Traversi Capital Advisors, LLC
Due Diligence Information Request List
[COMPANY NAME]
Due Diligence Information Request List
Traversi Capital Advisors, LLC
Month Day, 2013
Please regard the following as a preliminary due diligence request; we may ask for further
information or documentation after we have had an opportunity to review the following
information.
[All references to the “Company” shall also include the ________ entity or entities, if different
from the Company, and all partially or wholly-owned subsidiaries of the Company.]
In responding to this request, we recommend preparing (i) electronic files for each of the
categories below; and (ii) filling in the response form at the end of this document, which
contains a specific response to each numbered item in sequence and refers, where
appropriate, to material contained in the files described in (i).
Specific Instructions for Loading Documents to Data Room. The process below has been
established to simplify for you and TCA the verification that all questions have been addressed
and to ease the review process for prospective financial partners. We urge you to carefully
follow the instructions below, and please contact us immediately if you need clarification of
any of the instructions below.
1.
2.
3.
4.
5.
6.
7.
8.
You have been granted access to the virtual data room established for [company name].
[Describe virtual data room access and process.].
The data room is organized with a separate folder for each section of the checklist
above (General, Company Overview, etc.).
A separate document should be prepared to respond to each question.
For descriptive questions (for example, “When and where was the Company founded
and incorporated?” in the General section above), please provide the question and
answer in a single Word document.
Do not combine multiple questions and answers in a single document – only one
question per document.
If multiple documents are responsive to a question (for example, multiple years’ federal
tax returns), please provide a separate summary schedule that lists all the documents
you provided in response to the question.
If a single document is responsive to multiple questions, please make multiple copies of
the document and upload the copies to each appropriate folder.
Each document that you provide should be named exactly as follows:
AA-##-file name, where:
AA = two-letter code for the section of the checklist (such as “IT” for Income Taxes)
## = two-digit number corresponding to question number (such as “01”)
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file name = appropriate file name (such as 2012 Federal Tax Return.pdf)
9.
10.
So, for example, the file you load containing your 2012 federal tax return in
response to Income Tax question #1 would be titled: IT-01-2012 Federal Tax
Return.pdf
If there are a large number of documents that are associated with a single question (for
example, many customer contracts), TCA may decide to create subfolders in which to
store all the copies to reduce clutter in the section folder.
A worksheet to assist you in preparing your response is provided at the end of this
document.
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Due Diligence Information Request List
General (GE)
1.
State the name of your entity as it appears on the official records of the state or
community in which it operates, the city, county and state of the principal office and all
branch offices, the date the business established, the form of business organization and,
if a corporation, the date and state of incorporation.
2.
State the Applicant’s Employer Identification Number.
3.
State the Applicant’s Standard Industrial Classification four-digit code.
4.
Contacts, addresses and telephone numbers for each of the following: (a) personal
references for the C.E.O., C.F.O. and C.O.O. and other key senior executives; (b) top five
customers; (c) top five suppliers; and (d) the Company’s banking, legal and accounting
firms. Please notify them that we will be calling.
5.
Detailed description of use of proceeds.
6.
Description of any personal or business bankruptcies involving the Company or any
members of executive management or the board of directors.
7.
Description of any significant acquisition, sale, disposition, merger or combination
involving the Company in the last three fiscal years.
8.
Description of all transactions in the last five years between (a) the Company and (b) a
member of executive management or the board of directors or any affiliated entity or
person thereof.
9.
Description of all patents, trademarks, copyrights and other proprietary rights held or
applied for by the Company.
Company Overview (CO)
1.
When and where was the Company founded and incorporated?
2.
Describe the role of key individuals in the Company’s development.
3.
Please discuss the Company’s history since inception highlighting all key milestones.
4.
List of any subsidiaries (full corporate name, jurisdiction, organization and percentage
ownership).
Industry Overview (IO)
1.
Discuss the background of the industry.
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2.
What factors affect consumption and sale of industry products?
3.
What effect will international markets have on the industry?
4.
Detailed analysis of the Company’s competitive environment, including market size,
specific competitors, market share of each competitor.
