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TreatiseTreatise

Conducting Due Diligence in a Securities Offering
 by Valerie Ford Jacob, Stephanie Goldstein
 
 Copyright: 2009-2013
 Last Updated: August 2013

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  • ISBN Number: 978402411663
  • Page Count: 312
  • Number of Volumes: 1
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Today’s major financial scandals demonstrate what can happen when investigators fail to uncover illegal activity because they failed to do effective background searches.
 
PLI’s new Conducting Due Diligence in a Securities Offering provides you with clear, step-by-step legal and procedural information that helps ensure you to do a thorough investigation of a company’s records and its top managers — and reduce the potential for legal problems down the road.
 
Featuring case histories that illustrate proper due diligence techniques, this practical, timesaving tool shows you how to dig deeper even when you are under tight deadlines, including how to fully review documents, conduct productive in-person and telephone interviews, use computers to do more cost-effective background searches, speed the process by using detailed questionnaires, and get help from outside investigators. Included is coverage of typical due diligence mistakes and traps and how to avoid them.
 
Updated at least once a year, Conducting Due Diligence in a Securities Offering is a crucial resource for attorneys, accountants, auditors, corporate executives, and securities professionals.

  Preface
  Abbreviations and Terms Frequently Used
  Table of Contents
Chapter 1: Why Conduct Due Diligence?
  • § 1:1 : Introduction1-1
  • § 1:2 : Rewards of Due Diligence1-3
  • § 1:3 : Conclusion1-5
Chapter 2: The Due Diligence Defense Under the Federal Securities Laws
  • § 2:1 : Possible Defendants in a Securities Action2-1
  • § 2:2 : Liability Under Section 112-2
  • § 2:3 : Liability Under Section 12(a)(2)2-5
  • § 2:4 : Liability Under the Exchange Act2-9
  • § 2:5 : Liability Issues Under the Securities Offering Reform2-11
Chapter 3: When Is Due Diligence Performed?
  • § 3:1 : The Due Diligence Process3-1
  • § 3:2 : Due Diligence Request3-5
  • § 3:3 : Due Diligence Is Ongoing3-6
    • § 3:3.1 : Prior to Initial Filing or Distribution3-7
    • § 3:3.2 : Between Filing or Distribution and Pricing3-9
    • § 3:3.3 : Pricing Through Closing3-9
Chapter 4: Mechanics of Due Diligence in Securities Offerings
  • § 4:1 : Introduction4-1
  • § 4:2 : Factors to Consider4-1
  • § 4:3 : Document Review4-3
    • § 4:3.1 : Physical Data Rooms4-5
    • § 4:3.2 : Electronic Data Rooms4-7
    • § 4:3.3 : Backup4-9
    • § 4:3.4 : Due Diligence Conference Calls4-12
    • § 4:3.5 : Background Searches4-14
Chapter 5: Legal Due Diligence
  • § 5:1 : Introduction5-2
  • § 5:2 : Performing Legal Due Diligence5-3
  • § 5:3 : Corporate Records5-3
    • § 5:3.1 : Charter and By-Laws5-3
    • § 5:3.2 : Minutes5-5
    • § 5:3.3 : Stock Books5-6
    • § 5:3.4 : Organizational Structure5-7
  • § 5:4 : Public Filings and Financial Information5-7
    • § 5:4.1 : SEC Filings5-7
    • § 5:4.2 : SEC Comment Letters and Responses5-8
    • § 5:4.3 : Comfort Letters5-10
    • § 5:4.4 : Audited Financial Statements5-10
    • § 5:4.5 : Interim Unaudited Financial Statements5-12
    • § 5:4.6 : Recent Internal Financial Statements5-12
    • § 5:4.7 : Budget, Operating and Financial Plans and Projections5-13
    • § 5:4.8 : Private Placement Memoranda or Offering Circulars5-13
    • § 5:4.9 : Accountants’ Letters5-13
  • § 5:5 : Corporate Agreements5-14
    • § 5:5.1 : Credit Agreements5-14
    • § 5:5.2 : Other Financial Agreements5-16
    • § 5:5.3 : Third-Party Loan Agreements5-17
    • § 5:5.4 : Material Correspondence with Lenders5-17
