Legal Due Diligence Report

							                            MODEL LEGAL DUE DILIGENCE REPORT

CAVEAT: This due diligence memorandum and checklist is a precedent list only. It should be
used solely as a guide and not as a definitive list. Be sure to read the entire list and tailor the list
to the specifics of the transaction you are dealing with. Do not just fill in the blanks. Also
consider any other matters relevant to your transaction which may not be covered by the
precedent. Be sure to speak to members of other departments relevant to your transaction as
soon as possible in the preparation of your draft.

ABOUT THIS PRECEDENT:

          The purpose of this memorandum is to report the findings and conclusions of your legal
           due diligence investigations of a target company in an M&A transaction or an issuer in an
           underwritten corporate finance transaction.

          This report will highlight key issues to the client and will also be a resource for those
           drafting and negotiating transaction documents.

          This report will serve as a record of the actions undertaken to a point in time and
           outstanding matters, including unanswered due diligence requests and unresolved
           matters.

PRACTICE POINTS:

          This report confirms in writing the client’s instructions and any assumptions made during
           the course of due diligence and establishes a written record of the due diligence
           investigation and the results communicated to the client.

          Bear in mind that this report will flow directly from the due diligence process.
           Accordingly, an organized and careful approach to due diligence will facilitate the
           preparation of your due diligence report.

          Your report may be organized into categories reflecting the framework of your due
           diligence request list, checklist or data room index, or reflecting the areas of
           responsibility assigned to team members.

          This model report sets out the basic framework of a due diligence report. However, be
           sure to obtain instructions prior to preparing the report.

                   Certain clients will ask to be provided with a detailed summary of each document
                    reviewed, while others will not want summaries at all.

                   Certain clients will request full-blown, comprehensive due diligence reporting
                    while others will request only a brief summary of material issues.

                   Certain clients will rely on internal counsel and experts for certain aspects of due
                    diligence while others will delegate the entire process to us.



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          If your report is preliminary or subject to further due diligence, ensure to use a “Draft and
           Privileged” watermark.

          Ideally, the appropriate team members should prepare the summary discussion of issues
           that corresponds to his or her respective areas of review.

          Consider the use of tables and charts to summarize key issues or key provisions of
           material contracts reviewed such as:

                   restrictions on assignments and changes of control;

                   termination rights or cost consequences triggered by the transaction;

                   events of default triggered by the transaction; and

                   key covenants to which a target is subject, and to which a purchaser would be
                    subject following completion of the transaction.

          Your report may also be accompanied by a complete record of the due diligence process.
           For example, enclosed with your report may be a binder of materials that comprise:

                   confidentiality and non-disclosure agreement entered into by the client;

                   document request lists delivered to target/issuer;

                   data room index identifying the documents made available in the data room;

                   prior or preliminary due diligence reports delivered to the client;

                   document summaries based on documents reviewed; and

                   copies of material documents that were made available in the data room and
                    obtained with permission.




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Memorandum                                                       Privileged & Confidential

To:                                                             Date:        

                c:   

From:           Law Firm                                         Tel:         


Subject:        Project                                         Matter No:   
                [Preliminary] Legal Due Diligence Report


I.         INTRODUCTION

This memorandum summarizes the results of our [preliminary] legal due diligence investigation
in connection with the proposed [briefly describe transaction]. [Together with this
memorandum, we have enclosed a binder (the “Document Binder”) of supporting
documents and detailed summaries of each of the significant documents reviewed in the
course of our due diligence.]

[Briefly describe background to the due diligence. For example:

          Was due diligence conducted pursuant to an executed confidentiality agreement?

          Where did document review take place and over what period of time?

          Were there oral due diligence sessions held with management in addition to
           document review?]

After discussions with your representatives with respect to the proposed transaction, applicable
materiality thresholds, your risk tolerance and objectives, we developed the due diligence
[checklist] and delivered it to Target. A copy of the due diligence checklist is appended as
Schedule A. Target had created a data room at the premises of [its advisors] and we attended at
the data room during the week[s] of  to review the materials. A copy of the data room index is
appended as Schedule B. [In addition, we attended with your representatives at oral due
diligence sessions held with Target on [date]].