5.
Discuss the competitive advantages and disadvantages of the Company and each of its
competitors.
6.
Discuss the growth experienced by the Company versus that of the industry.
7.
How are the Company's financial projections supported by the marketplace?
8.
Discuss any new entrants or recent exits in the industry.
9.
Discuss barriers to entry, if any, in this industry.
10.
Discuss the impact of switching costs to customers should they decide to move their
business.
11.
Discuss any new technologies or products that are currently in design or in use that may
have a longer term impact.
12.
Discuss any recent changes within the industry that have had a positive or negative
impact on the Company. (change in regulations, substitute products being offered,
increased level of competitiveness in local markets, pricing changes, etc)
13.
What stage is the industry in (i.e. start-up, growth, maturity, shrinkage, decline)?
Product or Service (PS)
1.
Detailed business plan.
2.
Describe the general development of the products and/or services during the past five
years or since inception.
3.
Describe the relative importance of each principal product or service to the volume of
the business and the profits.
4.
Describe any significant changes in types of products sold or services rendered.
5.
What is the lifecycle of the existing products?
6.
Discuss any new products or services management is considering.
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Marketing and Sales (MS)
1.
Sales force information by product and division, including type of sales force, number
and location of sales representatives, compensation structure for sales representatives
and performance of sales representatives on an individual basis.
2.
What percent of sales are achieved through the sales force as opposed to brokers,
distributors?
3.
If brokers, distributors are used what are the terms of those agreements?
4.
Description of previous and future marketing strategy.
5.
What are the key selling points of the Company’s products?
6.
What do customers base buying decisions on (i.e., quality, price, features, etc.)?
7.
How are you addressing the specific needs of the customers in each market?
8.
How much of the Company’s sales are recurring?
9.
What is the Company’s customer attrition record?
10.
What is the Company’s pricing strategy?
11.
Discuss the outlook for each of the Company’s products including sales, pricing and
market share.
12.
What effect do general economic conditions have on the product line?
13.
Product and marketing materials.
14.
Research, industry and consumer reports and articles published in the past five years
relating to the Company’s products, markets or competitors.
15.
Detailed media spending history and projections for each division, product and brand
for the current, last two and next two fiscal years.
16.
Summary of past, current or projected joint marketing and licensing programs or
agreements.
17.
State the type, number, location and financial strength of customers and potential
customers, including the name, address, and phone number of the five largest
customers, indicating the percentage of the gross revenue accounted for by these
customers.
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18.
Describe the actual or proposed terms of payment by customers if other than cash,
including the method of financing utilized.
19.
Describe the methods by which the products or services are now or are to be provided
to customers, including the adequacy of physical distribution facilities, e.g.,
warehousing, delivery equipment, etc.
20.
Please provide an overview of your customers and whether they are sold to directly,
through distributors and the general relationship that exists between the Company and
the end-buyer/user.
21.
Describe the path products take from production to the customer or end-user.
22.
Describe any significant seasonal aspects pertaining to the marketing of the product or
services.
Organizational and Management (OM)
1.
Organizational chart.
2.
Resumes of each member of executive management and the board of directors,
including but not necessarily limited to: age, health, business experience, business
affiliations, education and experience (in particular that pertaining to the business), a
statement of net worth, relationship to other members of management, time to be
devoted to the business and degree of ownership of the business.
3.
Description of any misdemeanor or felony conviction received by any member of
executive management or the board of directors of the Company.
4.
Attach any contract or proposed contract between the Company and any member of
management and/or outside consultants.
5.
List any fringe benefits to management.
Regulatory and Environmental (RE)
1.
Summarize the nature of and compliance with regulatory requirements affecting the
Company.
2.
Does the EPA have any oversight over Company practices?
3.
Is the Company currently in compliance with all federal, state and local environmental and
safety laws and regulations?
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4.
Has the Company always been in compliance with all applicable environmental and safety
laws and regulations?
5.
Are there any drums, waste or tanks buried on Company premises?
6.
Is there any asbestos or PCB’s on property owned or leased by the Company?
