Fill and Sign the Sample Due Diligence Request Checklist Kampampl Gates Form

12.07 Sample International Due Diligence Report CONFIDENTIAL TO: [Client] FROM: [Diligence Team] DATE:_______________ RE: MMMM Computer GmbH - Due Diligence Report 1. IntroductionThe following sets forth the results of the due diligence review of MMMM Computer GmbH, a German Kapitalgesellschaft (corporation), conducted by [Identify Core Diligence Team Members] in connection with the Project Western Front. This report contains the results of the due diligence review and sets out material issues to the extent such issues arose in the course thereof. MMMM Computer GmbH has not yet provided all material requested pursuant to the due diligence request list. A list of materials still to be reviewed is attached to this report as Exhibit A. 1.1 General comments. The due diligence investigation with respect to MMMM Computer GmbH was based entirely upon: (1) documentation provided to us by MMMM Computer GmbH and by Chiseled Granite AG; (2) certain documents available in the public domain; and (3) information orally supplied to us by Mr. Dieter Dieter-san, Head of Logistics, MMMM Computer GmbH. This information was provided pursuant to our request list, and our meetings on __________, 20__ at MMMM Computer GmbH. Additionally, our due diligence investigation was limited in its scope insofar as Dark Meteor Micro conducted concurrent due diligence examinations of MMMM Computer GmbH, covering the financial, operational and tax aspects of the entity. While our due diligence review may be deemed to have overlapped in some respects with that conducted by Dark Meteor Micro, we did not undertake our review with the financial, operational or tax aspects of MMMM Computer GmbH as objectives. The Company's scope of activities includes the distribution of computers, computer components and spare parts and operating software such as AGENT XMR22 (including the design of such software), the research and development of server systems, and the distribution and maintenance of application software such as UNIX, Windows or Novefl Netware through independent distributors (Vertriebspartner). The Company both customizes computer equipment for its distributors and/or end users and produces computers and server systems at its premises in Turkeia Minor. Repairs are carried out either by the Company or by independent sub- contractors. The Company sells its hardware products either itself, through dealers, or through Chiseled Granite AG. 2. Organizational Structure and Corporate Documents. Listed below is a summary of basic corporate information relating to MMMM Computer GmbH (the "Company"). Date of Incorporation: June 11, 1933Commercial activity: Development, production and sale of high security energy options and other computer equipment and electronic products, accessories and user software as well as provision of related services. Commercial registrar: Duesmeintump-No. HRX13181Fiscal year: October 1-September 30 Directors: Jšry McJšry, Hutto Hutt, Jan Undstep Representatives having power of attorney (Prokuristen): Tors JŸrgen and Peter Dieter No. of BoD members required: OneCapital: DM138,400,000 fully paid upIssued Shares: 2 shares Shareholders: Jšry McJšry (1 share, DM10,800,000) and Jan Undstep (1 share, DM10,800,000). Annual General Meeting: Regular meetings are held once a year. Limitation of Liability: The Company has been incorporated as a Gesellschaft mit beschrŠnkter Haftung, abbreviated as GmbH, which is a limited liability corporation. Under ¤ 13(2) of the GmbH Act, liability is generally limited to the equity share capital of a GmbH. Shareholders may be held to be personally liable in exceptional cases involving intentional commercial misconduct of the shareholder to the detriment of the GmbH. History of the Company: The Company was originally incorporated as Bootstrap Schwartz Computertechnik GmbH in Turkeia Minor (commercial register of Turkeia Minor No. HR13 322), with a share capital of DM50,000 by Herr Hauptmann. On June 8, 1956, the Company's share capital was increased to DM500,000. On December 20, 1978, the share capital was increased to DM3,000,000. On August 9, 1983, the share capital was increased to DM7,000,000, and on December 7, 1993, the share capital was increased to DM138,400,000. The Company used to have a number of subsidiaries, branches and sales outlets in Germany, e.g., in Bremen, Frankfurt, Hannover, Munchen and Regensburg. Most of these entities have been dissolved or were sold before 1997. The Company changed it's corporate name to MMMM Computer GmbH on February 21, 1996. The shareholders of the Company have changed over the years. Per