M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
1.0 General Company Information
1.01 Sales and Marketing
1.01.01 Product demonstration
1.01.02 Market strategy and plans
1.01.03 Pipeline review
1.01.04 Major accounts
1.01.05 Sales organization structure and incentive plan
1.02 Product Development, Implementation and Support
1.02.01 Software development and technology inventory
1.02.02 Professional services and implementations for new customers
1.02.03 Support for existing customers
1.03 Finance/HR
1.03.01 Comprehensive review
1.03.02 Bank Account for payroll
1.03.03 Payroll, compensation and benefits
1.04 Legal
1.04.01 Corporate overview
1.04.02 Intellectual property
1.04.03 Contracts
1.04.04 Employment matters
1.04.05 Regulatory Issues
1.04.06 Claims, disputes, litigation
1.05 Tax
1.05.01 Federal and state income
1.05.02 Sales and use tax
1.06 Technology and operations (IT, procurement, security)
1.06.01 Data center and application hosting
1.06.02 Internal information technology
1.06.03 Security and privacy
2.0 Corporate Documents
2.01 General
2.01.01 Provide a comprehensive company chart of entities and ownerships
Provide minutes of the Boards of Directors and stockholders of the
2.01.02
Company for past 3 years and YTD
Provide all agreements relating to the purchase, ownership of sale of,
or voting rights pertaining to, the capital stock of the Company,
including any shareholders' agreements, voting trust agreements,
2.01.03 restricted stock agreements, and registration rights agreements, and
all agreements or arrangements relating to the issuance/disposition of
additional shares of the Company, including any warrants, options or
pledges
Provide a list of jurisdictions in which the Company is qualified to do
2.01.04
business or is otherwise operating
Provide any information memoranda or similar docuements provided
2.01.05
to lenders or potential investors relating to the company
2.02 Claims and Litigation
List and describe all material litigation, proceedsings, investigations,
claims or inquiries currently pending or threatended as well as any
2.02.01
material judgements, injunctions, orders or settlement agreements
affecting the Company

Provide all letters from the Company's legal counsel to the Company's
2.02.02
independent auditors regarding litigation
Provide summaries of and doceuments relating to material claims with
2.02.03 respect to intellectual property that have been asserted by or against
the Company

To the extend not included elsewhere, list and describe any pending,
past, or threatended litigation, claims or prostests by any employees
2.02.04
against the Company in the past 5 years. Privileged material may be
redacted. If any exist, provide list of actions and status
List and describe all intellectual property disputes, threatended or
2.02.05
actual
2.03 Regulatory filings and correspondence

Provide copies of all material correspondence from or to any federal,

state, local or foreign regulatory, governmental or administrative
authority or stock exchange, including any documents concerning any
2.03.01
alleged violation or infringement or any law, rule or regulation, all
consent decrees as well as copies of any compliance policies or other
material related documents
Provide a schedule of material governmental permits, licenses,
2.03.02 authorizations etc used or held for use in connection with the
Company

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 1 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
Provide a list of all permits, licenses, authorizations etc which have
2.03.03
been revoked or suspended in the past five years
Provide a schedule of any federal, state, local or foreign governmental
2.03.04 consents that would be required for the consummation of the
proposed transaction
2.03.05 Provide copies of all regulatory audits for past 3 years and YTD
3.0 Financial Records
3.01 General
3.01.01 Provide audited financial statement for the last 3 years
Provide a schedule of charges that may not continue under different
3.01.02 ownershup as well as any additional charges that may result from new
ownership
List and describe all other significat inter and intra copany, related
3.01.02
party and shareholder transactions

Provide current financial outlook with revenue, expense, capital

expenditure and headcount detail for the next 3 years including a
3.01.03 bridge analysis from the current year to the projected years showing
expected revenue impact from wins, losses and other revenue
changes as well as related expense changes

Provide budgets that shows actual results compared to the bduget for
3.01.04
each year, quarterly if available
3.01.05 Internal audit reports
Copies of account reconciliations for the current balance and prior
3.01.05
year end
Provide copies of any reports and management letters from the
3.01.06 auditors to the Company and any management representation letters
by the Company to the auditors
List and describe payroll related information including payroll
3.01.07
processes, payment frequency, dates and paid current or in arrears
List and describe all commercial insurance policies, including
3.01.08
decription of coverage, premiums and term

