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Aug. 2012

August 2012
From the Colorado Bar Association Business Law Section
Ed Naylor, Editor
For the printable PDF version of this newsletter, click here.
In this issue...
 
The Affordable Care Act Raises the Stakes for Merger and Acquisition Transactions
By Rebecca DeCook and Nicole Lucius, Moye White LLP

The Patient Protection and Affordable Care Act (Act) presents serious implications for any client, large and small, that you may represent in a merger or acquisition. The broad obligations of the Act, as refined by the guidance and regulations which have been, and will be, promulgated by the IRS, the Department of Health and Human Services, and the Department of Labor, must be carefully considered and addressed in any M&A transaction.

One thing is certain, if you are representing a buyer in a transaction, you need to become familiar with the current and future compliance obligations that the Act imposes on employers. At a minimum, areas of particular focus in an M&A transaction include conducting effective due diligence, careful drafting of transaction documents to address targeted representations and warranties and interim operational activities of the selling entity, and consideration of potential business integration issues.

When conducting due diligence, buyers need to ensure the selling entity has met and continues to meet its compliance obligations under the Act. There are a number of obligations that have already been triggered and more are on the horizon. For example, in 2012, certain employers are required to report insurance benefits on the employee’s W-2 form (distributed in 2013). Also, certain health care plans with plan years effective on or after September 23, 2012 must distribute the Summary Of Benefits & Coverage (SBC) to plan participants within the time frames specified in the Act. Failure to do so can result in penalties. The buyer will need to ensure that the selling entity has properly distributed the SBC and the SBC contains all the required information so that the buyer is not exposed to penalties after closing. Additional obligations become effective every year through 2018. As these additional compliance obligations arise, your client will need counsel regarding their impact and may need to retain experts in the health care field to assist in determining whether the selling entity has complied with the Act.

In addition to conducting thorough due diligence, you may also need to protect your client’s interests through new, carefully drafted representations and warranties that specifically address the selling entity’s compliance with all of the applicable requirements of the Act. For example, consider whether your standard representations and warranties adequately mitigate the risk of a seller’s noncompliance with W-2 reporting requirements, the SBC distribution obligation, and the nondiscrimination, coverage and other requirements of the Act and the penalties associated with noncompliance. Furthermore, in 2014, additional representations and warranties may be advisable to address potential liabilities for fines that may be imposed if an employee receives subsidized coverage through insurance exchanges.

Also, in transactions having a significant period of time between agreement execution and closing, interim operating covenants may be advisable to require the buyer’s involvement, and perhaps consent, for some of the selling entity’s actions taken to meet the requirements of the Act.

Finally, there may be numerous and significant post-closing integration issues that should be considered. For example, if the buyer has a grandfathered health plan (a health plan that was in effect as of March 23, 2010 and which is not subject to a number of the requirements of the Act), that status could be impacted or lost through the acquisition and integration of the selling entity’s health plans, exposing the buyer to additional requirements.

A useful Act implementation timeline is at http://www.whitehouse.gov/healthreform/timeline.

Business Law Section Activities
M&A Breakfast CLE Series

Due Diligence for Immigration Compliance in M&A—Tuesday, Sept. 11, 8–9 a.m.

Be alert to hidden pitfalls after closing regarding the ability to retain key employees who are Foreign Nationals and to assess potential liability pre-deal regarding I-9 employment eligibility verification compliance. An experienced business immigration attorney, Margaret C. Makar, Esq., recommends immigration law issues to consider during due diligence prior to a merger or acquisition.

  • Due Diligence for Potential I-9 Employment Verification Liability
  • Due Diligence Regarding Immigration Status of Key Employees

Submitted for 1 General CLE credit. Click here for more information.

Financial Institutions Subsection

Financial Institutions Subsection CLE Luncheon Series—Wednesday, Sept. 19

The Financial Institutions Subsection CLE Luncheon Series continues on September 19, 2012 at the CBA-CLE Large Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203, and via webcast. Complete details including topic and presenter for the luncheon, as well as registration information, will be posted to the CBA-CLE website (www.cobar.org/cle/) in the very near future.

Mark Your Calendars!

Tuesday, Nov. 13, the Financial Institutions Subsection and CBA-CLE are co-sponsoring a full day CLE related to lending and creditor issues, including loan documentation, default issues, workouts and receiverships, UCC issues, and the latest on Article 9, to name a few. Please check the CBA-CLE website (www.cobar.org/cle/) in coming weeks for additional topics and complete information on the class. The live program will be held at the CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203, or via webcast.

CBA-CLE Information

2012 Business Law Institute—Oct. 18–19
Four Seasons Hotel, Denver

Whether you’re new to business law or have many years of experience, in private practice or an in-house counsel, the eclectic blend of interesting topics and talented professionals will give you key take-away points that directly affect your business practice.

Choose topics from the Basics and Advanced Tracks!

Basics Track

  • Business Judgment Rule
  • Contract Drafting and Interpretation
  • Drafting and Negotiating the Acquisition Agreement
  • Hot Tax Topics and Developments
  • Franchise Basics
  • Choice of Entity
  • Piercing the Corporate Veil/Alter Ego
  • Securities Basics
  • Intellectual Property
  • Ethics of Social Media

Advanced Track

  • ERISA
  • Current Issues in Corporate Governance for Public Companies
  • Fiduciary Duties and Structuring Deal Protections Throughout the M&A Process
  • Advising the Entrepreneur on the New JOBS Act
  • Ethics of Multijurisdictional Practice
  • The Use of Partnerships and LLCs for Tax Planning
  • Contract Tips for Sourcing Information Technology
  • Foreclosure of Secured Assets from a Creditor's Perspective
  • Establishing and Fostering Relationships with In-House Counsel: A Panel Presentation

Featuring Plenary Session Speakers Tom Clark, CEO of Metro Denver Economic Development Corporation, on Denver’s Economic Climate and Business Outlook, and Nat Stoddard, Chairman, Crenshaw Associates, New York, NY, on M&A Risk Reduction, Post-Deal Integration Success and Long-Term Value Recognition for You and Your Clients

Submitted for 12 General CLE credits, Including 2 Ethics Credits. Click here for more information.

 
CBA-CLE Featured Publication

Guide for Colorado Nonprofit Organizations, Includes the 2012 Supplement!

This guide covers the legal aspects of forming nonprofit entities in Colorado, with specific chapters on the federal and state tax treatment of such entities and avoiding the pitfalls of maintaining a nonprofit corporation's tax exempt status. The book is organized into six parts: (1) Organizing and Operating; (2) Tax Treatment; (3) Fundraising; (4) Nonprofit Organizations With Employees; (5) Major Corporate Events and Transactions; and (6) Other Legal Considerations. It includes sample forms, tables, and references to online resources to augment the text as well as a comprehensive subject index.

Most of the chapters were updated for the 2012 supplement including: the chapter on Intellectual Property updated to reflect changes brought about by the Leahy-Smith America Invents Act and substantial updates to the chapter on lobbying and political activities including “recently promulgated regulations by the Secretary of State” on electioneering communications (Colorado’s response to Citizens United). In addition, Chapter 11 discusses the 2011 results of the IRS’s study that was necessitated by the Pension Protection Act of 2006. Order now!

 

Contributions for future newsletters are welcome –
Contact Ed Naylor at ed.naylor@moyewhite.com or 303-292-2900

This newsletter is for information only and does not provide legal advice.

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