THE AMA HANDBOOK OF DUE DILIGENCE

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1 This is a complete list of the nearly-400 ready-to-use forms you ll find in The AMA Handbook of Due Diligence, the most exhaustive guide available on how to properly perform a due dilgence investigation and radically improve the success rate of a pending merger or acquisition. The new edition of this longtrusted resource includes a CD-ROM for quick access to all of the forms and templates for recording and analyzing every possible operational or financial activity at any organization. For more information go to: COMPLETE LIST OF FORMS, CHECKLISTS, AND OTHER DOCUMENTS *Note: all forms in this book are available as customizable Word documents. They are on the CD provided at the back of the book. Section 3: Overview of Entity Background Information On Entity Financial Summary Section 4: Compatibility With Investment/Acquisition Objectives Compatibility With Investment/Acquisition Objectives Compatibility With Investment/Acquisition Criteria Potential Impact Of External Factors Potential Benefits From Acquisition Potential Impact Of Locational Factors On A Prospective Investment Characteristics You May Wish To Avoid Why Is The Entity Available? Comparison With Other Potential Investment/Acquisition Candidates Section 5: Capitalization And Ownership Summary Of Capitalization Capitalization Common Stock Common Stock Miscellaneous Information Common Stock Dividend Record Common Stock Price And Trading Volume Common Stock Holders Of More Than Four Percent Of Shares Capitalization Preferred Stock Preferred Stock Dividend Record Capitalization Bonds Bond Yields And Major Bond Holders Section 6: Organization And Management Board Of Directors Board Of Directors Other Affiliations And Compensation Board Of Directors Current And Prospective Security Holdings Corporate Organization Corporate Management Resumes Recent Compensation History Of Corporate Management Personnel Company Security Holdings Of Corporate Management Personnel Organization And Management Information Requests Board Of Directors Opinions Of Management Board Members Apparent Position Regarding Potential Acquisition Overall Management Assessment Assessment Of Individual Management Personnel Section 7: Relationships With Outside Organizations Relationships With Accounting Firms Relationships With Law Firms Relationships With Commercial Banks 1

2 7-04. Relationships With Investment Banks Relationships With Venture Capital Firms Relationships With Private Investors And/Or Investment Groups Relationships With Consulting Firms Relationships With Trade Associations Relationships With Other Professional Organizations Outside Organization Information Request Section 8: Description of Products And/Or Services Summary Of Product Lines/Services Individual Product Line/Service Overview Competitive Product/Service Analysis Product Line Positioning Identified Product And Service Improvement Projects Potential Future Product And Service Improvement Opportunities Recently Discontinued Products And/Or Services; Products And/Or Services Potentially Subject To Early Termination New Product And/Or New Service Development Projects New Product Development Summary Of Current Projects Schedule Of Expenditures For Approved Development Projects Performance On Past Development Projects Distribution Of Company Development Funds Source Of Total Development Funds Trend In Development Expenditures, Salaries And Staffing Levels; Comparison Of Budget Versus Actual Expenditures Comparison Of Development Expenditures With Other Companies Current Development Budget Considerations Future Development Requirements Accounting For Development Expenditures Development Organization Development Organization Resumes Of Key Personnel Compensation Of Key Development Personnel Development Staffing Levels Trend In Development Staffing Internal Development Procedures Current Product/Service Information Request New Product/Service Development Information Request Summary Of Major Development Strengths And Weaknesses Potential Impact Of An Acquisition On The Development Organizations Section 9: Revenues And Market Share Trend In Total Revenues All Products And/Or Services Trend in Revenues By Product Line Or Service Trend In Market Share By Individual Product Line Or Service Revenues By Major Customer Trend In Revenues By Customer Revenues By Channel Of Distribution Revenues By Distribution Channel Direct Sales To Customers, Retailers Revenues By Distribution Channel Direct Sales To Industry, Government Revenues By Distribution Channel Sales Through Wholesale Offices, Distributors Revenues By Distribution Channel Through Sales Representatives, Other Channels Revenues By Geographic Region Trend In Revenues By Geographic Region Trend In Revenues By Month Seasonal Variation In Revenues 2

