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Due Diligence in Business Transactions

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Gary M. Lawrence


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“All but the most seasoned acquisition professional will find some topics addressed in this book that he or she has never considered. This volume of material the author addresses is truly staggering.”
The M&A Tax Report

This valuable deskbook presents a complete overview of the due diligence process and gives attorneys, legal assistants and allied professionals the tools they need to conduct more thorough and efficient due diligence investigations.

Due Diligence in Business Transactions provides detailed guidance on: who makes up the due diligence team and what roles these various experts play; how to limit your risk of liability for inadequate or incomplete due diligence; what the courts say about “adequate due diligence” under the federal securities laws; creating a “data trail” to document the investigation; techniques that can help you uncover more and better information; the special requirements of international and intellectual property due diligence; and how the due diligence investigation process varies for different types of companies. Chapters analyze due diligence on environmental issues, real property and personal property, debt instruments, employee benefits, insurance and liability coverage, international issues, and intellectual property, as well as due diligence considerations in light of heightened national security. The book features over 100 forms and checklists that can also be found in the convenience online version of this product.


Due Diligence in Business Transactions includes in-depth coverage of the case law and statutes governing due diligence and shows you what to do—and what to watch out for—every step of the way.


Book #00629; looseleaf, two volumes, 1,388 pages; published in 1994, updated as need; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-066-1


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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 1388
  • ISBN: 978-1-58852-066-1
  • Pub#/SKU#: 629
  • Volume(s): 2
  • CDs: 1

Author Image
  • Gary M. Lawrence
Gary M. Lawrence, J.D. is one of the country’s leading due diligence, investment and transactional scholars. He is a member of the adjunct faculty of the Dedman School of Law at Southern Methodist University where he teaches Due Diligence Studies to JD, MBA and LLM candidates. He is also executive director of the Center for Advanced Due Diligence Studies (www.CADDS-EDU.org), and has served as an expert witness in some of the country’s most significant investment, due diligence and fraud related lawsuits.  Previously, Professor Lawrence was a senior partner with a major international law firm where he chaired the global technology, media and telecommunications transactions practice and was a member of the firm’s global management committee.

Also by Gary M. Lawrence:
Representing High-Tech Companies

CHAPTER 1
Introduction to Due Diligence

§ 1.01 Due Diligence: An Essential Element of Successful Business Transactions
§ 1.02 Key Terms and Concepts
§ 1.03 Benefits of the Due Diligence Investigation
[1] Appropriate Disclosure
[2] Transaction Evaluation
[3] Limitation of Professional Liability
§ 1.04 Implementing an Effective Due Diligence Process
[1] A General Frame of Reference: The Proposed NASD (Now FINRA) Standards
[2] Establishing Due Diligence Accountability
[3] Typical Responsibilities of Diligence Team Members
[4] Scope and Budget
[5] Documenting the Due Diligence Investigation
§ 1.05 Selected Guidelines for a Due Diligence Investigation
[1] Overview
[2] Checklist for Corporate Finance Transactions
[3] Principal Questionnaire

CHAPTER 2
Statutory, Case Law and Common Sense
Origins of Due Diligence
§ 2.01 Overview
§ 2.02 Section 11: “Reasonable Investigation” Defense
[1] Overview
[2] No Due Diligence Defense for Securities Issuers Under Section 11
[3] Section 11 Due Diligence Defense for Underwriters, Experts and Others
[4] Prudent Person Standard
[5] Permutations of Due Diligence Defenses Under Section 11
§ 2.03 Constituent Elements of “Reasonable Investigation”
[1] Overview
[2] Due Diligence Conduct
[3] Underwriter Defendants
[4] Underwriters’ Counsel
[5] Higher Standard for Insiders
[6] In-House Counsel
[7] Reasonable Independent Investigation
§ 2.04 Underwriter Due Diligence
[1] Context: The Definitive Consideration
[2] Verification vs. Reliance
[3] Cumulative Due Diligence: A Central Consideration
[4] Expertised and Non-Expertised Materials
[5] Due Diligence Roles of Lead and Participating Underwriters
[6] Rule 176 and the “Aircraft Carrier” Release
§ 2.05 Due Diligence Defense for Selected Parties
[1] Experts and Attorneys
[2] Underwriters
[3] Selected Insiders
[4] Special Situations
[5] Underwriters’ Obligations
§ 2.06 Derivative Liability Claims in Due Diligence
[1] Overview
[2] Types of Derivative Claims
[3] Due Diligence in Section 10 and Section 17(a) Claims
§ 2.07 Securities and Exchange Proceedings
§ 2.08 Other Potential Bases of Due Diligence-Based Claims
§ 2.09 Sarbanes-Oxley Due Diligence
[1] Overview
[2] “Internal Control over Financial Reporting”
[3] Contents
[4] Selected Guidelines
[5] Checklist: SOX Internal Control Due Diligence

