AU2001251303A1 - Systems and methods for conducting due diligence - Google Patents

Description

SYSTEMS AND METHODS FOR CONDUCTING DUE DILIGENCE

CROSS REFERENCE TO RELATED APPLICATIONS

[0001] This application claims the benefit of U.S. Provisional Application No. 60/197,143, filed April 14, 2000, which is hereby incorporated by reference in its entirety.

BACKGROUND OF THE INVENTION

[0002] The present invention relates generally to conducting due diligence and more specifically to computer-based systems and methods for conducting due diligence.

[0003] Businesses engaging in complex deals, such as commercial financing, mergers, acquisitions and real estate transactions, generally conduct a due diligence analysis to validate the assets and liabilities of the other party. Typically, external legal counsel participates in the due diligence as well.

[0004] During a due diligence analysis, information is gathered from many sources. The information is often complex and relevant to various areas of the overall transaction. Therefore, a number of different members of a due diligence team may need to know the same information. Internal deal teams typically manually and individually collect data as part of the due diligence analysis. For example, in a transaction involving the financing or lease of collateral, both an underwriting team and a legal team are involved. The underwriting team is concerned with what the collateral is, the value of the collateral, and how the collateral is valued. The legal team may only be concerned with the location of the collateral. During the documentation stage, external legal counsel will generally request information from the individual internal deal teams that is necessary to complete the documentation.

[0005] Known methods for conducting due diligence are not always time efficient. Indh ^' lual collection by various internal deal teams increases the risk of overlapping data collection. Further, individual reporting by the internal deal teams to external counsel increases the risk of providing inconsistent or incomplete data to external legal counsel during the documentation process, which results in increased cycle time and costs. For example, in the transaction involving the financing or lease of collateral described above, external legal counsel may request information relating to the location of the collateral from the underwriting deal team. The underwriting deal team will therefore request additional information from the borrower regarding the location of the collateral. Because the information is collected both manually and individually, the underwriting deal team has no knowledge that the data has been previously collected by the legal team. Consequently, documentation cycle time and costs are increased.

[0006] Moreover, the effectiveness of the data collection depends on the experience and knowledge of the employees. However, known methods and systems generally do not provide evaluation of the data collection process as a whole.

BRIEF SUMMARY OF THE INVENTION

[0007] In one aspect, a method for conducting due diligence is provided which comprises the steps of identifying data that will be used to assemble at least one standard documentation file and identifying at least one data collector to collect the identified data. The data is received and stored and at least one standard documentation file is then assembled using the data.

[0008] In another aspect, a computerized system for conducting due diligence is provided. The computer is configured to prompt a user to identify data to be used in a standard documentation file and prompt a user to identify at least one data collector to collect the identified data. The computer further receives and stores the data and generates at least one standard documentation file.

[0009] In yet another aspect, a database is provided which comprises data corresponding to at least one identified collector, data corresponding to a time for collection of identified data for a standard documentation file and data corresponding to the standard documentation file.

[0010] In still another aspect, a system is provided which comprises a server configured to prompt a user to identify data that will be used to assemble at least one standard documentation file, at least one data collector to collect the data and a time for collection of the data. The system further comprises a database including data corresponding to a due diligence checklist.

[0011] In a further aspect, a method for conducting due diligence is provided which comprises using an electronic interface to select data to be used to form at least one standard documentation file, select at least one data collector to collect the data, and request a standard documentation file.

[0012] In another aspect, an apparatus comprises means for prompting a user to identify data to be used to form at least one standard documentation file, means for prompting a user to identify at least one data collector to collect the identified data, means for receiving and storing the identified data, and means for generating at least one standard documentation file.

[0013] . A computer-readable medium is also provided in a further aspect, the medium comprising at least one record of identified data for forming a standard documentation file, a record of at least one identified data collector; and a plurality of rules for using the data to generate a standard documentation file.

BRIEF DESCRIPTION OF THE DRAWINGS

[0014] Figure 1 is a system block diagram.

[0015] Figure 2 is a diagram of a network based system.

[0016] Figure 3 is a flow chart diagramming one embodiment of a method of conducting due diligence. [0017] Figure 4 is a representation of a pre-proposal information request list.

[0018] Figure 5 is a representation of a contents list for a pre-closing credit file.

[0019] Figure 6 is a representation of a typical contents list for a legal documentation file.

[0020] Figure 7 is a data diagram of a loan process flow, including due diligence.

DETAILED DESCRIPTION OF THE INVENTION

[0021] In one aspect, a method for conducting due diligence provides a standard data collection process that is efficient and consistent. The method reduces the cycle time for documentation of a transaction, reduces the potential for providing inconsistent or incomplete data to outside counsel during the documentation process and facilitates evaluation of the data gathering process as a whole.

[0022] More specifically, Figure 1 is a block diagram of a system 10 that includes a server sub-system 12, sometimes referred to herein as server 12, and a plurality of devices 14 connected to server 12. In one embodiment, devices 14 are computers including a web browser, and server 12 is accessible to devices 14 via a network such as an intranet or a wide area network such as the Internet. In an alternative embodiment, devices 14 are servers for a network of devices.

[0023] Devices 14 are interconnected to the network, such as a local area network (LAN) or a wide area network (WAN), through many interfaces including dial-in-connections, cable modems and high-speed lines. Alternatively, devices 14 are any device capable of interconnecting to a network including a web- based phone or other web-based connectable equipment. Server 12 includes a database server 16 connected to a centralized database 18. In one embodiment, centralized database 18 is stored on database server 16 and is accessed by users at one of devices 14 by logging onto server sub-system 12 through one of devices 14. In an alternative embodiment centralized database 18 is stored remotely from server 12.

[0024] In one embodiment, server 12 is configured to identify data that will be used to form at least one standard documentation file, at least one data collector to collect the identified data and a time for collection of the identified data. Server 12 is also configured to receive and store the identified data, evaluate the effectiveness of the data collection and assemble the standard documentation file. The interface allows the user to input data and receive the standard documentation file output.

