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As a corporate lawyer focused on complex M&A transactions, I’ve closed countless deals for corporations of all sizes and high-net-worth individuals. In my experience, here are the five most important things you need to know about disclosure schedules and their critical role in the process:

1. What are Disclosure Schedules?
A large part of an M&A agreement will consist of “representations and warranties,” i.e., “promises” that are being made on behalf of the parties. Disclosure schedules are an attachment to the M&A agreement which closely mirror the representations and warranties. In addition to providing an opportunity to correct existing facts that could otherwise result in breach of the agreement, they qualify statements to make exceptions that would otherwise clutter the main document.

2. Are There Different Types of Disclosures?
There are two main types of disclosures that can be made in the disclosure schedules. The first type is an “exception” to a representation. For example, let’s say a purchase agreement contains a warranty that the target entity has marketable title. However, the seller has knowledge of a claim that impairs the target entity’s marketable title. The seller would then describe the claim in the corresponding section of the disclosure schedule. By disclosing this “exception,” you avoid any breach of warranty issue.

The second type is a “listing” required by a representation. For example, an agreement requires you to list all real property associated with your company. In a corresponding section of the disclosure schedule, you would then list all real property associated with your company.

3. What is the Purpose of a Disclosure Schedule?
The disclosure schedules provide dual protection for both buyers and sellers. For sellers, the disclosure schedules shift risks to the buyer. For example, a seller could represent that the company does not have any outstanding tax liability “except” for all the tax liability represented on the disclosure schedule. Post-closing, this shifts the risk for all tax liability contained within that disclosure schedule to the buyer. For buyers, disclosure schedules advance due diligence by increasing the transparency that is difficult to detail in the main agreement. Also, they create the foundation for claims which may arise post-closing.

4. How Much Disclosure is Enough?
It can be difficult to determine the level of disclosure, but generally a seller should not be concerned about disclosing too much. Over-disclosing may cause additional work, but this level of transparency allows the seller to appropriately shift risk to the buyer, as the instances of breaching a representation or warranty is drastically reduced.

5. Is There Any Preparation Needed to Draft a Disclosure Schedule?

• Involve employees with the knowledge base to oversee the production of disclosure schedules which can streamline the process.
  
• Keep concise, accurate records leading up to the M&A transaction, with an accurate backup of those records.
  
• Retain accurate records of any employee claims or third-party claims.
  
• Record agreements with top customers or suppliers, including disputes.
  
• Organize records pertaining to insurance and benefits plans, if applicable.
  
• Collaborate early and consistently with counsel to articulate representations and warranties with specificity which assists with balancing the scales towards over-disclosure, to shift the risk.

For guidance, contact Vincent J. Costa at 631-738-9100 ext. 343. 
Thank you to Linda Reimann for her research and writing assistance.

Twin Objectives of Title IX of the Education Amendments of 1972

            Title IX is landmark federal civil rights legislation that was enacted as part of the Education Amendments of 1972 (“Title IX”) to address education discrimination.  Title IX provides in relevant part that “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.”

Bostock v. Clayton County, Georgia

            In Bostock v. Clayton County, Georgia,[1] the U.S. Supreme Court held that the prohibition of discrimination based on “sex” as set forth in Title VII of the Civil Rights Act of 1964 (“Title VII”)[2] precluded discrimination based on sexual orientation or gender identity. Based on this decision, the U.S. Department of Education (“Department”)[3] interprets Title IX to include protection against discrimination based on gender identity or sexual orientation.

2024 Amendment to Title IX

On April 29, 2024, and after a two-year proposal period, the Department released its 2024 Amendment to Title IX (“Final Rule”) which provides that: “Discrimination on the basis of sex includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity.”[4] This amendment is consistent with the Department’s prior interpretation and codifies the Bostock decision. In addition to the variety of feedback the Department received preceding the 2020 amendment to Title IX[5], the Department received and reviewed more than 240,000 comments regarding the Final Rule. This amendment expands and clarifies the definition of sex discrimination to include sex stereotypes, sex characteristics, pregnancy, sexual orientation, and gender identity.  The recipients of Federal assistance were defined to include elementary schools, secondary schools, and postsecondary institutions.  The plan is for the proposed regulation to take effect on August 1, 2024. 

            Additionally, a few notable revisions of the Final Rule pertain to off-campus conduct and reporting requirements for grievance procedures: for example, who is qualified to report, during what timeframe, the removal of mandatory live hearings.  Moreover, the Final Rule does not address transgender or nonbinary students’ participation in athletic programs.  Finally, the Final rule requires reasonable modifications for individuals based on pregnancy and expands protections for caregivers. 

The Final Rule preempts state laws that contradict its new definitions, thus ensuring a uniform standard across all states.  Each school district must adopt, publish, and implement a nondiscrimination policy that has appropriate notice and grievance procedures.

Challenges to the 2024 Amendment to Title IX

The Final Rule’s recent release has provided fresh impetus for several states to challenge the scope and authority of the Department in promulgating the recent amendment to Title IX. This wave of litigation may affect whether the proposed regulations will take effect on August 1, 2024.

            Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming have initiated lawsuits over the Final Rule. The lawsuits allege, among other things, the Final Rule raises First Amendment[6] concerns and that the Final Rule is in violation of the Administrative Procedure Act.[7] A few states argue that the Final Rule misapplies the Bostock precedent.[8]

 We will keep an eye on these cases and any impact on the Final Rule.

Thank you to Linda Reimann for her research and writing assistance.

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[1] 140 S. Ct. 1731 (2020).

[2] 20 U.S.C. §§ 1681-1688 (LexisNexis, Lexis Advance through Public Law 118-62, approved May 13, 2024).

[3] Department of Education is an executive agency that enforces Title IX under 34 C.F.R. § 106.31 (2023).

[4]  89 FR 33474, 33886 (amending 34 C.F.R. § 106).

[5] Department of Education promulgated the 2020 amendment to Title IX under 85 Fed. Reg. 30,026 (May 19, 2020).

[6] U.S. Const. amend. I.

[7] Administrative Procedure Act, 5 U.S.C. §§ 701-06.

[8] Memorandum Ruling at 18, Rapides Par. Sch. Bd v. U.S. Dep’t of Educ., 3:24-cv-00563 (W.D. La. June 13, 2024).