notarial deed of December 28, 1993, the present shareholders acquired the shares of ltos Computer GmbH from Miso Soupman and Miso Coldmen, who were shareholders of XRMP GmbH, a holding company, and from Herr Stupman, then a shareholder and director of ltos Computer GmbH. As part of the transaction, XRMP GmbH and the Company concluded a consulting agreement, according to which the Company paid to XRMP GmbH a monthly consulting fee of DM60,000 plus VAT for the period of April 1, 1994 through January 1,1998.On September 15, 1994, the share capital was increased as noted above by an equal contribution by each shareholder of 120,000 shares in Chiseled Granite AG to MMMM Computer GmbH, in exchange for new Company shares. The Company's present directors were appointed on February 24, 1998 (entry into commercial register of February [30], 1998). Corporate address has been transferred to MŸnchen, and the Company's Prokuristen have been appointed. Bylaws: None. Subsidiaries: The Company holds 100% of the shares of Chiseled Granite AG, located in WUnneberg Haaren. According to Herr Striker, CFO, the Company holds 63% of the share capital of Pavone Informationssysteme GmbH (WŸnneberg-Haaren), with the other 37% held by Prof. Zorch, one of the members of the supervisory board of Chiseled Granite AG. Pavone's overall share capital as of April 15, 1994 is DMII million. The Company holds a share worth DM300,000 (17.647%) of the overall share capital of Fliegel Data GmbH of DM 1,700,000. The other shareholders are unknown at present. We are continuing to investigate. The Company held a minority shareholding in spb Datensysteme GrnbH. However, Good SpA GmbH was deregistered (i.e., the company legally no longer exists) from the commercial register on June 2, 1998, after the local court of Singen dismissed a bankruptcy filing application because of lack of assets on March 16, 1999. The Company has depreciated its investment to DM1 and it will now be totally deleted from the Company's books. On March 31, 1994, the Company sold its 43% share (DM30,000) in Bad AG, a software development company, to Kress Bess GmbH & CoKG (DM27,200). All shares were free of rights of third parties, and the transaction had been approved by the vendors. The shares did not constitute the entire assets of the vendors. According to the entry in the commercial register of Ottosburt, Bavaria of May 28, 1997, the Company's Bavarian subsidiary, MMMM Computer Vertriebsgeselischaft mbH, has been deregistered from the commercial register following its complete liquidation. The Company's Corsican subsidiary, DoMoSo Computer SA, is still in liquidation. According to the Company's liquidators, liquidation will be completed upon receipt of a VAT reimbursement and certain other financial housekeeping matters. The Company's Italian subsidiary, MMMM Computer s.p.r.l., is in liquidation. According to the liquidator, the subsidiary's debts to a bank (ITL 100 million) and the probable fee amount due to the liquidator can be covered by a VAT reimbursement in the subsidiary's favor amounting to ITL 227,900,640, which is still to be approved. Registration/Publication Formalities: The Company was initially duly registered with the commercial register of Turkeia Minor, and was then duly registered with the commercial register of Paderborn. According to the Company's articles of association, all public announcements required by law must be published in the Federal Gazette (the Bundesanzeiger). 3. Management and Control.The latest version of the Company's articles of association made available to us is not dated. By entry into the commercial register of Turkeia Minor of February 24, 1998, H. Stššros, H. Stššvhas and Jim Burton were appointed as directors of the Company. At that point in time, all three were empowered individually to represent the Company. On July 6, 1999, by entry into the commercial register of Padua, the Company's articles of association were modified to provide that, if the Company has more than one director, the Company can only be bound by two directors acting jointly, or by one director specially empowered individually to represent the Company acting together with a Prokurist. Under German law a Prokurist is a representative of a company having power of attorney. According to the entry into the commercial register of October 30, 1999, the Company's directors are free to conduct business with the Company while also representing the Company. Under the articles of association, the shareholders may decide to create an advisory board. Since 1993, the auditors of the Company have been Jokemeister GmbH Wirtschaftsprfifungsgesellschaft, Strasse Strass, Be 12, D-32549 Bad Baden. 