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The first blog in an eight-part series about Doing the Deal 101 from experts DealStage, Disclosure Schedule in Acquisition Transactions discusses disclosure schedule preparation, review and impact on the timing and structure of a deal.
Among the many acquisition agreement features that junior lawyers work on, and one that can be quite vexing for those lawyers, is the preparation and review of disclosure schedules. By way of background, in the sale of a privately-held company, it’s almost certain that the seller and its counsel will carefully prepare a schedule of disclosures about the company being sold (the “target” company) and the buyer and its counsel will equally carefully review that disclosure schedule.
Disclosure schedules work hand-in-glove with the representations and warranties (a/k/a “reps and warranties”) in the acquisition agreement. These reps and warranties make statements of fact about the target company upon which the buyer relies in assessing the target company’s condition (financial, legal, operational, etc.). Should the buyer incur costs and liabilities after the deal closes due to things that the seller should have disclosed, the buyer may have legal recourse against the seller.
Thus, it’s incumbent upon the seller and its counsel to review the reps and warranties carefully and to negotiate the inclusion of exceptions (“carve outs”) to what would otherwise be an unqualified (“flat”) rep or warranty. For example, a representation in the acquisition agreement might, if “flat,” state that the target company is not subject to any pending or threatened litigation. However, if such pending or threatened litigation did exist, the seller and its counsel will insist that the representation be qualified with language stating that, “except as set forth in that part of the disclosure schedules relating to litigation” (or words to that effect), the selling company is not subject to pending or threatened litigation. Below is a brief list of factors that junior lawyers on the seller and buyer side of a deal should bear in mind when it comes to the preparation and review of the disclosure schedules.
From the Seller Counsel’s Point of View:
From Buyer Counsel’s Point of View:
The task of drafting and reviewing acquisition agreement disclosure schedules isn't an aspect of lawyering that generally gets taught in law school. Nevertheless, it's an aspect of lawyering in which junior lawyers who work on acquisition transactions often play an important role. We hope the points discussed above help those junior lawyers get off on the right foot in dealing with this task.
About DealStage: DealStage is an interactive deal checklist, designed by deal lawyers, that helps lawyers and other deal professionals manage the deal process from drafting to closing. DealStage automates what had been manual task handling and replaces one-off communications with a tool that drives situational awareness across the deal team and reduces repetitive actions.
Among the DealStage features available to lawyers and other deal participants are document status and responsibility tracking, signature page signing and delivery and deal closing-book creation. DealStage can be used internally by one team or across all parties to the deal. Visit www.dealstage.com to learn more about DealStage and to request a demo.
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