DUE DILIGENCE CHECKLIST Acquisition of Stock

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1 Buyer Buyer Consultant [Financial Consultant/Investment Banker] Buyer Legal Counsel KEY Seller Seller Entity or Seller Entities Seller,, and any other individual or entity that is an affiliate of the Seller Entities. Company or Corporation Businesses All operations of Corporation Seller Consultant [Financial Consultant/Investment Banker] Seller Legal Counsel Wherever relevant, references to Corporation include any and all Seller Entities through which any of the Businesses are operated and requests for information should be construed as requests for all applicable information of each such Seller Entity. Documents 1. CORPORATION DATA 1.1 List of each direct or indirect subsidiary of the Corporation and each Seller Entity and a corporate organization chart showing 1

2 relationships among all such entities 1.2 Capitalization of the Corporation number of authorized shares of each class or series; number of issued and outstanding shares of such stock and the record owners thereof 1.3 All agreements among the Corporation and/or shareholders or members related to management, ownership, and/or control of the Corporation 1.4 List and copies of all agreements related to voting of securities and restrictions on transfers thereof (e.g., proxies, voting trusts, etc.) 1.5 Stock books, share transfer ledgers, and other share records of the Corporation 1.6 List of stock options, purchase rights, warrants, convertible and non-convertible debt, etc. issued by the Corporation including the name of the holder, number of options, rights or warrants, date of grant or issue of each, option or purchase price of each, position of the holder with the Corporation (e.g., employee, board 2

3 member, officer), and copies of agreements evidencing options, purchase rights, warrants, etc. 1.7 List and copies of all agreements restricting issuance/resale of securities (e.g., preemptive or preferential rights to acquire and waivers thereof, rights of first refusal, agreements restricting dividends) 1.8 Copies of all documents related to prior equity issuances by the Corporation (e.g., stock purchase agreements, registration rights agreements, prospectuses, private placement memoranda) 1.9 List of exchanges trading in securities of the Corporation 1.10 Copies of registration statements filed and all other filings with the Securities and Exchange Commission 1.11 Copies of documents related to recapitalizations, reorganizations, or other restructurings 2. ORGANIZATIONAL AND CORPORATE DOCUMENTS 2.1 Articles of incorporation or articles of organization or other 3

4 charter documents of the Seller Entities, including any amendments 2.2 Bylaws or operating agreements of the Seller Entities, including any amendments 2.3 A description of the organizational structure of Businesses, the Corporation, and the Seller Entities 2.4 Minutes of shareholder meetings, the Corporation s Board of Directors meetings, and committee meetings for last three years, including any actions by written consent in lieu of meetings 2.5 List of the Corporation s current board of directors members, corporate officers, and other management-level employees (including positions and/or offices, terms of office) 2.6 List of committees of the Corporation s board of directors, and the scope of each committee s authority 2.7 Copies of correspondence and agreements between/among the Corporation and directors or officers concerning indemnities, employment arrangements, loans, or advances 4

5 2.8 A list of any assumed, fictitious, or other business names used by the Businesses to conduct business within the last three years 2.9 A copy of the strategic plan, if any, for the Corporation and the Businesses for the last three years 2.10 Copies of the Corporation s: (1) corporate and regulatory compliance program; and (2) compliance committee s minutes from the last three years 3. GOVERNMENTAL PERMITS, LICENSES, AND ACCREDITATION 3.1 List and copies of all governmental permits, licenses, approvals, authorizations, or consents required in any state, city, or county in which the Businesses conduct/do business, and a written explanation in any gaps in licensure 3.2 List of all filings with federal, state, or local regulatory agencies for the Businesses 3.3 A listing of all known breaches and/or violations with respect to the licenses and permits listed above 5

6 3.4 Copies of the most recent state licensure reports or audits for each of the licenses and permits listed above, as applicable 3.5 A list and description of the Businesses and all their respective services/service lines 3.6 List of all accreditations received by the Businesses and Seller Entities and of all trade associations of which the Businesses or any Seller Entity is a member, and include a copy of each such accreditation or membership agreement 4. FINANCIAL INFORMATION 4.1 Copies of the Corporation s and all applicable Seller Entities year-end audited financial statements, including balance sheet, income statement, cash flows, and notes for the most recent three fiscal years, and all correspondence with the auditors during such fiscal years 4.2 Copies of [monthly][quarterly] unaudited financial statements for the Corporation and all applicable Seller Entities through, 20 6

