears to be inconsistent with the statutory intention of presenting investors with meaningful information.

Listing examples of words and phrases typically used in forward-looking statements is usually sufficient for periodic reports and registration statements. Based on the SEC's stance expressed in its amicus curiae brief submitted in Slayton v. American Express Co.,^[28] a disclaimer stating that "[t]he words 'believe', 'expect', 'anticipate', 'optimistic', 'intend', 'aim', 'will', 'should' and similar expressions are intended to identify such forward-looking statements" is typically enough to meet the statutory requirement. Issuers should remember that forward-looking statements may be identified by a variety of words and expressions, including such terms as "on track," "target," "forecast," "future," "upcoming," and many other, similar expressions, leading to an extensive and potentially cumbersome list of examples. Being overinclusive, however, is not problematic in this context.

Consider increased specificity in certain circumstances

A thorough list of keywords should be sufficient for the purpose of prospectuses, where identification of each forward-looking statement is impractical. In the context of periodic reports on Forms 10-K and 10-Q, such lists may be additionally "strengthened" by the identification of items of the periodic reports where forward-looking statements are most likely located (business, MD&A, legal proceedings, disclosure controls and procedures).

For press releases, current reports on Form 8-K, and similar documents with disclosures focused on an event or a topic, adding a specific sentence to identify particular forward-looking statements or their categories is prudent. For example: "This press release contains forward-looking statements relating to, among other things, the stages of the development of our new technology." This practice is also advisable for oral presentations, where identifying forward-looking statements can be more challenging for investors.

Identifying Important Factors

The second requirement of the PSLRA legend is to meaningfully convey information about factors that could cause actual results to differ from those projected. The starting point is usually the issuer's risk factors.^[29] The key question is whether the cautionary statement needs to represent all important factors or emphasize those most likely to impact actual results. Ironically, case law, on the one hand, suggests that including the entirety of the risks possibly affecting the company makes the cautionary language so general as not to be meaningful^[30] but, on the other hand, indicates the importance of referencing all factors that subsequently caused the issuer's forward-looking statements not to come to fruition,^[31] thereby tempting the drafter to reference as many risk factors as possible. It is still possible to focus the reader's attention on the most relevant risks without jeopardizing the protection of the PSLRA safe harbor. For example, the forward-looking disclosure on Form 8-K limited to the timing of a merger should include risks related to the closing conditions (such as the ability to obtain in a timely manner regulatory approvals, stockholders' approvals, the ability to maintain a required cash balance, etc.), but should not include the risks about the post-merger company (such as synergy and post-merger lawsuits), because such risks would not be apposite to the forward-looking statements.

Provide an extensive list of risks with a focus on company-specific and event-specific risks

Analogously to the identification of forward-looking statements, the approach to the identification of important risks should be determined by the type of filing or the format of the document or speech. For broad-scope documents like prospectuses and periodic filings, reference to most, if not all, relevant risk factors as bullet points seems appropriate, if not necessary. However, for more focused communications like press releases or oral statements on specific topics, listing every possible risk factor relevant to the issuer's business could make the cautionary language too generic, and therefore ineffective. Emphasis should be placed on warnings that pertain to the issuer and the event in question.^[32] For example, a press release about a merger should highlight risks directly related to the transaction, rather than an exhaustive list of all potential risks: "extreme weather conditions" should likely not be among the risks pertaining to the consummation of a merger. Additionally, "identifying important risks" does not necessarily mean copying and pasting the titles of all risk factors to the safe harbor legend: concise language is much more meaningful and user-friendly.

Combine incorporation by reference and the disclosure of the most important risks

In the case of oral forward-looking statements, the PSLRA provides that reference to a readily available written document containing the risks is appropriate, but it does not explicitly address written statements. Referencing periodic filings in the PSLRA safe harbor for written forward-looking statements is expressly permitted in at least one circuit.^[33] Although we wholeheartedly agree with such a position, it appears advisable to include the most critical risks directly in the cautionary statement legend and refer to less significant risk factors contained in the issuer's periodic reports (which is exactly what the issuer in the cited case did).

Update in a timely manner important risks when circumstances change

The efficacy of templates is essential for ensuring that forward-looking statements are protected under the PSLRA. However, lessons learned from case law^[34] emphasize the importance of updating the cautionary language with changing circumstances, particularly concerning the risks referenced. Specifically, risks identified in the cautionary language must be current, accurate, and relevant. For instance, following the development of a customized template for Rule 425 filings in connection with a merger, it is vital to regularly revise and update such template: once certain approvals have been received, the risk associated with the failure to receive these approvals should no longer be included in subsequent Rule 425 filings.

Misleading cautionary statements are never meaningful

The SEC^[35] and courts^[36] have consistently highlighted that cautionary language describing risks must not present known events as hypothetical: when risks already realized are described as merely potential risks, such misrepresentation renders the cautionary statement under the PSLRA meaningless.^[37] Doing this may disqualify the PSLRA language as not meaningful. For example, in the context of a merger agreement, an issuer's reference to potential defaults under existing loan agreements, if the issuer is aware that entering into the merger has led to actual defaults on those loans, renders the safe harbor legend meaningless and may render the PSLRA insulation unavailable.

Other Considerations

No need to isolate forward-looking statements from present-tense narratives, but intentional mixing will not alter the nature of statements either

The decisions in Wochos v. Tesla, Inc.^[38] and In re Quality Systems, Inc. Securities Litigation^[39] emphasize that the PSLRA does not require a clear-cut separation between forward-looking statements and those relating to current or past events in order to shield the forward-looking statements from liability; conversely, statements about the future can involve both non-actionable forward-looking elements and potentially actionable non-forward-looking components. Notably, these and other cases also confirm that the classification of a statement as "forward-looking" is based on its substance and not merely on its tense.^[40] Thus, the reaffirmation of future objectives, even when articulated in the present tense, remains protected as a forward-looking statement under the PSLRA. Even if intertwined with a protected forward-looking statement, an inaccurate or misleading statement of historical fact remains actionable.^[41]

The location of the PSLRA legend can be accommodated to preferences

A board of directors frequently has a preference as to where to locate the cautionary language in periodic filings. For example, there is a point of view that cautionary language should be a standalone item, should not be included within MD&A, and should be located at the front of a periodic report so as "not to distract the investors" from reading the "body" of a periodic report. Any such preference of the board of directors can be accommodated without the danger of jeopardizing the safe harbor, and the placement of the PSLRA safe harbor to the front of the periodic report or immediately preceding MD&A are both viable. We would caution, however, against placement of the PSLRA safe harbor language in the "back of the book" or in another unusual location, as one may argue that such placement may render the safe harbor language not meaningful.

Hyperlink the legend if the media does not permit its inclusion

When social media platforms or other media limit the number of symbols or otherwise render the inclusion of a PSLRA safe harbor legend impossible or impractical, the legend should be prominently provided through an active hyperlink. Although this practice has not been expressly blessed by the SEC, we do not see the reason why the SEC would oppose this, especially considering the analogous approach permitted with Rule 134 legends.^[42] While the legend can be included in a series of sequential posts (for instance, on X), a hyperlink will better ensure that the legend will be attached to the statement in case of reposting or other dissemination, which will not be the case with sequential messages. Issuers may choose to combine both methods—sequential messaging and hyperlinks—if they find it does not compromise the aesthetic qualities of the message.