Provide 5 year loss history for workers, compensation, auto liability,

general/produce liability and as applicable, professional, technology
3.01.09
and privacy liability claims. For each policy year, indicate the
applicable retention level by line of coverage
3.01.10 Trial balances for years
3.02 Tax
3.02.01 A summary of the book and tax bases of assets by major category
Copies of federal tax returns for the Companies for the last three fiscal
3.02.02
years
Copies of all state, local and foreign tax returns for the last three fiscal
3.02.03
years
Copies of any tax returns filed with respect to foreign jurisdictions for
3.02.04
all years for which the statue of limitations is not closed
A list of the amount of settlements with any foreign tax authorities,
3.02.05
including a description of the settlement
A description of all audits of any of the Companies by the IRS or any
other federal, state, local or foreign taxing authority, which
3.02.06
description should include the dates of the audits and a summary of
each audit
Copies of all correspondence between any of the Companies, as
3.02.07
taxpayer, and the IRS with respect to any pending tax case
A list of all countries in which the Companies are doing business or
3.02.08 are otherwise liable for taxes, including a list of countries and
amounts involved where inventory is held on consignment
A list of states in which the Companies have qualified to do business
3.02.09
with
A list of states in which the Companies have registered for sales tax
3.02.10
purposes
Copies of all state and local real, personal and intangible property tax
3.02.11
reutrns and/or assessments within the last three years
A list of all state payroll/unemployment tax filings within the last three
3.02.12
years
3.02.13 A list of states where the Companies have offices and or employees
3.02.14 A list of sates where property is owned or leased
A list of sates in which the Companies' significant customers are
3.02.15
located
A copy of any state and local tax apportionment schedules by state for
3.02.16
the past 3 years

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 2 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
Copies of all revenue ruling requests and any rulings received, or any
3.02.17 correspondence received denying rulings requested by any of the
Companies relating to the tax consequences of operations

Copies of any tax sharing or tax allocation agreement involving the

Companies or other members of an affiliated group including any joint
3.02.18 venture agreements that have the effect of tax allocation agreements
and a statement setting forth how any agreement was implements for
the last five tax years

Copies of all legal or accounting tax opinions received by any of the

3.02.19 Companies during the last three calendar years from the outside
advisors that related to any Company's tax reporting

Copoies of all agreements and undertakings, including indemnification

agreements, between any of the Commpanies and any third party
3.02.20
relating to tax mattersr, including undertakings or agreements in
connection with an acquisition or disposition
3.02.21 List and describe any state or local grants or tax related incentives
3.03 Revenue
3.03.01 Provide revenue and profitability by product for SKU
Provide revenue and profitability by source- note which sources are
3.03.02
not including in backlog calculations
Provide current backing of closed sales not yet reflected in the
3.03.03 revenue. Provide current backlog by product or source with schedule
of expected revenue runoff by year
3.03.04 Provide accounts receivable aging schedule
3.04 Expenses
3.04.01 Provide detailed breakdown of expenses by type or functional area
3.04.02 Provide a detailed breakdown of expenses by vendor
3.04.03 Provide capital expenditures with a description of purpose
List and describe planned capital expenditures including routine
3.04.04
equpiment replacement cycle
3.04.05 Provide accounts payable aging schedule
Provide a schedule of restructing activities, non-recurring or one-time
3.04.06 chargegs over the last 3 years including costs already incurred and
any costs yet to be incurred
Provide a schedule of restructuring activities, non-recurring or on-time
3.04.07
charges planned
3.05 Assets

Provide a schedule of fixed assets by location showing acquisition

date, originial useful life, book and tax depreciation method, originial
and tax cost, accumlated depreciation, current net book value and tax
3.05.01
basis. Include and indicate as such, any fixed assets that are
considered idle or held for sale. Provide a list of fixed asset
impairments and accelerated depcriation

Provide a schedule of any material equipment or other material

personal property used by the Company, indicating the ownership and
3.05.02 nature of such equipment and the material terms of any related
finance lease or security agreements and and related material
correspondence
3.05.03 Provide monthly, quarterly, detailed balance sheets

List and describe all intellectual property, indicating whether it is

owned or licensed, including without limitation (a) patents filed or
3.05.04 approved, including the jurisdictation, date filed and patent number
(b) patent application under development ( c) copyrights claimed or
filed and (d) trademarks or servicemarks