[0025] Each device 14 includes an interface for communicating with server 12, for example, a web browser. The interface allows a user to input data and to receive a standard documentation file output. A computer-based tool for conducting due diligence, as described below in more detail, is stored in server 12 and can be accessed by a user at server 12 or any one of devices 14.

[0026] Figure 2 is a detailed block diagram of a network based system 22. System 22 includes server sub-system 12 and devices 14 (both shown in Figure 1). Server sub-system 12 includes database server 16, an application server 24, a web server 26, a fax server 28, a directory server 30, and a mail server 32. A disk storage unit 34 which includes a computer-readable medium including records of data and rules for manipulating the data is coupled to database server 16 and directory server 30. Servers 16, 24, 26, 28, 30, and 32 are coupled in a local area network (LAN) 36. In addition, a system administrator work station 38, a work station 40, and a supervisor work station 42 are coupled to LAN 36. Alternatively, work stations 38, 40, and 42 are coupled to LAN 36 via an Internet link or are connected through an intranet.

[0027] Each workstation 38, 40, and 42 is a personal computer including a web browser. Although the functions performed at the work stations typically are illustrated as being performed at respective work stations 38, 40, and 42, such functions can be performed at one of many personal computers coupled to LAN 36. Workstations 38, 40, and 42 are illustrated as being associated with separate functions only to facilitate an understanding of the different types of functions that can be performed by individuals having access to LAN 36.

[0028] Server sub-system 12 is configured to be communicatively coupled to various individuals or employee users 44 and to third party users, e.g., customers, 46 via an ISP Internet connection 48. The communication in the exemplary embodiment is illustrated as being performed via the Internet, however, any other wide area network (WAN) type communication can be utilized in other embodiments, i.e., the systems and processes are not limited to being practiced via the Internet. In addition, and rather than a WAN 50, local area network 36 could be used in place of WAN 50.

[0029] In the exemplary embodiment, any employee user 44 or customer user 46 having a work station 52 can access server sub-system 12. One of devices 14 includes a work station 54 located at a remote location. Work stations 52 and 54 are personal computers including a web browser. Also, work stations 52 and 54 are configured to communicate with server sub-system 12. Furthermore, fax server 28 communicates with employee users 44 and customer users 46 located outside the business entity and any of the remotely located customer systems, including a customer system 56 via a telephone link. Fax server 28 is configured to communicate with other work stations 38, 40, and 42 as well.

[0030] A method of conducting due diligence including a standard data collection process is provided and implemented in systems 10 and 22 described above. Referring to Figure 3, a flow chart 70 for process steps executed in the present method of conducting due diligence is shown. More specifically, system 10 (shown in Figure 1) identifies 72 information or data that will be used to assemble a standard documentation file for use during the documentation stage of a transaction. In one embodiment, the data is identified 72 in accordance with a knowledge base. The knowledge base may be stored within a database. The knowledge base is used to automatically identify 72 data that will be used to form a particular documentation file for a particular deal, i he knowledge base includes any data relevant to identifying 72 the appropriate data that will be used to form at least one standard documentation file. Because each transaction is somewhat different, the identified data varies by deal or transaction. Accordingly, the data may include, but is not limited to data associating specific data types to specific types of transactions. The knowledge base also includes data received during due diligence and recommendations provided by external deal teams and internal deal teams. As used herein, external deal teams are teams of persons responsible for certain aspects of the overall transaction that are not employees of the company engaging in the business transaction. Examples of external deal teams include, but are not limited to external legal counsel and external accounting firms. Data received during due diligence is discussed in more detail below.

[0031] System 10 identifies 74 a data collector. The data collector may be any person or tool suitable for collecting the identified data. In one embodiment, system 10 is configured to identify 74 a data collector in accordance with a knowledge base. A knowledge base is used to automatically identify 74 a data collector. The knowledge base is stored within a central database. In an alternative embodiment, the knowledge base includes any data beneficial to identification 74 of a data collection person or tool. The data includes data associating certain types of data with specific data collectors. For example, capital expenditure data is associated with the new customer origination deal team. The identification 74 of a data collector reduces the risk of redundant data collection and consequently the collection efforts are more efficient.

[0032] System 10 then identifies 76 a collection time in accordance with a knowledge base. A knowledge base is used to automatically identify 76 a collection time. In one embodiment, the knowledge base is stored within a central database. In an alternative embodiment, the knowledge includes any data beneficial to identification 76 of a data collection time. The data includes data associating a specific type of data with a specific collection time. For example, in commercial real estate transactions, the collection time for collection of data relating to a borrower's assets would be associated with the time of proposal acceptance. It should be recognized, however, that time sensitive data, or data that experiences continual change, is received and stored 78 more than one time if the data changes such that it is inaccurate at the time of documentation. One example of time sensitive data is a borrower's credit rating.

[0033] After the data is identified 72, a data collector is identified 74 a collection time is identified 76, and the data is received and stored 78. In one embodiment, the data is received and stored 78 into a central database. The database includes any information relevant to the transaction including data collected during due diligence. In a specific embodiment, data may be received and stored 78 into a central database from other databases on system 10 (shown in Figure 1). After the data is collected, the data collection is evaluated 80. Data may be evaluated 80 at any stage of due diligence.

[0034] In an exemplary embodiment, data collection is evaluated 80 after each stage of the due diUgence process. Such evaluation may include determining a present completion percentage of the standard documentation file, the percentage of data passed between underwriting and approval and legal, and the percentage of usable data provided by underwriting and approval. In one embodiment, evaluation 80 is accomplished by use of a microprocessor. In an alternative embodiment, evaluation 80 is accomplished manually. The term microprocessor, as used herein, refers to controllers, microcontrollers, programmable logic controllers, input/output (I/O) controllers or any other processor capable of processing for the embodiments described herein.

[0035] In one embodiment, evaluation 80 is accomplished manually. In such ah embodiment, any person including a deal team leader may conduct evaluation 80. For example, underwriting may evaluate 80 the completeness of the information received from the individual internal deal teams. In a further example, underwriting evaluates 80 its own data collection efforts. In addition, after the standard documentation file is assembled 84, it is evaluated 80 for completion and accuracy. [0036] Determination of the present completion percentage of the standard documentation file, percentage of data passed between underwriting and approval and legal, and percentage of usable data provided by underwriting and approval is determined by any known method. In one specific embodiment, the percent of completion of the standard documentation file is determined as (a number of items collected divided by a number of total items collected) * 100.

