Due Diligence in Securities Transactions Edition

Transcription

1 Securities Law Series Due Diligence in Securities Transactions Edition by Robert J. Haft 'e WEST GROUP A THOMSON COMPANY For Customer Assistance Call

2 Detailed Volume Table of Contents Chapter 1 Introduction 1:1 Generally Chapter 2 Statutory Provisions on Due Diligence and Decided Cases 2:1 Overview 2:2 Section 11 liability 2:3 Standard of reasonableness 2:4 Reliance on "expertised" part 2:5 Software Toolworks and Worlds of Wonder 2:6 BarChris 2:7 Leasco 2:8 Chris-Craft 2:9 Does an underwriter have a mandatory duty to conduct a reasonable investigation or merely a "waivable" defense to civil liability? 2:10 Due diligence met as a matter of law 2:11 Rule 176 2:12 SEC's proposed expansion of Rule 176 and written comments thereon received by SEC 2:13 Section 12(2) liability Chapter 3 Due Diligence Investigations 3:1 Some general principles to follow in conducting due diligence investigations 3:2 Items to investigate in performing due diligence 3:3 Practical aspects of due diligence investigations 3:4 General concerns for underwriters 3:5 Specific steps for underwriters 3:6 Investigating issuer's industry 3:7 Investigating the issuer 3:8 Company and its management X 3:9 Company's business 3:10 Company's financials X 3:11 Sources of information 3:12 Sources within issuer 3:13 Sources outside issuer 3:14 Detailed due diligence procedures by Cecilia T. Absher and David A. Katz 3:15 Preliminary steps West Group, xv

3 V. 3:16 Investigating company's industry : 3:17 Investigating the company 3:18 Company ; 3:19 Company's management = 3:20 Company's business 3:21 Company's financials 3:22 Legal review 3:23 Due diligence list: Public offering 3:24 Director and officer questionnaire DUE DILIGENCE IN SECURITIES TRANSACTIONS Chapter 4 Due Diligence in the "New" Underwriting Environment: From the 1990s Forward 4:1 Introduction 4:2 Task force report on sellers' due diligence and similar defenses under the federal securities laws Committee on federal regulation of securities 4:3 Current and future due diligence procedures 1934 Act reports versus 1933 Act filings 4:4 Designated underwriters' counsel Chapter 5 Civil Liabilities Under Federal Law for Inadequate or Materially Misleading Disclosure and Due Diligence Defenses Thereto 5:1 Introduction 5:2 Securities Act of :3 Securities Exchange Act of :4 Securities laws duties of corporate officers, promoters, attorneys, and accountants for preparation of disclosure documents for investors: Overview 5:5 Section 11 of 1933 Act: Do persons other than those specifically named have disclosure/due diligence duties thereunder? 5:6 Section 12(2) of 1933 Act 5:7 Pinter v. Dahl: Who has disclosure and due diligence duties? 5:8 Post-Pinter cases: Agents, brokers, dealers, underwriters, and other Section 12(2) "sellers" 5:9 Attorneys and accountants 5:10 Applies only to public offerings 5:11 No aiding and abetting liability 5:12 Section 17(a) of 1933 Act 5:13 Rule 10b-5 (1934 Act) 5:14 Professional's duty to disclose material facts 5:15 Attorneys 5:16 Accountants 5:17 Transaction and loss causation 5:18 End-Run around no aiding and abetting liability in private actions? 5:19 Who "makes" a misstatement?

4 TABLE OF CONTENTS 5:20 Drafting, editing, reviewing, advising, or assisting in preparation of statements made by another 5:21 Statements "made" by an accountant regarding unaudited financial information 5:22 "Primary" violations of the nonrepresentational 10b-5 subdivisions 5:23 Decisions that require defendant make the statement 5:24 Conspiracy 5:25 SEC actions and criminal liability 5:26 Aiding and abetting actions by SEC Chapter 6 Specific Due Diligence Standards Imposed by Professional Rules 6:1 Introduction 6:2 Attorneys' opinion letters 6:3 Lawyers' responses to auditors' requests for information 6:4 Due diligence for accountants Generally accepted auditing standards (GAAS) 6:5 Section 10A of the 1934 Act: Auditors' duties regarding illegality and fraud 6:6 Application of GAAS and GAAP in decided cases 6:7 Compliance with GAAS and GAAP as evidence of reasonableness Chapter 7 Due Diligence and Professionals 7:1 SEC views on due diligence of underwriters, attorneys, and accountants Underwriters 7:2 Attorneys 7:3 Due diligence as to formal opinions 7:4 Drafting disclosure documents; Providing disclosure and other advice 7:5 Accountants 7:6 Due diligence duties of securities counsel: Scope of state law duties 7:7 Preventive lawyering: Written disclosure of warnings, caveats, and risk factors 7:8 Forward-looking information: The 1995 statutory safe harbor; the judicial bespeaks caution doctrine 7:9 Statutory safe harbor: Applicability and exclusions 7:10 Meaningful cautionary statement safe harbor 7:11 State of mind safe harbor: Actual knowledge 7:12 Oral statements; "Immaterial" safe harbor 7:13 Due diligence 7:14 Duty to update or correct? 7:15 Companies taking advantage of the safe harbor 7:16 Commission authority to expand safe harbors 7:17 Judicial "bespeaks caution" doctrine 7:18 Written disclosures as a defense against oral misrepresentations or as "inquiry notice" under statutes of limitations: Kennedy-Zobrist rules 7:19 Rule 10b-5 versus 1933 Act Section 12(2) Appendices Appendix 1 Excerpts from NASD Notice to Members: (March 14, 1973) 6 West Group, xvii

5 DUE DILIGENCE IN SECURITIES TRANSACTIONS Appendix 2A Excerpts from Comment Letters Relating to Proposed Due Diligence Standards in NASD Notice Securities Industry Association (April 10, 1973) Appendix 2B Excerpts from Comment Letters Relating to Proposed Due Diligence Standards in NASD Notice Morgan Stanley & Co. (April 24, 1973) Appendix 2C Excerpts from Comment Letters Relating to Proposed Due Diligence Standards in NASD Notice Davis Polk & Wardwell (April 23, 1973) Appendix 2D Excerpts from Comment Letters Relating to Proposed Due Diligence Standards in NASD Notice Gibson, Dunn & Crutcher Submission (undated) Appendix 2E Excerpts from Comment Letters Relating to Proposed Due Diligence Standards in NASD Notice Bache & Co. (April 23, 1973) Appendix 3 Excerpts from Guide to Broker-Dealer Compliance Appendix 4 Excerpts from NASD Notice to Members: (April 25, 1975) Appendix 5 Excerpts from Comment Letter, Committee on Securities Regulation of the Association of the Bar of the City of New York Concerning NASD Notice (June 3, 1975) Appendix 6 Manual of Corporate Forms: Form 2-6 Appendix 7A The Legal Audit: Corporate Internal Investigation: Document 5: Form of General Checklist for Acquisition of a Business: Prepared by Purchaser Appendix 7B The Legal Audit: Corporate Internal Investigation: Document 6: Appendix 7C Appendix 8 Preliminary Audit Information The Legal Audit: Corporate Internal Investigation: Document 7: Form of General Statement of Business for Small Business Form of Company Questionnaire and Due Diligence Checklist