A. Fiduciary Considerations

1. Identify and prioritize the goals of the transaction and how they relate to the key constituencies, i.e., members directors, employees, and community.
   
   
2. The Board of Directors should establish a process by which it assures itself of the ability to make an informed decision.

B. General Corporate Considerations

1. Consider issues associated with assumption of liabilities.
   
   
2. Consider position of organization in any proposed network structure.
   
   
3. Consider basic issues of control vs. partnership, in which control is shared.
   
   
4. Identify any potential antitrust issues which might arise from the transaction.
   
   
5. Consider issues associated with amount, form, and timing of consideration.

C. Employment Issues

1. Obligations regarding current employees.
   
   
2. Union presence or existence of collective bargaining agreement.
   
   
3. Successor liability arising from employment practices, i.e., accrued vacation, PTO, etc.
   
   
4. Considerations regarding ultimate management structure.
   
   
5. Employees benefits considerations, including retirement plans, benefit programs, and policies.

D. Regulatory and Other Approvals

1. Impact of transaction on licensure, certification, and/or accreditation of organizations.
   
   
2. Corporate approval requirements.
   
   
3. Consider need for approval of state Attorney General’s office.
   
   
4. Consider need for approval, judicial or otherwise, with respect to endowments, trusts, pledges, or other donated gifts.

E. Reimbursement/Funding Considerations

1. Consider funding sources from services rendered (i.e., state/federal contracts) and how they might be affected by the transaction. Is consent required to transfer/assign contracts?
   
   
2. Consider impact of transaction on sources of charitable gifts and grants, i.e., United Way.
   
   
3. Consider impact of transaction on current development campaign or related strategic programs.

F. Tax Planning Considerations

1. Consider need for continuing tax-exempt status for the surviving or newly created organization. Will the arrangement result in unrelated business table income?
   
   
2. Consider whether tax-exempt financing might be affected by the transaction.

G. Governance/Board Considerations

1. Consider governing board representation and qualifications for the surviving corporation. Will there be a need to revise existing by-laws?
   
   
2. Consider the need for certain reserved powers to the sponsoring members.

Corporation "A" purchases the assets of Corporation "B" and assumes only those liabilities, if any, of "B" specifically contracted for in the asset purchase agreement.

Parties to merger discussions want some assurance that the transaction is not being "shopped around" to competing merger partners while they are negotiating in good faith to bring the transaction together. An exclusivity agreement or clause in a letter of intent, for example, requires exclusive dealing for an agreement upon length of time.

A letter of intent is a nonbinding proposal which one party offers to another to begin merger discussions. It generally outlines a suggested corporate structure for the transaction and includes an exclusivity provision.

This refers to the comprehensive investigation which each party undertakes with their potential merger partner. A suggested due diligency outline is attached. It anticipates a full disclosure of many important operational documents. It will help to identify potential trouble spots.

The Articles of Incorporation of the Corporation with all amendments thereto to date

A list of all past names, assumed names, and d/b/a’s of the Corporation

By-laws of the Corporation as currently in effect

The minute books of the Corporation, including organizational minutes and minutes of meetings of the Board of Directors, any committee, and the shareholders or members of the Corporation, if any

Stock information

Conflict of Interest Policy

Most recent organizational chart

States in which the Corporation does business (with good standing certificates from applicable states)

IRS determination letter, if tax-exempt

Federal, state and local tax returns for the last six (6) years and any other years still open

Proof of all tax payments for the last six (6) years (federal, state, local, sales, use, personal property, real property, franchise, social security, employment)

List of any loss carryovers

Real estate tax bills (including special assessments) for past five (5) years

Tax abatement information; all other agreements with taxing authorities (including extensions)

Documentation regarding tax audits of the corporation during the past ten (10) years, including revenue agent’s reports covering currently pending audits and protests filed in connection therewith and correspondence related thereto

Description of amortization/depreciation methods and practices (tax and book)

Any tax sharing agreements

Proof of all required tax withholding (social security and unemployment)

List of all threatened or pending claims, lawsuits, or government proceedings, investigations, or controversies (federal, state, or local) including correspondence with governmental agencies within the last five (5) years in any way relating to or affecting the business or assets of the Corporation

Outstanding orders, writs, judgments, injunctions, or consent decrees

Review charitable solicitation registration

Reports filed and any other correspondence with any state or federal regulatory agencies during the past five (5) years (including EPA and OSHA correspondence, notices of violation, or imposition of fines)

Proof of product-related regulatory compliance

All permits, licenses, franchises, and consents presently held by the Corporation or required for the Corporation to do business (including environmental permits)

Review financial transactions and relationships with physicians

Licensure survey reports for the last five (5) years

All documents and agreements evidencing material borrowings, whether secured or unsecured, by the Corporation including loan and credit agreements, promissory notes, and other evidences of indebtedness

All documents reflecting guarantee, or other contingent obligations of the Corporation