CHAPTER 3
The Due Diligence Team

§ 3.01 Overview
[1] The Multi-Disciplinary Due Diligence Team
[2] The Relevance of Context
§ 3.02 Subject Matter Evaluation
[1] Overview
[2] Form: Request for Proposal: Risk Evaluation Specialist
[3] Form: Confidentiality Agreement for Subject Matter Specialist
§ 3.03 “Cross-Pollination” and “Kickoff” Protocols
[1] Overview
[2] Diligence Team Coordination
[3] Form: Diligence Team “Kickoff” Memorandum
§ 3.04 Approaches to Coordinating Due Diligence
[1] Overview
[2] Form: Due Diligence Responsibilities List
[3] Form: Preliminary Due Diligence Team Memorandum

CHAPTER 4
Tailoring the Due Diligence Investigation

§ 4.01 Overview
§ 4.02 Forms-Driven Processes
[1] Overview
[2] Time and Responsibility Schedules
[3] Form: Summary Timeline: Traditional Public Offering of Securities
[4] Form: Detailed Time and Responsibility Schedule: Traditional Public Offering of Securities
[5] Form: Summary Time and Responsibility Schedule: Public Tender Offer
§ 4.03 Selected Guidelines for Less Experienced Members of the Diligence Team
[1] Overview
[2] Guidelines: Questions and Answers to Assist Those New to the Diligence Process
§ 4.04 Due Diligence Request Lists
[1] Overview
[2] Forms of Due Diligence Request List
[3] Form: Due Diligence Request List for Generic Business Transaction
[4] Checklist: Summary Business Due Diligence Checklist for Negotiated Transactions
[5] Form: Prioritized Financial and Accounting Due Diligence Checklist
§ 4.05 Form: Due Diligence Document Request List for Medical Facility Acquisition
§ 4.06 Form: Abbreviated Preliminary Due Diligence Request List for Negotiated Acquisition
§ 4.07 Form: Alternative Form Initial Due Diligence Request List
§ 4.08 Checklist: Due Diligence Request Guidelines
§ 4.09 Data Rooms
[1] Physical vs. Virtual Data Rooms
[2] Data Room Mechanics and Protocols
[3] Form: Short Form Data Room Index

CHAPTER 5
“Data Trails” in Due Diligence Investigations

§ 5.01 Introduction
[1] Selected Components of a Due Diligence Data Trail
[2] Common Tiers of Work Product
[3] Graphic: Due Diligence Work Product Tiers
§ 5.02 Tier Two Work Product
[1] Form: Sample Preliminary Diligence Memorandum for a Negotiated Transaction
[2] Form: Sample Preliminary Data Room Survey Report for a Negotiated Transaction
[3] Form: Sample Subject Matter Specialist Memorandum—Antitrust
[4] Form: Sample Subject Matter Specialist Memorandum—Environmental
[5] Form: Sample Subject Matter Specialist Memorandum—Bankruptcy
[6] Form: Sample Subject Matter Specialist Memorandum—Manufacturing Facilities
§ 5.03 Tier Three Work Product
[1] Form: Sample Negotiated Transaction Diligence Compendium
[2] Form: Sample Outline of an Underwriter Sales Force Memorandum for a Securities Offering
[3] Form: Sample Outline for Underwriter Internal Review Committee Memorandum for a Securities Offering
§ 5.04 Tier Four Work Product
[1] Form: Sample Executive Summary of Preliminary Negotiated Transaction Due Diligence Findings
[2] Form: Sample Summary of Legal Due Diligence Findings in a Negotiated Transaction (Long Form)
[3] Form: Sample Executive Summary of Legal Due Diligence Findings (Short Form)
§ 5.05 Additional Elements of the Due Diligence Data Trail
[1] Legal Opinions
[2] Accountants’ Comfort Letters in Securities Offerings
[3] Officers’ Certificates
[4] Metadata as a Component of the Data Trail
[5] Protection of Confidential Information Included in the Data Trail
§ 5.06 Special Data Trail Considerations: Legal Issues Associated with Creating Electronic Recordings
[1] Introduction
[2] Electronic Recording of Conversations by Non- Attorneys
[3] Additional Considerations for Attorney Actors
[4] State Law and Ethical Standards