7.
Identify all potential environmental contamination or hazardous waste issues or
potential liability.
8.
Correspondence between the Company and all regulatory agencies in the last three
years.
9.
Description of any complaints filed by the state or federal government in the last three
years.
Licenses and Permits (LP)
1.
Description of existing and required licenses and permits necessary to conduct any
aspect of the Company’s business.
2.
Description of the requirements for the issuance and renewal of all existing and
required licenses and permits necessary to conduct any aspect of the Company’s
business.
3.
Schedule of software licenses.
4.
Description of all license or permit deficiencies.
Income Taxes (IT)
1.
Corporate tax (federal and state) returns for the Company for the last three fiscal years.
2.
Description of any current tax liabilities.
3.
Description of any tax penalties or fines assessed against the Company in the last five
years.
4.
Analysis of tax accruals as of the end of the last fiscal year.
5.
Description of the status of any current I.R.S. audits or examinations, and the details and
results of any such audits or examinations in the last five years.
6.
Description of areas or issues involving potential tax liability.
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Historical Financial (HF)
General
1.
Full financial statements (income statements, balance sheets and cash flow statements)
for the last three fiscal years.
2.
Year-to-date monthly financial statements (actual v. budget), with an explanation of all
variances.
3.
Provide unit volumes and per unit revenue for each of the Company’s products.
4.
Have any business lines been discontinued during the past 5 years? What caused the
operations to be discontinued?
5.
How does the Company’s cost structure compare with the industry’s cost structure?
6.
Identify any changes in accounting principles, methods or procedures in the last three
fiscal years, and quantify their effect on the historical financial statements.
7.
Management letters and reports on internal accounting procedures furnished to the
Company by its accountants in the last three fiscal years, and a description of corrective
or other action taken in response thereto.
8.
Summary of the terms of any acquisitions or divestitures in the last three fiscal years,
and quantification of their effect on the historical financial statements.
9.
Describe all outstanding debt or commitments for funds, including the original balance,
current balance, interest rate and amortization schedule, and attach a copy of the
instrument.
10.
State whether recent requests for funds from other sources have been denied, including
names and addresses of parties refusing funds, amount requested, dates of applications
and reasons for denial.
Revenues and Expenses
11.
Top 10 customers and amount of revenue attributed to each of them in the current and
last two fiscal years.
12.
Summary of policies and procedures for bad debt expense and allowance for doubtful
accounts.
13.
Summary of bad debt expense, and allowance for doubtful accounts, for the current and
last two fiscal years.
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14.
Summary of policies and procedures for other reserves.
15.
Summary of other reserves and write-offs for the current and last two fiscal years.
16.
Operating or contribution margins for each product line or major brand for the current
and last two fiscal years.
17.
Detailed schedule of general and administrative expenses for the current and last two
fiscal years.
18.
Detailed schedule of marketing expenses for the current and last two fiscal years.
19.
Identify any unusual or non-recurring items of income or expense in the last three fiscal
years.
20.
Detailed depreciation and amortization schedules for the current and last two fiscal
years.
Assets
21.
Schedule of accounts receivable aging for the current and last two fiscal years.
22.
Description of credit and collection policies.
23.
Current inventory mix schedule (by product, location or division, if applicable), and yearend inventory mix schedule for the last two fiscal years.
24.
Description of inventory valuation method (e.g., LIFO, FIFO, average cost) and the
general effect on reported performance.
25.
Description of any current excess or obsolete inventory.
26.
Description of inventory shrinkage experience in the current and last two fiscal years.
27.
Description of inventory control systems, audit techniques and supplier concentrations.
28.
Summary of notes receivable.
29.
Detailed summary of property, plant and equipment for the current and last fiscal year,
including locations, date of purchase, original cost, accumulated cost, amortization
method and life, accumulated depreciation, net book value, valuations, appraisals,
replacement costs, insurance coverage, adaptability to the principal business, financing
terms, lease terms, size, capacity, function and maintenance.
30.
Attach copies of agreements pertaining to any encumbrances on property or equipment
owned, or leased or rental agreements on non-owned property.