Bank letters or agreements confirming lines of credit

All documents and agreements evidencing other material financing arrangements, including sale and leaseback arrangements, installment purchases, security agreements, factoring and agreements

List of all liens and other encumbrances effecting the Corporation’s stock or any of its assets

Legal description of all the Corporation-owned real estate (with deeds and other title documents)

All mortgages and other debt-securing liens on the real property owned by the Corporation, and instruments evidencing such liens

All real estate appraisals (past and current)

Copies of all title insurance policies or commitments and copies of all existing surveys, together with copies of all easements, restrictions, and other encumbrances shown on the title insurance policies covering the owned and leased real property

List of all zoning restrictions and variances

Itemized list of all known existing problems with the Corporation’s owned or leased real property requiring repair work in excess of Five Thousand Dollars ($5,000) in any one instance

Letters concerning real estate tax exemption

Information (including any correspondence) with respect to compliance with federal and state environmental protection acts, including copies of all environmental permits necessary for the operation of the Corporation’s business

Information with respect to claims under environment protection acts, including any notices of violation, notices to potentially responsible parties or consent orders with respect thereto, including any claims under the notices of violation or consent orders with respect to OSHA, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Resources Conservation and Recovery Act (RCRA)

All audits, inspection and monitoring reports and assessments, whether studies or corrective action programs related to environmental matters. This subparagraph includes all such documents whether related to past or current operations or previously owned or currently owned real estate.

A Phase I audit of all real estate owned or leased by the Corporation. A Phase II audit may be requested if any part of the Phase I audit suggests that a Phase II audit is indicated. The components, results of, and contractor performing any audit must be satisfactory to purchaser.

A compliance audit of all of the Corporation’s operations to address the issues of current and past compliance with all federal, state, and local statutes, regulations, ordinances, or other health and safety matters

The components, results of, and contractor conducting that audit must be satisfactory to purchaser.

Registrations of any underground or above-ground storage tanks

All contracts or agreements with waste haulers and disposal facilities

Listing of all assets of the Corporation and copies of lapse schedules (date purchased, cost and depreciation)

All vehicle titles and leases

Inventory aging analysis (with LIFO layers)

List of the Corporation-owned equipment used by any supplier, customer or other person (and vice-versa)

Recent appraisals, if any, of any part or all of the machinery and equipment or other personal property of the Corporation

Itemized list of all known existing problems with the machinery and equipment or other personal property of the Corporation requiring repair work in excess of Five Thousand Dollars ($5,000) in any one instance

A list and brief description of all patents owned or pending

A list of all trademarks, trade names, copyrights and/or logos owned or used (including foreign)

Copies of all license agreements (as licensor or licensee) relating to patents, trademarks or know-how

Infringements claims, pending or threatened (both for and against)

List of all bank accounts, CDs, lock boxes, and safe deposit boxes (with current dollar amounts)

List of all securities held for investment

Account receivable aging analysis (with collection and bad debt histories)

Client list by location with historic volumes

Advertising literature/contracts (including phonebook and trade journals)

List of all employees with turnover analysis for the past three (3) years

Any qualified pension, profit sharing, and similar plans of the Corporation or any entity affiliated with either of them under the terms of Section 414 of the Internal Revenue Code of 1986, as amended (collectively the "Affiliated Companies") covering any employees or retirees of the Affiliated Companies; all amendments, trust documents, and insurance contracts related thereto; and all tax returns, financial statements, and actuarial reports relating to the plans for the past five (5) plan years

List of all qualified plans of the Affiliated Companies which have been terminated within the last five (5) years, along with the IRS determination letters for such plans

List of all multi-employer plans to which any of the Affiliated Companies is currently obligated to contribute, and an estimate of withdrawal liability for each

All nonqualified pension, profit sharing, bonus, deferred compensation, and similar plans of the Corporation covering any of their employees or retirees of the Corporation; and all amendments, trust documents, insurance contracts, and reports related thereto

All employment and consulting agreements of the Corporation with respect to any employees of or consultants to the Corporation; independent contractor or other agreements of the Corporation which relate to the providing of services to the Corporation by any nonemployee person or entity

Employee handbooks or policy manuals

Description of the practice utilized during the past three (3) years regarding salary and wage review and increases

List of fifteen (15) highest paid employees for each of the past three (3) fiscal years and amount of salary and bonuses paid to each

Collective bargaining agreements relating to the employees of the Corporation and all notes pertaining to each of the most recent collective bargaining agreements

All fringe benefit plans or arrangements, including benefits relating to automobiles, clubs, vacations, personal leave, child care, parenting, sabbatical leave, and education

Group or individual health, life accident, and disability plans and other welfare benefit plans covering any employees or retirees of the Corporation, and all insurance policies related thereto

Arrangements with and benefits granted to only certain employees or classes of employees

All Form 5500 (and all schedules and attachments thereto) and summary annual reports relating to any of the above plans for the last three (3) plan years