3 9-15. Trend In Revenues From Commercial Negotiated Contracts Commercial Negotiated Contracts Commercial Negotiated Contracts Renegotiation Experience; Status Of Current Renegotiations Trend In Revenues From Government Contracts Government Contracts Government Contracts Renegotiation Experience; Status of Current Negotiations Trend In Revenues Generated Through Independent Distributors; Ten Largest Independent Distributors Trend In Revenues Generated By Independent Sales Representatives; Ten Largest Independent Sales Representatives Summary of Factors Impacting Market Share Backlog By Product Line Or Service Book-To-Ship Ratio Schedule of Deliverable Backlog Lost Sales; Current or Potential Problem Customers Revenue Information Request Potential Revenue Improvement Opportunities Potential Impact Of An Acquisition On The Combined Revenues Section 10. Marketing Operations Marketing Organization Marketing Organization Resumes Of Key Marketing Personnel Compensation Of Key Marketing Staff Personnel Qualification, Recruiting And Training Of Direct Sales Personnel Compensation Of Direct Sales Personnel Marketing Organization Expense Accounts Marketing Locations And Facilities Domestic Marketing Locations And Facilities Foreign Marketing Channels Distribution Channels Characteristics Of Present System Distribution Channels Miscellaneous Questions Market Planning And Research Organization And Activities Market Planning And Research Methodology And Expenditures Advertising Organization And Activities Advertising Media And Expenditures Comparison Of Advertising Programs With Major Competitors Sales Promotion Organization And Activities Trade Show Participation Sales Promotion Expense Comparison Of Sales Promotion Programs With Major Competitors Foreign Marketing Considerations Summary Of Franchise Operations Entity As Franchiser Summary Of Franchise Operations Entity As Franchisee Factors Impacting Marketing Activities Pricing Organization Internal Pricing Policies Special Pricing Solutions Price Trends Current Pricing Environment Terms Of Sale And Credit Policies Terms Of Sale Product Warranty And Return Policies Terms Of Sale Competitive Environment Product Leasing Programs Other Marketing Programs Marketing Financial Performance 3

4 Marketing Performance Versus Budget Marketing Information Request Summary Of Observations Regarding Marketing Activities Third Party Comments Regarding Marketing Activities Summary Of Major Marketing Strengths And Weaknesses Potential Impact Of An Acquisition On Marketing Organizations Potential Impact Of An Acquisition On Outside Marketing Firms Section 11: Customer Service 11-01: Customer Service Organization Resumes Of Key Customer Service Personnel Compensation Of Key Customer Service Personnel Customer Service Locations Trend In Customer Service Staffing; Customer Service Financial Performance Customer Service Activities Quality Of Customer Service Profitability Of Service And Repair Operations Section 12: Inventory Control And Purchasing Inventory Control Organization Resumes Of Key Inventory Control Personnel Compensation Of Key Inventory Control Personnel Inventory Control Activities Trend In Inventory Control Staffing; Inventory Control Financial Performance Purchasing Organization Resumes Of Key Purchasing Personnel Compensation Of Key Purchasing Personnel Purchasing Activities Availability Of Materials And Supplies Identification Of Critical Materials And Supplies Price Trends For Purchased Materials And Supplies Characteristics Of Major Suppliers Summary Of Largest Outstanding Purchase Orders Summary Of Largest Outstanding Purchase Contracts Purchasing Policies And Procedures Trend In Purchasing Staffing; Purchasing Department Financial Performance Inventory Control And Purchasing Information Request Summary Of Observations Of Inventory Control And Purchasing Activities Notes Regarding Observations Of Inventory Control Activities Notes Regarding Observations Of Purchasing Activities Potential Impact Of An Acquisition On Inventory Control Organizations Potential Impact Of An Acquisition On Purchasing Organizations Section 13: Production Production Organization Resumes Of Key Production Personnel Compensation Of Key Production Personnel Production Methods And Processes Production Facilities Production Equipment Future Production Equipment Requirements Surplus Production Equipment Trend In Production Equipment Acquisitions And Accounting Policies With Respect To Major Equipment Items 4

