Based upon the request for a finance agreement in relation to the project being evaluated, it is part of our company’s procedures to ensure reliability, accuracy and reasonableness of the information presented for such finance whether financial or non financial information and assumptions associated with any projections or forecasts prepared by the company’s management with the aim to reduce all types of risks related to the finance agreement. Such process is achieved through the preparation of a due diligence study where an international auditing firm will examine information presented by the company about the ability of the project to pay all financial requirements associated with the finance agreement.
The nature of the Due diligence study :
The due diligence study will consist of the following examinations of the project’s various accounting, financial, administrative activities and related documents mainly:
- Assessing the historical cost of the company’s assets where the consultant will examine the values of the project’s assets based upon the audited financial statements and its related schedules.
- Assessing the results of confirmation sent to clients and debtors and other debit accounts and the effects of such assessment on the value of these debts and the risk associated with the uncollectibility of the above debts’ balances.
- Assessing the effect of the existence of mortgages or any other types of restrictions on the company’s assets in the light of the legal report prepared by the company’s legal consultant
- Assessing the results of confirmation sent to suppliers / creditors and the effect of these on the value of the company’s liabilities.
- Assessing the liabilities and other related obligations for all types of tax issues related with the company’s activities mainly corporate tax, payroll tax, stamp tax and sales tax. Such assessment of the existence of any tax claims will be based upon our detailed study of the various tax forms sent to the company from the tax authority in light of the requirements of the tax laws no 157 for the year 1991 and its amendments, law 91 for 2005 as well as law 111 for 1980 and its amendments.
- Assessing the legal obligations associated with legal lawsuits identified in the legal report prepared by the company’s attorney. Such assessment will take into consideration the risk associated with expected compensation to be paid by the company in relation to its legal lawsuits.
- Assessing the appropriateness of the various assumptions used by the project management and associated consultant(s) for the financial forecasts about the results of the project’s operations and activities for the future period.
- Assessing the reasonableness of the project’s financial forecasts in the light of the published financial information about the Egyptian environment for the type of industry under which the company operates and in the light of the results achieved by the company in past years.
The Company’s Management (The Company) Responsibilities:
- The company’s management will provide the International Auditing firm with all the required information needed to prepare the due diligence study in addition to presenting all documents and contracts and other information needed for the preparation of the required study including audited financial statements for the past three years from the agreed upon date of the due diligence in addition to the audited financial statements which will be examined by the auditing firm for the preparation of due diligence study. Such statements should be prepared in accordance with the Egyptian accounting standards which complies with the International Financial Reporting Standards (IFRS).
- The company’s management will be responsible to provide the International Auditing firm (the consultant) with an independent legal report about the legal position of the company being examined for finance purposes. Such report should include all necessary information to assist the consultant to assess the amount of any obligation which may result from judges taking decisions in company’s legal lawsuits against the company funds and assets.
- The company’s management will be responsible for providing the consultant with an independent report from the project’s tax consultant about the project’s tax position highlighting all claims made by the various tax authorities for corporate tax, payroll tax, stamp tax, sales tax .etc as shown in the various forms issued by the tax authorities and management actions against such claims with details about payment made by the project to the tax authority and details about outstanding and the tax consultants explicit opinion about the expected liability associated with such tax settlement .
The International Auditing Firm (the consultant) Responsibilities:
The report of the International Auditing Firm (the consultant) will assess the following information related to the Due Diligence study:
- The historical development of the company operations and activities. The study will provide a brief history of the company from its origin to its most current form including any specific changes in the ownership pattern of the company.
- Detailed Study of the main activities of the company and its purposes. This will include a detailed analysis of the company’s revenues based upon the company’s activity, its sales figures and credit conditions and limits provided to the company’s clients as well as the analysis of the main sources of supplies of the company’s materials and inventory and the nature and type of contracts with its main suppliers.
- An overview of the company’s management business strategy and working business plan showing the underlying assumptions and related projections for each real business plan when compared to the Egyptian market situation as a whole.
- Assess the project’s total market share by company’s product in details, if possible, comparing the shares of the five or more top companies with the share in each of the company’s product. Such assessment will include studying sales figures for the company’s products for each of the past three years.
- Assess and study the company’s organizational chart and identify the names and full titles of all directors, officers and others senior employees of the company. Such assessment will include studying the managerial structure of the company and how major decisions are made and who is ultimately responsible for approving them.
Fees and delivery period :
- The fees will be based on the degree of skills involved, the seniority of the staff engaged and the time necessary to complete the work. The fee will be discussed in advance and confirmed in writing to you through separate correspondence.
- Expenses related to the study incurred while engaged on this assignment will be included in the agreed upon fees. If there are expectations for additional time costs to be incurred as a result of any change in the scope of work, or difficulties in obtaining information which may cause additional work, a discussion of the matter of incremental fees will be made with the company promptly.
- The payment of the agreed upon fees will be paid as follows:
- 50 % of the total fees will be paid with the issuance of the engagement letter.
- 25 % of the total fees with the submission of the draft report of the study.
- 25% to be paid after making the required amendments and the submission of the final copy of the study.
- In connection with this agreement you agree that the liability of the consultant under this agreement is limited to the agreed fees .
- The preparation of the study will take from 4 to 5 weeks period and such period will be depending upon the speed of supplying the consultant with the required information and the extent of the documents and information provided to the firm. Such period will be calculated from the date of receiving documents, reports and explanations and making all necessary interviews needed for the preparation of such study.
Use of firm's name:
In connection with literature of an advertising nature, the consultant’s name is not to be quoted without the prior written permission .