All determination letters and correspondence with governmental authorities, actuaries (including any assumptions, accountants, and third-party plan administrators relating to any of the above plans, including all recent actuarial reports and computations of withdrawal liability from multi-employer plans

All summary plan descriptions and other communications to employees relating to any of the above plans

Current list of COBRA qualified beneficiaries, including date of qualification and duration of coverage, and all documents granting benefits

Current list of retirees receiving health, life, or other insurance coverage, and all documents granting coverage

Copies of PBGC premium filings for any defined benefit pension plan for the last three (3) plan years

All FASB 87 reports for the above plans, if any

Workers compensation history for all employees of the Corporation for the last three (3) years, including all claims, copies of all required reports, and itemization of all current reserves

Unemployment history, including all claims and notices received during the last three (3) years along with a list of all employees of the Corporation who have been terminated within the last three (3) years, including their Social Security numbers, wage rates, and last known addresses

Any notices relating to the unemployment tax status of the Corporation which may be required to be delivered to a buyer by the jurisdictions in which any of them do business, and any notices of tax rates or funding deficiencies which may be useful to a buyer in reviewing the unemployment tax status of any of them

All administrative claims or complaints for the last three (3) years relating to any employee of the Corporation, including NLAB and DOL complaints and all grievances and notes relating to such grievances

Correspondence or other material of whatever nature citing the facilities for fraud and abuse violations

BCBSM, HMO, PPO, and other third-party insurance agreements

List of any purchases from a related organization not disclosed on cost reports

Cost reports and other documentation relating to any cost report controversies of whatever nature (5 years)

Documents relating to PIP, BIP and MIP (5 years)

Intermediary exit conference summaries and reports (3 years)

Discount arrangements which result in rates lower than those paid by third-party reimbursement programs

MPRO contracts and reports (5 years)

Audited financial statements for the past five (5) years, and unaudited reports for the fiscal periods since the last audited report

Capital expenditures for the past five (5) years (identity and amount)

Contribution to profit by product line

All historical auditor’s inquiry letters with replies; all correspondence and reports regarding same to management

List of all off-balance sheet liabilities

Reports prepared by management consultants concerning the business and operation of the Corporation during the past three (3) years

All press releases and reports about the Corporation in trade papers and magazines during the past three (3) years

Review list of charitable pledges, requests and pending gifts

All agreements or commitments, not otherwise disclosed above, relating to the employment of any person by the Corporation, or any bonus, deferred compensation, pension, profit-sharing, stock option, employee stock purchase, retirement, or other employee benefit plan applicable to any person now or previously employed by the Corporation

A list of all commitments for material capital expenditures, and copies of any related contracts or documents evidencing the commitment

All loan agreements or all documentation relating to loans or advances to, or investments in, any other person by the Corporation, or any agreements, contracts, or commitments relating to the making of any such loan, advance, or investment, including all documents and agreements evidencing loans to employees of the Corporation by the Corporation

All management service, consulting, or other similar contracts

All agreements, contracts, or commitments limiting the freedom of the Corporation to engage in any line of business or to compete with any other person

All leases with all amendments and renewals

A.   Real property leases

B.   Personal property leases

Partnership or joint venture affiliations

Joint purchase agreements

Service/maintenance contracts

Government contracts

Franchise agreements

All insurance policies, including:

A.   General liability

B.   Professional liability

C.   Tail coverage

D.   Disability

E.   Health (medical/dental)

F.   Key person

G.   Business assets

H.   Dishonesty

I.   Worker’s compensation

J.   Other insurance

Secrecy/confidentiality agreements

Subcontractor agreements

Standard warranty, sales, and credit terms and form contracts of sale

Outstanding guaranties, indemnities, or product warranties

Any indemnification agreements between the Corporation and any shareholder, officer or director of the Corporation

All contracts or agreements requiring the consent or approval of another party in the event of the sale of all or a majority of the stock of the Corporation

All contracts or agreements requiring the consent or approval of another party in the event of the sale of all or a majority of the stock of the Corporation

All agreements, contracts, or commitments which might reasonably be expected to have a potential adverse impact on the business or operations of the Corporation, either as a result of the continuation or the termination of any such agreement

A schedule of all real estate ever owned or leased by the Corporation, including any documents regarding the sale thereof

Copies of current sales literature and promotional materials with respect to the Corporation’s products

Any other documents or information which, in your judgment, are significant with respect to the business of the Corporation, individually and taken as a whole, or which should be considered and reviewed in order to evaluate the financial condition or business of the Corporation

Obtain list of all accreditations received by the Corporation

Review licensure/certification status of all professional staff members

Review client record maintenance, retention, and confidentiality policies

Obtain complete pending litigation list, including charges filed with EEOC, U.S.Department of Labor and NLRB

Determine actual or threatening lawsuits or claims or administrative complaints

Confirm acceptance of insurance coverage, where applicable