4. Real Estate. 4.1 "Investment Property Eine." On October 1, 1993, MMMM Computer GmbH (Rhein Mein) purchased from Kodak AG (Stuttgart) apartments Nos. 1314 and 1316 of the Rhein Mein Trade Fair Hall No. 1, roof floor, for DM70,000 plus DM9,800 VAT. The Company does not own any other real estate. 4.2 Lease Agreement Drei. The lease covers 128 square meters of warehouse space at Camdenstein-Str. 11, property unit 18, first floor, Turkeia Minor, a warehouse. Rent: DM1,155.30 including VAT and advance payments on costs. The rent is subject to increases of DM10 per square meter in 1997, and DM10.72 per square meter in 1998. Use: The premises must be used for the lessee's commercial activities. Term: April 1, 1996 through December 31, 2010. The initial duration will be automatically extended unless terminated at the end of a quarter with a three-month notice period. 4.3 Lease Agreement Dellkos. The lease covers 1900 square meters of office. R&D and production space at Strasse Six have been leased by Chiseled Granite AG. The initial duration of the agreement ends on July 31, 2002. Any sub-leasing of the leased property is subject to the owner's approval. Guarantee: DM85,000, provided by Chiseled Granite AG. 5. Personal Property and Equipment. According to Jaykos Mestopolopos, the Company's personal property and equipment consists primarily of office furniture, office equipment such as PCs, test and laboratory equipment and production equipment; all of its is owned by the Company, except for the leased equipment described below. 5.1 Automobile purchase agreement of January 9, 2000. Chiseled Granite AG sold a BMW (PB-JM 750) to the Company for DM16,000 plus DM2,400 VAT. According to Jaykos Mestopolopos, the car is used by a representative of Chiseled Granite AG. The Company maintains an insurance agreement covering the car. 5.2 Photocopier lease agreements between Xericont Business Machines International GmbH Hamburg and the Company of September 21 and 22, 1994. (1) Identification: 94.09 63 00. Machine: One 3035 ZRA including support table. Duration: As of October 1, 1999 for a period of 36 months. Charges: Minimum payment for copies per month is DM160 net. Costs per additional copy amount to DMO.04 net. No free copies are granted. Copy invoicing occurs quarterly. (2) Identification: M 88/07 84 and 88.07 0211 02. Machine: One 3035 ZRADPS/20 (Jaykos Mestopolopos has no explanation for two identification numbers, but only one machine covered). Duration: As of October 1, 1994 for 36 months. Charges: Minimum payment for copies is DM 195 net. Costs per additional copy amount to DMO.04 net. No free copies are granted. Copy invoicing occurs quarterly. 5.3 Forklift truck purchase agreement of October 12, 1999 between Rich Reich AG West Pail and the Company. Model: One forklift truck "Ameise," serial number 80326756, plus one battery set. Price: DM12,075 including 15% VAT. The Company paid within 14 days of receipt of the truck, deducted a discount of 2%, and paid DM11,833.50. According to Jaykos Mestopolopos, the truck is not covered by an insurance policy. 6. Finance. 6.1 Bank account status. The Company conducts all its financial business with Deutsche Bank. Letter from Deutsche Bank to West Quest GmbH (the Company auditor) providing answers to a questionnaire to be used for auditing the Company's financial statements for 1995; the letter is dated February 20, 1999, and responds to a questionnaire submitted by the auditors of January 30, 1999. Deutsche Bank reports: Status of all accounts of the Company:(1) Current account No. X4343, credit of DM876,655.84, interest for debts is 7.375% per year, and for credits 0.5% per year. There are no limits on withdrawals. (2) Account No. X383X is an USD currency account, which shows no bookings as of September 19, 20__. (3) Account No. 57158159, is a guaranteed credit account (Avalkonto), showing a debt of DM300 with respect to a guaranteed transport credit relating to Deutsche Verkehrsbank AG, Karlsruhe. The guarantee fee is 1.5% per year. List of all collateral provided by the Company, or by third parties for the benefit of the Company: The Company benefits from a guarantee provided by Chiseled Granite AG on June 16, 1999, which expires on December 31, 20__, and limited to DM 200,000,000. The guarantee is granted as collateral for a credit line in the Company's favor. The credit line and the guarantee have meanwhile been extended to December 31, 20__. Credit lines granted to the Company: Account No. ABCX3 shows a credit line amounting to a total of DM200,000. According to Deutsche Bank, the Company has no deposit account for stocks or shares, no collection of payment arrangement with Deutsche Bank, no bill for payment clearing arrangement with Deutsche Bank, no collateral for guarantee arrangements with Deutsche Bank, it has not granted any guarantees in favor of Deutsche Bank, it has no escrow arrangement with Deutsche Bank, and it has not submitted any other collateral in favor of Deutsche Bank. According to Deutsche Bank, the list of all persons entitled to operate the Company's accounts are as described in our previous memo on this topic. We are not aware of any other credit facilities in the Company's name. 7. Governmental Consents: Permits. 