The "safe harbor" from liability for "forward-looking statements" created by the Private Securities Litigation Reform Act of 1995 deserves careful review by all public companies.

The safe harbor is intended to encourage companies to make "forward- looking statements" - revenue forecasts, earnings projections, descriptions of business plans, etc. - without fear of being sued by a disgruntled investor if a forecast does not come true.

What follows are answers to some of the more frequently asked questions about the new safe harbor.

What is a "forward-looking statement"?

*Any projection of earnings, revenues, or other financial items.

*Any statement of the plans and objectives of management for future operations, including new products or services.

*Any statement regarding future economic performance, including those contained in a discussion and analysis of financial condition by management (clearly intended to cover the "known trends or uncertainties" disclosures required to be included in 10-Ks and 10-Qs).

What protection is provided by the safe harbor?

The safe harbor provides protections for an SEC-reporting company and its officers who make an eligible "forward-looking statement" from all private lawsuits under most federal securities laws. For example, a company making a statement about expected sales in a letter to shareholders or SEC filing that complies with the new law is protected from a damage claim under those laws by a person buying the company's stock.

The safe harbor does not protect a company from liability in a proceeding brought by the SEC. Nor does the new law protect a company from liability in a private damage action under state law. Courts, however, might determine that the new law preempts any state law imposing private liability for forward-looking statements that qualify for the safe harbor.

But not all forward-looking statements are covered for public companies covered by the safe harbor?

Such statements are not covered in the following cases:

*When the statement is made by an investment company.

*When a company is making a "blank check" offering or issues penny stock.

*When the statement pertains to a partnership, a limited liability company, or a "direct participation investment program."

*When the statement is in connection with an initial public offering (subsequent offerings are not excluded).

*When the statement is part of GAAP financial statements.

*When the statement is in connection with a tender offer, a schedule 13D, or a "roll up" or "going private" transaction.

In addition, a company is disqualified from the protections of the new law for three years if it has been convicted of specified securities law crimes, or if - as a result of an action by the SEC or other government agency - it has been found to have violated the antifraud provisions of the securities laws or to have been prohibited or ordered to cease and desist from violating these provisions.

What does a public company need to do to obtain the benefits of the safe harbor?

To enjoy the full benefit of the safe harbor, a company needs to be sure that a forward-looking statement is "identified" as such and "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward- looking statement."

The reason for the first requirement is not evident nor is it clear how specific the identification must be. A statement to the effect that "the foregoing sentence or paragraph is a forward-looking statement" or that "the sales and earnings projections appearing throughout this document are forward-looking statements" should suffice.

A general statement that a report or letter contains certain forward- looking statements may or may not turn out to be sufficient. Some statements are by their nature forward-looking and may be found to "identify" themselves as such.

Until there is guidance from court opinions (or perhaps the SEC), companies making forward-looking statements should consider erring on the side of more specific identification rather than less.

The requirement that a forward-looking statement be accompanied by "meaningful cautionary statements" means that a company should set forth the most important assumptions that underlie the statement.

For example, if a sales forecast is based on continued level sales of existing products and projected sales of a new product, factors that could reduce sales of the current products or limit sales of the new product should be identified.

The legislative history emphasizes that the requirement of "meaningful cautionary statements" would not be satisfied by "boilerplate" language. The cautionary language should be tailored to the situation; no standardized formulation will work for all companies. Cautionary statements that answer the question "should something go awry with the forecast, what are the most likely reasons?" should suffice.

A company should also vary its cautionary statements to reflect changed conditions, and not use the same cautionary language quarter after quarter.

The legislative history also indicates that as long as the "cautionary statements" are sufficiently specific and relevant to satisfy this "meaningful" requirement, the safe harbor should be available even if they do not happen to include the particular "risk" that actually causes the forward-looking statement to prove inaccurate. Mr. O'Brien and Mr. Hansen are partners in the Boston office of Bingham, Dana & Gould.

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