SAMPLE PRELIMINARY DUE DILIGENCE CHECKLIST IN A CORPORATE TRANSACTION (e.cr.. M&A Deall 1.1 ~ Articles of Incorporation and all amendments thereto 1.2 ~ Bylaws and ail amendments thereto 1.3 Minutes of all meetings of, and ali actions without a meeting by, the Board of Directors (and of all committees thereofl and the shareholders of the Company. 1.4 Any material communications between the Company and any of its shareholders, directors or holders of notes, options or warrants 1.5 Copies of all agreements relating to the securities of the Company or any of its subsidiaries, including (i) any agreements relating to the purchase or sale of securities of the Company; including any purchase agreements under which additional ownership of the Company was acquired by existing shareholders (ii) all stockholders' or voting agreements, (iii) all agreements under which any person has any rights concerning issued or unissued securities of the Company (preemptive rights, rights of first refusal, registration rights, options, warrants or convertible securities), (iv) all agreements under which voting trusts have been established, and (v) SAR, phantom, stock or other equity-based arrangements 1.6 Stock register and transfer books and records and a description of the classes and series of authorized capital stock and other securities of the Company and its subsidiaries, and a statement of the number of issued and outstanding shares of each such class and series of securities and the number of treasury shares of each class and series of capital stock 1.7 ~ List of shareholders along with the number and class of shares held by each 1.8 A schedule of all outstanding options, warrants and conversion privileges, including date of issuance, exercise or conversion prices and amount exercised, and list of holders (include name, number of options held, option prices, dates) of grant, and position of holder in the Company). 1.9 Lists and descriptions of classes, amounts and current holders of any debt securities, together with copies of all documents and instruments relating thereto
1,10 List of states in which the Company conducts any business, a schedule of states in which the Company is legally qualified to conduct business and a description of its activities in each such state 1.11 Lists and descriptions of all subsidiaries, affiliates, and joint ventures, including organizational charts showing the ownership of each entity and any agreements related thereto 1.12 ~ List of all corporate policies and procedureslhandbooks 1.13 ~ All documents creating restrictions with respect to any class of capital stock or other equity interests. 1.14 List of all family and other relationships known to the Company among stockholders that might indicate beneficial ownership of stock other than as shown on the stock record books of the Company 1.15 r Copies of any "S corporation" elections, IRS notices of acceptance and any other information pertinent to the Company's "S corporation" status, where applicable 1.16 Copies of outside valuations performed on stock or options utilized for the purpose of recording related compensation expense 1.17 Provide the information requested in items A(1)-(6) above for each subsidiary of the Company (each a "Subsidiary"), shown separately for each Subsidiary 1.18 List of each entity in which the Company is a partner, general partner orjoint venture and description of the nature of any such arrangements. 2.1 Schedule of all current full-time and part-time employees, containing for each employee (i) title and a brief summary of his or her job description and responsibilities, (ii) the employee date of hire, (iii) any compensation or other benefits such employee is entitled to receive (or may elect to receive) pursuant to any employee benefit plan or policy, (iv) clearance levels, (v) contract to which they are assigned, (vi) educational levels, (vii) bill rate, (viii) pay rate, (ix) years of experience, and (x) location
2.2 Schedule of executives and directors containing (i) brief-bio, (ii) total compensation and (iii) date of hire with Company 2.3 Copies of resumes for key management 2.4 Schedule of all consultants and temporary employees and copies of compensation rates and associated agencylconsulting agreements 2.5 Organizational chart by functional area, including employee names and titles, and headcount 2.6 Copies of all HR related policies and procedures, including sick leave and vacation policies 2.7 Copies of all offer letters, employment agreements, severance agreements, non-competition agreements, bonus agreements, retention agreements andlor any similar agreements between the Company and any of its employees, consultants or agents 2.8 Special terms or agreements for commission, bonus, or other incentive compensation 2.9 Detailed description of fringe benefits and pool to include total annual cost to the company for each fringe benefit; Also provide literature that is presented to applicants and new employees 2.10 Plan documents, summary plan descriptions, record-keeping agreements, and insurance certificates for all plans (retirement, medical, life insurance, AD&D, group travel, dependent life insurance, long term disability, HMOs, dental, vision, Section 125 plans, severance plans, executive benefit plans, bonus plans, stock purchase plans or arrangements, stock option plans, group or key man life insurance plans, salary continuation plans, supplemental unemployment benefit plans, and welfare plans). Also include any amendments or riders or any proposed amendments or riders and any resolutions adopting the plans and/or amendments. 2.11 Description of bonus plan and procedures to include all employees 2.12 Summary of most recent 401K plan nondiscrimination test - ADPIACP 410(b) and 415 tests 2.13 IRS determination letters for any qualified retirement plan