CHAPTER 6
Selected Guidance for Due Diligence Interviews, Meetings and Questionnaires

§ 6.01 Introduction
[1] Interviews and Meetings
[2] Disclosure and Investor Suitability Questionnaires
[3] Conclusion
§ 6.02 Form: Sample Management Interview/Meeting Agenda
§ 6.03 Form: Independent Auditor Interview/Meeting Agenda
§ 6.04 Form: Legal and Regulatory Interview/Meeting Agenda
§ 6.05 Form: Director and Officer Selected Information Tracker: Public Offering of Securities
§ 6.06 Form: Director, Officer and Beneficial Shareholder Questionnaire: Public Offering of Securities
§ 6.07 Form: Director and Officer Questionnaire: Periodic Reports
§ 6.08 Form: Checklist for Non-Employee Directors
§ 6.09 Form: Non-Employee Director Questionnaire: Public Offering of Securities
§ 6.10 Form: Checklist for Beneficial Shareholders
§ 6.11 Form: Beneficial Shareholder Questionnaire
§ 6.12 Form: Selling Shareholder Questionnaire: Public Offering of Securities
§ 6.13 Form: Short Form Combined Questionnaire for Directors, Officers and Shareholders
§ 6.14 Form: Investor Suitability Questionnaire: Private Placement of Securities

CHAPTER 7
Documentary Due Diligence

§ 7.01 Introduction
[1] Overview
[2] Using Tools to Facilitate Documentary Due Diligence
[3] “Sell-Side” Documentary Due Diligence
[4] Target Company Document Record Retention Challenges
[5] Target Company Sample Record Retention Policy
§ 7.02 Checklist: Topical Documentary Due Diligence
§ 7.03 Organizational Document Review
§ 7.04 Equity Records, Minutes and Resolutions
§ 7.05 Form: Corporate Organizational Records Review
§ 7.06 Form: Partnership Organizational Records Review
§ 7.07 Form: LLC Organizational Records Review
§ 7.08 Checklist: Resolutions and Consents Review
§ 7.09 Checklist: Minutes Review
§ 7.10 Form: Short-Form Board and Committee Meeting Analysis
§ 7.11 Form: Litigation and Dispute Documents Worksheet
§ 7.12 Form: Short-Form Transaction Documents Review
§ 7.13 Form: Short-Form License and Authorizations Review
§ 7.14 Form: Short-Form Material Agreements Review
§ 7.15 Form: Anti-Competition Compliance Questionnaire
§ 7.16 Form: Organizational Records Checklist
§ 7.17 Checklist: Regulated Company Documentary Due Diligence
§ 7.18 Franchised Business Documentary Due Diligence
§ 7.19 Due Diligence for Letters of Intent
§ 7.20 Checklist: Accounting Professional Documentary Due Diligence

CHAPTER 8
Environmental and Sustainability Due Diligence

§ 8.01 Basic Environmental Due Diligence
[1] Overview
[2] Importance of Basic Environmental Due Diligence
[3] Basic Environmental Regulation
[4] Risks
§ 8.02 Sustainability and Green Initiatives Due Diligence
§ 8.03 Process and Methodology
[1] Overview
[2] Data Review and Associated Inquiries
[3] Phases of Environmental Audit
§ 8.04 Checklist: Sample Environmental Due Diligence
§ 8.05 Form: Sample Environmental Questionnaire
§ 8.06 Form: Environmental Workform
§ 8.07 Form: Short-Form Environmental Survey Checklist
§ 8.08 Greenhouse Gas Emissions Due Diligence
[1] Overview
[2] Implications of Regulatory Uncertainty and Evolution
[3] In Search of Prudence
§ 8.09 Checklist: Short-Form Sustainability Checklist
§ 8.10 Form: Environmental Impact Questionnaire
§ 8.11 Form: California Environmental Quality Act (CEQA) Sample Checklist
§ 8.12 Checklist: Energy Star Program
§ 8.13 Form: Environmental Sustainability Checklist for EU Region
§ 8.14 Form: Sample Government Regulations Review: Sustainable Development

CHAPTER 9
Real and Personal Property
Due Diligence
§ 9.01 Overview
[1] Defining Real and Personal Property
[2] Scope of Review
[3] Real Property Surveys, Title Review and Title Insurance
[4] Real Property Due Diligence: The Visual Artist’s Rights Act
[5] Personal Property Due Diligence
§ 9.02 Real Property Due Diligence: Organization, Local Counsel, and Appraisals
[1] Organizations
[2] Local Counsel
[3] Appraisals
§ 9.03 Form: Real Property: Fee Interest Workform
§ 9.04 Form: Real Property: Leasehold Interest Workform
§ 9.05 Form: Real and Personal Property: Due Diligence Process Checklist
§ 9.06 Form: Real Property: Mortgage and Encumbrance Workform
§ 9.07 Form: Real Property: Real Estate Investment Trust (REIT) Checklist
§ 9.08 Form: Personal Property: Leased Personal Property Checklist
§ 9.09 Guidelines: Real Property: Sample Public Real Property Transaction