[0037] In yet another embodiment, the percentage of data passed between underwriting and approval and legal is determined as (actual number of items in the standard documentation file divided by an expected number of items in the standard documentation file) * 100.

[0038] In a further embodiment, the percent of usable data provided by underwriting and approval is determined as (actual number of accurate documentation items divided by an expected number of documentation items) * 100.

[0039] After the identified data is received and stored 78 and the data collection is evaluated 80, a standard documentation file is assembled 84. Documents relevant to a transaction are assembled 84 to form a standard documentation file. Assembling 84 is accomplished by any known means of assembling documents. Examples of known means of assembling 84 documents include, but are not limited to manual assembly, the use of a computer or computer software configured for assembling documents, the use of document generating systems or software and the use of data management software or systems.

[0040] The standard legal documentation file, in one embodiment, is assembled 84 in accordance with a knowledge base. The knowledge base is used to automatically assemble 84 the documents that form the standard documentation file. The knowledge base includes any data relevant to assembling 84 a standard legal documentation file. The data includes data associating a particular standard documentation file with documents to be included within that particular standard documentation file. For example, the knowledge base includes data associating a, standard pre-closing file with an audit report, a most recent accounts receivable (A/R) aging and data relating to the top ten customers by sales volume for the last 12 months. In an alternative embodiment, the standard documentation file is assembled 84 using data stored and received 78 within a central database.

[0041] Identified data may be received and stored 78 (shown in Figure 3) from any source. In one embodiment, discussed briefly above, identified data may be received 78 from data collected during due diligence. Typically, due diligence comprises the new customer origination, auditing, and underwriting and approval stages. In one embodiment, data received and stored 78 may include, but is not limited to, data relating to capital structure, corporate structure, marketing and industry data. Data received and stored 78 is compiled in a checklist. The checklist is a knowledge base, which includes specific data or information to be gathered during the various stages of due diligence. Descriptions set forth in Appendix A, titled Master Due Diligence Checklist, are descriptions of some of the data included within the knowledge base.

[0042] Additional information is received and stored 78 from a party to the transaction to expedite documentation. In one embodiment, additional information is any data to be included in a standard documentation file including data that is not generally collected during due diligence. A typical loan documentation questionnaire to be utilized to expedite documentation is described in Appendix B. In addition, Figure 4 is a representation of a typical pre-proposal information request list 100 that is utilized in accordance with the present embodiment to expedite documentation.

[0043] Any standard documentation file may be assembled 84 in accordance with the methods described herein. In one embodiment, a pre-closing credit file is assembled. More specifically, Figure 5 is a representation of a typical table of contents 110 for a standard pre-closing credit file that is assembled 84 (shown in Figure 3). The pre-closing credit file includes any data relevant to the pre-closing stages of the transaction. For example, the pre-closing credit file provides the foundation for a post-closing credit file. [0044] In an alternative embodiment, a legal documentation file is assembled 84 and includes any data relevant to the legal documentation phase of the transaction. Specifically, Figure 6 is a representation of a typical table of contents 120 for a standard legal documentation file assembled 84 using system 10 (shown in Figure 1).

[0045] In one embodiment, the standard documentation file is transferred to external deal teams. In a specific embodiment, the standard documentation file is transferred to external legal counsel during an initial meeting to streamline documentation. The first meeting with external legal counsel is typically at the start of the documentation process. Standard documentation files that may be assembled 84 and transferred include a pre-closing credit file and a legal documentation file.

[0046] In a specific embodiment, after the standard documentation file is transferred to external deal teams, external deal teams evaluate 80 the effectiveness of the data collection procedures. Evaluation 80 is accomplished in the same manner of evaluating 80 discussed above. Evaluation 80 is used to improve the data collection procedures as part of the overall due diligence process.

[0047] Figure 7 is a data diagram 200 of a loan process flow, including due diligence. Referring specifically to the Figure, to begin a deal process, origination data, contact information and deal tracking information 202 is entered into a system, for example, system 10 (shown in Figure 1) or system 22 (shown in Figure 2) by a user 204, for example, a sales/marketing user. Information 202 is stored within system 10 in a database 206. Database 206 is configured to provide deal and contact information to both a data warehouse 208 and a workflow project database 210. A customer 212 has an ability to track deal activity, by inquiring to a workflow application 214 that is accessible via the internet to registered customer users. Customer 212 is able to access deal information stored in database 210. A company underwriter 216 performs auditing functions and due diligence by accessing workflow database 210 using a workflow application 218, similar to workflow application 214, but configured for underwriter users, rather than customer users. [0048] Deal and contact information stored in data warehouse 208 and customer and underwriter supplied deal data from workflow database 210 are used to generate due diligence documents for a legal department using document generator 220. Data stored within data warehouse 208 further includes archived deal data, which is surveyed as new deals are being formed within databases 206 and 210, for historical references, perhaps on a borrower or perhaps for historical deal structuring that is useful in preparation of new deal documents.

[0049] While the invention has been described in terms of various specific embodiments, those skilled in the art will recognize that the invention can be practiced with modification within the spirit and scope of the claims.

AJr fcJNJJlA A

MASTER DUE DILIGENCE CHECKLIST

Date Person eeded Collected Information Required Source Responsible

BUSINESS DUE DILIGENCE CAPITAL STRUCTURE

• Who are Creditors of Borrower

• What Type of Debt .Senior, Subordinate, Convertible)

• Interest Rates and Expiration Dates on other Debt

• Assets Available for Security

• Security held by other debt

• Copy of latest Borrowing Base Certificates Originator

• Which Entity is Legally Borrower

• Any Intercompany Borrowing

OWNERSHIP/CORPORATE STRUCTURE

• List of all Major Shareholders showing Number of Shares of each class (Common or Preferred), and whether shares are Owned by: Employees, Officers or Directors either Directly or Beneficially

• Describe Any Loans or Advances To/From Owners or Employees

• Legal Corporate Structure; Which Entity is Legal Borrower

WHAT IS THE COMPANY'S BUSINESS?

