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There is a virtually infinite number of potential problems and exposure areas for the buyer that may be uncovered in the review and analysis of the seller's documents and operations. The specific issues and problems will vary based on the size of the seller, the nature of its business, and the number of years that the seller (or its predecessors) has been in business.

Clouds" in the title to critical tangible (real estate, equipment, inventory) and intangible (patents, trademarks, and so on) assets. Be sure that the seller has clear title to these assets and that they are conveyed without claims, liens, and encumbrances. Employee matters. There are a wide variety of employment or labor law issues or liabilities that may be lurking just below the surface but will not be uncovered unless the right questions are asked. Questions designed to uncover wage and hour law violations, discrimination claims, OSHA compliance, or even liability for unfunded persons under the Multiemployer Pension Plan Amendments Act should be developed. If the seller has recently made a substantial workforce reduction (or if you as the buyer are planning post-closing layoffs), then the requirements of the Worker Adjustment and Retraining Notification Act (WARN) must have been met. The requirements of WARN include minimum notice of sixty days prior to wide-scale terminations. The possibility of environmental liability under CERCLA or related environmental regulations. Unresolved existing or potential litigation. These cases should be reviewed carefully by counsel. A seller's attempt to "dress up" the financial statements prior to sale. Often this is an attempt to hide inventory problems, research and development expenditures, excessive overhead and administrative costs, uncollected or uncollectible accounts receivable, unnecessary or inappropriate personal expenses, unrecorded liabilities, tax contingencies, and other such issues.

VII. Miscellaneous A. Press releases (past two years) B. Resumes of all key members of the management team C. Press clippings (past two years) D. Financial analyst reports, industry surveys, and so on E. Texts of speeches by the seller's management team, especially if reprinted and distributed to the industry or the media F. Schedule of all outside advisors, consultants, and so on, used by the seller over the past five years (domestic and international) G. Schedule of...

In analyzing the company for sale, the buyer's team carefully reviews and analyzes the following legal documents and records, where applicable. I. Corporate Matters A. Corporate records of the seller *Certificate of incorporation and all amendments *Bylaws as amended *Minute books, including resolutions and minutes of all directors' and shareholders' meetings *Current shareholders list (certified by the corporate secretary), annual reports to shareholders, and stock transfer books *A list of all states, countries, and other jurisdictions in which the seller transacts business or is qualified to do business *Applications or other filings in each state listed in (5), for qualification as a foreign corporation and evidence of qualification *Locations of business offices (including overseas) B. Agreements among the seller's shareholders C. All contracts restricting the sale or transfer of shares of the company, such as buy/sell agreements, subscription agreements, offeree questionnaires, or contractual rights of first refusal; all agreements for the right to purchase shares, such as stock options or warrants; and any pledge agreements by an individual share holder involving the seller's shares

PREPARATION OF THE WORK SCHEDULE Following the execution of the letter of intent, one of the first responsibilities of the purchaser's legal counsel is to prepare a comprehensive schedule of activities (work schedule) that will serve as a task checklist and assignment of responsibilities. This schedule should be prepared well before the due diligence discussed in Chapter 5 begins. The primary purpose of the schedule is to outline all of the events that must occur and the documents that must be prepared prior to the closing date and beyond. In this regard, purchaser's legal counsel acts as an orchestra leader, assigning primary areas of responsibility to the various members of the acquisition team as well as to the seller and its counsel. Purchaser's counsel must also act as a taskmaster to ensure that the timetable for closing is met. Once all tasks have been identified and assigned, and a realistic timetable for completion has been established, then a firm closing time and date can be preliminarily determined.

In conducting the due diligence from a business perspective, the buyer's team is likely to encounter a wide variety of financial problems and risk areas when analyzing the seller. These typically include an undervaluation of inventory, overdue tax liabilities, inadequate management information systems, related-party transactions (especially in small, closely held companies), an unhealthy reliance on a few key customers or suppliers, aging accounts receivable, unrecorded liabilities (e.g., warranty claims, vacation pay, claims, and sales returns and allowances), or an immediate need for significant expenditures as a result of obsolete equipment, inventory, or computer systems.

Tangible and Intangible Assets of the Seller A. List of all commitments for rented or leased real and personal property, including location and address, description, terms, options, termination and renewal rights, policies regarding ownership of improvements, and annual costs B. List of all real property owned, including location and address, description of general character, easements, rights of way, encumbrances, zoning restrictions, surveys, mineral rights, title insurance, pending and threatened condemnation, hazardous waste pollution, and so on C. List of all tangible assets D. List of all liens on all real properties and material tangible assets E. Mortgages, deeds, title insurance policies, leases, and other agreements relating to the properties of the seller F. Real estate tax bills for the real estate of the seller G. List of patents, patents pending, trademarks, trade names, copyrights, registered and proprietary Internet addresses, franchises, licenses, and all other intangible assets, including registration numbers, expiration dates, employee invention agreements and policies, actual or threatened infringement actions, licensing agreements, and copies of all correspondence relating to this intellectual property H. Copies of any survey, appraisal, engineering, or other reports relating to the properties of the seller I. List of assets that may be held on a consignment basis (or that may be the property of a given customer), such as machine dies, molds, and so on