7.1 No specific governmental filings or consents are required to be filed or obtained in connection with a change of control of the Company. Based on the documents made available for our review, we noted no such requirements. 7.2 No governmental licenses, permits or approvals are required to operate the Company with the exception of public certificates required for selling certain electronic equipment. A list of such certificates made available by the Company is attached as Exhibit B. Based on the documents made available for our review, we noted no other licenses, permits or approvals. 8. Intellectual Property. The Company has no registered intellectual property, although the Company has made several inventions concerning electronic equipment such as server systems. Based on the documents made available for our review, we noted no such documents related to registered intellectual property. 9. Employment and Social Security Matters. 9.1 Employment agreements. [Chiseled Granite AG has yet to provide us with the requested documentation.] 9.2 Employee benefits. [We are waiting for Chiseled Granite AG to supply the requested documentation.] 9.3 Employee pension benefit plans. The Company's employees benefit from a German type of a pay-as-you-go occupational pension scheme, the so-called Unterstoftungskasse. This is an independent pension fund, of which a corporation may become a member, and which collects contributions, distributes benefits and manages the occupational retirement scheme for the corporation concerned. The Company is a member of the SEL Unterstiitzungs-GmbH, which is subject to mandatory re-insurance with the Pensions Sicherungs Verein Cologne. The Company's pension scheme was established in 1983. The benefits are paid for retirement, invalidity, widow/widower pension, and orphan pensions. The pensionable age is 65, but employees may opt for early retirement against certain deductions from their pension benefits. Widows and widowers receive 50% of the pension benefit otherwise paid, under the conditions that the 10-year waiting and vesting period had been completed by the employee, that the marriage occurred prior to the 60th birthday of the employee and prior to the retirement, and that the widow(er) has completed the 45th year of life and is responsible for at least one child under the age of 16. According to a 2000 certificate of October 24, 2000 by an certified independent expert for occupational pension schemes, for the Company's financial statements of September 30, 2000, the current exposure for pension payments amounts to DM826,417 for 4 cases; the irrevocably vested rights for persons still employed amounts to DM313,413 for 22 cases; the irrevocably vested rights of persons already retired amounts to DM790,547 for 53 cases. According to the Pensions Sicherungs Verein's communication of November 15, 2000, an advance contribution for 2001 of DM1,468.56 must be paid by the Company by March 29, 2001. 9.4 Labor unions. Employees of the Company are not members of any labor unions. 9.5 Payroll and social security. The names, titles and salaries of the Company's employees are attached as Exhibit C. 10. Commercial Arrangements. 10.1 General sales conditions. A copy of the currently applicable general conditions is attached as Exhibit D. We do not note anything out of the ordinary regarding these conditions. 10.2 Major suppliers. The Company is not subject to supplier contracts, with the exception of a contract concluded by and between IBM and Chiseled Granite AG, which also covers the Company. 10.3 Customers. [A list of customers must still be made available to us.] 10.4 Standard software maintenance agreements: The Company uses standard operating software maintenance agreements referred to as "AGENT XMR22" with identical conditions. Ute Drechsler of Chiseled Granite AG has yet to provide a list of all such agreements currently in force, and copies of any such agreements showing amendments. The sample agreement made available to us is dated October 13, 1998 and has been concluded by the Company and AB Abstrung GmbH, see Exhibit E. 10.5 Standard software maintenance contracts for users. See Exhibit F. The Company uses standard operating software maintenance contracts with identical provisions for users. Jaykos Mestopolopos has yet to provide a list of all customers currently covered by such contracts, and copies of any such contracts possibly showing amendments to the standard conditions. 