Disclosure schedules in M&A: defined terms and cross-references
The role of representations and disclosure schedules
In mergers and acquisitions and other contractual transactions, disclosure schedules contain information relating to the representations and warranties in the agreement. They may identify exceptions to those representations, set out facts or refer to other documents. Their scope and relation to the parties’ obligations depend on the terms agreed in the contract.
In Spanish, we refer to them as “apéndices de divulgación.” To translate them, we identify the representation to which each schedule relates, the information it contains and the contractual rules governing the interpretation of the relevant provision. In each transaction, we preserve the designation agreed in the contract and its cross-references.
Representations and warranties, disclosure schedules and indemnification provisions form a linked contractual mechanism. A representation must be read together with the disclosures that qualify it or identify exceptions; any inaccuracy must then be examined under the indemnification provisions. An inaccuracy does not, by itself, establish an amount recoverable by way of indemnification: covered losses, claim requirements, time limits, thresholds and caps must be checked. An imprecise translation can alter any of these links. We therefore compare what is represented, what is disclosed and the provisions governing the consequences.
Defined terms, materiality and knowledge
Materiality qualifiers, knowledge qualifiers and defined terms such as Material Adverse Effect and Knowledge serve different functions. A materiality qualifier may limit the scope of a representation. The definition of Material Adverse Effect may delimit the circumstances that constitute that effect and the applicable exclusions. The definition of Knowledge may identify the people whose knowledge is relevant and specify whether they must consult, for example, those responsible for litigation, tax or compliance. When translating these qualifiers and definitions, it is essential to understand their scope and function within the document.
The review must also check whether the indemnification provisions require certain materiality qualifiers to be disregarded when determining a breach or quantifying losses. Section 7.09 of the agreement cited below does so for both purposes.
Capitalisation and other writing conventions help identify defined terms. A typographical variation does not, by itself, determine a legal consequence, but it can make the reference harder to identify. The definition, chosen equivalent, its uses and the contract’s interpretation rules should therefore be reviewed together, rather than switching without reason between words with similar meanings.
Cross-references and clarity
The numbering of the agreement, its disclosure schedules and other annexes makes it possible to locate the information corresponding to each representation. A reference to the wrong section may make that reading more difficult. To assess its effect, the provisions governing when a disclosure applies to other sections of the agreement also need to be reviewed.
Some agreements provide that information included in one schedule is deemed disclosed for representations and warranties in other sections if its relevance is reasonably apparent. Others require express references or exclude particular sections. The translation must preserve the agreed cross-disclosure rule and its limits.
For example, Section 10.11(b) of the asset purchase agreement among BWSC, LLC, Natural Merchants, Inc. and Edward Field (available in the SEC’s EDGAR database) provides that disclosure in one section of the Disclosure Schedules is also deemed made for other sections when its relevance is reasonably apparent on the face of the disclosure, even without a cross-reference. The provision bars deemed incorporation of disclosures from other sections into Section 3.12 of the Disclosure Schedules. This illustrates why cross-references must be reviewed alongside the contractual rule governing cross-disclosure.
Contractual source: Asset Purchase Agreement among BWSC, LLC, Natural Merchants, Inc. and Edward Field, dated 12 May 2021, Sections 7.09 and 10.11(b). SEC EDGAR, accession 0001104659-21-110629, Exhibit 10.5.
Clarity also requires preserving who is involved, what fact is disclosed, its dates and amounts, and the status of the matter. If the original contains an ambiguity, the review should flag it for clarification. Reordering a sentence requires checking that its conditions, qualifications and references are retained, along with the information actually contained in the original.
Working with drafts under negotiation
Translation may begin while the agreement, its disclosure schedules and other annexes are still under negotiation. Each update should be identified and compared with the reference version. Where the format permits, tracked changes make it easier to see what changed and which documents need adjustment. At Indigo, a small team and a dedicated point of contact follow up on changes and questions arising during the engagement.
What we review at Indigo Translations
Reviewing the agreement and its disclosure schedules focuses on four related tasks:
Centralise defined terms. We link the contract’s definitions to their Spanish equivalents and to their uses in the disclosure schedules.
Check references. We check cited sections, subsections and documents, and review the cross-disclosure rules relevant to the document set.
Compare versions. We identify changes in the original that need to be carried through to the translation and check the affected documents.
Confirm decisions. Where questions arise about the original, we raise them with the point of contact and record the answers so they can be applied in the relevant documents.
Preparing the engagement
The aim is for readers of the translation to be able to follow the representations, disclosures and their references within the same document set. The review therefore considers the main agreement and the available disclosure schedules, with attention to the source version and decisions confirmed during the work.
To establish the scope of the engagement, it is helpful to share the agreement, its disclosure schedules and any glossary already agreed. The target language, intended use, required delivery date and documents still under negotiation help define what needs to be translated, what needs updating and how to organise the review.
Let’s prepare the translation of your agreement and its disclosure schedules
Share the reference version, languages and required delivery date. We will review the scope of the engagement and agree on how to handle new versions during translation.