    • § 5:5.5 : Other Agreements That Restrict Additional Indebtedness or Asset Transfers of the Company5-17
    • § 5:5.6 : Shareholder Agreements and Registration Rights Agreements5-19
    • § 5:5.7 : Joint Venture Agreements5-21
    • § 5:5.8 : Divestiture and Acquisition Agreements5-21
    • § 5:5.9 : Material Customers5-22
    • § 5:5.10 : Distribution Agreements5-23
    • § 5:5.11 : Supply Agreements5-23
    • § 5:5.12 : Real Property5-24
    • § 5:5.13 : Intellectual Property5-24
    • § 5:5.14 : Non-Competition Agreements5-24
    • § 5:5.15 : Tax Sharing Agreements5-25
    • § 5:5.16 : Insurance Policies5-26
    • § 5:5.17 : Product Warranties5-27
    • § 5:5.18 : Customer Complaints5-27
    • § 5:5.19 : Research and Development Reports5-27
  • § 5:6 : Related Party Agreements5-28
  • § 5:7 : Governmental Regulation5-28
    • § 5:7.1 : Governmental Permits and Licenses5-28
    • § 5:7.2 : Correspondence with Regulatory Authorities5-28
    • § 5:7.3 : Correspondence Relating to Pending Legislation5-30
    • § 5:7.4 : Environmental Matters5-30
  • § 5:8 : Litigation5-30
  • § 5:9 : Other Material Information5-31
    • § 5:9.1 : Analyst Reports5-31
    • § 5:9.2 : Customer Profile Studies5-31
    • § 5:9.3 : Press Releases5-31
    • § 5:9.4 : Shareholder Reports5-32
    • § 5:9.5 : D&O Questionnaires5-32
    • § 5:9.6 : Marketing Material5-33
    • § 5:9.7 : Backlog5-33
    • § 5:9.8 : Accident Reports5-33
    • § 5:9.9 : Testing-the-Waters Communications5-34
    • § 5:9.10 : Conflict Minerals5-34
    • § 5:9.11 : Other Material Information5-34
  • § 5:10 : The Continuing Diligence Process and Other Considerations5-38
Chapter 6: Business, Financial and Accounting Due Diligence
  • § 6:1 : Understanding a Business and Its Operations6-1
  • § 6:2 : Business Due Diligence6-2
    • § 6:2.1 : Industry Research6-3
    • § 6:2.2 : Senior Management Sessions6-4
    • § 6:2.3 : Middle Management Interviews6-6
    • § 6:2.4 : Site Tours6-8
    • § 6:2.5 : Earnings Calls and Analyst Presentations6-8
  • § 6:3 : Financial Due Diligence6-9
  • § 6:4 : Accounting Due Diligence6-17
    • § 6:4.1 : Accounting Policies and Procedures6-20
    • § 6:4.2 : Discussions with Management and Evaluation of Internal Controls6-22
    • § 6:4.3 : Discussions with Auditors and Delivery of Comfort Letter6-23
Chapter 7: Comfort Letters
  • § 7:1 : Purpose of Comfort Letters7-1
  • § 7:2 : Procedures and Level of Comfort7-3
  • § 7:3 : Requesting Comfort7-7
  • § 7:4 : Bring-Down Comfort Letters7-8
Chapter 8: Employee Benefits Due Diligence
  • § 8:1 : Purpose of Employee Benefits Due Diligence8-1
  • § 8:2 : Gathering Information8-3
  • § 8:3 : Relevant Tax Laws8-5
  • § 8:4 : Document Review8-8
    • § 8:4.1 : Executive Compensation Arrangements8-9
    • § 8:4.2 : Severance Agreements or Plans8-10
    • § 8:4.3 : Stock Option and Other Equity-Based Compensation Plans8-11
    • § 8:4.4 : Retirement Plans8-13
    • § 8:4.5 : Collective Bargaining Agreements and Multiemployer Pension Plans8-15
    • § 8:4.6 : Welfare Plans8-16
    • § 8:4.7 : Retiree Medical/Life Benefits8-16
    • § 8:4.8 : Director Plans8-16
    • § 8:4.9 : Indemnification Arrangements8-17
Chapter 9: Corporate Governance/Sarbanes-Oxley Due Diligence
  • § 9:1 : Introduction9-1
  • § 9:2 : Disclosure Controls and Procedures9-2
  • § 9:3 : Internal Controls9-3
  • § 9:4 : Filing of CEO/CFO Certifications Under Section 302 and Section 906 of the Sarbanes-Oxley Act9-4
  • § 9:5 : Code of Ethics and Any Exemptions to the Code9-6
  • § 9:6 : Loans to Officers and Directors9-7
  • § 9:7 : Off-Balance Sheet Transactions9-8
  • § 9:8 : Audit Committee Due Diligence9-9
    • § 9:8.1 : Compliance with Rules9-9
    • § 9:8.2 : Disclosure Controls9-11
    • § 9:8.3 : Relationship with the Auditors9-12
Chapter 10: Intellectual Property Diligence