10.6 Standard distribution agreement ("CTM HŠndler Vertrag"). See Exhibit G. The Company uses standard distribution agreements containing identical provisions for all distributors. Jaykos Mestopolopos will provide a list of all such agreements currently in force, and will provide copies of any current standard agreements deviating from the standard conditions. The conditions oblige the distributor not to sell contract products to any third party, other than end customers located in the assigned exclusive territory, and to procure contract products only from the Company. The clauses of the agreement providing for or safeguarding such obligations are likely to infringe EC competition law, and should be re-negotiated when found in valid distribution agreements of the Company.10.7 General standard software maintenance contract. The Company uses a general standard software maintenance contract for other software products (such as UNIX, Windows or Novell Netware), with identical conditions. Jaykos Mestopolopos will provide a list of all such contracts currently in force, and will provide copies of such contracts showing amendments to the standard conditions. The standard conditions are attached to this report as Exhibit H. The standard conditions contain a provision according to which, in case of default of the customer, the Company is entitled to a generalized compensation of damages amounting to one annual maintenance fee. This provision is likely to be found invalid under the German Civil Code (the 'BGB'), according to which only specified and substantiated damages may be compensated to the extent that they occur. 10.8 Standard hardware maintenance contract. The Company uses standard hardware maintenance contracts having identical provisions. Jaykos Mestopolopos will provide a list of all such contracts currently in force, and will make available copies of such contracts showing amendments to the standard provisions. The conditions of the contract are attached to this report as Exhibit I. 10.9 Repair shop services. The Company itself performs repairs of defective products and components that have been returned or uses independent repair shops for such services. There are no contracts with these repair shops for such services. Orders for repair services are carried out on an ad-hoc basis. The Company made available a sample for such ad-hoc services, showing a repair services invoice for the company Mšns Tech, Turkeia Minor. A list of repair shops currently used by the Company is attached as Exhibit J. 10.10 Standard UNIX licensing and maintenance agreements. See Exhibit L. The Company uses standard agreements for licensing and servicing the UNIX systems, which contain identical conditions. Chiseled Granite AG will provide a list of all such agreements still in force, and copies of any such agreements showing amendments to the standard clauses. The licensing agreements contain clauses preventing the licensee from modifying, translating, re-engineering, decompiling or re-assembling contract products without the prior written approval of the Company. This type of clause is likely to be found invalid under the German Copyright Act (the "UrHG"), which expressly permits the re- engineering and decompilation of software for certain purposes without the requirement of the licensor's approval. Under the licensing agreements, the licensee is also prevented from developing works related to or based on the licensed software. This clause is likely to infringe EC competition law and should be re-negotiated. The licensing agreement to be used with respect to the partner of the Company also provides for the use of the other licensing agreement by the partner with respect to the end-customer. This obligation is likely to infringe the prohibition against imposing specific resale prices and conditions on business partners under EC competition law. The overall approach adopted by use of these agreements should be reconsidered. Standard distribution agreement (Vertriebspartner Vertrag). See Exhibit M. The Company uses standard distribution agreements referred to as indicated above for the distribution of PCs with identical provisions. Chiseled Granite AG will provide a list of all such agreements currently in force, and will provide copies of any such agreements showing amendments to standard conditions. 