5 Production Tooling Production Capacity And Utilization; Potential Impediments To Nearby Expansion Production Planning And Control Quality Control Stockroom Operations Production Training Programs Production Cost Accounting Intra-Company Material Transactions Subcontracting To Others Plant Safety Utility Services Plant Maintenance Trend In Production Staffing Production Department Financial Performance Trend In Production Productivity Competitive Production Environment Production Information Request Summary Of Observations Regarding Production Activities Summary Of Major Production Strengths And Weaknesses Potential Impact Of An Acquisition On Production Organization Section 14: Physical Distribution Physical Distribution Organization Resumes Of Key Distribution Personnel Compensation Of Key Distribution Personnel Physical Distribution Activities Warehouse Facilities Major Distribution Equipment Trend In Distribution Equipment Acquisitions; Accounting Policies With Respect To Major Equipment Items Trend In Distribution Staffing; Distribution Financial Performance Distribution Of Outbound Transportation By Type Of Carrier; Competitive Distribution Environment Distribution Information Request Summary Of Observations Regarding Distribution Activities Summary Of Observations Regarding Distribution Activities Notes Summary Of Major Distribution Strengths And Weaknesses Potential Impact Of An Acquisition On The Distribution Organization Section 15: Computer, Communications And Information Systems Organization Of Computer, Communications And Information Systems Resumes Of Key Computer, Communications And Information Systems Personnel Compensation Of Key Computer, Communications And Information Systems Personnel Computer Applications Outside Computer Services Planned New Computer Applications Computer Inventory Communications Applications Major Communications Equipment Other Than Regular Telephones Integrated Computer/Communications Systems Information Systems Integrated Computer/Communications/Information Systems Trend In Computer/Communications/Information Systems Staffing Trend In Computer/Communications/Information Systems Expenses Competitive Computer/Communications/Information Systems Environment 5

6 Computer/Communications/Information Systems Information Request Summary Of Observations Regarding Computer/Communications/Information Systems Summary Of Computer/Communications/Information Systems Strengths And Weaknesses Impact Of An Acquisition On The C. C. & I. Organization Section 16: Financial Management Financial Organization Resumes Of Key Financial Personnel Compensation Of Key Financial Personnel Accounting Policies And Procedures Financial Controls Foreign Exchange Transactions Internal Audit Function Financial Planning And Budgeting Financial Reporting Financial Activities Investor Relations Investment Management Insurance Management Tax Management Trend In Finance Department Staffing Trend In Finance Department Expenses Financial Operations Information Request Summary Of Observations Regarding Financial Operations Summary Of Financial Strengths And Weaknesses Potential Impact Of An Acquisition On The Finance Organization Section 17: Legal Affairs Legal Organization; Compensation Of Key Legal Personnel Resumes Of Key Legal Personnel Legal Department Activities Litigation Summary Entity Is Plaintiff Litigation Summary Entity Is Defendant Potential Litigation Entity Is Plaintiff Potential Litigation Entity Is Defendant Recently Concluded Litigation Entity Was Plaintiff Recently Concluded Litigation Entity Was Defendant Patents, Copyrights And Trademarks Licensing Agreements Regulatory Affairs Regulatory Compliance Actions Officers And Directors Background Information Trend In Legal Department Staffing; Outside Legal Services Trend In Legal Department Expenses Legal Activities Information Request Summary Of Observations Regarding Legal Activities Summary Of Major Legal Strengths And Weaknesses Potential Impact Of An Acquisition On The Legal Organization Section 18: Security And Safety Security Organization; Safety Organization Potential Security Problems Potential Safety Problems Other Security/Safety Matters 6

7 Section 19: Human Resources Human Resources Organization; Compensation Of Key Human Resources Personnel Resumes Of Key Human Resources Personnel Trend In Human Resources Department Staffing; Outside Services Trend In Human Resources Department Expenses Distribution Of Personnel By Various Categories Benefit Plans For Active Personnel Retirement Benefits Pension Plans Retirement Benefits Other Than Pension Plans Basic Wage And Salary Factors Incentive Programs Perquisites; Reimbursement For Relocation Expenses Employment Contracts Organized Labor Agreements Labor-Management Relations Hiring Policies And Procedures Termination Policies; Termination Benefits Training Programs Local Labor Environment Human Resources Information Request Summary Of Observations Regarding Human Resources Activities Summary Of Major Human Resources Strengths And Weaknesses Potential Impact Of An Acquisition On The Human Resources Organization Potential Cost Of Integrating Human Resources Policies Estimated Personnel Relocation Expenses Section 20: Land And Buildings Summary Of Active Domestic Facilities Summary Of Active Foreign Facilities Physical Characteristics Of Active Facilities Financial Characteristics Of Owned Facilities Financial Characteristics Of Leased Facilities Miscellaneous Facility Characteristics Factors Potentially Impacting The Future Value Of Existing Facilities Production Capacity And Potential Modifications To Existing Facilities Summary Of Currently Inactive Facilities; Potential Retirement Of Currently Active Facilities Summary Of Undeveloped Land; Trend In Real Property Taxes Potential Acquisition Of New Facilities Property And Facilities Information Request Section 21: Introduction To Financial Analyses Summary Balance Sheet As Of Summary Income Statement For The Section 22: Balance Sheet Analysis Liabilities Short-Term Notes Payable Short-Term Debt Service Payments; Principal Balances Of Short-Term Debt Payable Aging For The Twenty-Five Largest Accounts Explanation For Overdue Payables Accounts Payable Analysis Trend In Unearned Revenues; Trend In Accrued Expenses Trend In Total Current Liabilities Long-Term Notes Payable Features of Bond Issues Long-Term Debt Service Payments; Principal Balances Of Long-Term Debt 7

