Legal Due Diligence

In evaluating an investment, Heartland Angels' due diligence team and individual investors will regularly request the following documents in the performance of their due diligence responsibilities. While the location and the manner in and by which this will occur will be a matter between the team, the individual investors and company, a catalog of documents and their location should be developed to expedite this process.

1. Corporate Records and Documents
   1. Documents of Formation, e.g., Certificate or Articles of Incorporation or Organization (of Corporation or LLC) and by-laws, and Operating Agreement (for an LLC).
   2. All minutes of meetings of the shareholders, members, board of directors, and committees of the company.
   3. List of any and all affiliated companies, e.g., subsidiaries.
   4. Any agreements, such as, stockholder buy-sell (or similar agreements), relating, indirectly or directly, to the proposed transaction.
   5. List of all of the security holders of the company, indicating the class and number of securities held by each holder (including option and warrant holders and others who are entitled to purchase the company's securities).
   6. Copies of all company securities that are presently outstanding. This should include any plans or agreements relating to items such as options, warrants, and securities convertible and/or which may be converted or exchanged into common stock and the outstanding units, number of shares, or principal amounts.
   7. Copy of the stock transfer ledger showing all stock transactions.
   8. List of any equity interest in any other entity, capital stock or company owned enterprise.
   9. All documents that relate to outstanding proxies, voting trusts, powers of attorney or other assignments of rights attached to any company stock.
2. Business Contracts
   1. Any agreement, such as, but not limited to, a joint venture, franchise, partnership, joint venture, distributorship, licensing, management, research and development, or contract that the company is a party.
   2. Any and all form agreements, engagement letters or contracts used in business, such as, but not limited to, purchase, sales, and quotation forms.
   3. List of significant dispositions and acquisitions of assets, mergers, equity financings, and other material transactions, including the associated documentation that were executed within the last three years.
   4. Any other agreement or form that is important or significantly affects the business's operation or involves expenditures or receipts greater than $1,000 in any single year.
3. Property
   1. List of real property (owned or leased) used in the company's business, including size, location, and use of each parcel and number of employees employed at each location. For leased properties, include the terms of each lease.
   2. Copy of all company mortgages, construction contracts, leases, subleases, deeds, and other obligations relating to real property owned and/or leased.
   3. Any and all appraisals of real property (and associated Phase I Environmental Reports obtained within the last three years).
   4. Inventory of any personal property of significance leased or owned along with copies of all leases (of any type) and purchase contracts and security and licensing agreements and so forth that relate to its use.
4. Litigation
   1. List of all past investigations, regulatory or administrative proceedings, litigations, or governmental actions with a brief description of the basis for these actions.
   2. Description of any currently threatened regulatory actions, litigation, legal claims, or other actions or proceedings, including any communication or correspondence relating to any alleged intellectual property infringement of any type or form.
5. Financial-Legal Relationships
   1. Copies of outstanding commitment letters or correspondences associated with past borrowing or proposed financings.
   2. Copies of outstanding letters of credit (including all terms and amounts).
   3. Listing all financial institutions and types of accounts therein both active and inactive.
   4. All documents said to create liens, pledges, security agreements, mortgages, charges, or other encumbrances or favorings on the stock, personal or personal property of the company and the financing statements of the Uniform Commercial Code (UCC) relating to same.
   5. Copies of notes receivable from or notes payable to any employee, agent, director, affiliate, or shareholder outstanding during any time in the past year.
   6. Copies of any agreements in which the company guarantees or in some way supports the credit of a third party of any type or indemnifies or holds harmless others with respect to any liabilities.
   7. Financial statements that show all expenses and income for the prior 3 years.
   8. Copies of any and all agreements of the company relating in any manner to a person who proposed to have a significant relationship with the company. This includes, but is not limited to, officers, key employees, directors, and significant owners or affiliates. This includes loans, sales of property leases, and purchases.
6. Management/Employees
   1. Policy manuals involving hiring, employee benefits and plans, internal controls, regulatory compliance, and so forth; this includes any relevant classification of employees so involved.
   2. Copies of employment contracts, non-competition agreements, confidentiality agreements, union contracts, consulting and management agreements, collective bargaining agreements and so forth.
   3. Copies of any agreements, arrangements and understandings, written and unwritten, regardless of their current effectiveness within the last three years, between and among the company and any of its officers, affiliates, directors, and associates, to include any and all executive compensation plans or programs.
   4. Copies of and listing of benefit plans and their descriptions to include,but not be limited to, medical, dental, or other health and welfare plans, pension or retirement plans, profit sharing and savings plans, deferred compensation plans, and any incentive, bonus, performance, or similar plans or agreements; this should include all 5500 forms for the last years with any and all IRS determination letters or other regulatory or related communications.
   5. Any indemnification or hold-harmless agreements or arrangements with any directors, employees, or agents.
   6. Any sales representative, agency, distribution, or dealer agreements presently in effect.
   7. Agreements of any type, including commissions with buyers, non-employee salespersons, or other agents.
   8. Forms used relating to proprietary information and/or nondisclosure agreements and a list of employees party to these agreements (including copies of their signed forms).
   9. Schedule of all compensation paid to officers, directors, and key employees during the last fiscal year listing separately salaries, bonuses, non-cash compensation, direct or indirect benefits or perquisites including paid or accrued bonuses, and all paid or accrued benefits under all employee benefit plans.
7. Intellectual Property
   1. Listing of service marks, copyrights, trademarks, trade names or patents applied for, licensed to or owned by or behalf of the company. All registration numbers should be clearly identified.
   2. Copies of all correspondence relating to these above items.
   3. A listing of all entities (corporate and individual) whose intellectual properties and/or software is used by or in products or services produced by the company and copies of licensing or purchase agreements for that use.
   4. Copy of all patent applications pending or outstanding.
   5. Copy of all royalty agreements, assignments, and other binding instruments relating thereto.
   6. Name of contact person who handles patent, trademark, or copyright matters for the Company.
   7. Copy of policies designed to protect all intellectual property and know-how of the company.
   8. Documents concerning claims of infringement of company's intellectual property rights by others or by the company or owners against others.
8. Insurance
   1. A list of all policies or binders of insurance or self-insurance arrangements, including D & O, E & O, key man insurance, professional liability, general liability, products liability, fire and casualty, environmental, workers compensation, disability (long-term and short-term) automobile and medical. Policies should clearly identify coverage limits, deductibles and any other significant terms. These policies should clearly identify the insurance agents, brokers, and companies by name and address.
   2. A list and summary of all losses whether claimed or otherwise, over the last five years.
   3. A list of potential or threatened claims.
   4. A list and identification (by value and company involved) of outstanding bonds and any limits to the current bonds.
   5. Any communication of any type, written and verbal, relating to the adequacy of the present coverage.
   6. Any communication of any type, written and verbal, of denial of coverage.
9. Regulatory
   1. Copies of correspondence with any Federal and/or State regulatory agency and reports filed.
   2. Copies of all material governmental licenses, exceptions, variances and so forth that relate to business.
   3. A listing, description, disposition and status of any known or suspected noncompliance or inquiries with any laws or regulations for the past seven years.
10. Miscellaneous
    1. Copies of any arrangements regarding the proposed transaction (e.g., bonus compensation or finder's fee).
    2. Any other disclosures of any type and in any form or information that are significant that should be considered and reviewed regarding the company's business and financial condition by prospective investors.