2.14 Correspondence pertaining to any IRS plan discrimination 2.15 Contracts with all benefits carriers to include current rates. Also include a breakdown of what the employer pays for each benefit and what the employee pays for each benefit 2.16 Audited Financial Statements for all the Company employee benefit plans 2.17 Copies of Form 5500s for the three most recent plan years 2.18 Turnover data and rates for the past two years to include a list of all employees terminated from employment with the Company (voluntarily or involuntarily) and the reasons for termination 2.19 Schedule of benefits for retired employees and number of persons covered 2.20 Employment applications for the last 2 years - Sample of job application and metrics for past hires 2.21 Affirmative Action Plans and EEO.1, Vets-100, and EO surveys reports for the last two years as well as a history of any audits and findings (where applicable) 2.22 Description of any settlements (cash, backpay, etc.) made to employees, former employees or applicants within the past five years 2.23 Schedule of all employee claims, including worker's compensation, employment discrimination, labor contract grievances, unfair labor practices, etc. with a brief description of each 2.24 Documents on any wage and hour audits currently in process including FLSA, state wage audits, unemployment, etc. 2.25 Agreements and contracts with plan investment providers and plan service providers 2.26 Fidelity bonds of the plan andlor plan fiduciaries and sample of most recent employee statement for plan OR
2.27 If any of the benefit plans is a "multiemployer plan" within the meaning of ERISA 3(37), provide either: (a) an estimate, provided by the plan administrator of each such plan, of the withdrawal liability that would be incurred by the Company, if it were to effect a complete withdrawal from such plan during the current plan year; or (b) copies of the current actuarial report for each such plan and a list of the total contributions made by the Company to each such plan for each of the last three years. 2.28 Schedule listing any large case medical claims (over $30,000, if Company is responsible for payment or indemnity 2.29 All collective bargaining agreements and union contracts, if applicable 2.30 Copies of any nondisclosure and assignment of inventions agreements or similar agreements between the Company and its employees, consultants and agents 2.31 Schedule listing all sales persons including dollar amount of sales per person, commissions and base compensation 2.32 Any long leave incidents currently underway -name, position, and reason 2.33 List outstanding job offers 2.34 Documents that describe the policies on conducting reference checks for prospective hires and drug testing, background checks, criminal history checks, and credit checks for prospective hires or current employees 2.35 Copy of Company employment application and standard offer letter 2.36 Brief summary of the circumstances surrounding the termination of employment of any officer which occurred within the past four years 2.37 Documents that describe policies regarding monitoring of employee communication (e.g. phones, email, etc.) 2.38 Summary of employee turnover rates by quarter over the last two years
2.39 Summary of exit interviewlquestionnaire process and how data is maintained 2.40 Description of standard performance management process and sample forms (i.e. goal setting, evaluations, etc.) 2.41 List of expatriates and eutended travelers and details of commitments (i.e. LOUs, worksheets, tax service commitments) 2.42 Summary of current development and training programs in place and copies of all vendor contract and license agreements related to training 2.43 Any employeelclient satisfaction survey results for the past two years 2.44 Summary of any certification, CPU, or CPE requirements for staff (technical or other) that would need to be maintained 2.45 Listing of geographic locations with headcount. Specify whether Company location or a client site 2.46 Schedule of all leased vehicles assigned to officers, directors or employees of the Company ~~ am-r~j~^~-~- ~' N ~Tvi ~.. 2I J :.~? ~. { y j 1 U - 2~. ~' ~ ~ u '~'_ 3.1 Most recent interim financial statements, along with a statement of the assumptions and accounting procedures used in preparing such statements 3.2 Copies of monthly internal financial statements for each of the prior 2 years, including CapEx and D&A 3.3 Schedule ofnon-recurring items for last three fiscal years, current year-to-date period and comparable prior year to-date period 3.4 Audited Financial Statements for last 3 years
3.5 Copy of Company's long-term financial forecast including Detailed 2012-2014 Budgets 3.6 Accountants work papers for the current period and the prior two years, including tax work papers 3.7 All documents and agreements evidencing borrowings, whether secured or unsecured, including loan and credit agreements, promissory notes and other instruments or evidence of indebtedness and all guarantees of the Company 3.8 Correspondence with creditors or lenders for the last three years, including all compliance reports submitted by either the Company or its independent public accountants 3.9 A list of all loans or guaranties that the Company or any subsidiary has made since its inception to any officer, director, employee, or stockholder, and all documentation related thereto 3.10 Detailed information on overhead and burden rates used on government contracts, including historical rate information, structure of the rates, claims history, forward bid rates, and a description of government accounting practices 3.11 Description of the status of any DCAA interaction with respect to rates 3.12 Copies of Incurred Cost Submissions for last three fiscal years 3.13 Schedule of aged accounts receivable (billed and unbilled) by job with explanations on collection for all items over $50,000 or 120 days 3.14 Copy of most recent AIP aging trial balance 3.15 Lists and descriptions of fixed assets 3.16 A detailed inventory