SAFE Harbor Language for Oral Statements

When dealing with speeches and other oral communications—scripted and unscripted—that include forward-looking statements, additional considerations must be taken into account to ensure compliance with the PSLRA safe harbor requirements.

Covered speakers do not include underwriters

For oral statements, the PSLRA safe harbor protection is intentionally^[43] limited to statements made by the issuer or a person acting on the issuer's behalf, and statements made by underwriters on behalf of the issuer are not covered by the PSLRA safe harbor.

Statement about the document with additional information must accompany oral forward-looking statement

In addition to the identification of particular forward-looking statements and the risks associated therewith (which is a requirement for both oral and written statements), oral forward-looking statement legends must include a statement that additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in a readily available written document, and such document must be identified. This requirement suggests that even if a speech is not scripted, the PSLRA oral legend should be (unless there is absolute confidence in the speaker's ability to recall and articulate all required disclosures accurately).

Format and timing of the PSLRA legend may potentially render the legend meaningless

Logistical planning for announcing PSLRA legends is essential. For instance, if forward-looking statements are intended only for a Q&A session following a formal adjournment of an annual meeting, it may be inappropriate to announce the safe harbor legend before the meeting begins or state in such legend that oral forward-looking statements will take place during the annual meeting. Additionally, for unscripted speeches, clearly defining the topics to be discussed beforehand allows for the crafting of the safe harbor language in a meaningful way, ensuring the legend identifies relevant risks without being overly broad or generic.

Footnotes

[1] 17 C.F.R. §229.10(b) (2024), available here.

[2] Securities Litigation Reform Act, H.R. Rep No. 104-369, at 32 (1995) (Conf. Rep.), available here.

[3] 17 C.F.R. § 230.175 (2024), available here.

[4] 17 C.F.R. § 240.3b-6 (2024), available here.

[5] 15 U.S.C. § 77z-2, available here.

[6] 15 U.S.C. § 78u-5, available here.

[7] Securities Litigation Reform Act, H.R. Rep. No. 104-369, at 46 (1995) (Conf. Rep.), available here.

[8] The final rules (relating to the offering of securities by special purpose acquisition companies (SPACs)) are available here.

[9] 15 U.S.C.A. § 77z-2(c)(1); 15 U.S.C.A. § 78u-5(c)(1).

[10] See generally Ocampo v. Williams, No. 21-CIV-03843, slip op. at 9 (San Mateo Cal. Super. Ct. July 25, 2022; Louis Loss, Joel Seligman & Troy Paredes, Securities Regulation 11.D.4, fn. 530 (6th ed. 2021).

[11] A "bad actor" for PSLRA purposes means any issuer who, within the 3-year period prior to making the forward-looking statement, was convicted of any felony or misdemeanor described in 15 U.S.C.A. § 78o-(b)(4)(B) or was the subject of a judicial or administrative decree or order arising out of a governmental action (i) prohibiting future violations of the antifraud provisions of the securities laws, (ii) requiring that the issuer cease and desist from violating the antifraud provisions of the securities laws, or (iii) determining that the issuer violated the antifraud provisions of the securities laws.

[12] This term now includes SPACs solely for the purposes of the PSLRA due to the amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2 made by the SEC as a part of "new rules and amendments to enhance disclosures and provide additional investor protection in initial public offerings by special purpose acquisition companies" adopted on January 24, 2024 and effective as of July 1, 2024. The final rules are available here. As the SEC stated the purpose of such amendments as to align the IPOs and de-SPAC business combinations, the amendment impacts solely de-SPAC transactions. Post de-SPAC companies will not be impacted by the amended rules.

[13] Which means that issuers should take care to locate forward-looking statements in MD&A rather than notes to financial statements, and when, as is common, similar disclosure is contained in both MD&A and financial statements notes, to remove any forward-looking statements from the notes.

[14] We do not believe that it would be proper to convey any statement with knowledge that such statement is false or misleading; however, the plain language of the statute, as well as interpretation by courts, is unambiguous with regard to the prongs: either of them would technically suffice to shield a forward-looking statement. See Wochos v. Tesla, Inc., 985 F.3d 1180, 1190 (9th Cir. 2021) ("As we explained in Quality Systems, the use of the disjunctive term 'or' between subclauses (A) and (B) confirms that 'a defendant will not be liable for a false or misleading statement if it is forward-looking and either is accompanied by cautionary language or is made without actual knowledge that it is false or misleading.'") (emphasis in original).

[15] The PSLRA is frequently called the "codified" bespeaks caution doctrine.

[16] See Harold S. Bloomenthal & Samuel Wolff, Securities and Federal Corporate Law § 15:32 (2d ed. 2023).

[17] See id. § 15:30.

[18] See Thomas Lee Hazen, Treatise on the Law of Securities Regulation § 12:73 (2d ed. 2023).

[19] See Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1207 (9th Cir. 2016) ("vague, optimistic statements by [the company's] officials are not actionable.").

[20] Robeco Cap. Growth Funds SICAV - Robeco Glob. Consumer Trends v. Peloton Interactive, Inc., 665 F. Supp. 3d 522, 540 (S.D.N.Y. 2023).

[21] See, e.g., Yan v. ReWalk Robotics Ltd., 973 F.3d 22, 33 (1st Cir. 2020) (the court concluded that "the word 'breakthrough' is simply a puffed-up qualitative expression of the product's novelty").

[22] In re Razorfish, Inc. Sec. Litig., No. 00 CIV. 9474 (JSR), 2001 WL 1111502, at *3 (S.D.N.Y. Sept. 21, 2001).

[23] See § 28:22. Puffery post-PSLRA, 2 Sec. Law Handbook § 28:22 ("many courts think they can (and sometimes they can) recognize puffery when they see it").

[24] Robeco Cap. Growth Funds SICAV - Robeco Glob. Consumer Trends v. Peloton Interactive, Inc., 665 F. Supp. 3d 522, 540 (S.D.N.Y. 2023)

[25] See 17 CFR 229.10, available here.

[26] If explicit reference to the PSLRA is inadvertently included, the issuer will likely receive the following comment from the SEC: "Section 27A(b)(2)(D) of the Securities Act of 1933 and Section 21E(b)(2)(D) of the Securities Exchange Act of 1934 expressly state that the safe harbor for forward-looking statements does not apply to statements made in connection with an initial public offering. Please either delete any reference to the Private Securities Litigation Reform Act, or make clear each time you refer to the Private Securities Litigation Reform Act that the safe harbor does not apply to initial public offerings."

[27] See Securities Litigation Reform Act, H.R. Rep No. 104-369, at. 43 (1995) (Conf. Rep.), available here:

The first prong of the safe harbor protects a written or oral forward-looking statement that is: (i) identified as forward-looking, and (ii) accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. "Under this first prong of the safe harbor, boilerplate warnings will not suffice as meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. The cautionary statements must convey substantive information about factors that realistically could cause results to differ materially from those projected in the forward-looking statement, such as, for example, information about the issuer's business. As part of the analysis of what constitutes a meaningful cautionary statement, courts should consider the factors identified in the statements. "Important" factors mean the stated factors identified in the cautionary statement must be relevant to the projection and must be of a nature that the factor or factors could actually affect whether the forward-looking statement is realized.