II.        LIMITATIONS AND SCOPE OF REVIEW

[Briefly describe the scope and limitations of due diligence: For example:

          Were we asked to review only certain documents or identify only certain issues? If
           yes, identify those documents or those issues.

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          Were we working together with other advisors charged with other aspects of due
           diligence (e.g., physical, environmental, regulatory, operational, tax, financial). If
           yes, identify those advisors and the delegation of responsibility.]

This report contains the results of the [name jurisdiction] legal due diligence only. Financial,
business and operational [consider any other due diligence performed by other advisors (e.g.,
tax, insurance, environmental, etc.)] due diligence has been led by  and  who will report to
you separately.

When reviewing this report, please bear in mind the following limitations:

(a)     Restricted Enquiry. [Identify any specific restrictions imposed either by the client
or Target on the scope of review (e.g., You advised that  would be conducting the review
of [tax matters/employment matters/pension/benefit matters/non-[[name jurisdiction]] legal
matters] and, accordingly, we did not review and are not reporting on the
tax/employment/pension/benefit disclosure/non-Canadian legal materials.]

[You instructed us not to perform public searches except in the province/state of .]

[You instructed us not to perform full searches of the real property and leased property,
but to perform “apparent ownership” searches only.]

[You instructed us not to review any foreign language documents.]

[You instructed us not to review documents governed by the laws of a jurisdiction other
than ]

OR

[Certain contracts reviewed are governed by the laws of . Our ability to render views as
to the interpretation of those contracts is limited by the fact that they are governed by the
laws of . While [if accurate] we would generally not expect that contractual
interpretations would vary materially in other  jurisdictions, as  lawyers we cannot
confirm that contracts governed by  law would be interpreted in the same manner in .]

(b)     Summary Nature of the Report. This memorandum provides a summary of the key
provisions of the material contracts, leases, and other instruments. While we have tried to
provide a general balanced overview of these documents in the detailed contract reviews, many
important details have been omitted. Accordingly, this memorandum should not be relied on as
a statement of each party’s legal rights and obligations and reference should be made to the
actual provisions of the applicable documents.

(c)    Materiality. [You instructed us to review and report with respect to matters having
a materiality threshold of $] or [Target has provided its data room materials on the basis
of a materiality threshold of $].


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(d)     Competitively Sensitive Materials. [The parties have agreed/Target has determined]
that certain materials of a competitively sensitive nature will not be provided for review until a
subsequent stage of this transaction.

(e)     Loss of Privilege Issues. After discussion with you, we determined not to request
disclosure/review of certain legal opinions provided to Target including with respect to the
merits of defences in law suits given that disclosure of such documents could raise issues of loss
of legal privilege. Comfort with respect to these matters, if it is required, should be sought in the
oral due diligence sessions.

(f)     No Reliance. This legal due diligence report is provided for the sole benefit of
[addressee] in connection with the above-noted matter and may not be used by, provided to, or
relied upon any other party or for any other purpose, without the prior written consent of [name
of law firm].

III.       SUMMARY OF SIGNIFICANT ISSUES

[Identify major issues extracted from Item IV.]

IV.        EXECUTIVE SUMMARY

        Below, we have highlighted significant findings from the due diligence investigation, the
details of which are set out in the body of this memorandum. [For each of the following areas
of enquiry, summarize and highlight the significant issues and provide follow-up
recommendations where necessary or advise that no significant issues emerged.]

(a)        Corporate Records

(b)        Public Searches

(c)        Litigation

(d)        Real Property

(e)        Leases

(f)        Environmental

(g)        Debt Obligations

(h)        Material Contracts

(i)        Intellectual Property

(j)        Employment

(k)        Pension and Benefits

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(l)        Licences and Regulatory Matters

(m)        Tax

(n)        [Other]




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