Securities Fraud Material misrepresentation

Unfairness as fraud? Kirby Lumber Santa Fe Minority (Green) 95%5%

Unfairness as fraud? Kirby Lumber Santa Fe Minority (Green) 95%5% Short-form merger 95% shareholder Post-merger notice Morgan-Stanley Assets = $640 Value = $120/share Price = $150 Minority – appraisal for “fair value”

Santa Fe Industries v. Green (US 1977) Rule 10b-5 It shall be unlawful for any person, directly or indirectly, (1)To employ any device, scheme, or artifice to defraud, (2)To make any untrue statement of a material fact … or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (3)To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Santa Fe Industries v. Green (US 1977) Section Manipulative and Deceptive Devices It shall be unlawful for any person, …- (b) To use or employ, in connection with the purchase or sale of any security … any manipulative or deceptive device or contrivance in contravention of [SEC] rules …

3/17/99: FDA letter demanding compliance [Bloomberg reveals in June] 9/99: FDA insists on substantial penalties [not reported] 9/29/99: Abbott press release that in settlement negotiations with FDA [stock drops 6%] 11/2/99: FDA and Abbott settle [court enters consent decree = $100 million fine + $18 million accounting charge / stock drops 8%] Duty to update / correct

Gallagher v. Abbott Laboratories Judge Easterbrook: “We do not have a system of continuous disclosure” “A statement need be corrected only if it was incorrect when made …”

MD&A (Item 303) Annual 10-K must reveal Any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations …

Commitments (repeated) Growth in “low teens” and EPS in “mid-teens” and CF of $500 MM In fact Renal division not meeting budget Immunoglobin products below predictions Manufacture failure of drug – w/o changing forecasts Material (bespeaks caution)

(c) Safe harbor (1) In general in any private action arising under this title that is based on an untrue statement of a material fact or omission of a material fact necessary to make the statement not misleading, a person referred to in subsection (a) of this section shall not be liable with respect to any forward-looking statement, whether written or oral, if and to the extent that-- (A) the forward-looking statement is-- (i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward looking statement;.. PSLRA (Exchange Act 21E)

Many factors could affect the company's actual results, causing results to differ materially, from those expressed in any such forward-looking statements. These factors include, but are not limited to, interest rates; technological advances in the medical field; economic conditions; demand and market acceptance risks for new and existing products, technologies and health care services; the impact of competitive products and pricing; manufacturing capacity; new plant start-ups; global regulatory, trade and tax policies; regulatory, legal or other developments relating to the company's Series A, AF, and AX dialyzers; continued price competition; product development risks, including technological diffiulties; ability to enforce patents; actions of regulatory bodies and other government authorities; reimbursement policies of government agencies; commercialization factors; results of product testing; and other factors described elsewhere in this report or in the company's other filings with the Securities and Exchange Commission. Additionally, as discussed in Item 3 - "Legal Proceedings," upon the resolution of certain legal matters, the company may incur charges in excess of presently established reserves. Any such change could have a material adverse effect on the company's results of operations or cash flows in the period in which it is recorded. Statements throughout this report that are not historical facts are forward-looking statements. These statements are based on the company's current expectations and involve numerous risks and uncertainties. Some of these risks and uncertainties are factors that affect all international businesses, while some are specific to the company and the health care arenas in which it operates.

Many factors could affect the company's actual results, causing results to differ materially, from those expressed in any such forward-looking statements. These factors include, but are not limited to, interest rates; technological advances in the medical field; economic conditions; demand and market acceptance risks for new and existing products, technologies and health care services; the impact of competitive products and pricing; manufacturing capacity; new plant start-ups; global regulatory, trade and tax policies; regulatory, legal or other developments relating to the company's Series A, AF, and AX dialyzers; continued price competition; product development risks, including technological diffiulties; ability to enforce patents; actions of regulatory bodies and other government authorities; reimbursement policies of government agencies; commercialization factors; results of product testing; and other factors described elsewhere in this report or in the company's other filings with the Securities and Exchange Commission. Additionally, as discussed in Item 3 - "Legal Proceedings," upon the resolution of certain legal matters, the company may incur charges in excess of presently established reserves. Any such change could have a material adverse effect on the company's results of operations or cash flows in the period in which it is recorded. Statements throughout this report that are not historical facts are forward-looking statements. These statements are based on the company's current expectations and involve numerous risks and uncertainties. Some of these risks and uncertainties are factors that affect all international businesses, while some are specific to the company and the health care arenas in which it operates.

“… when markets are informationally efficient, it is impossible to segment information as plaintiffs propose…” “Baxter [argues full truth had reached the market] – hard to understand the sharp drop in the price of its stock. …” Material (bespeaks caution)