Neighborhood Transformation

Neighborhood Transformation

BUYING A BUSINESS
CHECKLIST: DUE DILIGENCE
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Regardless of whether the deal is structured as an asset transaction, a stock transaction or a merger, make sure you know what you are getting into by requiring detailed information from the seller regarding its business operations and finances. The following is a checklist of information and documents you should review:

A.   Organization and Good Standing.
  • The Company's Articles of Incorporation, and all amendments thereto.

  • The Company's Bylaws, and all amendments thereto.

  • The Company's minute book, including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups.

  • >The Company's organizational chart.

  • The Company's list of shareholders and number of shares held by each.

  • Copies of agreements relating to options, voting trusts, warrants, puts, calls, subscriptions, and convertible securities.

  • A Certificate of Good Standing from the Secretary of State of the state where the Company is incorporated.

  • Copies of active status reports in the state of incorporation for the last three years.

  • A list of all states where the Company is authorized to do business and annual reports for the last three years.

  • A list of all states, provinces, or countries where the Company owns or leases property, maintains employees, or conducts business.

  • A list of all of the Company's assumed names and copies of registrations thereof.

  • List of all subsidiaries and affiliates of the company

B.   Financial Information.
  • Audited financial statements for three years, together with Auditor's Reports.

  • The most recent unaudited statements, with comparable statements to the prior year.

  • Auditor's letters and replies for the past five years.

  • The Company's credit report, if available.

  • Any projections, capital budgets and strategic plans.

  • Analyst reports, if available.

  • A schedule of all indebtedness and contingent liabilities.

  • A schedule of inventory.

  • A schedule of accounts receivable.

  • A schedule of accounts payable.

  • A description of depreciation and amortization methods and changes in accounting methods over the past five years.

  • Any analysis of fixed and variable expenses.

  • Any analysis of gross margins.

  • The Company's general ledger.

  • A description of the Company's internal control procedures.

C.   Physical Assets.
  • A schedule of fixed assets and the locations thereof.

  • All UCC. filings.

  • All leases of equipment.

  • A schedule of sales and purchases of major capital equipment during last three years.

D.   Real Estate.

  • A schedule of the Company's business locations.

  • Copies of all real estate leases, deeds, mortgages, title policies, surveys, zoning approvals, variances or use permits.

E.   Intellectual Property.

  • A schedule of domestic and foreign patents and patent applications.

  • A schedule of trademark and trade names.

  • A schedule of copyrights.

  • A description of important technical know-how.

  • A description of methods used to protect trade secrets and know-how.

  • Any "work for hire" agreements.

  • A schedule and copies of all consulting agreements, agreements regarding inventions, and licenses or assignments of intellectual property to or from the Company.

  • Any patent clearance documents.

  • A schedule and summary of any claims or threatened claims by or against the Company regarding intellectual property.

F.   Employees and Employee Benefits.

  • A list of employees including positions, current salaries, salaries and bonuses paid during last three years, and years of service.

  • All employment, consulting, nondisclosure, nonsolicitation or noncompetition agreements between the Company and any of its employees.

  • Resumes of key employees.

  • The Company's personnel handbook and a schedule of all employee benefits and holiday, vacation, and sick leave policies.

  • Summary plan descriptions of qualified and non-qualified retirement plans.

  • Copies of collective bargaining agreements, if any.

  • A description of all employee problems within the last three years, including alleged wrongful termination, harassment, and discrimination.

  • A description of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the last three years.

  • A list and description of benefits of all employee health and welfare insurance policies or self-funded arrangements.

  • A description of worker's compensation claim history.

  • A description of unemployment insurance claims history.

  • Copies of all stock option and stock purchase plans and a schedule of grants thereunder.

G.   Licenses and Permits.

  • Copies of any governmental licenses, permits or consents.

  • Any correspondence or documents relating to any proceedings of any regulatory agency.

H.   Environmental Issues.

  • Environmental audits, if any, for each property leased by the Company.

  • A listing of hazardous substances used in the Company's operations.

  • A description of the Company's disposal methods.

  • A list of environmental permits and licenses.

  • Copies of all correspondence, notices and files related to EPA, state, or local regulatory agencies.

  • A list identifying and describing any environmental litigation or investigations.

  • A list identifying and describing any known superfund exposure.

  • A list identifying and describing any contingent environmental liabilities or continuing indemnification obligations.

I.   Taxes.

  • Federal, state, local, and foreign income tax returns for the last three years.

  • States sales tax returns for the last three years.

  • Any audit and revenue agency reports.

  • Any tax settlement documents for the last three years.

  • Employment tax filings for three years.

  • Excise tax filings for three years.

  • Any tax liens.

J.   Material Contracts.

  • A schedule of all subsidiary, partnership, or joint venture relationships and obligations, with copies of all related agreements.

  • Copies of all contracts between the Company and any officers, directors, 5-percent shareholders or affiliates.

  • All loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party.

  • All security agreements, mortgages, indentures, collateral pledges, and similar agreements.

  • All guaranties to which the Company is a party.

  • Any installment sale agreements.

  • Any distribution agreements, sales representative agreements, marketing agreements, and supply agreements.

  • Any letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures within last five years.

  • Any options and stock purchase agreements involving interests in other companies.

  • The Company's standard quote, purchase order, invoice and warranty forms.

  • All nondisclosure or noncompetition agreements to which the Company is a party.

  • A list of all insurance policies held by the company and any claims made or threatened over the past 3 year

  • All other material contracts.

K.   Product or Service Lines.

  • A list of all existing products or services and products or services under development.

  • Copies of all correspondence and reports related to any regulatory approvals or disapprovals of any Company's products or services.

  • A summary of all complaints or warranty claims.

  • A summary of results of all tests, evaluations, studies, surveys, and other data regarding existing products or services and products or services under development.

L.   Customer Information.

  • A schedule of the Company's twelve largest customers in terms of sales thereto and a description of sales thereto over a period of two years.

  • Any supply or service agreements.

  • A description or copy of the Company's purchasing policies.

  • A description or copy of the Company's credit policy.

  • A schedule of unfilled orders.

  • A list and explanation for any major customers lost over the last two years.

  • All surveys and market research reports relevant to the Company or its products or services.

  • The Company's current advertising programs, marketing plans and budgets, and printed marketing materials.

  • A description of the Company's major competitors.


M.   Litigation.

  • A schedule of all pending litigation.

  • A description of any threatened litigation.

  • Copies of insurance policies possibly providing coverage as to pending or threatened litigation.

  • Documents relating to any injunctions, consent decrees, or settlements to which the Company is a party.

  • A list of unsatisfied judgments.

N.   Insurance Coverage.

  • A schedule and copies of the Company's general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker's compensation, and other insurance.

  • A schedule of the Company's insurance claims history for past three years.

O.   Professionals.

  • A schedule of all law firms, accounting firms, consulting firms, and similar professionals engaged by the Company during past five years.

P.   Articles and Publicity.
  • Copies of all articles and press releases relating to the Company within the past three years.