KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Including schedules in the APA Part 11
May 27, 2025
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Including schedules in the APA
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This is Part 11 in the Buy – Sell Agreement series. Prior articles are on the K&K website under Alarm Articles. The Asset Purchase Agreement is the contract between buyer and seller setting forth the terms of the deal and laying the ground work to get organized and prepare for closing the transaction. Naturally you can image all the issues that the APA needs to address, many of which are issues important to the parties and many of which are more “legal” in nature, included to comply with laws and protect one or both of the parties. For example, a business term will be how the purchase price is calculated and how it gets paid. Legal terms may include the format of the forms, such as the bills of sale, or compliance with bulk sale or other laws that affect the parties.
A properly drafted APA in an alarm deal is going to be more than several pages; there are a lot of issues to be addressed. Some attorneys insist on burdening the APA with numerous exhibits that increase the size of the APA significantly. I generally object.
You might wonder why I would care about the length of the APA; certainly not to save the paper. First let me give you an idea of what some attorneys insist be attached to the APA and then I’ll tell you some good reasons not to agree to that demand. Here are some requests for exhibits to be attached to the APA:
Customer list, including name, address, contact info, type of alarm, etc
Copy of all customer contracts
List of referral sources
List of all employees with identifying information
List of 20 largest customers
List of all supplies
List of all vendors
List of all agreements with anyone, other than customers, such as central station, suppliers, manufacturers, etc., and copy of every agreement
Copy of least 3 years tax returns
Copy of written inventory
Copies of all invoices for last 6 months
Copies of 3 months of bank statements
Current accounts receivable ledger, accounts payable ledger
OK, the above is a good list of what a buyer should want to see during due diligence. But attaching it to the APA is more than ridiculous. Why more?
Well for one thing a lot of APAs are signed at the time of the closing [not a great idea but acceptable if done right]. So I had one deal where the APA had many attachments and the schedules would change almost daily, so the APA had to be changed just as often; re-signed, of course because that’s what the other lawyers wanted. That transaction finally close and the APA had to be at least 200 pages.
So what’s wrong with such a lengthy APA? And, what is the alternative to all these attachments. The answer to both questions are related, in fact, intertwined.
First why it’s a bad idea to include all the attachments to the APA. After the closing a party to the transaction, particularly the buyer, may be asked to produce the APA. Maybe it’s some kind of audit; maybe it’s a lawsuit between the parties; maybe it’s a collection case and the buyer needs to prove how it acquired the contract being sued upon [that’s a common issue]. In those cases the entire APA is required, exhibits included. So you have a collection case and the customer’s attorney gets to see your entire purchased customer list; or your tax returns or other information. Can you seek to react the exhibits, sure, but then you need to explain why and might have to produce them anyway. And once produced in a court case these exhibits are public record available to everyone unless a motion to seal the record is made. All that work because some difficult [I am being so kind] lawyer needed to get his way on the paperwork.
The alternative? During due diligence and in preparation for closing loads of records are going to be reviewed. It’s important to preserve these records so that they are available if there is a dispute at later date and what was produced and relied upon becomes an issue. Records can be Bata stamped and even combined into a binder for preservation. Now be careful because if the APA refers to the binder, and particularly if it incorporates by reference the binder, it is deemed part of the APA and will need to be produced if the APA is produced. The binder can be agreed upon and the APA can merely state that the buyer has had opportunity to perform due diligence to its satisfaction and signed off on the records reviewed. That will not be deemed part of the APA. The binder would only need to be produced if specifically requested, for example in a lawsuit between the parties for a misrepresentation by seller in its financial condition or list of customers.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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