  • § 10:1 : Overview10-1
  • § 10:2 : Ownership of Intellectual Property10-2
    • § 10:2.1 : Confidentiality Measures10-4
    • § 10:2.2 : Control of Licensees10-4
    • § 10:2.3 : Research and Development10-5
    • § 10:2.4 : Enforcement Measures10-5
  • § 10:3 : Use of Third-Party Intellectual Property10-6
  • § 10:4 : Intellectual Property Conflicts with Third Parties10-7
Chapter 11: Environmental Due Diligence
  • § 11:1 : Overview11-1
  • § 11:2 : Principal SEC Disclosure Requirements for Environmental Liability11-2
  • § 11:3 : Principal Accounting Standards for Environmental Liability11-3
  • § 11:4 : Principal Categories of Environmental Laws11-7
    • § 11:4.1 : Due Diligence of Operational or Business Compliance11-7
    • § 11:4.2 : Due Diligence of Contamination Issues11-9
    • § 11:4.3 : Due Diligence Relating to Exposure Claims and Toxic Torts11-11
  • § 11:5 : What Are the Components of the Environmental Due Diligence Process in the Context of Securities Offerings?11-12
    • § 11:5.1 : Tailor the Due Diligence to the Issuer11-12
    • § 11:5.2 : Request and Review Documentary Information11-13
    • § 11:5.3 : Conduct Telephone and/or In-Person Due Diligence Sessions11-14
    • § 11:5.4 : Database Reviews11-16
    • § 11:5.5 : Bring-Down Environmental Diligence11-17
Chapter 12: Special Considerations for Non-U.S. Company Due Diligence
  • § 12:1 : Challenges of Non-U.S. Company Due Diligence12-1
  • § 12:2 : Due Diligence of Non-U.S. Companies Versus U.S. Companies12-2
  • § 12:3 : Practical Issues and Problems in Diligencing Non-U.S. Companies12-4
    • § 12:3.1 : Different Legal Systems12-4
    • § 12:3.2 : Location of Documents12-4
    • § 12:3.3 : Language Barriers12-5
    • § 12:3.4 : Different Corporate Mechanics12-5
    • § 12:3.5 : Non-U.S. Regulatory Requirements12-6
    • § 12:3.6 : Financial Information12-6
  • § 12:4 : Specific Issues to Consider When Diligencing Non-U.S. Companies12-8
    • § 12:4.1 : The Foreign Corrupt Practices Act (FCPA)12-8
    • § 12:4.2 : Labor Issues12-9
    • § 12:4.3 : Competition12-9
    • § 12:4.4 : Financial Assistance Rules12-9
    • § 12:4.5 : Investment Company Act12-9
    • § 12:4.6 : Macroeconomic Factors12-10
Chapter 13: The Foreign Corrupt Practices Act and the Due Diligence Process
  • § 13:1 : Importance of the Foreign Corrupt Practices Act13-1
  • § 13:2 : FCPA Overview13-2
    • § 13:2.1 : Anti-Bribery Provisions13-3
    • § 13:2.2 : Exception to the Anti-Bribery Provisions: Permissible Payments13-4
    • § 13:2.3 : Affirmative Defenses to the Anti-Bribery Provisions13-5
    • § 13:2.4 : Accounting Provisions: Record-Keeping13-6
    • § 13:2.5 : Accounting Provisions: Internal Controls13-6
  • § 13:3 : FCPA Due Diligence13-7
  • § 13:4 : Corporate FCPA Compliance Practices and Procedures13-11
Chapter 14: Due Diligence and Shelf Takedowns
  • § 14:1 : Introduction14-1
  • § 14:2 : What Is Shelf Takedown Diligence?14-1
  • § 14:3 : The Role of Designated Underwriters’ Counsel14-7
Chapter 15: Due Diligence in Private Offerings
  • § 15:1 : Overview15-1
  • § 15:2 : Section 12(a)(2) Liability for Rule 144A Transactions15-2
  • § 15:3 : Conducting Due Diligence in Rule 144A Transactions15-4
Chapter 16: Acquisition Financing Transactions
  • § 16:1 : Introduction16-1
  • § 16:2 : Strategic Buyers Versus Financial Buyers16-2
    • § 16:2.1 : Strategic Buyers16-2
    • § 16:2.2 : Financial Buyers16-8
  • § 16:3 : Auction Process16-9
  Appendices
Appendix A: Sample Due Diligence Request List
Appendix B: Sample Accounting Due Diligence Questions
Appendix C: Sample Questionnaire for Audit Committee
Appendix D: Sample Environmental Due Diligence Request List
Appendix E: Due Diligence Document Review Checklist
  Table of Authorities
  Index

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