7 4.3 List of any changes in accounting policies, procedures, or practices during the last three years. 4.4 Description of and copies of documents evidencing any material contingent liabilities 4.5 List and description of all prepaid expenses and deposits, including security and tax deposits 4.6 List of all bank or other deposit accounts and safe deposit boxes relating to the Corporation and the Businesses 4.7 Aging of all of the Corporation s accounts receivable (by type and with the allowance for doubtful accounts), inventory, and accounts payable as of the end of the last quarter 4.8 Copies of any appraisals, marketing studies, future plans, and projections, credit reports, and other types of reports, financial or otherwise, related to the Businesses 4.9 Copies of forecasted budgets for current and next two fiscal years; and comparisons of last two years forecasted budgets 7

8 compared to actual results Documents 4.10 List of material capital expenditures over the last three fiscal years 4.11 A summary and explanation of significant, non-recurring adjustments to accounts receivable for the past three years 4.12 Copies of the Businesses policies and procedures related to billing practices, deposits, discounts, collections, refunds, and the management of accounts receivable 4.13 A schedule of construction and other capital projects that have been completed within the past three years and projects in process or planned, including without limitation the status, actual or estimated completion date, cost to complete, and variance from budget 4.14 A schedule of information technology operating expenses and capital expenses for the past three years and any budgeted for next year 8

9 5. TAXES 5.1 Copies of all federal and state tax returns of the Corporation and all applicable Seller Entities, with all schedules and attachments for the last three years 5.2 Copies of all audits of the Businesses or any Seller Entity by the Internal Revenue Service (IRS) or any other taxing authority within the last three years, including copies of document requests, initial proposed reports and settlement reports, information requests, and all documents responsive thereto 5.3 Copies of any property (real and personal) tax or other tax bills and documentation concerning current property tax assessments of the Corporation or any Seller Entity 5.4 Copies of any correspondence to or from the IRS or any other taxing authority for the last three years (including any agreements to waive or extend the period for assessment or collection of taxes) 5.5 List and amount of any delinquent federal, state, or local tax 9

10 payments whether or not now paid, including income, withholding, or sales taxes 5.6 Describe and provide copies of any ruling requests filed with the IRS related to the Corporation or the Seller Entities 5.7 Describe and provide copies of any tax allocation, sharing, or preparation agreements involving the Corporation or the Seller Entities 5.8 Describe and provide copies of any material tax elections made by the Corporation or the Seller Entities 6. INDEBTEDNESS 6.1 Schedule of the current principal balance and payment history for all outstanding indebtedness, both secured and unsecured, including credit agreements, lines of credit, senior debt agreements, subordinated debt agreements, hedge or derivative agreements, guaranties, and letters of credit of the Corporation and of other Seller Entities 6.2 Schedule of the current and aggregate amounts owing for all sale 10

11 and leaseback arrangements, capitalized leases, operating leases, and installment purchases 6.3 Documents evidencing the indebtedness listed in items 6.1 and Copies of all documents related to any material acquisitions or dispositions of assets of the Corporation or the Seller Entities during the past five years 7. RELATED PARTY TRANSACTIONS 7.1 List and copies of loans to and from employees, directors, shareholders (including the family members), and any affiliates of the Corporation and/or other Seller Entities 7.2 List and copies of contracts and description of transactions between the Corporation or other Seller Entities and its officers, directors, shareholders (including family members), and with any affiliates of the Corporation and/or other Seller Entities 7.3 List and copies of inter-company agreements and documents between or among the Corporation and the other Seller Entities 11

12 8. VENDORS AND SUPPLIERS 8.1 Copies of all contracts with suppliers or vendors upon which each of the Businesses is or is expected to be materially dependent 8.2 List of top ten suppliers in the past three years, the total estimated annual purchases from each such supplier, and the address, telephone number, and contact at each supplier listed 8.3 List of top ten service vendors in past three years, the total estimated annual fees and costs paid to each such vendor, and the address, telephone number, and contact at each vendor listed 9. OTHER MATERIAL CONTRACTS 9.1 Copies of all material documents and agreements to which the Corporation or other Seller Entity is a party, not otherwise requested in this checklist, including, but not limited to, the following those described in items 9.2 through Documents relating to any joint venture, limited liability company, limited liability partnership, or general or limited partnership 12