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31.
Attach copies of any franchise agreements, distributorship, dealerships, royalty
contracts or similar contracts with other firms.
32.
Summary of intangibles and other assets for the current and last fiscal year, including
locations, date of purchase, original cost, accumulated cost, amortization method and
life, accumulated depreciation, net book value, valuations, appraisals, replacement
costs, function and any financing thereof.
33.
Description of all reserve accounts and reserve policies.
34.
Description and location of all cash, cash equivalents and marketable securities.
35.
Description of any restriction on cash or investments.
36.
Description of required compensating balance requirements.
Liabilities
37.
Schedule of accounts payable aging for the current and last two fiscal years.
38.
Summary of long- and short-term debt, including lender, amount, rate, amortization,
prepayment penalties, restrictive covenants, payment history, acceleration features,
and history of defaults or covenant violations.
39.
Summary of any existing liabilities not reflected on the current balance sheet, and
schedule of cash payments on such liabilities for the current, last two and next five fiscal
years.
40.
Summary of any existing interest rate hedging facilities.
41.
Summary of deferred compensation and other deferred liabilities, and a schedule of
cash payments on such liabilities for the current, last two and next five fiscal years.
Shareholders Equity
42.
Current capitalization (including debt and equity) and ownership tables, on fully diluted
basis (include all vested and unvested preferred stock, options, warrants, convertible
debentures and preferred stock, and all other equity equivalents).
43.
Summary of the terms of all equity or equity equivalent investments in the Company
since inception.
44.
Offering circulars related to public or private debt or equity placements, whether
completed or not, in the last five fiscal years.
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Financial Projections (FP)
1.
Summary annual projected financial statements (income statements, balance sheets
and cash flow statements) for the next five fiscal years, including the current fiscal year,
and all assumptions in support thereof.
2.
Detailed monthly or quarterly projected financial statements (income statements,
balance sheets and cash flow statements) for the next two fiscal years, including the
current fiscal year, and all assumptions in support thereof.
3.
Schedule of projected capital expenditures for the next five fiscal years, including the
current fiscal year.
4.
Current backlog and bookings schedule (by product or division, if applicable), and yearend backlog and bookings schedule for the last two fiscal years.
5.
Provide a tentative five-year plan of the objectives and goals of the firm, including
anticipated revenues and earnings.
Accounting and Controls (AC)
1.
Description of accounting and control systems and procedures.
2.
Description of areas of weakness in accounting and controls.
3.
Description of the cash management function.
Litigation and Contingent Liabilities (LC)
1.
Description of all current or anticipated litigation or regulatory action involving the
Company or members of executive management or the board of directors.
2.
Is the Company currently in compliance with all antitrust laws?
3.
Is any portion of the Company’s business currently operating in violation of any law,
regulation or other requirement?
4.
Provide a detailed schedule of all lawsuits, actions, administrative proceedings or other
governmental or civil investigations or inquiries, pending or presently threatened
(together with copies of all pleadings).
Contracts and Commitments (CC)
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1.
Copies of major contracts and agreements (e.g., customer, loan, distribution, noncompete, lease, manufacturing, labor, joint venture, insurance, advertising, joint
marketing, employee).
Operations (OP)
1.
Flowchart of operations.
2.
Detail the process each product undergoes before being sold.
3.
Schedule of plant capacity and utilization for each plant.
4.
Schedule of wage scales by location.
5.
Description of subcontracted production, by and for the Company, in the current and
last fiscal year.
6.
Is there flexibility to increase and decrease production?
7.
Discuss future cost prospects of labor, materials and overhead.
8.
Discuss quality control and inspection
9.
Discuss any historical quality issues.
10.
Discuss the Company's joint ventures and other partnerships with suppliers and competitors.
11.
Capital spending history for the current and last three fiscal years.
12.
How much is maintenance, discretionary, upgrades?
13.
Description of all proprietary processes.
14.
Are safety precautions being followed?
15.
Are there any continuous improvement or six sigma programs in place?
16.
What technology does the Company use in producing its products?
17.