• Products /Services/ Markets

• Uses of Products /Services

• Distribution Network

• Legal Protection (Patents, Trademarks, Copyrights, etc.)

• Product Emphasis

• Primary Consumer

• Other Distinct Characteristics

WHAT IS THE HISTORY OF THE COMPANY?

Incorporation Date

Founders

Current Organization Charter

Certificates of Articles of Incoφoration and by-Jaws of the

Company and each of its Subsidiaries

Product Development /Technological Advances

Material Changes in Customers/ Management

Relocations

Key Growth Stages

Previous Changes in Ownership

Increases / Decreases in Employment

Changes To Strategic Direction

Significant Construction of Facilities, Purchase Of

Equipment Business, Acquisitions/ Divestitures

R eview Discontinued Operations, if any MASTER DUE DILIGENCE CHECKLIST

Date Person Needed Collected Information Required Source Responsible

WHAT ARE COMPANY STRENGTHS?

• Determine what Management feels to be their Products Strong Points Consistent Profitability Low Cost Producer

Strong Market Position / Niche Position Strong Sales Force/ Distribution Strong Management Team -Track record Product Image / Quality/ Brand Identity Leadership in Innovative Design Excellent Manufacturing Facility and Labor Force Strong Customer Base Sales Growth

WHAT ARE COMPANY WEAKNESSES?

• Determine what Management feels to be their Products Weaknesses

• Profitability

• General Management

• Asset Management

• Company Size

• Growth Potential

DETAILED DESCRIPTION OF PRODUCT (OR SERVICE)

• Basis of Competition / Competitors

• Potential For Obsolescence

• Need for Product Line

• Sales Brochures and Other Descriptive Information

SIGNIFICANT NEW PRODUCTS

New Products Recently Developed

New Products in Developmental Stage

Prototype and Full Stage Production Schedules

3-Year Projections of Sales and Profit of New Product

Projected Competition

Impact on Short Term Cash Flow

Relative Advantages of New Product

Capital Expenditures and Patent Coverage For New

Products

• Estimated Percentage of Current Year's Sales Accounted for by Products Introduced By The Company Within The Past Five Years

MAJOR CUSTOMERS (ALSO SEE AUDIT-A R>

• Description of Typical Customer

• Special Arrangements Given To Any Customer

-. • Customers Serviced By in-housa Salesmen Vs. Outside MASTER DUE DILIGENCE CHECKLIST

Date! Person Needed Collected Information Required Source Responsible

Distributors or Outside Representatives

• Existence of Major or Government Contracts

• Backlog Reports for current month and Same Period Last Year

• Non-Arm' s-Length Transactions

SUPPLIERS

Top 10 Suppliers

Major Suppliers and Alternative Sources for Materials

Financial Condition of Major Suppliers

Procedures to Evaluate Supplier Performance

Future Availability of Material Needs

Trend for Past Three Years

"Special" Buying Arrangements

Raw Materials or Products Supplied

Effect of Volatile Raw Materials Costs on Product Pricing

Recent Trends of Principal Materials Used in Production

Contractual Supply Arrangements

Capacity Constraints

Long Term Commitments for Materials

Percent of Supplies Imported vs. Domestic

Sources and Availability of Utilities, and prospects for increases in the Costs of Utilities

MARKETING

Methods of Distribution

Number of Sales People and Compensation

Names and Location of Distributors

Amount of Business Done by Each Distributor

Company and Industry Pricing Policies

Cyclical^'rty

Product Life Cycle

Geographic Areas

Any Marketing Studies with respect to Industry, Company

Acquisitions or Divestitures within the last two years

• Price Trends for Major Products/Services

PRODUCTION-QUALTTY OF PRODUCTS / SERVICES

• Built-in Control

• Inspection Controls

• Production Statistics For Substandard Vs. Deliverable Products

• Product Return Experience

• Describe Product Warranty Provisions and Procedures

FACILITIES

N> • Addresses

• Sizes . . MASTER DUE DILIGENCE CHECKLIST

Date Person deeded Collected Information Required Source Responsible

MASTER DUE DILIGENCE CHECKLIST

Date Person Needed Collected_ Information Required Source Responsible

MASTER DUE DILIGENCE CHECKLIST

Date Person leeded Collected Information Required Source Responsible

GENERAL

• All Public Filings within last Two Years

• List of Names, Addresses and Telephone numbers of Iπ- housa and Outside Legal Council, Insurance Agents & CPA's

• Any Similar Companies in GECS Portfolio

• Any Liquidations done in Co.'s Industry

• Conflicts of Interest Concerns

• Inter-corporation Holdings

• Factors Critical to Co.'s Profits including: Product Demand, Competition, Raw Materials, etc.

• Quantify the Amount of Material, Labor and Overhead in the Co.'s f'-oduct Services

• All Material Operating Licenses, Permits, consents and Patents, with expiration period

• Recent Property Appraisals, Tax Assessments, Valuations, and Relation to Original Costs

• Identify Principal Methods of Product Distribution

• Company Proxy Materials during last 5 years, if any

• Agreements with Investment Bankers, Finders, etc. with respect to proposed transactions

• Unusual Business Practices inherent within Industry including: Historical and Projected Growth and Profitability, Stability, Regulatory Environment, Competition from Outside the Industry, Internal Industry Competition, Patents or other Property Rights, New Technology or Manufacturing Processes, Marketing Strategies, Product Acceptance and Customer Service, Labor Relations, Seasonally and Integration within Industry

INDUSTRYDATA

INFORMATION ON MAJOR COMPETITORS Check with origination

Names before Addresses requesting Ownership information ir Size /Growth these Financial Strength sections Nature of Products

Comparative Prices and Description of Quality Method of Distribution Advantages of Seller's Products/ Services Market Value Information Where Publicly Owned Potential Competition on Short Term or Long Term Basis Geographical Breakdown of Competition Competitive Strengths/Weaknesses ^" Acquisition Orientation Market Shares /Trends t- Robert Morns data for industry MASTER DUE DILIGENCE CHECKLIST

