Agreement regarding Oral Due Diligence

Principle: The trader must have a due diligence plan in place that reflects the context of the offer and the appropriate level of due diligence in the circumstances. Legal advisors also play a key role in the due diligence process – issuer advisors on behalf of the issuer and its board of directors and advisors to underwriters on behalf of the underwriting syndicate. Underwriters` lawyers, including local lawyers in foreign jurisdictions, where applicable, can provide underwriters with valuable assistance in creating a due diligence plan and conducting a legal due diligence investigation on behalf of the underwriters. However, a subscriber cannot avoid being held liable to buyers for misrepresentation in the prospectus if such a misrepresentation should have been discovered by the attorney as part of the legal due diligence entrusted to him (although the attorney may be liable to the subscriber for negligence). Comfort letters are not required by law and copies are not filed with the SEC. However, a common condition for a subscription contract as part of the offer to sell securities registered with the SEC under the law is that accountants provide a comfort letter. Some subscribers do not make the receipt of an administrative letter a condition of the subscription contract or the purchase contract (hereinafter referred to as the subscription contract), but still request such a letter. fn 12 [Paragraph renumbered by the publication of Statement on Auditing Standards No. 76, September 1995.] The letter must not be addressed or transmitted to parties other than the client and the designated subscribers, fn 17 broker-dealers, financial intermediaries or buyers or sellers. The appropriate recipient is the intermediary who negotiated the agreement with the client and with whom the accountants will negotiate in discussions about the scope and sufficiency of the letter. If an administrative letter is addressed to other accountants, it shall be sent in accordance with the guidelines of this paragraph and copies shall be made available to the chief accountants and their client. [Paragraph renumbered by the publication of Statement on Auditing Standards No.

76 September 1995.] The trader must have a comprehensive understanding of the issuer`s activities and the sector in which it operates in order to determine the scope and objectives of the due diligence investigation. There should be a due diligence plan that reflects the context of the offer and the level of due diligence appropriate in the circumstances. The form of the plan depends on the trader`s practice and usually includes a list and description of the issues to be considered. The decision to create a formal written due diligence plan for an offer is a contextual provision: if the trader`s written policies and procedures adequately determine the issues to be considered, a specific written plan may not be required for all quotes. Similarly, as discussed in section 2.2.6, it is not necessary for consortium members to develop their own due diligence plans if the lead insurer has done so. Of course, if comfort letters are requested from more than one accountant (see paragraphs .17 and .18), each accountant must ensure that he or she is independent within the meaning of the law and applicable rules and regulations adopted by the SEC. Accountants of previously unaffiliated companies recently acquired by the declarant do not need to be independent from the company whose shares are registered. In such a case, the accountants should amend the wording proposed in paragraph .31 and make a declaration of independence on the following points. Section 132 of the Securities Act (Ontario) states that the standard of adequacy for determining what constitutes a reasonable investigation or reasonable grounds to believe is that of a prudent person in the circumstances of the case. Section 2.2 of the Supplemental Policy to NI 41-101 discusses the benefits of underwriter participation in prospectus offerings and states that „the due diligence exercised by a underwriter with respect to the issuer`s business often results in an improvement in the quality of information in the prospectus.” The role of oversight in due diligence underwriting is to ensure that the business unit itself assumes responsibility for overseeing due diligence activities on an ongoing basis.

While specific activities that include due diligence may be performed by a number of employees, including junior staff who are part of the team, external legal advisors, and other experts hired by underwriters, there should be a senior investment banking expert involved throughout the due diligence process (not just at the end of the process) and ultimately responsible for quality and quality. scope of due diligence for each offer of securities subscribed by the trader. Any difficult or unusual disclosure issues should be escalated to this senior supervisor. When developing a due diligence plan, the trader should take into account contextual aspects, the examples of which are listed in the Annex to this Communication. 1. The content of the administrative letters varies depending on the amount of information contained in the registration declaration and the wishes of the insurer or another requesting party. Shelf registration statements can have multiple closing dates and different subscribers. Descriptions of procedures and findings relating to interim financial statements, schedules, statistics or other financial information incorporated by reference from previous 1934 records may need to be repeated in several administrative letters. In order to avoid these descriptions being repeated in each administrative letter, accountants may first submit comments in a format (e.B an appendix) to which reference may be made and attached in administrative letters issued later. fn 24 Certain financial statements may be incorporated into a registration statement under the Act by reference to documents filed under the Securities Exchange Act of 1934 (1934).

In these circumstances, accountants may question whether the audited financial statements and financial statements contained in the registration statement (incorporated by reference) conform in all material respects to the applicable accounting rules of the 1934 Act and related rules and regulations issued by the SEC (see Example B [paragraph .64]). However, accountants should not refer to compliance with the provisions of the Internal Accounting Control Act 1934. See Article 501 of the TA, Reports on an Entity`s System of Internal Control over Financial Reporting, paragraph .82. 76, September 1995. Footnote renumbered and subsequently amended, with effect for administrative letters issued on or after June 30, 1998 by the Statement on Auditing Standards No. 86. Revised footnote, January 2001 to reflect the conforming changes required by the publication of the Statement of Standards for Certification Orders No. 10.] fn 30 If a client`s securities are subject to SEC regulation, accountants should be aware of the SEC`s view of independence when agreeing to make a forecast. .