Disclosure Schedules are a set of documents made up of exceptions and affirmative lists regarding a transaction, but before delving into what exceptions or affirmative lists are and why they are important, it’s paramount to have a grasp of representations and warranties. Whether they are included in a Purchase and Sale Agreement (for an asset sale) (“PSA”), a Stock Purchase Agreement (for a company sale), or any other official document outlining a transaction, representations and warranties are crucial components of disclosure schedules.
Representations made by the Seller regarding the assets provide the basis for a Buyer to evaluate the asset. They are assertions about the asset itself, made to persuade the Buyer to enter into the transaction. Representations are typically made in the PSA, and disclosure schedules are a set of documents attached to a PSA that correspond with and support the representations made. Due to the importance of representations, disclosure schedules are one of the most significant points of contention regarding completing a transaction but are often left unaddressed until the transaction is close to closing.
Typically, two types of disclosures are made in disclosure schedules: exceptions to a representation and listings. Exceptions to representations are what they sound like, a fact that makes a representation untrue or incomplete. For example, if the Seller represents that neither they nor the assets have been involved in any claims or legal proceedings within a certain number of years, except as disclosed, but during that time there was a claim against the Seller for negligence, then the Seller needs to provide specific details about the claim.
On the other hand, listings are affirmative lists of information regarding the Seller or the assets, which are required by representations and warranties in the PSA. Or, put another way, listings follow through on a representation that was made. For example, in a company sale, one of the most common representations in a PSA is to list the top customers based on the Seller’s revenue. To follow through on this representation, the Seller would list the top customers in the disclosure schedules. Some of the most common affirmative disclosures in a company sale are lists of owners and subsidiaries, employee benefit plans, intellectual property registered and owned by the business, permits, insurance policies, current or outstanding debts, and any real property owned or leased by the business. Some of the most common affirmative disclosures in an asset sale are current litigation, acquired contracts, permits, buyer’s and seller’s knowledge, wiring or bank information, consents, environmental matters, sufficiency of assets and numerous other affirmative lists unique to an asset sale that would aid in the persuasion of the Buyer.
At RR&A, we are experts at thoroughly completing the due diligence process and ensuring that your company discloses all necessary information. We are skilled at working with our clients collaboratively to put disclosure schedules together quickly and efficiently and to get the deal across the line. If your team or business needs help in these areas or any transaction from start to finish, contact our Corporate and Transactions Teams for assistance.
Tannon is a Junior Associate at R. Reese & Associates and part of the Land &Title, Commercial Contracts, Corporate, and Transactions teams. To learn more about Tannon, visit his attorney page.
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.
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