[28] Slayton v. Am. Exp. Co., 604 F.3d 758 (2d Cir. 2010).

[29] The PSLRA mandates the identification of the risks that may cause forward-looking statements not to come to fruition. This is technically a concept that is distinct from "risk factors," material factors that make an investment in the registrant or offering speculative or risky. See 17 C.F.R. §229.106 (2020), available here. In the context of drafting the PSLRA safe harbor legend, distinguishing between these two concepts seems overly metaphysical and perhaps unnecessary. Nonetheless, it is important to recognize that not all risk factors applicable to a company's business as a whole may be relevant to the specific forward-looking statements. Therefore, a listing of all risk factors should be reviewed, and most likely trimmed, with this in mind.

[30] Southland Secs. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 372 (5th Cir. 2004) ("The requirement for 'meaningful' cautions calls for 'substantive' company-specific warnings based on a realistic description of the risks applicable to the particular circumstances, not merely a boilerplate litany of generally applicable risk factors."); Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 244–48 (5th Cir. 2009).

[31] Lopez v. CTPartners Executive Search Inc., 173 F. Supp. 3d 12, 25 (S.D.N.Y. 2016) ("Plaintiffs may establish that cautionary language is not meaningful 'by showing, for example, that the cautionary language did not expressly warn of or did not directly relate to the risk that brought about plaintiffs' loss.'") (internal citation omitted); In re Weight Watchers Int'l Inc. Sec. Litig., 504 F. Supp. 3d 224, 253 (S.D.N.Y. 2020).

[32] This language must be both "extensive and specific" and must contain "substantive company-specific warnings." Gray v. Wesco Aircraft Holdings, Inc., 454 F. Supp. 3d 366, 392 (S.D.N.Y. 2020) (internal quotations and citations omitted). See also Gluck v. Hecla Mining Co., 657 F. Supp.3d 471, 485 (S.D.N.Y. 2023) ("These warnings, when read together, caution investors of the very risks that Plaintiffs allege ultimately occurred—namely that the Nevada Mines were not in the condition they were initially thought to be and that the cost of operating those mines would ultimately be higher than expected.").

[33] In re Odyssey Healthcare, Inc. Sec. Litig., 424 F.Supp.2d 880, 886 (N.D. Tex. 2005).

[34] In Sgalambo v. McKenzie, 739 F. Supp. 2d 453, 478 (S.D.N.Y. 2010), the court disfavored the "disclaimer appended to every [issuer] statement issued during the Class Period" because although "this disclaimer mentioned myriad, general factors—such as natural gas prices or environmental hazards—that might cause actual results to differ from [the issuer's] projections, the disclaimer provided no company-specific information, failed to link any specific projections to specific risks, and remained constant throughout the Class Period, even as the risks confronting [the issuer] changed."

[35] See Brief for the SEC as Amicus Curiae, Slayton v. Am. Exp. Co., 604 F.3d 758 (2d Cir. 2010), available here.

[36] Wang v. Cloopen Grp. Holding Ltd., 661 F.Supp.3d 208, 230 (S.D.N.Y. 2023) ("the lead plaintiff adequately alleges that the [issuer's] warnings regarding the future risk of declining customer retention were misleading, in view of the then-existing but omitted fact of the steep 4Q 2020 decline in the net customer retention rate.").

[37] The requirement for risk factors is identical—one more reason to treat risk factors and risks in the PSLRA legend in a similar manner for drafting purposes.

[38] Wochos v. Tesla, Inc., 985 F.3d 1180 (9th Cir. 2021).

[39] In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130 (9th Cir. 2017).

[40] See Jaeger v. Zillow Grp., Inc., 644 F. Supp. 3d 857, 869 (W.D. Wash. 2022) ("To fall under the PSLRA's safe harbor, the statement must be forward-looking in substance, not merely in form").

[41] In re Quality Sys., Inc. Sec. Litig., 865 F.3d at 1141 ("We hold a defendant may not transform non-forward-looking statements into forward-looking statements that are protected by the safe harbor provisions of the PSLRA by combining non-forward-looking statements about past or current facts with forward-looking statements about projected revenues and earnings.").

[42] See Securities Act Rules C&DI 110.01, available here.

[43] http://www.gpo.gov/fdsys/pkg/CRPT-104hrpt369/pdf/CRPT-104hrpt369.pdf

2023 Revised Hart-Scott-Rodino Thresholds and Filing Fees

Tue, 31 Jan 2023 00:00:00 -0600

On January 23, 2023, the Federal Trade Commission (FTC) announced its annual adjustments to the filing thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). Because of this year's adjustments, transactions valued at more than $111.4 million and closing on or after February 27, 2023 may trigger an HSR filing.^[1] The expected closing date—not the date of an agreement—determines whether the new thresholds will apply. Failure to file an HSR Notification and Report Form is subject to a statutory penalty of up to $50,120 per day of noncompliance.

The HSR Act generally requires parties to file notifications, including a filing fee, with the FTC and Department of Justice when a proposed transaction—such as a merger, joint venture, stock or asset acquisition, or exclusive license—meets specified dollar thresholds and no exemptions apply. If a notification is required, the transaction cannot close while the statutory waiting period runs (generally 30 days) and the federal antitrust agencies review the transaction. Most commonly, a filing is required if the parties meet both the "size-of-person" and "size-of-transaction" tests, which will be modified by the adjusted thresholds as follows:

2023 Size-of-Transaction Test: Met if, as a result of the transaction, the buyer will acquire or hold voting securities or assets of the seller valued in excess of $111.4 million. Furthermore, if the value of the transaction exceeds a significantly higher level—now set at $445.5 million—a filing may be required even if the size-of-person test is not satisfied.
2023 Size-of-Person Test: Met if one party to the transaction has $222.7 million or more in annual net sales or total assets and the other has $22.3 million or more in annual net sales or total assets.

In addition to the revised thresholds, the HSR filing fees are changing for the first time since 2001. Pursuant to the 2022 Merger Filing Fee Modernization Act (MFFMA), which was signed into law at the end of last year, filing fees will increase for transactions valued at $500 million or more and decrease for most transactions valued at less than $500 million. Additionally, under the MFFMA, the filing fees and associated transaction value thresholds will be adjusted annually based on changes in the consumer price index.

The chart below provides a summary of the changes, which are also set to take effect on February 27, 2023:

2022 Size of Transaction	2022 Filing Fees	2023 Size of Transaction	2023 Filing Fees
Greater than $101 million but less than $202 million	$45,000	Greater than $111.4 million but less than $161.5 million	$30,000
$202 million or more but less than $1.0098 billion	$125,000	$161.5 million or more but less than $500 million	$100,000
Greater than or equal to $1.0098 billion	$280,000	$500 million or more but less than $1 billion	$250,000
		$1 billion or more but less than $2 billion	$400,000
		$2 billion or more but less than $5 billion	$800,000
		$5 billion or more	$2,250,000

The HSR thresholds are only one part of the analysis to determine whether an HSR filing is required for a given transaction. Even though thresholds are met, certain types of transactions may be exempt from the HSR notification requirements (e.g., ordinary course of business acquisitions, certain acquisitions of real property, passive investments). Moreover, an HSR filing obligation may arise in situations beyond the traditional stock purchase or company merger—including, notably, investor acquisitions of a minority interest in a company. Because application of the HSR rules and exemptions can be highly technical, it is important to seek guidance from experienced HSR counsel in connection with any transaction where it appears the HSR thresholds might be met.