Date Person Needed Collected Information Required Source Responsible

• Multiples for Similar Companies

• Significant trends within Industry

• Major Competitors within Industry

• Barriers to Competitors

• Any Unusual Business Practices Inherent within the Industry

• Major Opportunities or Problems that are being addressed in the Marketplace

• Identify the Standard Industry Code (SIC) of the company

• Key Business and Industry Ratios

INDUSTRY TRENDS AND DEVELOPMENTS

Critical Success Factors

Industry Consolidation Expansion - Reasons and Examples

Relationship of Foreign Competition to Domestic

Competition-Joint Ventures

Current/Potential Advantage of Foreign Competition

Pricing Structure of Industry

Methods of Distribution

Demographic Changes

Pricing Policies

Industry Capacity and Usage

Availability and Cost Projections of Raw Materials

Studies and Analysis of Industry Completed During Past 3

Years

Government Activity In Industry-Regulations, Assistance

Subsidies, and Research Sponsored Programs

Substitute Risk

Technological Risk

OTHER UAB/L/T/ES, OBLIGATIONS

CONTINGENT LIABILITIES

EPA, Results of Phase I

Guarantees

Commitments and Understandings - Written and Oral

Equipmentand Other Off-Balance-Sheβt Financing

Terms

Amounts/Costs of Regulatory Issues

Penalties

Conditions

Copies of any Product Warranties and Method of Accruing

Warranty Expense

• Report Analysis of Estimated Costs Related to Regulatory Issues, if any

LITIGATION (ALSO SEE LEGAL DUE DIUGENCE)

• Existing Litigation Attorney Rep Letters for Last 2 Years

• Plaintiff Defendant MASTER DUE DILIGENCE CHECKLIST

Date Person eeded Collected Information Required Source Responsible

• Amount

• Progress of Lawsuit

• Estimated Date for Past Litigation during Past 5 Years

• Pending or threatened Lawsuits

• List of Pending and Attorney Representation Letters for the Last 2 years

STRATEGIC PLAN

OPPORTUNITY ASSESSMENT

• Business Plan review

• New Product Review

• Acquisition Opportunities a Idle Excess- Assets Available for Sale ^•

• Strategic Plans or Business Plans to determine matters the Company has identified as problems

• Profit Improvement Plans

• Key Factors in Achieving Productivity Increases

RISK ASSESSMENT

• Review of Potential Threats

• Existing Contingency Plans

• Additional Contingency Steps

• Ability to Divest Assets, Entities

FINANCIAL DATA PAST AND CURRENT OPERATING STATEMENTS

Financial Statements for Past 5 Years by Subsidiary or

Division

Current Interim Fiπancials vs. Last Year Interim Originator

Abnormal Non-recurring Income and expense Figures Originator

Corporate Allocation Breakdown

Month-By-Month Fiπancials Last 2 Years

Cost of Sales Breakdown by Component Originator

Historical Capital expenditures and Depreciation

Sales by Product Line

Analysis of Acquisition

Projected financial statements and underlying assumptions for the next three years

CAPEX Analysis

Current Ratio

Net Working Capital

Inter-company Balances

Intangibles

Three year Historical Summary of Foreign and Domestic

Sales and Margins

Cost of Sales by Product or Division

Tax benefits (NOD , MASTER DUE DILIGENCE CHECKLIST

Date Person Needed Collected Information Required Source Responsible

BACKLOG DATA

• Current Backlog data Itemized by Major Customer and Product

• Major Variances

PROJECTED FINANCIALS

• Controls for Operating and Capital Budgeting, Responsibility Reporting and Forecasting

• Monthly Cash Flow Projections

• Assumptions Underlying all Projections

• P&L Projections by Product Line and/or Service Check w^'rth

• Expenses by Product Line and/or Service Oiginator

• Cash Flow, Balance Sheet and Availability and Capital before Expenditures on Monthly Basis for First Year and Yearly requesting thereafter any

• Most Likely and Downside Scenarios for above information ir

• Capital Expenditure, Major Asset Dispositions and Repair this section and Maintenance Budgets and a Description of Significant Planned Expenditures for the Projected Years

AUDIT CHECK LIST

CASH

• Description of the cash management and treasury functions and flow of funds

• List of all bank account (including lock boxes ) detailing purpose, date opened and account number

• Bank reconciliations and supporting bank statements for the main operating accounts for the last three months

• Copies of Signature Cards of Authorized Signers for each Bank Account

• Schedule of all Marketable Securities held as of the latest Month end Close

ACCOUNT RECEIVABLE

• Detail Terms of Sales and Discounts

• Detailed "Other" Receivable

• Accounts receivable summary for the last 12 months and most recent detailed aging

• Bad debt write-offs and charges to the reserve for the last 24 months

• Dilution for Last 5 years

« Accounts receivable aging reconciliation to the general ledger for the most current month

I • Top 10 customers with current receivable balance aged

• Top 10 customers with YTD and prios year sales MASTER DUE DILIGENCE CHECKLIST

Date Person leeded Collected Information Require Source Responsible

• Analysis of past dues for the most current period

• Descriptions of the revenue recognition, billing, credit and collection policies

• List of all Customers with Extended Terms

• Schedule of any product that has been billed but not delivered for the past twelve months

INVENTORY

Vendor Terms

Manufacturing Cycle

Current Inventory Compared with Year Ago figures Broken

Down by Raw Materials, Work in Process. Finished Goods

Inventory by Product Line

Length of Time Finished Products have been in Inventory

Work-In-Process Turnover

Total Inventory Turnover

Monthly Gross Margin Analysis

Schedule of Customized, Specialized or Limited Production

Inventory as of the latest month end close

Description of inventory systems

Perpetual inventory report for the current period Originator

Aged inventory report for the current period and last year end inventory, by month, by category for the past 12 months

List of inventory locations with current dollar and unit inventory (sorted by inventory type) and ownership lease information for location

Gross margin by inventory category/product lines for the current period and last year end

Book-to-physical inventory adjustments for the past 12 months

Inventory reconciliation to the general ledger for the current year

Inventory obsolescence and write-off policy

Schedule/Reports calculating Slow-moving, Excess and

Obsolete Inventory as of the latest month close

Methodology for cost accounting, description of standard cost system (process or job order costing)

In Transit Inventory

Consigned Inventory

Any Buyback Agreements with Vendors

Purchase and Return policy detail with

Manufactures Vendors

Landlord Waivers Necessary?