13 9.3 Material management, operating or consulting agreements, and related documents 9.4 All marketing and collection agreements 9.5 All inter-company agreements of any kind 9.6 Agreements with the largest (by revenues during the past three years) 20 customers of the Corporation, the Businesses, and/or other applicable Seller Entities 9.7 A description of any current dispute, or any material breach by any party, with respect to any of the agreements described in item All contracts entered into that are not in the ordinary course of business 9.9 Documents regarding fair market value for all acquisitions or sales related to the Corporation or other Seller Entity 9.10 Agreements that restrict the right of the Corporation or other Seller Entity from doing business anywhere or from providing any 13

14 products or services, or restrict the right of the Corporation or other Seller Entity to sell their assets or businesses 10. INSURANCE/RISK MANAGEMENT 10.1 List of all insurance policies, contracts, and self-insurance trusts, if any, including general liability, property, auto, directors and officers, workers compensation, key person, etc., and including the following information: carriers, premiums, limits, occurrence or claims made, and expiration dates. If self-insured trust, include copies of financials and tax returns 10.2 A listing of all claims (insured and uninsured) and reserves established therefor for all lines of coverage (including workers compensation) for at least the past three years and carriers loss run reports 10.3 Copy of most recent Occupational Safety & Health Administration filings, along with copies of serious accident reports filed in the last 12 months 10.4 Recent statement of values of property as supplied to the 14

15 Corporation s and Seller Entities property insurance carriers 10.5 Workers compensation payroll by classification code for the past three years and projected for the coming year. Also include total number of employees for each year and projected for the coming year 11. REAL, PERSONAL, AND INTELLECTUAL PROPERTY Real Property 11.1 List of all real property, indicating whether it is owned or leased by the Corporation or other Seller Entity, including street address, legal description, a brief description of use of property, and date of purchase or lease 11.2 Description and copies of all warranty deeds, mortgages, deeds of trust, real estate contracts, leases, subleases, assignments, easements, water rights, access rights, and licenses relating to any owned or leased real property 11.3 Copies of any title insurance policies and surveys, and appraisals relating to any owned or leased real property 15

16 11.4 Copies of: (1) any contracts for the purchase or sale of real property; (2) any options or rights of first refusal to purchase or sell real property; and (3) any related indemnity agreements. Personal Property 11.5 List of all equipment, machinery, furniture, vehicles (with copies of title and vehicle identification number) and other tangible personal property, indicating whether it is owned, leased, or used by the Corporation and/or other applicable Seller Entities including ownership, location, and condition 11.6 Copies of material leases of equipment and other personal property 11.7 Copies of any appraisals of Corporation personal property 11.8 Copies of Uniform Commercial Code financing statements filed with respect to personal property 11.9 Copies of: (1) any contracts for the purchase or sale of property, plant or equipment of the Corporation, and/or other applicable Seller Entities; (2) any options or rights of first refusal to purchase 16

17 or sell; and (3) any related indemnity agreements. Intellectual Property Schedule of patents, trademarks, copyrights, and all other intellectual property owned, licensed to or from, or applied for by the Businesses, the Corporation, or any Seller Entity Copies of all documents related to registration of patents, patent applications, and patent search results For each product marketed or being developed: (1) name of individual who performed work on product; (2) employment or other status of such individual when work was performed and copy of any agreement regarding rights with respect to the product; (3) copies of agreements with third parties for research and development or other development activities; (4) information regarding development of product (e.g., based on another product, product in public domain, etc.); and 17

18 (5) information regarding governmental agency review or approval of product Copies of all documents related to registration of trademarks and service marks, including registration certificates, applications, correspondence, and mark searches Copies of all documents related to assignment, purchase, sale, or license of propriety rights, royalties, or maintenance Copies of all agreements regarding confidentiality, nondisclosure, and/or assignment of inventions and rights regarding products developed 12. INFORMATION SYSTEMS ASSESSMENT 12.1 An inventory of the computer system, hardware, voice and data communications systems, and all software used by the Corporation and/or other applicable Seller Entities, including vendor name, model, current utilization, installation date, current release, and all associated support and maintenance requirements 18