For more information and assistance, contact a member of Venable's Antitrust Practice Group.

[1] For transactions closing before February 27, 2023, the 2022 filing thresholds still apply. The 2022 size-of-transaction threshold is $101 million.

Healthcare Innovation Quotes Ari Markenson on Notable Changes Facing the Healthcare M&A Market

Fri, 01 Jul 2022 00:00:00 -0500

On July 1, 2022, Venable attorney Ari Markenson was quoted in Healthcare Innovation on notable changes facing healthcare organizations active in the mergers and acquisitions market. According to the article, the aftermath of COVID-19 and the changing climate in financial markets are throwing up roadblocks that are hampering deal activity, even though longer-term fundamental tailwinds such as the shift to outpatient settings and technology enablement remain in place.

Buyers and sellers in the middle market today face various red flags they didn’t have to consider six months or a year ago. Some buyers have become more wary of committing to purchases because COVID and its fallout have clouded the financial pictures of the businesses they’re eyeing. A typical dental practice, Markenson said, would have seen next to no patients the first six months of the pandemic, but then put up a gangbusters 2021. Halfway through 2022, he said, many a buyer and seller still can’t judge the true profitability and viability of such ventures.

Markenson said some potential purchasers are walking away from auctions relatively early because of the time and money they expect to spend only to be handily outbid by more muscular peers still willing to see past potential issues and put to work some of their capital.

"COVID threw a lot of insanity into the market” from a pricing standpoint, Markenson said. "But there already was a lot of insanity in the middle market pre-pandemic. I think a lot of folks went downmarket because valuations for larger deals had become unsustainable.”

Click here to access the article.

COVID-19 Pandemic Impact on M&A: Earn-Outs – The Basics and Key Issues

Fri, 19 Jun 2020 00:00:00 -0500

Because of the extremely quick and sharp economic downturn caused by the COVID-19 pandemic, business valuations have changed as the future becomes less predictable. Given the economic uncertainty and timing of recovery prospects, both potential sellers and buyers may struggle to define enterprise value and agree on a purchase price. To address the uncertain valuations and forecasting difficulties, we expect to see an increase in the use of earn-outs and other forms of contingent purchase price consideration in M&A transactions. This article summarizes the meaning and purpose of earn-outs and then highlights issues that a buyer and seller typically encounter when negotiating and managing the contingent portion of transactions.

Earn-Outs: Definition and Purpose

While most sellers prefer to receive 100% of the purchase price at closing, in some cases – and likely more often during the pandemic and the early recovery period – sellers and buyers are unable to agree on a set purchase price to be paid at closing. Buyers tend to be skeptical of seller’s or management’s projections and will likely not agree to value the business based on its pre-pandemic performance and financials. At the same time, an otherwise willing seller may be unwilling to sell at a valuation that has been reduced because of the pandemic uncertainty. In such a case, the parties may agree to use an earn-out or contingent consideration to bridge the valuation gap. An earn-out is a tool that entitles a seller to receive future additional purchase price if the target business achieves certain performance goals. In this way, the seller essentially “bets” on the future performance of the business, and, if the seller is correct, then it would be entitled to additional consideration. Conversely, if the buyer’s skepticism turns out to be well founded, then the buyer would not be obligated to pay the additional consideration. A buyer may also want to defer a portion of the purchase price consideration to ensure that the seller still has “skin in the game” post-closing and will work to achieve the future business goals the buyer has for the acquired business, such as incentivizing employees and/or the seller to continue employment and to drive revenue and other financial metrics. The earn-out becomes a “proxy” for the future value of the acquired business. That said, identifying the right amount, timing, and metrics to accurately predict the future valuation is tricky.

Earn-outs can be very complex. They can, and often do, lead to litigation because of that complexity. As a result, great care needs to go into any earn-out provision.

Issues That Arise in Connection with Earn-Outs

The seller often bears significant risk with respect to an earn-out, both because of the inherent uncertainty of future performance and because it is nearly certain that even if the seller remains involved in the management post-closing, a business will be operated differently under a new owner. Linking seller’s entitlement to an earn-out based upon performance that seller cannot control naturally creates challenges. The buyer’s desire to freely operate the business it just purchased must be balanced with the seller’s desire to control the ability of the business to meet the earn-out objectives. While each situation poses its own unique questions, when an earn-out arises in negotiations, sellers and buyers should keep in mind the following issues.

Performance Metrics and Calculation

The central component of an earn-out is the performance metrics that will be used to determine if the seller has achieved specified goals. Metrics can be financial, such as achieving a certain EBITDA, net income, or revenue target, or non-financial, such as securing regulatory approval for a new drug, retention of a significant portion of the acquired company’s employees, completion of an ongoing capital improvement at or below budget, or being awarded a follow-on or new contract.

1. Financial Metrics

If the metrics are finance-based, the parties need to consider how those metrics will be calculated. As a threshold matter, the parties must identify what metric will be the best “proxy” for future success of the acquired business. There are many possible options, but the most typical financial metrics are EBITDA, gross revenue, or net income. Each of these metrics poses challenges, and none is perfect. Net income can be a more useful proxy for the actual value of the acquired business to the buyer than gross revenue, in that it reflects the true “bottom line.” On the flip side, a seller may be more comfortable with gross revenue than with net income because the seller will argue that it can control the gross amount it receives from its customers for the goods and services it performed, but it cannot control or predict how the costs of the business will change once it is owned by the buyer or how the buyer will calculate net revenue. Buyers are less comfortable with gross revenue targets in that they may worry that the management team that stands to benefit if the earn-out metric is achieved may be motivated to accept low-margin projects just to drive up gross revenue. Similarly, while EBITDA may have been used by the buyer in its initial valuation, it might be a less preferred measure for a seller in the context of an earn-out. The same challenges that impact using net income, specifically the lack of seller control, may make it difficult to agree on a targeted EBITDA post-closing in the current environment. If EBITDA is used as a target and the acquired business has received a Paycheck Protection Program loan that might be forgiven post-closing, buyers should consider specifically excluding the forgiven loan amount from the calculation of “earnings” before calculating EBITDA. Regardless of the metric chosen, buyer’s accounting and financial teams should help craft specific definitions of even commonly used financial terms to be included in the purchase agreement to help minimize misunderstandings that might lead to future disputes.

Additional questions will arise during the negotiations, including what accounting standard will apply. For example, if the buyer uses IFRS, but the financials of the acquired business were based on GAAP, what standard should apply to the earn-out calculations? What if the acquired business was not fully GAAP-compliant, or if it is a carve-out transaction without its own historical stand-alone financials? The parties need to agree on the methodology and should take care to anticipate and address any ambiguity as to the calculation. To ensure a common agreement, parties should consider attaching an example calculation to the purchase and sale agreement.