Method of Inventory Costing

Physical Inventory Count Results Check with

Historical Suφlus Deficit Adjustments Originator

Discussion of Anticipated or Actual Reserves in the Inv. before

Value requesting

I informatior from IA MASTER DUE DILIGENCE CHECKLIST

Date Person Needed Collected Information Required Source Responsible

FIXED ASSETS

• Any Prior/Current appraisals of M&E and R E (F1RREA basis appraisals, if available)

• Fixed asset ledger for current year, including Original Costs, Gross Depreciation, Depreciated Carrying Value, and Date of Acquisition

• Description of capitalization policy

• Annual repairs and maintenance expense for the past five years

• List of all facilities (owned and/or leased) including: address, size, capacity, utilization and current appraisal

• Listing of all Material Real Estate and Asset Holdings by Legal Entity Including: Owned w/Appraisals or Leased w/Terms, Location, Brief Description, Detail on Retail Facilities and Distribution Centers

ACCOUNT PAYABLE

• Vendor Purchasing History

• Accounts payable aging for grower and other trade payable for the current period

• Reconciliation of aging to the general ledger for the current month

• Accounts payable turnover statistics for the last 12 months

• List of top 10 suppliers and purchase terms

• Monthly aging comparative analysis for the past 2 fiscal years

• Schedule of alt Letters of Credit, including purpose

• Monthly roll forward of Accounts Payable for past 2 fiscal years

• Schedule of Notes Payable as of the latest month end close

• Schedule of Accounts Payable converted to Notes Payable

OUTSTANDING DEBTS

• Creditors

• Amount of Note, Terms

• Contingent Liabilities

• Outstanding Warranties and Guarantees

INSURANCE COVERAGE

• Description of Coverage

• Premiums

• Deductibles

• Expiration of Coverage fc • Potential Renewal Problems

• Five year History of any losses or Settlements to include MASTER DUE DILIGENCE CHECKLIST

Date Person leeded Collected Information Required Source Responsible

Product Liability, Workman's Compensation and the like programs

TAXES

Effective Tax Rate? Federal Taxes - Any Years Still Open? State and Franchise Taxes Current? Any Significant Foreign Taxes? Any Potential Areas of Exposure?

GENERAL

Management letters prepared by the external auditors for the last two years ^' . -

Discussion with external auditors and review of workpapers

List of internal audit reports generated the last two years and copies of selected internal audit reports

Copy of the General Ledger Chart of Accounts

LEGAL DUE DIUGENCE

Existing Intercreditor and Subordination Agreements (see

Bus. D.D/R&D)

Patent Filings Necessary? (see Bus D.D.)

Assignment of Claim Forms Necessary?

Transactions wfth Affiliates (see Bus. D.DyR&D)

Certificate of Incorporation and By-laws

List of All Jurisdictions in which Co. is Authorized to do

Business

List of All Coφorations, Partnerships and other Business

Entities Directiy or Indirectly Controlled by Each Co. and

Respective Capitalization of Each Co. Including

Identification of Minority Interests and Agreements to Sell or Issue any Capital Stock in any Such Entities

List of all Capital Stock and other Securities held by the Co. and a list of all Ownership Interests held by any of the

Co.'s in any Business (see Bus. D.D.)

A list of all Corporate Names, Trade Names, Fictitious

Names or other Names Under the Co. has done Business at any time During the past 5 years

All Guarantees and Indemnification Arrangements made by or in favor of any of the Co.'s

All Agreements (Including Intercreditor Agreements and

Mortgages) Relating to or Creating Liens, Security

Interests or Encumbrances on any Assets

All Non-Competition Agreements and Similar Agreements

Restricting any of the Co. 's

All Employment, Consulting, Deferred Compensation,

Bonus, Severance, Profit Sharing, Stock Option or Similar

Plans or Agreements Affecting any Employee (see Bus MASTER DUE DILIGENCE CHECKLIST

Date Person > Jeeded Collected Information Required Source Responsible '

D.D.)

All Agreements made Terminable or the Terms of Which may be Altered Upon a Change of Control

All Contracts Not in the Ordinary Course of Business

All Agreements with any Member of Senior Management

(see Bus D.D. - Management)

All Supply Agreements

All Trust Agreements

Copies of all Insurance Policies in Force

A list of all Material Permits, Licenses, Consents and

Authorizations Required to Conduct the Business

Copies of all Reports, Including any Existing Phase 1 or

Phase 2 Reports, Records and Correspondence with

Respect to Environmental Permits, Conditions, Claims,

I tøzar -is of Compliatwa - :

List of Ail Real Property Owned or Leased and the Address and Description of Each such Location Stating Whether such Location is Owned or Leased

List of all Locations at Which Inventory of any of the Credit

Parties is Maintained

The Address of the Principal Place of Business and Chief

Executive Office

Copies of all Tax Returns for the Last Three Years

All Federal Taxpayer Identification Numbers

All Benefit Plans and all Amendments thereto

For each Benefit Plan, the most recent (i) IRS Form 5500 or 550O-C, (ii) Summary Plan Description and any Material

Modifications thereto, (Hi) Annual Report, (fv) Trust

Agreement, (v) Actuarial Valuation Report, if any, and (vi)

Actuarial Study of the Liabilities for Post-Employment

Medical or Life Benefits, if any

List of All Outstanding Awards and the Recipients thereof under each such Plan

All Material Communications to or from the IRS, the

Department of Labor or the Pension Benefit Guaranty

Corporation relating to any Benefit Plan

List of all Trademarks, Tradenames. Copyrights and

Patents owned

All Licenses, Franchise or other Agreements Relating to

Trademarks, Tradenames, Copyrights, Patents,

Technology, Know-how, Processes, and any Employee

Trade Secret and Nondisclosure Agreements

Copies of all Management Letters Delivered During the past two years from Independent Public Accountants

Copies of all Filings and Correspondence with the

Securities and Exchange Commission made during the past Twelve Months APPENDIX B

LOAN DOCUMENTATION QUESTIONNAIRE

In an effort to make the documentation process as efficient as possible, please complete/compile the following information. A quick response and accurate completion can save both time and closing costs. Please submit the following upon acceptance of GE Capital's Commitment

1) Please complete a corporate/shareholder chart substantially in the form of Exhibit "A"

2) Submit Certificates of Incorporation and By-laws for all borrowers.