List and describe any employeee invention/intellectual property

3.05.06 assignment agreements and any other assignment/work for-hire
agreements for non-licensed intellectual property
List and describe any planned or proposed dispositions or purchases of
3.05.06
real property, including any plans to construct new facilities
For all real estate (leased or owned) provide square footage and
3.05.07
configuration and any property appraisals
3.05.08 List and describe licensed assets or products
Provide the most recent investory breakdown, including reserves for
3.05.09
obsolete and slow moving inventory
3.05.10 Dependents covered up to what age?
3.05.11 Accounting lease schedules that support the balance sheet amounts
3.06 Liabilities
3.06.01 Provide a schedule and explanation for any unrecorded contingencies
3.06.02 Provide notes payable details

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 3 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
Provide a schedule of indebtedness including any "off balance sheet"
3.06.03
arrangements
Provide agreements, instruments and material correspondence related
3.06.04 to outstanding debt or other financing arrangements, including any
arrangements providing for a pledge of assets or securities

Provide agreements and instruments evidencing or otherwise related

3.06.05 to any intercompany loans or debt-related agreements with affiliates
or employees
4.0 Contracts
4.01 Corporate
Provide a company history, including any acquisitions or dispositions
4.01.01 of any business or entity or the purchase or sale of assets or
securities
Provide all agreeements relating to acquisitions or dispositions of any
4.01.02 business or entity or the purchase or sale of assets of securities, and
any current plans relating to the same company

Provide all joint venture and partnership agreements, or any other

4.01.03 agreements requiring significant investments or asset contributions by
the Company

List and describe agreements containing “most-favored nation”, non-

4.01.04 competition, non-solicitation or exclusivity
provisions.
Provide agreements containing “most-favored nation”, non-
4.01.05
competition, non-solicitation or exclusivity provisions.
Provide agreements containing material indemnification or warranty
4.01.06
provisions.
List and describe standard contract provisions regarding privacy/data
4.01.07 security, including contracts which provide for
recovery for data breaches beyond actual damages.
Provide material or form of confidentiality or non-disclosure
4.01.08
agreements.
Provide agreements with "change of control" or other provisions that
4.01.09 could be triggered by, or may otherwise require
consent in connection with, the proposed transaction.
Provide any other contract or understanding which is material to the
4.01.10
Company.
Provide agreements with third parties involving intellectual property,
4.01.11 including license, settlement, confidentiality and
other agreements, as well as any representative form agreements.
4.02 Customer Contracts and Licenses

4.02.01 Provide copies of standard customer contracts and licenses.

For top 25 customers, provide copies of contracts and licenses in

4.02.02
effect.
Provide copies of all software escrow agreements (on behalf of
4.02.03
customer)
4.03 Vendor Contracts
4.03.01 Provide copies of all vendor contracts.
Provide copies of all software escrow agreements (on behalf of
4.03.02
Company).
4.04 Government Contracts
Provide copies of contracts with any federal, state, or local
4.04.01 governmental, government-controlled, or governmentregulated
entity.

List and describe certifications by any federal, state, or local

4.04.02 governmental, government-controlled, or governmentregulated
entity.

List and describe any required registrations, certifications, or

approvals that are required to perform services or license
4.04.03
products to any federal, state, or local governmental, government-
controlled, or government-regulated entity.
4.05 Licenses
Provide copies of all open source 3rd party software licenses, including
4.05.01 maintenance and support agreements, if
applicable.
Provide copies of all paid software licenses, including maintenance and
4.05.02
support agreements.
4.05.03 Provide copies of all other licenses.

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 4 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
4.06 Alliances

4.06.01 List and describe all reseller, private label or distributor relationships.

4.06.02 Determine Benefit Communication process/forms/docs

4.07 Employee Agreements
Provide all stock purchase, stock option or profit sharing plans,
4.07.01 programs, agreements or arrangements sponsored or maintained by
or on behalf of the Company.

Provide copies of all employment agreements, confidentiality or non-

4.07.02 compete agreements, and any other agreements
between any executives or employees and the Company.

Provide copies of or list and describe any agreements of any kind with
4.07.03 any executives or other employees not
disclosed elsewhere including stay or retention bonuses.
List and describe any noncompetition or confidentiality agreements
4.07.04
current employees have with previous employers.
List and describe any agreements with employees for future
4.07.05 promotions, salary or other compensation changes that
have been agreed to by management but not executed.

Provide collective bargaining agreements (if any), material grievances,

4.07.06 correspondence or other documents relating to
union activity or labor relations.
4.07.07 Provide copies of bonus plans and sales commission plans.
4.08 Real Estate Contracts
Provide copies of all lease agreements (including equipment leases),
describe any restrictions on assignment of the
4.08.01
leases, and note any tenant allowances, rent holidays or asset
retirement obligations.