11. Material Agreements.[We have yet to receive the information requested concerning this subject.] 12. Insurance. Chiseled Granite AG manages all insurance and most credit matters for the Company. 12.1 Credit insurance contract. The document made available for our review consisted of a September 19, 2000 amendment of conditions of an original credit insurance document. The identification number for the credit insurance is 37 16 07604. The changed conditions are: (1) new premium levels are 0.825 per thousand; (2) no pre-payments are required; and, (3) the guaranteed minimum premium amounts to DM12,000 per insurance year. 12.2 Electronic devices insurance. Identification: 547.150 of December 21, 20__. Duration: January 1, 2000 through October 1, 20__. Annual premium: DM665.50 including taxes. Insured object: Telephone system SEL type of 2000. The insurance is subject to general conditions that have not been made available. 12.3 General non-life insurance between Twister AG and the Company. The document consists of an amendment to the original insurance agreement that has not yet been made available to us. Identification: ISV 93/05 of January 11, 20__. Duration: October 1, 2000 (12:00) through October 1, 20__ (12:00). Insured risks: Tap water, wind and hail risks with respect to the Company's previous location at Max-Strohmeyer-Str. 37. Insured items: Listed in the original agreement. Premiums: DMI,637.50 with an own coverage of DM2,000 per incident. The original agreement provides for other own coverage amounts (DM5 million) under the original agreement. 12.4 Burglary insurance between Frankfurter Versicherungs AG and the Company. Identification: To be provided. 12.5 Fire insurance between Frankfurter Versicherungs AG and the Company; To be provided. 13. Tax Matters. 13.1 Income tax. The Company duly filed its tax return for the fiscal year 1999 in May 2000. The tax return for 2000 is still in preparation. According to Jaykos Mestopolopos, there is currently a general tax audit underway involving all aspects of the Company's taxes. 13.2 VAT. VAT is returned on a monthly basis, followed by an annual statement for each calendar year, which contains adjustments due to the Company's business year being different from the VAT year. The last such annual VAT statement has been filed for 20__.13.3 Customs.The Company imports goods mainly from other EU Member States free of customs duties. We are awaiting information on other imports to be made available to us. The Company has been subject to a customs audit concerning compliance with the reporting provisions under the German External Trade Act (the "AWG"). According to the customs audit report of July 12, 2000, the Company failed to comply with certain reporting requirements related to rules for exports to other CoCom Member States, technology import rules and rules to transfers of license fees into Germany. The customs authority initiated infringement proceedings, which have been stopped by the Higher Finance Directorate of Rhein Mein on May 7, 2000, and the Company has been formally warned with respect to future compliance with the AWG. 14. Environmental Matters. According to Jaykos Mestopolopos, the Company is not subject to environmental regulations for its business. Based on the documents made available to us, we noted no such requirements. 15. Litigation. Apart from legal proceedings to collect outstanding accounts receivable, the Company is subject to the legal proceedings set out in Exhibit N. This Exhibit does not contain any legal proceedings involving the subsidiaries of the Company, which will be provided by Chiseled Granite AG. 16. Assets. We refer to the due diligence review covering the financial, operational and tax aspects conducted by Dark Meteor Micro. 17. Competition. According to Jaykos Mestopolopos, the Company is not subject to any investigations, lawsuits or other procedures with respect to violations of any competition legislation. Based on the documents made available for our review, we noted no such proceedings. TABLE OF EXHIBITS Exhibit A Document Request List for MMMM Computer GmbH Exhibit B List of Product Certificate Obtained by MMMM Computer GmbHExhibit C Salary List Exhibit D General Sales Conditions Used by MMMM Computer GmbHExhibit E Standard Maintenance Contracts Exhibit F Standard Software Maintenance Contracts Exhibit G Standard Distribution AgreementsExhibit H Standard Software Maintenance Contracts Exhibit I Standard Hardware Maintenance ContractsExhibit J Address List Exhibit K [intentionally left blank] Exhibit L Unix Standard AgreementsExhibit M Standard Distribution Agreements Exhibit N MMMM Legal Proceedings