2. Non-Financial Metrics

In many ways, it is much easier to determine whether non-financial metrics have been achieved. In addition, certain non-financial metrics directly relate to future earnings. For example, whether a key contract is renewed or awarded can be easily judged as being met or not met, but if the contract is renewed or awarded, it is likely to have a positive impact on future revenue. Given that, it is often preferable to combine financial and non-financial metrics in a single earn-out structure. For example, if $20 million of the purchase price is contingent on future earnings, the parties should consider whether to include a financial metric that will act as the sole proxy for the anticipated future earnings, or if it would perhaps be easier to administer (and negotiate) if a portion of the contingent consideration was payable upon award of the anticipated key contract. The driving rule should be to keep the provision as simple as possible.

Disputes can still arise over non-financial metrics. For example, the seller may be concerned that the buyer will not negotiate the key contract in good faith, or, because the buyer’s overhead is more significant than the seller’s, the labor rates included in the post-closing proposal are likely to be higher than seller would have included pre-acquisition, so the contract may not be awarded. Of course, the buyer will worry that the seller may include unrealistic rates or discounts just to get the award. Likewise, metrics such as receiving regulatory approval might also be fraught with potential for dispute. Sellers may wish to continue to control the regulatory process and continue to use its own legal and business team, while the buyer would prefer that its advisors control or at least be involved.

Many transactions, particularly for technology companies, include workforce retention metrics. Buyers understand that if key managers or engineers resign following the closing, the value of the acquired business is lessened by the loss of customer relations, as well as the trade secrets and skills known to those employees. While accepting this premise, sellers may worry that the employees may leave as a result of a clash with the buyer’s culture and due to no fault of the sellers. Sellers may ask that buyer commit to certain post-closing obligations, that are important to employee retention. Covenants related to “culture” are difficult to define and draft. In some cases, the parties may just agree on a certain expected attrition rate to avoid disputes and to give the seller “credit” for employees who leave due to no fault of its own, or even for employees who are terminated by the buyer without cause.

Another metric that is commonly used is headcount growth, meaning that the seller may be entitled to earn contingent consideration if it is able to recruit employees to grow the business. Even this worthy goal can lead to negotiation issues between buyers and sellers, as buyers may be concerned that sellers may lower recruiting standards or hire new employees without regard to need in order to achieve growth metrics. In such cases, the parties may agree to a “recruiting committee” comprising the buyer and representatives of the sellers to agree on recruiting goals and processes. Another option might be to combine headcount growth metrics with utilization metrics.

Additional Considerations

Even once the threshold questions have been negotiated, there are a number of other provisions to consider and negotiate. Those include:

Length of Earn-out Period – The parties will need to agree on the length of the earn-out period. In general, sellers would prefer to have the earn-out period to be shorter, while the buyer will want to ensure that the earn-out period is long enough to fully measure the post-closing performance of the acquired business.
Payment Structure – Earn-outs can be all or nothing (i.e., seller is paid only if it achieves a certain metric) or they can be based on a sliding scale. In the sliding scale scenario, for example, seller is paid $X if it achieves revenue in year 1 within a certain range or $Y if it achieves revenue in year 1 within a different range. Sellers typically prefer the sliding-scale approach. Sellers may also negotiate the right to earn a “catch-up” payment if the metrics for one year are not met, but in the next year, the seller is able to make up for the prior year’s revenue shortfall. This solution works well for a company where it is harder to predict the specific timing of receipt of revenues in order to avoid a seller being penalized only because of delayed receipts.
Operational Covenants, Control, Autonomy – As demonstrated by the financial metrics discussion above, sellers often seek commitments from the buyer to operate the acquired business in substantially the same manner as it was operated by the sellers pre-closing. These operational covenants may include specific obligations, such as requiring the buyer to provide the same level of resources to the acquired business that it received from the sellers pre-transaction. Buyers may reject these requests, particularly in light of the current pandemic and the anticipated need for the acquired business to adapt to changing circumstances or make necessary pivots. For example, it is unlikely that an agreement signed in 2018 that has a 3-year earn-out specifically addressed a pandemic. If that earn-out structure included an obligation that the buyer operate the business consistent with historical practices, the buyer that quickly pivots in order to maintain revenue and preserve the business (such as a clothing manufacturer switching to the manufacture of PPE instead) would technically be in breach of its obligations, even if its quick actions actually resulted in the business earning more revenue than if the buyer continued to operate in the ordinary course. In some cases, the sellers will also want information and audit rights to view information and financials used in tracking and calculating earn-out performance metrics. These points are often the source of contentious negotiations, but are important to consider and resolve in an effort to minimize future disputes.
Transformative Changes – Sellers often seek to impose limits on what the buyer can do with the acquired business, such as requiring the buyer to agree that it will not divest any material assets or sell the business during the earn-out period. In such a case, rather than agree to restrict its future options, a buyer may agree to “accelerate” and pay any outstanding earn-out obligation for current or future earn-out periods to the sellers in the event of a transformational change, such as a sale.
Setoff Rights – The buyer will want to be able to use the earn-out proceeds, if earned by seller, to satisfy any amounts (e.g., indemnification claims) owed by seller to buyer. Depending on the amount of consideration at issue, the length of the earn-out period, and buyer’s other indemnification rights (e.g., does buyer also have an indemnification escrow), sellers may resist this request.

These are just a few of the more common issues that arise when negotiating and administering earn-outs and the related covenants and obligations on both sides. Each earn-out differs, depending on, among other things, the overall deal structure, the parties involved, and the industry. It is crucial that parties carefully negotiate such provisions and keep in mind that what may be correct and appropriate today may no longer seem right one, two, or three years after the deal is signed.

The CARES Act and M&A

Tue, 14 Apr 2020 00:00:00 -0500

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. The CARES Act could impact recent and future M&A transactions, including those that are currently being negotiated. Buyers should (i) take note of how the CARES Act may impact tax aspects of an M&A transaction and (ii) be aware of oversight requirements and restrictions that relate to certain loans or other financial assistance provided to a company pursuant to Title IV of the CARES Act.

(A) With respect to tax provisions of the CARES Act:

