Working capital adjustments can be complicated. The buyer has information and resource advantages because it controls the books and records, typically has large internal and external accounting teams, and typically has 60 to 90 days following closing to prepare its report. In contrast, the shareholder representative usually has 20 to 30 days to answer, does not have control of the applicable files and typically has limited accounting resources available. Therefore, it is important that the agreements set forth terms that will work for both sides in a way that does not prolong the process unnecessarily but provides for sufficient time to complete the applicable tasks. Since the shareholder representative generally has fewer resources and limited access to materials, it is important that the process contemplates a level of cooperation between the parties.

Two critical additions are included in the language below to try to address this:

The representative shall be granted access during business hours to the books, records and accounting work papers of the Company to conduct its review, and the Buyer shall use commercially reasonable efforts to respond promptly, in good faith and as fully and accurately as is reasonably possible to inquiries from the representative related to such review. Buyer will use reasonable efforts to provide access to the books and records of the Company electronically, and shall transmit financial statements, general journals and trial balances of the Company and its subsidiaries in formats such as Excel spreadsheets, or searchable Word or PDF documents.

If the underlined portions are omitted, a shareholder representative could find itself unnecessarily burdened in attempting to prepare a response. A buyer could respond to a representative’s request for additional information by simply saying, “You can have access to the files if you’d like, but we’re not going to have our people spend any time on this. Oh, and by the way, the files are in 17 different countries. Please let us know what you’d like to see.” While that may sound outrageous, it is an answer that SRS Acquiom has received. This can lead to disputes that should have been avoided.

It is helpful if the buyer has an obligation to make its people and former employees available to answer questions. For instance, if the files are hundreds of pages of paper, the representative will want to be able to ask the buyer to point to certain calculations or data rather than searching for a needle in a haystack.

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