3) List ail Jurisdictions in which companies are authorized to do business in:

4) The Corporation is authorized to transact business as a foreign corporation in the following states:

5) Provide copies of insurance policies in force.

6) Provide copies of all reports, including any Existing Phase 1 or Phase 2 Reports, Records and Correspondence with respect to environmental permits, conditions claims hazards or compliance.

7) If proceeds are financing an acquisition. Please supply the following: Sellers Legal Name:.

Type of Corporation:..

Charter State:

EIN: (If known)

8) The Corporation uses and owns the following trade names or trade styles: 9) Please complete the following schedules:

B. EXISTING LENDERS: PLEASE provide the full legal name of existing lenders, the entities which are borrowers or guarantors, their collateral, and approximate payoff amount at the targeted closing date.

ARE THERE ANY EXISTING INTERCREDΠΌR AGREEMENTS? YES No. IF YES, PLEASE PROVIDE A COPY.

PLEASE SUBMIT COPY OF EXISΓTNG LOAN AGREEMENT (IF NOT PREVIOUSLY PROVIDED).

C. DOCUMENT DISTRIBUTION: List the name, address, title, telephone number and fax number of each person (including outside counsel) who is to receive draft documents.

UARANTORS: Please list all guarantors (individuals or corporations) required by GE Capital.

E) SiGNORS: List the full name and title of person signing the loan documents (usually the President or Chief

P Exvβecϋuittiiwvoe O Offfiirc-eprr).,

F) SECRETARIES: LIST the legal name of the Secretary of the Borrowers) and other Credit Party(s).

G) LANDLORD AND MORTGAGEE WAIVERS: LIST the address (including county) of each location where the Borrower and the other Credit Parties have an office, warehouse, operational plant, sales office, etc. (including all locations where collateral is kept or stored) and include the legal name of the landlord, the mortgagor (if the property is owned), or warehouseman (if a warehouse).

LOCATION ADDRESS COUNTY TYPE NAME AND ADDRESS OF LANDLORD/MORTGAGOR/WAREHOUS

E H.) Bank ACCOUNTS: List depository accounts which will function as the blocked and/or lockbox accounts for the Borrower.

Claims (61)

WHAT IS CLAIMED IS:

1. A method for operating a computer to conduct due diligence, said method comprising:

prompting a user to identify data to be used to form at least one standard documentation file;

prompting a user to identify at least one data collector to collect the identified data;

receiving and storing the identified data; and

generating at least one standard documentation file.

2. A method according to Claim 1 wherein said step of prompting a user to identify data to be used further comprises the step of identifying a tiπie for collection of the identified data.

3. A method according to Claim 1 wherein said step of receiving and storing the identified data further comprises the step of storing the data in a database.

4. A method according to Claim 1 wherein said step of receiving and storing the identified data further comprises the step of evaluating the effectiveness of collection of the identified data.

5. A method according to Claim 4 wherein said step of evaluating the effectiveness of collection comprises the step of determining a percentage of completion of the standard documentation file.

6. A method according to Claim 5 wherein the percentage of completion is determined according to (number of items collected/number of total item collected)* 100.

7. A method according to Claim 1 wherein said step of receiving and storing the identified data comprises the step of receiving the identified data from data collected during one of customer origination, auditing and underwriting and approval.

8. A method according to Claim 1 wherein said step of assembling at least one standard documentation file comprises the step of generating at least one of a pre-closing credit file and a legal documentation file.

9. A method according to Claim 1 further comprising the step of transferring at least one standard documentation file to external deal teams.

10. A method according to Claim 4 wherein said step of evaluating the effectiveness of collection of the identified data comprises the step of determining at least one of a percent of data passed between underwriting and legal, a percent of usable data provided by underwriting and approval and a present percent of completeness of the standard documentation file after each stage of due diligence.

11. A method according to Claim 10 wherein the percent of data passed between underwriting and approval and legal is calculated according to (actual number of items in the standard documentation file divided by an expected number of items in the standard documentation file) * 100.

12. A method according to Claim 10 wherein the percent of usable data provided by underwriting and approval is calculated according to (an actual number of accurate documentation items divided by an expected number of documentation items) * 100.

13. A method according to Claim 1 wherein said step of receiving the identified data comprises the step of receiving the identified data via at least one of the Internet and an Intranet.

14. A computer programmed to: prompt a user to identify data to be used to form at least one standard documentation file;

prompt a user to identify at least one data collector to collect the identified data;

receive and store the identified data; and

generate at least one standard documentation file.

15. A computer according to Claim 14 wherein to prompt a user to identify data to be used, said computer displays a computer generated screen prompting the user to identify a time for collection of the identified data.

16. A computer according to Claim 14 configured to receive the identified data and store the identified data in a database.

17. A computer according to Claim 14 configured to evaluate the effectiveness of collection of the identified data by determining a percentage of completion of the standard documentation file.

18. A computer according to Claim 17 wherein the percentage of completion is determined according to (number of items collected/number of total item collected)* 100.

19. A computer according to Claim 14 wherein for a standard documentation file said computer configured to generate at least one of a pre-closing credit file and a legal documentation file.

20. A computer according to Claim 17 wherein to evaluate the effectiveness of collection of the identified data, said computer is configured to determine at least one of a percent of data passed between underwriting and legal, a percent of usable data provided by underwriting and approval and a present percent of completeness of the standard documentation file after each stage of due diligence.