Deferral of Payroll Taxes. The CARES Act allows for the deferral of the employer portion of social security payroll taxes for the period from March 27, 2020 until December 31, 2020. Of this amount, 50% can be deferred by an employer until December 31, 2021; the remaining 50% can be deferred until December 31, 2022. Although the standard definition of "pre-closing taxes" in an M&A purchase agreement or merger agreement likely would include these deferred taxes, buyers may want to specifically state that any payroll taxes deferred under the CARES Act are included in pre-closing taxes. Buyers also should ensure that targets benefitting from this provision have sufficient reserves to cover these future liabilities, or that such liabilities are reflected in the calculation of the target's working capital or indebtedness. If the economic impact of these taxes is not borne by the seller(s) at closing, the buyer may be limited to seeking reimbursement from the seller(s) when the taxes are due at the end of 2021 and 2022. Buyers should not expect any adjustment to the target's representation that all taxes due and owing have been paid, as such taxes would not be due and owing until the end of 2021 and 2022.
Net Operating Loss (NOL) Adjustments. For NOLs arising in 2018, 2019, and 2020, certain taxpayers can carry back such net operating losses to the prior five taxable years. In addition, the 80% income limit on claiming net operating losses is lifted for certain taxpayers for taxable years beginning before 2021. Clients who previously engaged in M&A transactions should carefully review any agreements to determine whether the agreement requires the carryback of NOLs and which party is entitled to the carryback refunds therefrom. In addition, buyers currently negotiating M&A agreements should ensure that the tax refund provision, which normally provides for the payment of pre-closing tax period refunds to the sellers, specifically allows the buyer (i) to carryback any NOLs arising in post-closing tax periods and (ii) to retain any refund attributable to such NOL carryback, even if the NOL is carried back to a pre-closing tax period. The ability to carry back NOLs may be of significant benefit to a seller, particularly if the target's short-year return for the year of the sale would show a loss, as a result of decreased economic activity or otherwise (for example, payment of significant change of control bonuses in the short year). These adjustments to the NOL provisions also will make loss corporations more attractive targets, as there currently is greater flexibility in using existing NOLs (though certain loss limitation rules may limit the ability to utilize such losses).
Modification of the Business Interest Deduction Limitation. The Tax Cuts and Jobs Act of 2017 (TCJA) enacted Section 163(j), which limited the ability of certain taxpayers to claim deductions for business interest expenses. Rather than limiting the deduction to 30% of a taxpayer's adjusted taxable income, the CARES Act increases the limit to 50% for 2019 and 2020. Partnerships are entitled to the increased 50% limit only for 2020; however, if a partnership had excess business interest expense during 2019, 50% of the expense can be deducted at the partner level (without regard to the taxable income limit) in 2020. Furthermore, all taxpayers can elect to use 2019 adjusted taxable income as adjusted taxable income for 2020 (i.e., for 2020, the limit is equal to 50% of the taxpayer's 2019 adjusted taxable income). The increased limitation will make debt financing of transactions during this period more attractive, as there is an increased ability to deduct business interest expense.
Qualified Improvement Property Technical Correction. The CARES Act also includes a technical correction to the TCJA, which correction allows for certain real estate owners, restaurants, and retail businesses to claim a 100% bonus depreciation deduction with respect to qualified improvement property (i.e., improvements to nonresidential real property). Accordingly, an expanded category of assets is now eligible for 100% bonus depreciation.
Extended Due Dates. Although filing due dates have been extended for a number of returns, due dates for information returns have not been extended. Accordingly, any information returns due in connection with a transaction occurring during this time will not be eligible for the automatic extension. Furthermore, parties should review previously executed M&A agreements to ensure that they comply with all contractual requirements relating to tax return preparation and review in light of the extended deadlines.
Increased Importance of Refund Provisions. In addition to the expansion of NOL benefits described above, the CARES Act includes a few other provisions that allow for accelerated refunds (in the case of the corporate alternative minimum tax) or refundable tax credits (in the case of payroll tax credits for eligible employers). As a result, both buyers and sellers should review language in existing agreements and in agreements currently being negotiated to ensure that any newly available refunds are properly addressed.

(B) Oversight and Public Reporting; Restrictions on Targets

Title IV of the CARES Act authorizes the Secretary of the Treasury to issue to eligible businesses, states, and municipalities loans, loan guarantees, and other investments that in the aggregate cannot exceed $500 billion. $46 billion of the $500 billion is allocated to the airline industry and businesses that are "critical to maintaining national security," and the remaining $454 billion (and any portion of the other $46 billion that remains unused) is to be used to support other eligible businesses, states, and municipalities.

Oversight. The CARES Act requires broad oversight. Loans (and the terms thereof) and any other assistance provided under the CARES Act will be subject to public disclosure requirements. Such public disclosure may be beneficial to a buyer, as the buyer might be able to evaluate the terms of any such loan before engaging with a target that received assistance under the CARES Act. At this point, because no loans have been made, let alone publicly reported, it is difficult to ascertain whether any terms will prevent a buyer from pursuing a target that received assistance under the CARES Act.
When evaluating a potential target, a buyer should, among other things and as applicable: (i) consider whether the risk related to a government review (e.g., CFIUS or HSR Act) is enhanced for an M&A transaction where the target received assistance under the CARES Act and properly allocate for the enhanced risk in the purchase agreement; (ii) evaluate the target's compliance with the terms of the loan or financial assistance received pursuant to the CARES Act (and, if necessary, include a special indemnity and strengthen relevant representations); and (iii) consider whether interim operating covenants need to be revised so that the buyer is better informed of target's operations prior to closing. If a deal involves a target that received assistance under the CARES Act, it is very much buyer beware. It is critical that diligence is thorough and that the buyer understands fully the implications of any such restrictions.
Restrictions. Companies that borrow or receive other financial assistance under Title IV will be subject to certain restrictions. If a target has received assistance pursuant to Title IV, the buyer must closely evaluate the terms of any such loan or financial assistance and be aware of restrictions, which may differ depending on the industry in which the target operates and the size of the target. For example:

Employment Levels. Until September 30, 2020, certain companies that receive a loan or other financial assistance pursuant to Title IV cannot reduce their respective March 24, 2020 employment levels by more than 10%. Treatment of a target's employees (e.g., employment status, salaries, benefits, etc.) is a heavily negotiated point in M&A deals. The requirement to maintain certain employment levels raises several considerations on the buy side and sell side, depending on the structure of a transaction. For buyers, the employment level requirements may (i) lead to increased M&A deal costs; (ii) require a buyer to take on additional deal risk and unwanted costs; and/or (iii) necessitate more or additional special indemnities to cover employee and/or employment benefits issues, such as misclassification of employees.
A target, on the other hand, (i) must carefully consider the representations it (or its equity holders) make in a purchase agreement because, depending on the structure of a transaction, the scope of representations may be more expansive; (ii) to the extent possible, address issues such as misclassification and change-in-control obligations in order to expedite negotiations; and (iii) advocate for its employees to receive benefits and salary commensurate with pre-closing levels so that no employees are treated unequally as compared to their peers.
Prohibition on Stock Buybacks. The prohibition on stock buybacks and stockholder distributions, if they apply to a borrower pursuant to Title IV, are in effect for 12 months following the date on which the loan is repaid. Specifically:
- any company subject to such restrictions, or an affiliate of such company, cannot buy back the company's publicly traded equity securities or that of any parent company, except to the extent required under a contractual obligation in effect as of the date of enactment; and
- any company subject to such restrictions cannot pay dividends or make other capital distributions with respect to the common stock of such company.

The impact of the prohibition of buybacks and dividends is unclear at this time; however, it could lead to potential targets considering a sale of a business (if such a sale is permitted) in order to deliver value to its stockholders.

Venable – Powering Connections at DealMAX

Tue, 17 Mar 2026 16:32:09 -0500

Connect with Venable Meet the Venable Attendees

Venable LLP, a national law firm, recognized for excellence in Corporate and M&A, is proud to support DealMAX.

Are you a PE investor, strategic acquiror, family office, investment banker, or other service provider attending DealMAX? Let's connect at the conference—we're excited to learn more about your business needs and how we might be able to work together.