CHAPTER 10
Lending Transaction and Debt Instrument
Due Diligence
§ 10.01 Introduction to Lending Related Due Diligence
[1] Overview of Lending Related Due Diligence
[2] Overview of Selected Lending Transaction Categories
[3] Overview of Selected Lending Transaction Agreement Concepts
[4] Overview of Selected General Elements of Lender’s Due Diligence
§ 10.02 Identifying and Understanding Debt Instruments
§ 10.03 Form: Simple Loan Instrument Review Workform (for Borrowed Funds)
§ 10.04 Form: Industrial Development/Revenue Bond Workform
§ 10.05 Form: Vendor Credit Agreement Workform

CHAPTER 11
Labor and Employment Due Diligence

§ 11.01 Labor and Employment Due Diligence
[1] Overview
[2] Selected Considerations in Negotiated Transactions
§ 11.02 Regulatory Framework for Retirement Plans
[1] Introduction
[2] ERISA
[3] Other Regulations
§ 11.03 Introduction to Retirement Plan Due Diligence
[1] Overview
[2] Defined Benefit Plans
[3] Defined Contribution Plans
§ 11.04 Employee Stock Ownership Plan Due Diligence
[1] ESOP Overview
[2] Selected ESOP Cases
[3] Form: Checklist for ESOP Due Diligence
§ 11.05 Form: Checklist for Employee Benefit Plan Due Diligence
§ 11.06 Form: Long-Form Checklist for Employee Benefit Plan Due Diligence
§ 11.07 Form: Management Questionnaire: Employee Benefits Plans
§ 11.08 Form: Employee Benefit Plan Review Workform
§ 11.09 Form: Employment Agreement Review Workform
§ 11.10 Form: Labor, Collective Bargaining and Employee Relations Management Questionnaire: Long Form
§ 11.11 Americans with Disabilities Act Due Diligence
[1] Overview
[2] The Meaning of “Disability”
[3] The Meaning of Prohibition and Discrimination
[4] Employers Subject to the ADA
[5] Qualified Individuals for Purposes of the ADA
[6] Employer Duties Under the ADA
[7] Exceptions for Undue Employer Hardship
[8] Substance Abuse and Testing
[9] ADA Due Diligence
§ 11.12 Form: ADA Due Diligence Workform

CHAPTER 11A
Foreign Worker Status Due Diligence

§ 11A.01 Introduction
§ 11A.02 Selected Foreign Worker Visas
[1] Temporary Workers
[2] Workers Seeking Permanent Residency (“Green Card”)
§ 11A.03 Employer Compliance and Liability
[1] Form I-9 Employment Eligibility Verification
[2] Anti-Discrimination
[3] Selected Employer Sanctions
§ 11A.04 Selected Foreign Worker Due Diligence Guidelines
[1] Worker-Focused Diligence
[2] Employer-Focused Diligence
§ 11A.05 Form: Selected Foreign Worker Due Diligence Guidelines
§ 11A.06 Form: Foreign Worker Due Diligence Worksheet and Checklist
§ 11A.07 Form: I-9 Employment Eligibility Audit Guidelines

CHAPTER 12
Due Diligence in
International Transactions
§ 12.01 Overview of Due Diligence in International Transactions
§ 12.02 International Due Diligence Team
§ 12.03 International Transaction Due Diligence Methodology
§ 12.04 Selected Regulatory Matters
[1] Overview
[2] Foreign Investment in U.S.
[3] United States Direct Investment Abroad
[4] EU Merger Notifications
[5] Foreign Corrupt Practices Act
[6] Export/Import Restrictions
§ 12.05 Common Questions Regarding International Due Diligence
§ 12.06 Form: Preliminary Due Diligence Team Meeting Agenda
§ 12.07 Scope of Engagement: Local Counsel
§ 12.08 Checklist: General Diligence Considerations in Foreign Transactions
§ 12.09 Form: International Transaction Preliminary Due Diligence Memorandum
§ 12.10 Form: Sample International Transaction Preliminary Legal Due Diligence Report