19 12.2 Copies of all software licenses, hardware lease agreements, and information system maintenance agreements to which the Corporation, the Businesses, and/or any applicable Seller Entity is a party 12.3 Copies of all network/server schematics 12.4 List of all websites 12.5 Copies of all technology-sharing agreements 13. ENVIRONMENTAL 13.1 Copies of any environmental assessments or surveys for the past five years 13.2 List of all known past or present environmental issues on any real property owned, leased, or used by the Corporation and/or other applicable Seller Entities, and descriptions of any remediation action taken 13.3 List any licenses, permits, consents, permissions, or authorizations issued in connection with any operations or 19

20 processes, storage or disposal of waste, discharge of water, storage tanks, and hazardous substances used or stored on any of Corporation s and/or other applicable Seller Entities properties 13.4 List of locations of any on-site hazardous waste disposal sites or underground tanks or lines 14. MANAGEMENT AND EMPLOYEE MATTERS 14.1 Employee organization chart for the Corporation, the Businesses, and the Seller Entities 14.2 With respect to all management employees of the Corporation and Seller Entities: (1) the effective date of their respective current salaries; (2) salary/bonus history for the last three years; (3) copies of their respective resumes and professional credentials; and (4) severance/change of control arrangements 14.3 Copies of all employment contracts, consulting contracts, contracts with employee leasing or professional employee organizations, severance agreements, retention agreements, confidentiality and nondisclosure agreements, non-compete 20

21 agreements, golden parachute agreements, and any change in control agreements to which the Corporation is a party 14.4 Schedule of all 1099 payments made for the last three years 14.5 A list of all documents representing any material bonus, retirement, profit sharing, incentive compensation, pension, defined benefit plans, defined contribution plans, employee welfare plans, employee benefits plans (i.e., health/medical/dental coverage; life/disability coverage), 401(k) plans, severance plans, and any other employee benefit plans or agreements of Corporation; and copies of the documents for any of the foregoing plans 14.6 Copies of IRS determination letters for employee benefit plans and IRS Forms 5500 for each such plan filed for the past three years 14.7 Description of funded or unfunded liability (and amounts) for all employee benefit plans 14.8 Copies of all employee handbooks and policies 21

22 14.9 Copies of any summary benefit enrollment reports or a list showing the number of participating employees in each plan, broken down by classification (i.e., full time, single, family, etc.) Copies of all agreements with labor unions, including collective bargaining agreements and a description of all past (last three years) or pending union organizing efforts. With respect to any collective bargaining agreements that are currently under negotiation, a summary of the status of each negotiation Description of outstanding vacation accruals as of last fiscal year end Copy of most recent payroll runs List all cases of noncompliance or alleged noncompliance with applicable statutes, orders, rules and regulations relating to wages, hours, hiring, nondiscrimination, promotion, retirement, benefits, pensions and working conditions; and health and safety (including U.S. Equal Employment Opportunity Commission complaints and similar federal or state employment claims or 22

23 actions) 15. NON-COMPLIANCE/CLAIMS/LITIGATION 15.1 Description of any suspended or revoked permit, license, accreditation, consent or approval, or other non-compliance with respect to the Corporation and other applicable Seller Entities 15.2 List of all pending investigations and governmental proceedings and copies of all notices received from government agencies and reports to and correspondence with government agencies with respect to the Corporation and other applicable Seller Entities 15.3 Description of any internal investigations conducted (directly or through the use of outside counsel or consultants) involving a concern regarding potential non-compliance and any corresponding reports, findings, correction action plans, remedial actions, and self-reporting undertaken 15.4 Description of all reports, notices, and correspondence regarding any alleged violation of governmental regulations or laws with respect to the Corporation and other applicable Seller Entities 23

24 15.5 Description of all threatened or pending litigation, claims and proceedings, and copies of all related documents with respect to the Corporation and/or other applicable Seller Entities 15.6 List of all consent decrees, judgments, injunctions, orders, and settlement agreements to which the Corporation or the Seller Entities are subject or bound, or arbitrations or mediations in which they are currently involved 15.7 List of names and addresses of all legal counsel currently providing services to or acting on behalf of the Corporation or any of the Seller Entities 24