Please click here to meet with our team at DealMAX. Connect with our team of Venable attorneys at the conference, including:

Venable Attendees

Saminaz Akhter, Partner

Corporate/M&A | Washington, DC

Ronn Davids, Partner

Corporate/M&A | Los Angeles, CA

Jay Gavigan, Partner

Corporate/Finance | Denver, CO

Jesse Hervitz, Counsel

Corporate | Baltimore, MD

Tom Hughes, Partner

Corporate/M&A | Chicago, IL

Ted Keim, Partner

Corporate/M&A | Chicago, IL

Ari Markenson, Partner

Corporate |New York, NY

Chuck Morton, Partner

Corporate | Baltimore, MD

Kristen Ruisi, Partner

Trademark Prosecution and Brand Management | New York, NY

Leonela Vaccaro Padrón, Counsel

Corporate/Finance | Miami, FL

Venable – Powering Connections at DealMAX

Fri, 04 Apr 2025 16:26:22 -0500

Connect with Venable Meet the Venable Attendees

Venable LLP, a national law firm, recognized for excellence in Corporate and M&A, is proud to support DealMAX.

Please click here to meet with our team at DealMAX. Connect with our team of Venable attorneys at the conference, including:

Venable Attendees

Saminaz Akhter, Partner

Corporate/M&A | Washington, DC

Andrew Bigart, Partner

Financial Services | Washington, DC

Ronn Davids, Partner

Corporate/M&A | Los Angeles, CA

Jay Gavigan, Partner

Corporate/Finance | Denver, CO

Ted Keim, Partner

Corporate/M&A | Chicago, IL

Ari Markenson, Partner

Healthcare/Corporate M&A | New York, NY

Chuck Morton, Partner

Corporate | Baltimore, MD

Bryan Rakes, Partner

Corporate | Baltimore, MD

Kristen Ruisi, Partner

Trademark Prosecution and Brand Management | New York, NY

Leonela Vaccaro Padrón, Counsel

Corporate/Finance | Miami, FL

Preparing for Liquidity: Strategies for Pre- and Post-Transaction Success

Thu, 23 May 2024 13:48:50 -0500

Mark Vecchio will speak on a panel, “Preparing for Liquidity: Strategies for Pre- and Post-Transaction Success,” at the Smart Business Dealmakers conference in New York on June 6, 2024. The panel will also feature Dan Cahalane (CEO, American Roller), John Murray (board member and operating partner, PlanScout), and James Parmelee (managing director, Hamilton Robinson Capital Partners) and will be moderated by Halsey Schreier (managing director and senior wealth strategist, CIBC).

The panel is geared toward entrepreneurs and business owners planning for a sale or other liquidity event and will highlight essential strategies for pre-transaction readiness and post-transaction execution that will ensure a smooth and successful transaction.

The Smart Business Dealmakers conference, which Venable is sponsoring, will focus on how high interest rates, political uncertainty, and the rise of AI impact dealmaking. You can learn more about the conference here.

Healthcare M&A for 2024 – What the Future Might Hold

Wed, 31 Jul 2024 10:53:11 -0500

Join Ari Markenson, partner in the Healthcare and Corporate practices, as he talks with Vasanta Pundarika, head of the Healthcare Investment Banking Group at Matrix Capital Markets Group, about her perspective on the healthcare services M&A landscape as we move into 2024. Ari and Vasanta will bring their years of experience and knowledge of the healthcare investment banking sector to the conversation as they discuss insights on the market and the issues that may affect M&A in the new year.

Speakers

Ari Markenson, Partner, Venable LLP
Vasanta Pundarika, Head of Healthcare Investment Banking, Managing Director, Matrix Capital Markets Group

Navigating the Sell-Side Maze: From Pitfalls to Profit

Thu, 05 Oct 2023 10:41:29 -0500

Ted Keim will present "Navigating the Sell-Side Maze: From Pitfalls to Profit” at the Smart Business Dealmakers Conference in Chicago on October 5, 2023.

The speakers will discuss the secrets of successful sell-side deals in today's dynamic M&A market. The panel of seasoned experts will dissect recent triumphs and explore the traits of companies with deals that resist value erosion, and how to overcome obstacles, align with buyer expectations, and secure favorable terms during due diligence and negotiations.

For more information, please click here.

Negotiating and Drafting LLC Agreements in the District of Columbia 2023

Wed, 02 Aug 2023 08:42:36 -0500

On July 19, 2023, Frank Ciatto and Stephanie Molyneaux presented "Negotiating and Drafting LLC Agreements in the District of Columbia 2023" as a webinar hosted by the DC Bar as part of their CLE program. The presentation focused on choice of entity considerations, entity formation, common checklist questions, and standard provisions of LLC agreements, as well as partnership tax concepts, key management provisions, and effective exit strategies. This presentation was delivered as a live webinar to an audience of attorneys.

SPAC: The Quick Alternative to IPO

Fri, 11 Jun 2021 14:01:40 -0500

On June 2, Venable partner Bill Haddad spoke on a panel, “SPAC: The Quick Alternative to IPO,” at an ACG webinar. The discussion explored the risks and benefits of this transaction alternative as companies and investors work toward successful mergers. The panel featured SPAC experts who covered what you need to know from the accounting, legal, and insurance perspectives.

For more information, click here.

Doing Government Contracting M&A Deals in Trying Times: A Three-Part Webinar Series

Thu, 30 Jul 2020 11:56:39 -0500

Part 1: Valuation

June 30, 2020

Industry experts Adam Scheipe, VP Corporate Development, Leidos; Ravi Shah, Principal, McNally Capital; Sundar Vaidyanathan, Co-founder and CEO, Karsun Solutions; and Jeremy Krasner, Managing Director, Valuation Advisory Group at Stout, will discuss the valuation of government contracting businesses during the current COVID-19 pandemic and resulting economic shutdown. Partners Chuck Morton and Joe Schmelter from Venable’s Corporate Practice will moderate the panel discussion, with Diz Locaria, a partner with Venable’s Government Contracts Practice, offering his insights into the legal framework affecting government contractors during these difficult times.

Speakers

Jeremy Krasner, Stout

Dismas Locaria, Venable LLP

Charles Morton, Jr., Venable LLP

Adam Scheipe, Leidos

Joseph Schmelter, Venable LLP

Ravi Shah, McNally Capital

Sundar Vaidyanathan, Karsun Solutions

Part 2: Executing Deals

Tuesday, July 14, 2020

A panel including industry experts David West, VP Corporate Development of ECS, a segment of ASGN Incorporated (NYSE: ASGN); Lidore DeRose, SVP Transaction Liability Solutions at Lockton; and Paul Debolt, chair of Venable’s Government Contracts Practice, will discuss the process of executing government contracting M&A deals in this “new normal,” including conducting a virtual diligence process, identifying and solving unique diligence considerations in the acquisition of government contractors, and navigating the R&W insurance process. Partners Chuck Morton and Karen Hermann from Venable’s Corporate Practice will moderate the panel.

Moderators

Karen Hermann, Partner, Venable LLP

Charles Morton, Jr., Partner, Venable LLP

Speakers

Paul Debolt, Partner, Venable LLP

Lidore DeRose, Senior Vice President, Transaction Liability Solutions, Lockton

Dave West, Vice President, Corporate Development, ECS

Part 3: Financing

Tuesday, July 28, 2020

Industry experts Jason Rigoli, Partner at Enlightenment Capital; Joshua Dearmon, Managing Director at Aerospace, Defense, and Government Services, Capital One N.A.; and Dr. Edward Bersoff, Founder and Chairman at Parabilis, will discuss financing of government contracting transactions during the current COVID-19 pandemic and resulting economic shutdown. Partners Chuck Morton and Bryan Rakes from Venable’s Corporate Practice will moderate the panel discussion, with Diz Locaria, a partner with Venable’s Government Contracts Practice, offering his insights into the legal framework affecting government contractors transactions during these difficult times.