3.17 Detailed description of the facts and circumstances considered in arriving at the Company's warranty and performance reserves 3.18 Copies of independent accountants audit management letters and Company responses for the last three fiscal years 3.19 Revenue and Profit breakdowns for each contract (where available) 3.20 Schedule of divisional operating reports showing comparison of actual versus budget (revenue, EBIT) performance for last fiscal year and year-to-date period 3.21 Schedule of Company's deferred tax accounts 3.22 Summary description and amortization schedule of all capitalized intangibles, including non-recurring engineering, capitalized software costs, goodwill, etc. 3.23 Schedule of any contingent liabilities 3.24 Summary of bad debt expenses for the past three years and the Company's credit terms and debtor policy and any potential workouts, write-downs, write-offs that are being contemplated 3.25 Details of any capital expenditures in last 3 years and projected expenditures for this year and beyond. 3.26 Schedule ofdepreciation/amortization policy for each major software, property and equipment 3.27 Balance Sheet Schedules as of the last audit date and the most recent month: (a) Bank statements and cash account reconciliations (b) Prepaid and other assets and reconciliations including a breakdown between current and non-current assets (c) Properly and equipment schedule with reconciliations (d) Intangibles with amortization schedules along with most recent impairment test (e) Capitalized software showing additions and amortization byproduct
3.28 ~ Schedule-and description of all off-balance sheet liabilities of the Company 3.29 ~ Schedule describing order backlog and pipeline by client and by business segment 3.30 ~ Copies of internal strategic reports or business plans for the last three fiscal years 3.31 ~ Copies of all interest rate or currency swap agreements 3.32 Schedule of all marketable securities held by the Company together with purchase price and carrying value of such securities 3.33 Schedule of all dividends and distributions made to stockholders since inception and a copy of any dividend policy. State whether the dividends were paid in cash or stock. List of the amounts) of any dividends in arrears 3.34 Copies of all accounting procedures and manuals (e.g, revenue recognition, billing procedure, monitoring of accounts receivable, capitalization policies, bank account structure, purchaseslexpense control, budgeting and monitoring process, accounting systems used, goodwill, installment sales, research and development costs, software development costs, etc.) 3.35 ~ Employee Utilization Report 3.36 Details of any changes in accountants, accounting policies, principles and procedures over the last two fiscal years or any such changes that are proposed. 3.37 Schedule of all security interests in assets of the Company along with copies of security agreements and financing statements. 4.1 All market studies, feasibility studies, analyses, and similar reports concerning the Company prepared within the last five years.
4.2 All marketing and other descriptive brochures regarding the Company prepared by the Company within the last five years. 4.3 All press releases issued by the Company during the last five years, and any press clippings with respect to the Company, if available. 4.4 Copies of all speeches delivered by any officer or director of the Company to trade associations, etc. ~ _ 4 s ~ ~:. 1' 3 ~..rqf ;7,r, Y`:'+.,~' r, ~; z A ~ ~ x ~ 7 N 'f r 'r ~ 1 '~ ~- r z.. ~_v ~ ~ x 5.1 ~ r r-: -.: t4d.~ o ~ t~.f ~ 1~ J A ~ '~ ~ + ~sy " "'..,~ S'.._ ~,scam rc _..._ ~ Federalµincome ta~c returns filed during the last three calendar years 5.2 State and local income tax returns filed during the last three calendar years 5.3 Federal and state payroll tau returns filed during the last three calendar years 5.4 Property tax returns filed during the last three calendar years 5.5 All gross receipts, business license andlor business and occupation taz returns filed in the last three calendar years 5.6 State sales and use tau returns filed during the last three calendar years 5.7 Material reports filed and significant correspondence, including any settlement documents, with any state or federal regulatory agencies during the last three years 5.8 Copies of the Certificates of Good Standing and Ta~c Status Reports for all states andlor foreign countries where the Company is qualified to do business 5.9 Copies of all ta~c sharing and othertax related agreements 5.10 Schedule describing any ongoing tax disputes, together with copies of revenue agents' reports, correspondence, etc., with respect to any pending federal, state, provincial or similar tax proceedings