Confidentiality of information:
- The consultant seek to assure you as to the confidentiality of information relating to the Company generally and, more specifically, the consultant will take all due care to ensure that staff at all levels respect the confidentiality of information obtained in the conduct of the study.
- All information relating to the Company maintained by the consultant will be kept secure at all times and will not be made available to any other party other than those staff assigned to the study.
- The consultant may disclose in his external communication the fact that he has rendered services to your company by identifying the name of your company, had your logo and/or indicating only the general nature of services rendered by him including any details about the company that is published in public.
Governing Law and Jurisdiction:
The engagement covered by this letter shall be subject to and governed by Egyptian law and all disputes arising from or under this letter shall be subject to the exclusive jurisdiction of the Egyptian courts.
Other matters:
- This letter shall serve as the company’s authorization for the use of e-mail and other electronic methods to transmit and receive information, including confidential information between the consultant and the Company. The Company acknowledges that e - mail travels over the public Internet, which is not a secure means of communication and, thus, confidentiality of the transmitted information may be compromised through no fault of the consultant. The consultant will employ commercially reasonable efforts and take appropriate precautions to protect the privacy and confidentiality of transmitted information.
- The consultant may, if necessary, be required to connect his computers to the company’s network during this engagement. The company should provide its consent to this. While the company should take reasonable steps to protect its computers using system hardening, backups and anti-virus utilities, the consultant won’t be responsible for any damage that may inadvertently caused to the company’s computer and networks.
Agreement of terms:
Once it has been agreed, this letter will remain effective until it is replaced. Please confirm in writing your agreement to the terms of this letter by signing and returning the attached copy .
If you have any complaint in relation to the services or our staff, you are invited, in the first instance, to report your concerns in confidence to the Engagement Manager or Engagement Partner, if you do not feel the complaint has been adequately dealt with, or if it is of a nature or seriousness which makes an approach to the Engagement Manager or Engagement Partner inappropriate, you should write to the Client Quality Assurance Manager of the consultant (name).
Appendix (a) Summary of example of Documents Required for Due Diligence Study:
- Reports prepared by management and other experts describing important aspects of the company business or future plans for the past three years.
- All minutes of meetings of directors for the past three years. If any minutes are missing a certificate should be prepared setting forth the reasons for the unavailability of the minutes and describing any martial action believed to have been taken.
- All minutes of meeting of the audit committee for the past three years.
- All minutes of meeting of other executive councils for the past Three years.
- Copies of all minutes of shareholders meeting for the past three years.
- Copies of all reports filed with government agencies and self-Regulatory agencies which have measurable regulatory power over the company activities during the past three years.
- Copies of the charter of the company as originally filed and any amendments thereto. Also, obtain copies of incorporation if applicable.
- Copies of the company by-laws and amendments thereto.
- Certification of payment of taxes from the appropriate tax authority.
- Copies of any buy–sell or option agreement among shareholders that may affect control of the company if triggered.
- Copy of the company's stock record book /share registrar. Describe procedures for registering change in stock ownership, record dates etc. and obtain a separate list of shareholders and cross check against share registrar. If there are cancelled share, there should be evidence that cancelled shares have been appropriately marked and returned to the company.
- Schedules for issuance of shares generally including statement of outstanding and treasury shares and other securities of the company. Existence and confirmation of preemptive rights, compliance with restrictive share transfer agreements. Each issuance of shares should be reviewed to ensure that it was consistent with the charter documents, properly authorized by the board, and made in exchange for permissible consideration. Trading market (if shares are listed on the stock exchange or other venue for price formation and transmission).
- Details about dividend policy including dividend outstanding. Such analysis will include a review of all loan agreements to ascertain the existence of any restriction on the payment of dividends. Such Review will include studying board minutes to ensure that statement of dividend policy in prospectus is consistent with actions actually taken by the Board.
- Copies of all loan agreements, trust indentures and debt instruments with third parties, insiders or employees relating to outstanding loans and of credit. The office will check to see whether there are any covenants which restrict the proposed offering or use of proceeds or the issuer’s freedom of operation after the offering. The purpose is to ensure that the company is not in default under any agreement. Also, identify lender consents which may be required to ensure that such consents which are obtained are in proper form.
- Copies of all leases relating to all significant real properties leased to the company and the existence of any disputes. List of all assets or properties used by the company which any officer, director, employee or any of their affiliates has an interest.
- List of material equipment owned including name, date of purchase and purchasing price.
- Copies of all equipment leases.
- Copies of all evidence of ownership of all patents and trademarks, copyrights inventions or other intangibles owned by the company (if any).
- Copies of all financial statements for the last five years, audited if available and most recent unaudited statements.
- Copies of all pension and retirement plans maintained by the company with respect to its officers, directors and employees.
- Copies of all other employee benefit plans (e.g. insurance) and a description of policy regarding vacation, sick leave, etc.
- Copies of documents on all management compensation policies, including stock option and management incentive plans.
- Copies of all insurance policies issued to the company.
- List of all pending or threatened litigation along with copies of all pleading and correspondence relating thereto as well as a list of all orders or notices of any violation of policies of any government agencies.
- Copies of all security interest in collateral securing the company's accounts and notes receivable.
- List of all subsidiaries and affiliates of the company and of banks and bank account numbers.
- Copies of all filing with tax agencies for all years not closed.
- List of all dividends paid for the past three years.
- List of all material transactions with principals; loans; lease agreements, other material transactions.
- Membership details of company in any trade or other business association.
- Copy of the company’s business plan.
- Copy of the company’s organization chart and job descriptions.
|
.gif){kind=small}