Moderators

Diz Locaria, Partner, Venable LLP

Charles Morton, Jr., Partner, Venable LLP

Bryan Rakes, Partner, Venable LLP

Speakers

Ed Bersoff, Founder and Chairman, Parabilis

Joshua Dearmon, Managing Director, Aerospace, Defense, and Government Services, Capital One

Jason Rigoli, Partner, Enlightenment Capital

Non-Compete Covenants in M&A: Structuring to Bind Sellers and Key Employees

Fri, 29 Jul 2022 11:04:40 -0500

On December 17, Blair Springer, Benjamin Stockman, and Daniel Straga will present "Non-Compete Covenants in M&A: Structuring to Bind Sellers and Key Employees," a live 90-minute CLE webinar, for Strafford Publications Webinars & Teleconferences. They will offer guidance in drafting non-compete clauses in contracts for the purchase and sale of a business. The panel will also discuss related non-compete agreements for key employees, sellers, and founders of the target entity, and the limitations associated with each. The panel will examine recent case law regarding the enforceability of non-competes in New York, Delaware, and California.

The "Weinstein Clause" and Social Due Diligence in Private Equity and M&A Transactions

Fri, 29 Jul 2022 15:25:53 -0500

Allegations of sexual misconduct in the workplace have given rise to a new world of potential risks for dealmakers. Under the rubric of what has become known as the "Weinstein Clause" (a reference to a contractual provision in deal documents allocating risk for allegations of sexual harassment), social due diligence has become a decisive factor in business transactions, particularly in the entertainment, media, and tech sectors. Deal professionals are now being pressed to evaluate a target through a social, ethical, and cultural lens, in addition to the traditional financial, operational, and legal considerations, and a premium is now being placed on understanding how issues related to workplace harassment, misconduct, and gender equality can impact the valuation and execution of a deal.

Following a fireside chat on gender issues and workplace culture from an M&A perspective, a panel of company leaders, dealmakers, and innovators will share their insights on company culture and the current state of deal-making in the #metoo era. The program and discussion are geared toward professionals identifying, negotiating, and executing deals, including members of the C-suite, board members, VC, PE, or family office investors, and legal counsel and other deal advisors.

Our panel of experts will address these and other questions:

How important is workplace culture to business performance?
How do you evaluate a company's culture from the acquirer's and seller's perspectives? Can technology play a role?
How critical is the role of workplace culture in the success or failure of a deal?
What issues in the workplace are being regarded by acquirers and investors as critical to the success of a given deal?
To what extent are buyers and sellers in the entertainment, media, and technology space utilizing the "Weinstein Clause"?

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Schedule

Registration and Networking 4:30 – 5:00 p.m. ET
Program 5:00 – 7:00 p.m. ET
Networking Reception 7:00 – 8:30 p.m. ET

Speakers

Nabila Ahmed, M&A Reporter, Bloomberg News
Gregory Bedrosian, Managing Partner and CEO, Drake Star Partners
Rebekah Dopp, Global Partnerships, Founder of Exponent (Google's Gender Equality Incubator), Google
Alan Epstein, Partner and Chair, Entertainment and Media Group, Venable LLP
Kieron Faller, Co-Founder and CEO, Workio
Cristy Irvin Phillips, Deputy General Counsel and Head of Litigation, 1/0 Capital LLC
Ted Oberwager, Director, KKR
Mark S. Vecchio, Partner, Corporate Group, Venable LLP

RSSPage

Attorney Spotlight: Philip von Mehren on How an Interest in Latin American History and Policies Shapes His Cross-Border Transactions Practice

How to Make a Deal

Happy Birthday, Tysons: Joe Schmelter and Ked Whitmore on Celebrating 40 Years in Tysons Corner

125 Years Young

Type F Reorganizations: General Overview and the Problem of Dissenting Shareholders

Event in Review: Major Fraud and Abuse Laws: Anti-Kickback and Self-Referral Prohibitions and False Claims

The False Claims Act

The Anti-Kickback Statute

The Stark Law

Mitigating These Risks

Forward-Looking Statements: Safe Harbors Compliance Guidelines

Key Takeaways

Available Protections

Rules 175 and 3b-6

PSLRA Safe Harbor

Excluded Issuers

Excluded Transactions and Circumstances

Bespeaks Caution Doctrine

Puffery as an Additional Line of Defense

Maximizing the Safe Harbor Coverage

A PSLRA-compliant safe harbor legend will be sufficient for all three safe harbors

Evaluating the benefit of filing documents to obtain Rules 175 and 3b-6 protection

General Compliance with the Requirements of the PSLRA Safe Harbor Legend

Create a template of the PSLRA safe harbor legend

Avoiding misuse of the PSLRA safe harbor legend

Identifying Forward-Looking Statements

Examples of forward-looking words and phrases are a better approach than a negative definition

Consider increased specificity in certain circumstances

Identifying Important Factors

Provide an extensive list of risks with a focus on company-specific and event-specific risks

Combine incorporation by reference and the disclosure of the most important risks

Update in a timely manner important risks when circumstances change

Misleading cautionary statements are never meaningful

Other Considerations

No need to isolate forward-looking statements from present-tense narratives, but intentional mixing will not alter the nature of statements either

The location of the PSLRA legend can be accommodated to preferences

Hyperlink the legend if the media does not permit its inclusion

SAFE Harbor Language for Oral Statements

Covered speakers do not include underwriters

Statement about the document with additional information must accompany oral forward-looking statement

Format and timing of the PSLRA legend may potentially render the legend meaningless

Footnotes

2023 Revised Hart-Scott-Rodino Thresholds and Filing Fees

2022 Size of Transaction

2022 Filing Fees

2023 Size of Transaction

2023 Filing Fees

Healthcare Innovation Quotes Ari Markenson on Notable Changes Facing the Healthcare M&A Market

COVID-19 Pandemic Impact on M&A: Earn-Outs – The Basics and Key Issues

Earn-Outs: Definition and Purpose

Issues That Arise in Connection with Earn-Outs

Performance Metrics and Calculation

1. Financial Metrics

2. Non-Financial Metrics

Additional Considerations

The CARES Act and M&A

(A) With respect to tax provisions of the CARES Act:

(B) Oversight and Public Reporting; Restrictions on Targets

Venable – Powering Connections at DealMAX

Venable Attendees

Venable – Powering Connections at DealMAX

Venable Attendees

Preparing for Liquidity: Strategies for Pre- and Post-Transaction Success

Healthcare M&A for 2024 – What the Future Might Hold

Speakers

Navigating the Sell-Side Maze: From Pitfalls to Profit

Negotiating and Drafting LLC Agreements in the District of Columbia 2023

SPAC: The Quick Alternative to IPO

Doing Government Contracting M&A Deals in Trying Times: A Three-Part Webinar Series

Part 1: Valuation

Part 2: Executing Deals

Part 3: Financing

Non-Compete Covenants in M&A: Structuring to Bind Sellers and Key Employees

The "Weinstein Clause" and Social Due Diligence in Private Equity and M&A Transactions

Schedule

Speakers