The preparation of accurate and complete disclosure schedules is often a significant challenge for sellers, particularly technology companies with a very small or non-existent office management staff. Often these companies focus their staffing needs on research and development and selling their product. The person who will be preparing the schedules is most likely doing so for the first time, all while doing their normal job, not to mention the work involved in closing the deal.

So why not try to make it easy for this person, as well as for all the people who will have to review these schedules? The prep person is most likely not going to be a lawyer and will be unfamiliar with the “normal” process for the type of transaction. Giving them guidance before they start preparing the schedules will make their preparation of the schedules easier and hopefully help them avoid confusion and frustration in complying with the legal purpose behind the representation. The fact that it will make our job easier too, is an added bonus.

Tips for Preparing Disclosure Schedules

  1. No Knowledge Qualifiers. Don’t include any knowledge qualifiers such as “to the best of X’s knowledge” or “as far as X knows” – any such qualifiers should only be in the representation and warranty, after having been negotiated as part of the transaction.
  2. No Additional Language. Don’t insert any additional language on the schedule or carve out further exceptions – stick to the language of the representation and warranty. Any additional language belongs in the body of the main agreement and should be part of the negotiation process.
  3. Provide Contract Details. When listing agreements or contracts, provide enough information to allow parties to identify the specific document. Items that are absolutely necessary include (i) the title of agreement, (ii) the full legal names of the parties to the agreement, and (iii) the date of agreement. If the agreement is an online EULA (end-user licence agreement) or other licence agreement, indicate that fact and provide the actual EULA or online licence to the purchaser, not just the Internet link. Forms of agreements stored online change (and often without notice or consent) and websites move or die.
  4. Format the Schedules. List each schedule on a separate page, titled at top with “Schedule # – [Title of Schedule from Agreement].” This makes it easier for the purchaser to split the schedules up and send the relevant pages to the applicable departments/people of the purchaser (e.g., Patents, Trademarks, Tax, Employment/HR) for their review and comments. Also, if there are subsections to the representation and warranty, indicate which subsection (e.g., Section 3.01(12)(b)) the disclosures relate to.
  5. Don’t Over Disclose. Track the language of each representation and warranty in your disclosure – don’t over disclose.
  6. Use None or Nil. If there’s nothing to disclose, then put down “none” or “nil” – don’t use “no disclosure required” since that indicates that some sort of interpretation of the language of the representation and warranty was made and that it was determined no disclosure was required.
  7. Use Your Lawyers. Have your legal counsel review the schedules before sending the documents to the other side for their comments and review, as your lawyers should catch any legal issues that you may have missed, especially with respect to legal concepts like indemnifications, limitations on liability, non-compete provisions, and non-disclosure obligations. You may think this step is unnecessary and costly, but the amount of time that you will save yourself by avoiding the constant back and forth of mark-ups will likely more than make up for any legal fees incurred at the front end.

The following is an example of how tedious the engineers from one tech company found preparing the disclosure schedules for an acquisition. This text had been surreptitiously inserted into a disclosure schedule titled “Benefit Arrangements:”

The employees are frequently provided with products derived from the combination of grains, poultry reproductive units and glucose-based derivatives prepared into various forms by the application of increased temperature transferred to such grain, poultry reproductive unit and glucose-based combinations through the medium of air or liquid-based lipid materials derived from vegetative matter, provided hereto to such employees on a gratuitous and discretionary basis, without assuming any indemnity or liability of the Company howsoever arising, either express or implied, for increased levels of cholesterol or other fat-based internal dispositation in any form whatsoever hereby, whereby, wherefor, herefor or therefor, hereinafter referred to as “The Free Donuts and Cookies.”