Disclosure agreements and their companion disclosure schedules are essential aspects of mergers and acquisitions. They provide comprehensive details about a pending transaction so that both buyer and seller are crystal-clear about the transaction and its terms. Critical data that is typically provided and confidentiality-protected include such things as financial and statistical data, sales, customer, and client information, business processes, patents and trade secrets, future business plans, and employee information.
What Are in Disclosure Agreements?
Disclosure agreements comprise the documentation that a business uses to share specific types of information with another party or parties. The included disclosure schedule itemizes the aspects of the business, thus rendering a comprehensive “picture” of the business. It is critical for a smooth and successful mergers and acquisitions process that the information is carefully and accurately prepared. A disclosure schedule will include:
- Current litigation.
- Employee detail including benefit plans.
- Lists of stockholders.
- Subsidiaries, if any.
- Intellectual property owned by the business.
- Insurance policies and permits.
- All current or outstanding debts.
- All real property that is owned or leased.
Tips for Preparing Disclosure Agreements
Successful mergers and acquisitions require:
- The seller’s management team must be aware of the critical importance of disclosure schedules and providing accurate and complete information.
- The seller’s team should start preparing early, involving key knowledgeable individuals in the preparation of the schedules.
- Any new business developments must be disclosed including new intellectual property, new contracts, new litigation, etc.
- The seller’s mergers and acquisitions counsel should qualify the representations with appropriate “materiality” and “knowledge” qualifiers.
Avoid Mistakes in Preparing the Disclosure Schedules
It is important to avoid incomplete information regarding capitalization, material contracts, leases, employee agreements, and other key aspects of the business. All information essential for mergers and acquisitions should be thoroughly reviewed for accuracy.
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