6.1 All material sale, agency, distribution, dealer, supply, requirements or advertising contracts to which the Company is or was a party during the last four years 6.2 All joint venture agreements, partnership agreements, operating agreements (for limited liability companies) and commission agreements to which the Company is a party 6.3 All strategic alliance and teaming agreements and all letters of interest or letters of intent describing any proposed transactions with vendors, customers or any other third parties 6.4 All licensing agreements (to which the company is a party as licensor or licensee), franchises and conditional sales contracts 6.5 File histories of all the Company-owned patents, including issuing country, patent number, title of invention, inventor and date issued 6.6 Patent applications pending and potentially patentable technology, including country in which application is made, application number, title of invention, applicant, date of application and inventor 6.7 With respect to trademarks, trade names and logos, a list of the product or service for which the business mark is used, countries in which such mark is used 6.8 With respect to copyrights, countries where material has been distributed, existence and registration number of any formal copyright registrations 6.9 With respect to trade secrets and know-how, a description of known distributions outside the Company and all measures taken to protect their confidentiality orsecrecy 6.10 All agreements for the acquisition, assignment, transfer, sale, license or use of patents, trademarks, copyrights, trade names, logos, trade secrets, patent applications, technology and software
6.11 All consulting agreements and nondisclosure agreements relevant to protection of the Company's intellectual property rights 6.12 History of any patent or trademark infringement claims and a description of the resolution 6.13 All Company policies and procedures related to patents, copyrights, trade secrets, trademarks and/or tradenames 6.14 List of URLs owned by the Company and evidence of ownership. 6.15 All significant documents relating to any major stock or asset acquisitions or dispositions within the last three years 6.16 Descriptions and projections of any outstanding unmatured earn-out payments 6.17 All contracts or agreements with the Company's directors, officers or shareholders or any entity in which such persons have more than a 5% equity interest 6.18 Standard forms of purchase orders and contracts 6.19 Copies of all training materials provided or sold to dealers (whether for technical or marketing support) 6.20 Schedule of intra-company revenues or charges such as management fees, if any 6.21 Schedule of all consents or approvals required from, and all notices and filings required to be made to or with any third party in connection with the proposed transaction 6.22 All agreements related to computer hardware, software, maintenance, processing, source code escrow, facilities management, time-sharing, disaster recovery and describe any terms relating to continuing obligations, transfer restrictions or termination costs 6.23 All equipment leases and any related documents
6.24 (Copies of the transfer pricing policies used by the Company for transactions with affiliates 6.25 List of all contracts or commitments pursuant to which the Company is obligated to perform under which a default has occurred or is claimed to have occurred 6.26 ~ All contracts which the Company is a party or by which the party Company is bound, which are subject to renegotiations 6.27 Any other material contracts and agreements involving the Company not otherwise covered by the foregoing items, including without limitation agreements with clients and customers 7.1 A schedule of all real estate properties owned or leased (or over which the Company enjoys rights) along with copies of title deeds (e.g., freeholds, leases or tenancy agreements) and details of the location of the original documents relating thereto. 7.2 A schedule of all personal property owned or leased along with copies of all agreements for leased equipment or other personal property (including any liens or indebtedness on personal property) 7.3 Lists and descriptions of all documents relating to real estate financing, including: identity of mortgagee, term, original principal amount, unpaid principal balance, interest rate, etc. 7.4 Copies of all bills and invoices for the past three years relating to expenditures for utilities, insurance, property maintenance, janitorial services as well as estimates of such costs and expenses for the next 3 years 7.5 ~ Copies of any leases in draft form (or letters of intent) under negotiation 7.6 ~ Floor plans of buildings owned or leased by the Company 7.7 ~ Copies of title insurance or title opinions and leases indicated in #7.1 above 7.8 ~ Copies of real estate tax bills for real estate owned or leased by the Company
7.9 ~ Copies of any recent valuations by independent appraisers 7.10 ~ Copies of all permits, licenses and authorizations by location held by the Company (e.g., EPA generator numbers, etc.) 7.11 Copies of all correspondence with any government authority regarding compliance with environmental or safety laws/regulations (e.g., OSHA or state EPA inspections or inquiries) in past 3 years 7.12 A schedule showing depreciation or amortization of leasehold improvements with respect to all facilities, whether leased or owned 7.13 ~ Copies of uniform hazardous waste manifests from 1984 to present 7.14 A list and description of all the Company facilities at which the company or its predecessors disposed of hazardous substances or petroleum products 7.15 Copies of all policies and procedures relating to environmental and safety matters, including environmental, soils and other engineering reports, etc. and a list of any known environmental liabilities 7.16 List of any outstanding claims by employees, customers or regulatory authorities related to environmental compliance or safety 7.17 List of the Company's SIC codes and copies of the OSHA Form 200 "Log and Summary of Occupational Injuries and Illnesses" for each of the previous 5 years 7.18 Copies of any other relevant environmental, health or safety documents or correspondence 8.1 (i) A description of any self insurance program or feature; (ii) a claim loss history of the past four years and specify that the list should include claimsflosses that were insured, self-insured, and uninsured; and (iii) the name and phone number of the Company`s insurance brokers) and the name and phone number of the person at the Company responsible for the Risk Management function.