CHAPTER 13
Intellectual Property Due Diligence

§ 13.01 Overview of Intellectual Property Due Diligence
§ 13.02 Selected Components of IPR Diligence
[1] Identify Relevant IPR
[2] Define the Scope of Review
[3] Assemble an Appropriate Team
[4] Interview Management and/or Others
[5] Investigate the Scope of Rights Owned in the Intellectual Property
[6] Investigate IPR Litigation and Disputes
[7] Perfect the Interest
§ 13.03 Types of IPR
[1] Patents
[2] Trade Secrets
[3] Copyrights
[4] Trademarks
[5] Special Areas
§ 13.04 Four Building Blocks of IPR Due Diligence
[1] Understand the Business
[2] Understand the Deal Structure
[3] Understand the IPR
[4] Understand the Objectives of the Investigation
§ 13.05 Form: IPR Diligence Activities Checklist
[1] Patents
[2] Trademarks
[3] Copyrights
[4] Trade Secrets
[5] Personal Rights
[6] Contracts
§ 13.06 Guidelines: Selected IPR Due Diligence Guidance by Category
[1] Preliminary Matters
[2] Team Logistics
[3] Patents
[4] Trademarks
[5] Copyrights
[6] Trade Secrets
[7] Miscellaneous IPR Areas
§ 13.07 Form: IT Systems, Facilities and Personnel Diligence Questionnaire
§ 13.08 Form: Software Licenses Diligence Checklist
§ 13.09 Instructions for Software Licenses Diligence Checklist

CHAPTER 14
Risk Management Due Diligence

§ 14.01 Introduction
§ 14.02 Overview of Risk Management Alternatives
[1] Third Party Insurance v. Self-Insurance
[2] Evolving Risk Management Tools
§ 14.03 Form: Insurance and Risk Management Diligence Request List
§ 14.04 Form: Insurance Policy Review
§ 14.05 Form: Preliminary Due Diligence Memorandum: Risk Management
§ 14.06 Form: Risk Management Matrix
§ 14.07 Form: Sample Professional Liability/Errors and Omissions Insurance Summary
§ 14.08 Form: Risk Assessment: Professional Liability/Errors and Omissions
§ 14.09 Form: Preliminary Report: Professional Liability/Errors and Omissions Policy Review
§ 14.10 Form: Insurance Company Due Diligence Checklist

CHAPTER 15
National Security and International Trade Regulations Due Diligence
§ 15.01 Overview
§ 15.02 Due Diligence: International Trade
[1] Regulatory Framework
[2] Successor Liability
[3] Due Diligence Considerations
§15.03 Foreign Investor Due Diligence
[1] Overview
[2] Exon-Florio
[3] Security Clearance Considerations for Government Contractors
§ 15.04 Form: Import Compliance Due Diligence
§ 15.05 Form: Export Compliance Questionnaire
§ 15.06 Checklist: Foreign Investors

CHAPTER 16
Special Situations Due Diligence

§ 16.01 Forensic Due Diligence Analyses
[1] Overview
[2] Defining the Context as Part of the Forensic Analysis
[3] Defining the Applicable Standard as Part of the Forensic Analysis
§ 16.02 Two Temporal Components of Due Diligence: Cumulative vs. Current Due Diligence
§ 16.03 Reliance on Lead Underwriter Due Diligence by Junior Underwriters and Sub-Underwriters
§ 16.04 Understanding the Concept of Red Flags
[1] Overview of Red Flags
[2] Distinguishing “Red Flags” from Structural Elements of a Transaction
[3] Selected Red Flag-Related Judicial Decisions
[4] Red Flags in Negotiated Transactions
§ 16.05 No Duty to Disclose/Public Knowledge Due Diligence Findings in Securities Offerings
§ 16.06 A Growing Area of Regulatory Interest: Investment Steward and Investment Advisor Due Diligence
[1] Investment Steward Due Diligence
[2] Investment Advisor Due Diligence
§ 16.07 Due Diligence of Representations and Warranties
§ 16.08 Review of Selected Complex Lending Transaction Due Diligence
[1] Overview
[2] Asset Backed Commercial Paper Due Diligence
[3] Mortgage and Other Asset Backed Securities Due Diligence
[4] Microfinance Program Due Diligence
§ 16.09 Communicating the Results of Due Diligence
§ 16.10 Selected Privacy and Data Security Issues in Due Diligence Investigations
[1] Overview
[2] Understanding the Target’s Data Environment
[3] Attorney-Client Privilege Issues in Data and Information Security
[4] Anti-Competition Concerns in Information and Data Management Due Diligence Practices
[5] Selected Sovereign Data Privacy Laws Issues

Index