Provide copies of all documents for the purchase or sale of any real
4.08.02
property.

Provide a schedule of owned and leased real property and copies of

any material agreements or other documents
relating thereto (including leases, sale-leaseback arrangements, title
4.08.03
insurance policies, appraisal reports, surveys,
mortgages, liens or other encumbrances and any related material
correspondence).

5.0 Employees
5.01 Employee Census

Provide an employee census (list) of all employees with: name, title,

hire date, location, department, exempt/nonexempt
status, current salary, bonus opportunity if applicable, history of
bonuses and other compensation, benefit
5.01.01
elections and premiums, paid time off allotted and paid time off used,
including clarification of any bonus plan(s) which
employees are eligible for, and census of employee benefit elections
and premiums.

5.01.02 List employees on leave and leave status

5.01.03 List employees on leave of absence for any reason.
List employees currently working under an employment visa such as
5.01.04
H1-b or L visa with names, type of visa, and status
List and describe overall voluntary turnover rate and information
5.01.05
regarding turnover of key employees in the past year.
List and describe consultants and contractors for past 3 years and YTD
5.01.06
with annual spending.
List and describe consultants and contractors for past 3 years and YTD
5.01.07
with annual spending.
Provide copies of succession plans and departure risk assessments if
5.01.08
available.
5.02 Organization Chart
Provide organizational chart of employees and positions for entire
5.02.01
company.
Provide list of job titles and job descriptions for each position, if
5.02.02
available.
List and describe open positions by title, location, and recruiting
5.02.03
status (e.g. offer made, interview completed, etc.).
5.03 Compensation and Benefit Plans

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 5 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No

Provide all plans, programs, agreements or arrangements sponsored

or maintained by or on behalf of the Company,
relating to (i) employee benefits and compensation, including
5.03.01 bonuses, deferred compensation and incentive
compensation, (ii) hospitalization or other medical, dental, vision, life
or other insurance programs or (iii) pension /
retirement

Provide time off policies and practices, benefit/premium costs

(employee and employer), 401(k) match if applicable or
other similar pension / retirement employer contributions, and other
benefit plan provisions and summary plan
5.03.02 Provide time off policies and practices, benefit/premium costs
(employee and employer), 401(k) match if applicable or
other similar pension / retirement employer contributions, and other
benefit plan provisions and summary plan
description.

Provide copies of benefit enrollment materials or benefit summaries

5.03.03
provided to employees.

Provide disclosure of any executive benefits or perquisites that may be

5.03.04
offered to key employees.
Provide a schedule of outstanding stock options, restricted stock and
5.03.05 other equity-based grants, current valuations, and
the material terms thereof.
List and describe employees and terms of any continuing or
5.03.06
outstanding severance obligations.
5.04 Personal Policies and Records
Provide copies of personnel policies, manager guides, personnel
5.04.01
manuals and employee handbooks.
Provide copies of severance, termination or retention policies, plans,
5.04.02 agreements or arrangements to include
outplacement programs.

Provide copies of all required compliance documents (EEO-1, Vets

100, Affirmative Action, etc) and if Affirmative
5.04.03 Action is applicable, discuss documentation concerning any internal
compliance review or governmental audit of the
program.

6.0 Plans, Policies and Procedures

6.01 Finance and Accounting
Provide documentation of accounting policies and procedures,
including but not limited to, policies regarding revenue
6.01.01
recognition, software development costs, fixed assets, goodwill and
intangibles, reserves / allowances, and inventory.

List and describe the tools and processes used to quote, sell, fulfill
6.01.02
and bill customers.
6.02 Secuirty and Privacy
Provide copies of documented security practices and procedures,
6.02.01
including physical and information security.
Provide copies of SAS-70 controls, policy and audit results for past 3
6.02.02
years and YTD.
List and describe other compliance policies and practices required
6.02.03
(Cybertrust, PCI, etc.) with audit results for past 3 years and YTD.
6.02.04 Provide a copy of any 3rd party security assessment.
6.02.05 Provide a copy of any 3rd party source code review.
List and describe any privacy or security breaches, including response,
6.02.06
status and outcome.
6.02.07 Provide copies of all privacy policies with effective dates.
6.03 Disaster Recovery and Business Continuity
Provide copies of disaster recovery and business continuity plans, if
6.03.01
any.
6.03.02 Describe back up and redundancy for all off-site storage procedures.
Provide copies of disaster recovery and business continuity plans of
6.03.03
mission critical vendors, if any.