8 Recent Bond Performance Other Noncurrent Liabilities Section 23: Revenues Trend In Gross Revenues, Revenue Reductions, And Net Revenues Section 24: Operating Expenses Selling Expenses Selling Expenses As A Percent Of Net Revenues Variation In Selling Expense With Net Revenues Comparison Of Selling Expenses As A Percent Of Net Revenues General And Administration Expenses General And Administration Expenses As A Percent Of Net Revenues Variation In General And Administrative Expenses With Net Revenues Comparison Of General And Administrative Expenses As A Percent Of Net Revenues Allocation Of Office Occupancy And Office Equipment And Furniture Expenses Payroll Related Expenses As A Percent Of Payroll Expenses Comparison Of Payroll Related Expenses As A Percent Of Payroll Expenses Section 25: Income Taxes Status Of Income Tax Filings And Audits; Provision For Income Taxes Elements Of Deferred Taxes; Effective Tax Rate Availability Of Net Operating Loss; Deficiency Claim Settlements Income Tax Information Request Section 26: Net Income Trend In Net Income; Comparison Of Profit Margin With Industry Averages And With Selected Companies Section 27: Capital Expenditures Trend In Capital Expenditures; Comparison With Depreciation Expense And Net Revenues Trend In Adjusted Capital Expenditures; Comparison Of Adjusted Capital Expenditures With Net Revenues Section 28: Cash Flow Trend In Cash Flow Section 29: Financial Ratio Analysis Profitability Ratios Stock Performance Ratios Liquidity Measures Debt Ratios Activity Ratios Trend In Profitability Ratios Trend In Common Stock Performance Ratios Trend In Liquidity Measures Trend In Debt Ratios Trend In Activity Ratios Section 30: Income Statement Projections Projection Of Gross And Net Revenues Projection Of Cost Of Goods Sold And Gross Margin Projection Of Selling Expenses Projection Of General And Administrative Expenses Projection Of Selling, General And Administrative Expenses 8

9 Projection Of Operating Income Projection Of Other Income And Expenses Projection Of Unusual And Infrequent Items Projection Of Unusual, Infrequent And Extraordinary Items Basis For Projections Of Unusual, Infrequent And Extraordinary Items Projection Of Net Income Comparison Of Entity s And Investigator s Projections Section 31: Balance Sheet Projections Projection Of Current Asset Requirements Projection Of Property, Plant And Equipment Projection Of Other Noncurrent Assets Projection Of Short-Term Debt Projection Of Accounts Payable Projection Of Unearned Revenues And Accrued Expenses Projection Of Other Noncurrent Liabilities Projection Of Shareholders Equity Other Than Retained Earnings Projection Of Change In Retained Earnings Summary Balance Sheet Form Section 32: Cash Flow Projections Projections Of Cash Flow Monthly Debt Service Payments On Current Short-Term Notes Payable And Current Portion of Long-Term Debt Annual Debt Service Payments Based On Current Debt CHECKLISTS AND OTHER DOCUMENTS Section 33: Due Diligence Checklists For Acquisitions Or Investments Or Specific Dealings In Selected Industries 33-01: Restaurant Businesses 33-02: Franchising Companies Hospitals And Health Care Facilities Technology-Driven Companies Outsourcing Technological Services Private Equity And Hedge Funds Family And Closely-Held Businesses Section 34: Transaction-Specific Due Diligence Checklists Due Diligence Checklists For Joint Ventures/Strategic Alliances Due Diligence Checklists For Technology Licensing Arrangement Due Diligence Checklists For Dealership & Distributorship Arrangement Section 35: Sample Forms Related To Effective Due Diligence Confidentiality Agreement Investor Questionnaire In Connection With Private Placement Offerings Officer And Director (Employee & Non-Employee) Questionnaire To Conduct Due Diligence Of Existing Board Members Prior To An Offering Or In Connection With An M&A Transaction Section 36: Due Diligence Checklists For Special Situations Employee Benefit Plans And ERISA Matters Hart-Scott-Rodino Questionnaire (Antitrust Compliance Filings) Environmental Matters Real Estate And REIT Matters 9