8.2 A schedule identifying all insurance policies that have been in effect during the past five years. The schedule should include the following: coverage type (e.g., general liability, workers' compensation, etc.); insurer; policy number; policy period; limits of coverage; deductible; and premium. Copies of all current policies. 8.3 A schedule identifying all claims and losses that were incurred during the past five years, including claims that were insured, self-insured, and un-insured. 8.4 A schedule identifying all standard contract terms and conditions that have been in effect during the past years including indemnification provisions and insurance requirements. 8.5 A schedule describing the presence of any benefit plans subject to ERISA rules. 8.6 A schedule showing detail on workers' compensation coverage and premium calculations including breakdown of states, class codes, payroll amounts and experience mods. 8.7 Copies of insurance inquiries and reviews received by the Company. 8.8 Provide copies of any reports or correspondence concerning the adequacy of the Company's insurance coverage. ~~~ ~'~~0. L ~7h ~,~~t. t 1 ~ ~ P-, a., L~ k..'y t; Ate, ~. V ~-? 3,S _f7,s~.:+. ~~ } t 4 'ft~ ~ 1 9.1 A list prepared by counsel for the Company summarizing all pending or threatened litigation or administrative or regulatory proceedings or investigations involving the Company and all material Company reports analyzing or discussing such litigation, proceeding or investigation over the last five years. 9.2 All material consents, decrees, judgments, orders, settlement agreements and other agreements to which the Company is a party or is bound, requiring or prohibiting any activity. 9.3 Copies of the Company's attorneys' litigation letters to auditors for the preceding five years. 9.4 List of all claims, proceedings, litigation, pending or threatened against the Company that have been submitted to the insurance carrier and the current status of each such claim. _ F x
10.1 ~ Copy of IT organization charts, responsibilities and functions for current staff. Is IT staff centralized or decentralized? 10.2 ~ List of hardware, software and email system 10.3 ~ Hardware and software maintenance contracts and open service contracts 10.4 ~ Schedule of any classified systems 10.5 ~ List of platforms supported 10.6 ~ Description of configuration of LAN and WAN and description of firewall implementation 11.1 Details of any strategic review, restructuring, reorganization or major operational changes undertaken in the last five fiscal years not already provided 11.2 Reports to and correspondence with all government agencies not already provided 11.3 Copies of all licenses or permits not otherwise provided (including local business licenses) required for the Company's businsess 11.4 All assumed, fictitious and other business names under which the Company is conducting business, or has conducted business within the last three years, the states (or counties or other political subdivisions) in which, and the dates when, those names were registered, recorded, filed or otherwise protected as required by, or desirable under, relevant law. 11.5 A list of all persons holding tax or other powers of attorney executed by the Company and the purposes for which those powers were given. Copies of all relevant documents pursuant to which the powers of attorney were granted.
11.6 Schedule of all software assets developed by the Company or whose intellectual property is held by the Company. For each software asset, describe its purpose, current technology platform, any third party technologies upon which it relies and the proposed future development path. 11.7 List of major competitors 11.8 Product development timeline, byproduct, including planned expenses, completion dates, and resource allocations. 11.9 If the Company imports merchandise or materials from outside the United States, then please provide the annual dollar value of such imports and copies of any import compliance manual or similar publication, and any related licenses, permits, compliance tests, etc. and other material related information. 11.10 If the Company exports merchandise or materials outside the United States, then please provide the annual dollar value of such exports and copies of any export compliance manual or similar publication, and any related licenses, permits, compliance tests, etc. and other material related information. 11.11 List of all significant suppliers and customers of the Company, with an indication of the amount paid to each during the last full fiscal year and the current year to date and an indication of the number and acceptability of alternative sources of supply. 11.12 Any other documents or information which, in your judgment, are significant with respect to any portion of the business or which should be considered and reviewed in making disclosures regarding the business and financial condition to ros ective investors.