21. A computer according to Claim 20 wherein said computer is configured to calculate the percent of data passed between underwriting and approval and legal according to (actual number of items in the standard documentation file divided by an expected number of items in the standard documentation file) * 100.

22. A computer according to Claim 20 wherein said computer is configured to calculate the percent of usable data provided by underwriting and approval according to (an actual number of accurate documentation items divided by an expected number of documentation items) * 100.

23. A database comprising:

data corresponding to at least one identified data collector;

data corresponding to a time for collection of identified data for a standard documentation file; and

data corresponding to the standard documentation file.

24. A database according to Claim 23 further comprising data corresponding to an evaluation of the effectiveness of collected data.

25. A database according to Claim 23 wherein said data corresponding to the standard documentation file comprises data documenting a transaction.

26. A database according to Claim 23 wherein said data corresponding to the standard documentation file comprises data provided by external deal teams and internal deal teams.

27. A database according to Claim 23 further comprising data corresponding to a percent completion of the standard documentation file.

28. A database according to Claim 23 wherein said data corresponding to the standard documentation file comprises at least one of data associating a pre-closing file with an audit report, data regarding accounts receivable aging and data relating to a top ten customers by sales volume.

29. A database according to Claim 23 further comprising data corresponding to a due diligence checklist.

30. A system for conducting due diligence, said system comprising:

a database comprising data corresponding to a due diligence checklist;

a server configured to prompt a user to identify data that will be used to form at least one standard documentation file, identify at least one data collector to collect the identified data and to identify a time for collection of the identified data.

31. A system according to Claim 30 wherein said server configured to receive and store the identified data, evaluate the effectiveness of collection of the identified data and assemble the data into a standard documentation file stored in said database.

32. A system according to Claim 31 wherein said server is configured to evaluate the effectiveness of collection of the identified data by determining one of present percent of completeness of the standard documentation file, percent of data passed between underwriting and approval and legal and the percent of usable data provided by underwriting and approval.

33. A system according to Claim 32 wherein said server is further configured to determine a percent of completeness of the standard documentation file according to (number of items collected/number of total item collected)* 100.

34. A system according to Claim 32 wherein said server is further configured to determine a percent of data passed between underwriting and approval and legal according to (actual number of items in the standard documentation file divided by an expected number of items in the standard documentation file) * 100.

35. A system according to Claim 32 wherein said server is further configured to determine a percent of usable data provided by underwriting and approval according to (an actual number of accurate documentation items divided by an expected number of documentation items) * 100.

36. A system according to Claim 30 wherein said server is configured for assembling at least one standard documentation file using one of a document generating system or software and a data management software or system.

37. A system according to Claim 30 wherein said server is configured for assembling one of a pre-closing credit file and a legal documentation file.

38. A system according to Claim 30 wherein said server is configured to receive data via at least one of the Internet and an Intranet.

39. A system according to Claim 30 wherein said server is configured to receive and store the data from data collected during one of customer origination, auditing and underwriting and approval.

40. A system according to Claim 30 wherein said database comprises at least one of data corresponding to at least one identified collector, data corresponding to a time for collection of identified data for a standard documentation file, and data corresponding to the standard documentation file.

41. A system according to Claim 40 wherein said database comprises data corresponding to an evaluation of effectiveness of collected data.

42. A system according to Claim 40 wherein said database comprises data corresponding to a percent completion of the standard documentation file.

43. A system according to Claim 40 wherein said data corresponding to the standard documentation file comprises data associating a pre- closing file with an audit report, data regarding accounts receivable aging and data relating to a top ten customers by sales volume.

44. A method for conducting due diligence, said method comprising the steps of:

selecting, from an electronic interface, data to be used to form at least one standard documentation file;

selecting, from the electronic interface, at least one data collector to collect the data; and

requesting, from the electronic interface, a standard documentation file.

45. A method according to Claim 44 further comprising the step of selecting, from the electronic interface, a time for collection of identified data.

46. A method according to Claim 44 further comprising the step of requesting, from the electronic interface, an evaluation of effectiveness of the collection of the identified data.

47. A method according to Claim 46 wherein an evaluation of effectiveness comprises determining a percentage of completion of the standard documentation file.

48. A method according to Claim 44 wherein said step of requesting a standard documentation file comprises the step of requesting, from the electronic interface, at least one of a pre-closing credit file and a legal documentation file.

49. A method according to Claim 44 further comprising the step of requesting, from the electronic interface, that at least one standard documentation file be transferred to external deal teams.

50. Apparatus comprising: means for prompting a user to identify data to be used to form at least one standard documentation file;

means for prompting a user to identify at least one data collector to collect the identified data;

means for receiving and storing the identified data; and

means for generating at least one standard documentation file.

51. Apparatus according to Claim 50 wherein said means for prompting a user to identify data to be used further comprises means for prompting a user to identify a time for collection of the identified data.

52. Apparatus according to Claim 50 wherein said means for receiving and storing the identified data further comprises means for storing the data in a database.

53. Apparatus according to Claim 50 wherein said means for receiving and storing the identified data further comprises means for evaluating the effectiveness of collection of the identified data.

54. Apparatus according to Claim 53 wherein said means for evaluating the effectiveness of collection comprises means for determining a percentage of completion of the standard documentation file.

55. Apparatus according to Claim 50 wherein said means for generating at least one standard documentation file comprises means for generating at least one of a pre-closing credit file and a legal documentation file.

56. Apparatus according to Claim 50 further comprising means for transferring at least one standard documentation file to external deal teams.

57. A computer-readable medium, comprising: at least one record of identified data for forming a standard documentation file;

a record of at least one identified data collector; and

a plurality of rules for using the data to generate a standard documentation file.

58. A computer-readable medium according to Claim 57 further comprising a record identifying a time for collection of the data.

59. A computer-readable medium according to Claim 57 further comprising a plurality of rules for evaluating effectiveness of collection of identified data.

60. A computer-readable medium according to Claim 57 further comprising a plurality of rules for determining a percentage of completion of a standard documentation file.

61. A computer-readable medium according to Claim 57 wherein said rules for generating a standard documentation file comprises rules for generating at least one of a pre-credit closing file and a legal documentation file.