Attorney Corporate Attorney 2 — Questions and Answers
Question 1: What is due diligence in a corporate transaction?
- A regulatory filing submitted to the SEC before a merger
- A comprehensive investigation and verification of a target company's legal, financial, and operational information before completing a transaction (Correct answer)
- A background check on executive officers
- A court-ordered audit of corporate records
Correct answer: A comprehensive investigation and verification of a target company's legal, financial, and operational information before completing a transaction
Due diligence is the process by which a buyer thoroughly investigates a target company's assets, liabilities, contracts, litigation, intellectual property, and operations before closing a transaction.
Question 2: What are representations and warranties in a purchase agreement?
- Guarantees that a product will perform as advertised
- Contractual statements of fact by each party about themselves and the subject of the transaction, on which the other party relies (Correct answer)
- Post-closing obligations to provide customer service
- Regulatory certifications required by government agencies
Correct answer: Contractual statements of fact by each party about themselves and the subject of the transaction, on which the other party relies
Representations and warranties are factual statements in transaction agreements on which the other party relies; breach can give rise to indemnification claims or allow the other party to terminate the deal.
Question 3: What is a hostile takeover?
- A merger approved by the board but opposed by employees
- An acquisition attempt made directly to shareholders or through a proxy fight after the target company's board rejects the offer (Correct answer)
- A government seizure of a failing corporation
- A leveraged buyout that causes the target company to become insolvent
Correct answer: An acquisition attempt made directly to shareholders or through a proxy fight after the target company's board rejects the offer
A hostile takeover occurs when an acquirer bypasses the target company's board — typically through a tender offer to shareholders or a proxy contest — after management rejects the acquisition proposal.
Question 4: What is a poison pill defense in corporate law?
- A clause requiring executives to resign if the company is acquired
- A shareholder rights plan that makes hostile takeovers prohibitively expensive by allowing existing shareholders to buy new shares at a discount if an acquirer exceeds a ownership threshold (Correct answer)
- A golden parachute provision for key executives
- A debt covenant triggered by a change of control
Correct answer: A shareholder rights plan that makes hostile takeovers prohibitively expensive by allowing existing shareholders to buy new shares at a discount if an acquirer exceeds a ownership threshold
A poison pill is an anti-takeover device that allows existing shareholders to buy additional shares at a discount if a hostile bidder acquires a large stake, diluting the acquirer's ownership and making the takeover more expensive.
Question 5: What is the role of a corporate general counsel?
- An outside law firm hired for specific transactions
- The chief legal officer of a corporation, responsible for all legal affairs, compliance, risk management, and managing outside legal counsel (Correct answer)
- A government attorney who reviews corporate filings
- A mediator appointed to resolve shareholder disputes
Correct answer: The chief legal officer of a corporation, responsible for all legal affairs, compliance, risk management, and managing outside legal counsel
The general counsel serves as the corporation's chief legal officer, overseeing all legal matters including compliance, litigation, contracts, regulatory affairs, and legal strategy.
Question 6: What is a corporation's duty to disclose material information under securities law?
- Corporations must disclose all business information to the public immediately
- Publicly traded corporations must promptly disclose material information that a reasonable investor would consider important in making investment decisions (Correct answer)
- Corporations only need to disclose information required by annual reports
- Disclosure is required only when the company seeks new investment
Correct answer: Publicly traded corporations must promptly disclose material information that a reasonable investor would consider important in making investment decisions
Securities laws require publicly traded companies to promptly disclose material information — anything a reasonable investor would find significant — through required SEC filings and public disclosures.
Attorney Corporate Attorney 2
What is due diligence in a corporate transaction?