Software Development Lifecycle- For each product, provide copies

of SDLC documentation or describe the standards, tools, processes
6.04
and testing results (if
applicable and available) including the following:
6.04.01 Product Roadmap
6.04.02 Requirements

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 6 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
6.04.03 Configuration management tools and processes
6.04.04 Database management
6.04.05 User interface design
6.04.06 Run a payroll in test
6.04.07 Quality assurance
6.04.08 Support and mainteannce
6.05 Project Management
Provide a list and description of active and planned software and/or
6.05.01 product development projects for past 3 years, to the extent
available.
6.05.02 Provide a list of active customer implementation projects and status.

Provide a list of pending customer implementation projects with

6.05.03
contract date and projected start and finish dates.
6.06 IT Processes
Provide copies of any documentation for internal IT processes such as
6.06.01
incident or change management.
List and describe standard configuration for workstations, laptops and
6.06.02
servers.
7.0 Products and Services
7.01 Marketing
7.01.01 Provide copies of marketing plans.
Provide copies of marketing materials, sales collateral and advertising
7.01.02
copy.
7.01.03 Provide copies of corporate and/or product presentations.
7.02 Development and Technology
For each relevant product, provide detailed software architecture,
including 3rd party software utilized, software
7.02.01
language, development environment, version, database software, and
middleware.
7.02.02 List all mission critical source modules.
List of all open source software applications, programs, packages or
libraries, that have been used to develop any of
7.02.03
the relevant software, or that have been incorporated into the
software.
7.03 Documentation
7.03.01 Provide copies of all user guides
Provide copies of all technical support documents such as FAQs or
7.03.02
help files.
Provide copies of all training manuals or other materials, such as
7.03.03
recorded web based training.
8.0 Reports and Analyses
8.01 Customers

List Top 25 accounts by revenue for past 3 years and YTD. For each
account and each year, list annual
8.01.01 revenue amount, contract type (license, term, or other as
appropriate), contract start date and contract expiration. For
current customers only, list products each customer licenses.

List customers where contract renewal is expected in the next 24

8.01.02
months and list customers at risk for any reason.
List and describe of the customer wins and losses along with effective
8.01.03
date and revenue for past 3 years and YTD.
8.01.04 Report the number of customers by state.
8.01.05 List number of customers for each product or SKU.
8.01.6 Provide copies of any customer satisfaction surveys.
8.02 Sales Pipeline
Provide current sales pipeline with account, account manager, state,
8.02.01 district, stage of sales process, contract value,
expected close, and probability of close.
Describe the tools and processes used to track marketing and sales
8.02.02
activity and individuals.
8.03 Operations
List and describe all vendors with annual spend and contract
8.03.01
expiration.
List and describe internal IT infrastructure used for general business
8.03.02
operations, including the following:

Email, employee collaboration, viocemail, telephony, financial, sales

force automation, customer support, HRIS, customer support, project
8.03.04
management, desktop applications, mobile, data warehouses,
eCommerce

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 7 of 8
 M&A Due Diligence- Functional Checklist

Applicable Critical
Task# Task Description or Question Notes
Yes / N/A Yes / No
Provide sample copies of available standard weekly, monthly or
8.03.05 quarterly reports that management uses to manage
the operations of the business.
Provide schedules or reports demonstrating capacity, cost productivity
8.03.06
and quality year over year trends.
List all products provided to customers developed in part or whole by
8.03.07 outsourced development firms. Identify the
outsourced components.

8.03.08 List all services provided to customers that are outsourced.

Provide reports of service level agreements (SLA’s), key performance

8.03.09 indicators, cycle time objectives or general
contract performance monitoring for vendors.

Provide reports of service level agreements (SLA’s), key performance

8.03.10 indicators, cycle time objectives or general
contract performance monitoring for customers.

List and describe all tools used to manage IT resources and processes
8.03.11 including internal/back office systems and
customer-facing resources.

Network diagrams showing the WAN (if applicable), LAN and ISP.
8.03.12 Include interfaces with external parties (customers
and suppliers) as Extranet diagram.

List and describe data center operations, including location, number of

servers, number of racks, SANS, off site
8.03.13
backups, encryption of storage, square footage, power sources, telco
sources, fire systems and security controls.

Provide any reports or documentation regarding scalability of the

environment (previous throughput compared to
8.03.14
current). Include any notes about scalability limitations if known and
any designs that allow scalability.

Provide software and hardware incident reports and service metric for
8.03.15
last 12 months.

file:///conversion/tmp/activity_task_scratch/638207597.xlsx 8 of 8