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DCV Holdings3/24/2005
ses of this Opinion. In January 1997, the Buyers submitted several bids, and on January 31 the parties signed a Confidentiality Agreement and a Letter of Intent stating that the Buyers would purchase the companies for $60 million, plus assumption of liabilities. After the bid was accepted, the parties proceeded to the due diligence effort, during which Winward was given access to DCV, Inc.'s management, employees, books and records. In April 1997, the buyers sought to reduce the sale price because the companies were under-performing and because the buyers' accounting firm had raised questions about DCV, Inc.'s financial records. Negotiations led to a $2 million price reduction, from $60 million to $58 million.
In July 1997, Rick Stejskal, DCV, Inc.'s chief financial officer, as well as one of the potential buyers, learned for the first time that DuCoa was in the process of writing off a TMA rebate from Du Pont. By this time, negotiations for the sale were nearing completion, and the unexplained write-off was not good news. After discussing the issue with Earnie Porta, DCV, Inc.'s president, Stejskal questioned DuCoa's president, Lindell Hilling, and controller, Rich Christensen, to learn more about the rebate. Stejskal was told that Fischer had gotten the rebate letter from Leddy even though there had never been a final agreement as to the total amount of the rebate. Stejskal was also told that DuCoa started incrementally writing off the rebate in March 1997. Stejskal wrote a memo which provided as follows:
TMA Rebate being written off at $33M/month. As of 12/31/96, the following was on the books:
$506 Related to 1996 Rebates
It was confirmed by two business managers, the accountant who handles the books, and the Verona Plant Manager, that these amounts were openly discussed as potentially uncollectible at DuCoa at yearend. . . .
If the rebates would not have been booked in 1996, then incentives would have been reduced.
On July 16, 1997, Stejskal faxed this memo to Henkel and James (both of ConAgra) and Halter (of Du Pont). On Henkel's cover sheet Stejskal handwrote, "Per our conversation, this is what Earnie [Porta] went over with Paul [Halter.]"
In the meantime, Porta contacted Ron Mask, one of Leddy's colleagues at Du Pont. He also talked to Leddy. Both men told Porta that Leddy had sent Fischer a TMA rebate letter without intending to pay it and so noted on his file copy. At his deposition, Porta stated that he may have discussed the validity of the rebate with Sikorski sometime in July, but at trial he did not specifically recall any such discussion. Sikorski conceded at trial that he and Porta may have talked about various accounting issues, including the TMA rebate but not about its validity.
When Halter learned about the write-off, he directed Stejskal to ascertain whether there were any other issues that might impact Winward's willingness to proceed with the deal. Stejskal identified six such issues, and Halter scheduled two meetings on July 21, 1997, to discuss them.
Halter met first with Du Pont and ConAgra executives as well as the DCV, Inc. management team. Discussion focused on disclosure to Winward of the accounting issues, and a memo which had been prepared for that purpose. The second meeting included the same people plus DuCoa management. Hilling and Christensen assured Halter that there were no accounting issues other than those enumerated in the disclosure memo. Following the meetings, Halter directed Stejskal to revise the disclosure memo to reflect the substance of both discussions. He also directed DuCoa management to arrange a teleconference with Pete Fischer.
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