Due Diligence - What You Don’t Find Out Will Hurt You

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This presentation focuses on the details of the due dilligence process. It covers the definition and role of due dilligence, provides a legal due diligence checklist and gives an overview of key due dilligence points and mining considerations.

Text of Due Diligence - What You Don’t Find Out Will Hurt You

  • 1. DueDiligenceWhatYouDontFindOutWillHurtYouPresentedby:BrianAbrahamMay17,2010 1
  • 2. Acknowledgments BillGilliland,Partner FMCCalgary SarahSidhu,Associate FMCVancouver PiaWebster,SummerStudent FMCVancouver 2
  • 3. Overview 1. Whatislegalduediligence? 2. Howdoesabusinessdealfocusandguidetheduediligence process? 3. Theimportanceoflegalduediligencebeingcoordinatedwith businessduediligence. 4. Howlegalduediligenceprovidesessentialinformationtothe businesstransaction. 3
  • 4. Whatisduediligence? Duediligenceisanimportantsteptowardtheacquisitionofa business assets,propertyinterests,shares,and/ormixed elements Itisaprocessbywhichclients,lawyersandotheradvisorstry tolearnasmuchaspossibleaboutatargetbusinessor propertybeforecommittingfundstoenterintoanoption; jointventurelease Legalduediligenceisjustoneelementofduediligence process 4
  • 5. Whyduediligence? Lawyersroleinduediligenceistoensure achievementofclientobjectives Whydoestheclientwanttoacquirethetarget CREATING A DUE DILIGENCE FRAMEWORK propertyorinterest? Willtheclientsacquisitionoftargetbusinesshelp themachievetheirendobjectives? 5
  • 6. Differentpurposesforduediligence Someduediligenceistarget focused,thistypeof investigationattemptstoaddresstherisksandorissues regardingwhatisbeingacquired e.g.existenceofunderlyingagreements, i.e.royalties Transactionalduediligenceaddressestherisksandorissues concernedwithgettingthedealdone e.g.loanagreementrequiresconsentofthirdpartiesfor transaction,originalowner 6
  • 7. Whyduediligence? AccordingtotheB.C.CLEDueDiligenceDeskbook,legaldue diligenceconsistsof:1. Documentreview2. Regulatoryapproval3. Statutorysearches4. Otherstepsdictatedbytransactioncircumstances 7
  • 8. Whyduediligence? Time,cost,andtransactionconstraintsareimportanttoconsider Duediligenceexpectationsandprocessesshouldbesetoutin writingforbothcounselandclientandshouldbereassessedas newinformationislearnedandevaluatedthroughouttheprocess Regularlyscheduledmeetingsforupdatingpurposes Thecreationofaduediligenceframework,frequentstatus reportingandasimpleeasytoupdateformatcanhelpmakethe processgomoresmoothly 8
  • 9. LegalDueDiligenceChecklistBasicCorporateDocumentsSearchesPropertyRecordsSecuritiesRegulationandIssuancesShareholderInformationMaterialContractsUnderlyingContractsFinancialInformation 9
  • 10. LegalDueDiligenceChecklistEmployeeCompensation/BenefitsPlansPatent,TrademarkandCopyrightMattersProprietaryInformationTangiblePropertyLitigationandAuditsEnvironmentalManagementLocalCustomsandPractices 10
  • 11. LegalDueDiligenceChecklist BasicCorporateDocuments Bylaws,includingallamendments. ArticlesofIncorporation,includingallamendments. Minutesofallmeetingsofdirectors,committeesofdirectorsand shareholders,includingcopiesofanywrittennotices(ifgiven) or waiversthereofandanywrittenconsenttoactionwithoutameeting withinthepastfiveyears. Listofallprovinces,statesandcountrieswherepropertyisownedor leasedorwhereemployeesarelocated,indicatinginwhichprovinces, statesandcountriestheCompanyisqualifiedtodobusiness. 11
  • 12. LegalDueDiligenceChecklist BasicCorporateDocuments Copiesofanyvotingtrust,shareholderorothersimilaragreement coveringanyportionoftheCompanysshares. Copiesofallagreementsrelatingtorepurchases,redemptions, exchanges,conversionsorsimilartransactions. Copiesofallagreementscontainingregistrationrightsorassigning suchrights. Copiesofallagreementscontainingpreemptiverightsorassigning suchrights. Allquarterlyandannualreports,proxymaterialsandanyother communicationstotheCompanysshareholderswithinthepastfive years. Listofallsubsidiaries. 12
  • 13. LegalDueDiligenceChecklist Searches Applicableregistries/names/jurisdictions Localadviceiscritical eveninCanada! MiningRecorderorequivalent LandOfficese.g.BLM,County 13
  • 14. LegalDueDiligenceChecklist SecuritiesRegulationandIssuances Allsecuritiesfilings,includingexhibits,withinthepastfive years. AgreementsrelatingtosalesofsecuritiesbytheCompanyincluding anyprivateplacementmemorandaorotherofferingcircularswithin thepastfiveyears. Stockoptionorpurchaseplansandformsofoptionorpurchase agreementswhichhavebeenormaybeused. 14
  • 15. LegalDueDiligenceChecklist SecuritiesRegulationandIssuances Stockoptionorpurchaseplansandformsofoptionorpurchase agreementswhichhavebeenormaybeused. Allsecuritiespermits,registrations,noticesofexemptionandconsents forissuanceortransferofCompanyssecuritiesandevidenceof qualificationorexemptionunderotherapplicablesecuritieslaws. 15
  • 16. LegalDueDiligenceChecklist ShareholderInformation Recordssettingforallissuancesorgrantsofstock,optionsand warrantsbytheCompany,listingthenamesoftheissueesorgrantees, theamountsissuedorgranted,thedatesoftheissuancesorgrants, thenumberofsharespresentlyexercisable(ifapplicable)andthe considerationreceived(ortobereceived)bytheCompanyineach case. 16
  • 17. LegalDueDiligenceChecklist MaterialContracts Propertyagreements,areasofinterest,consents,royalties,clawback rights,righttomarketproduct Confidentialityagreements Strategicallianceagreements Banklineofcreditagreements,includinganyamendments,renewal letters,notices,waivers,correspondences,etc. Othermaterialagreementsevidencingoutstandingloanstoor guaranteesbytheCompany,includingcorrespondences. Materialcontractswithsuppliers,manufacturersorcustomers.Please indicatewhichsuppliersaresolesource. 17
  • 18. LegalDueDiligenceChecklist MaterialContracts Agreementsforloanstoandanyotheragreements(including consultingandemploymentcontracts)withofficers,directorsor employees,whetherornotnowoutstanding. Scheduleofallinsurancepoliciesinforcecoveringpropertyof the Companyandanyotherinsurancepoliciessuchas"keyperson" policies,directorindemnificationpoliciesorproductliability policies. Partnership,lease,optionorjointventureagreements. Anyothermaterialcontractsoutstanding. 18
  • 19. LegalDueDiligenceChecklist FinancialInformation Allmanagementlettersorspecialreportsbyauditorsandany responsesthereto. Federal,provinci