Describe the Company's technological advances and results versus those of the competition.
18.
What makes the Company’s technology superior, comparable or inferior to the competition?
19.
Are there technologies, keys to future success, that the Company does not have?
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Research & Development (RD)
1.
What research and development activity has taken place over the past three years?
2.
What new products have been created, what costs have been incurred, and what is the
success rate of these developments?
3.
How much research and development is required to develop the Company’s products?
4.
Describe products under development and the benefits of these products.
5.
Does the Company have patents or trademarks? What are their values, what items are
covered and when do they expire?
6.
How does the Company's research and development efforts compare to those of the
competition?
Requirements and Sources of Raw Materials and Supplies (RM)
1.
Describe the significant materials and supplies employed or to be employed in your
business, including the adequacy of the available sources of these materials and
supplies.
2.
Are there any single source suppliers?
3.
Are there any material costs tied to fluctuating commodity prices?
4.
Does the Company enter into long-term vendor agreements?
5.
List the name, address and phone number of the major suppliers, including disclosures
of any single or limited sources of essential materials.
6.
Describe the adequacy of available storage and materials handling facilities.
Employees and Compensation (EC)
1.
Number of total employees, independent contractors and outsourced personnel,
categorized by operating department.
2.
Describe the critical skills required in the business and availability of these skills within
the present work force or within the local labor market.
3.
Employee turnover analysis/retention rate for the current and last three fiscal years.
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4.
Summary of each employee benefit program.
5.
Summary of the Company’s obligations with respect to, and funding of, each employee
benefit program.
6.
Description of stock incentive plan(s), bonus plans, etc.
7.
Employee (including executive management), independent contractor and outsourced
personnel compensation schedules (including hourly wage, base salary, bonus and
incentive cash or stock compensation) for the current and last fiscal year.
8.
Summary of historical and projected compensation trends.
9.
Summary of relations with employees.
10.
Summary of any labor grievances.
11.
Summary of current or prospective labor or collective bargaining agreements.
12.
Copies of all employment contracts.
13.
Confidentiality agreements with employees.
Information Technology Systems (IT)
1.
Summary of major hardware and software currently in use, and location thereof.
2.
Summary of lease terms on major hardware and software.
3.
I.T. strategic plan.
4.
Description of planned or necessary I.T. upgrades.
Insurance and Risk Management (IN)
1.
Summary of the major terms (coverage amount and term, premium, deductibles, major
risks covered, major limitations and exclusions) of all current insurance policies.
2.
Summary of loss and claim experience in the current and last two fiscal years.
3.
Summary of all self-insurance programs.
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Worksheet for Response to Due Diligence Information Request List
Traversi Capital Advisors, LLC
This section is provided for your use to assist you in assigning responsibility and managing the
document production process.
Item #
Person
Responsible
Responsive Documents
General (GE)
1
2
3
4
5
6
7
8
9
Company Overview (CO)
1
2
3
4
Industry Overview (IO)
1
2
3
4
5
6
7
8
9
10
11
12
13
Product or Service (PS)
1
2
3
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Comments
Traversi Capital Advisors, LLC
Due Diligence Information Request List
4
5
6
Marketing and Sales (MS)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Organizational and Management (OM)
1
2
3
4
5
Regulatory and Environmental (RE)
1
2
3
4
5
6
7
8
9
Licenses and Permits (LP)
1
2
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3
4
Income Taxes (IT)
1
2
3
4
5
6
Historical Financial (HF)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
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38
39
40
41
42
43
44
Financial Projections (FP)
1
2
3
4
5
Accounting and Controls (AC)
1
2
3
Litigation and Contingent Liabilities (LC)
1
2
3
4
Contracts and Commitments (CC)
1
Operations (OP)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
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Research & Development (RD)
1
2
3
4
5
6
Requirements and Sources of Raw Materials and Supplies (RM)
1
2
3
4
5
6
Employees and Compensation (EC)
1
2
3
4
5
6
7
8
9
10
11
12
13
IT Systems (IT)
1
2
3
4
Insurance and Risk Management (IN)
1
2
3
19