Many contracts contain exhibits. The naming style – exhibit, schedule, attachment, appendix or annex – is not of significance, except that a chosen term should be used consistently throughout the entire agreement. French lawyers may prefer different terminology, because the translated original term simply fits the English counterpart (e.g. annex vs. annex, appendix vs. appendix); and some industries may have an established terminology. English law firms seem to work with schedules, whilst American firms sometimes prefer attachment or exhibit).
Integral part or stand-alone obligation? Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.
The reasons for including a schedule vary:
Complexity. The transaction is complex, in which case the structuring into schedules enhances the overseeability of all the transaction documents.
Various sub-transactions. The transaction in the main agreement entails various smaller transactions each of which is of a different nature:
a product sales agreement may include a licence of technology;
a secured loan agreement will have the (agreed form) agreements by which such security (e.g. a mortgage, a deed of pledge, a parent guarantee or suretyship arrangement) is established or vested attached as a schedule;
a share purchase agreement is often accompanied by a transitional services agreement and ongoing business agreements between the seller and the acquired companies;
a joint venture agreement will typically include one or more business arrangements, as well as a (business) contribution agreement;
a joint development agreement may require that one party provides certain tools or equipment on loan, in which case the goods on loan will be dealt with by a separate schedule;
the lease of a car may include an insurance policy and a financing arrangement;
an employment agreement may include the applicability of a collective labour agreement or pension scheme.
Different disciplines involved. The transaction requires the involvement of different disciplines and different types of contributions:
a joint development agreement typically contains a statement of work (i.e. a technical document specifying various aspects of the work to be developed, such as for example the product specifications, testing criteria and acceptance procedures, deliverables and milestones, go/no-go decision making points, budget allocations, persons involved in the various stages);
a service agreement may contain a description of the work to be created as part of the services or the agreed service level (e.g. response times, allowed failure rate, technical criteria);
a shareholders agreement may refer matters related to decision making (i.e. matters reserved for approval by the shareholders; or arrangements in cases of conflicts of interest) to a separate schedule; this is probably not immediately recognised as such, but certainly related to the question who may or must see what;
in a share purchase agreement, in respect of the period before completion of the share transfer, various important business decisions will require the prior approval of the purchaser (who might not start to manage the business but will certainly want to prevent that the acquired business acting in a way which is inconsistent with its prospective business plans); the subject matters requiring approval are sometimes listed in a schedule;
the list of assets, intellectual property rights, material contracts sold under a share or asset purchase agreement often serve as the list of security required to be given in the financing (loan) agreements related to the same share or asset transaction – the financing bank requires that those lists are extracted from the data room and the purchaser will in turn require that the seller produces the lists and warrants that the lists are complete.
Separation of facts and obligations. It is strongly recommended to move informative aspects, specifications and technical facts to a schedule; it avoids the drafter having to keep track of all changes in technical documents (for which the technical people are responsible).
an asset purchase agreement may contain lists of assets, inventories, registered details of transferred real estate and numbers of transferring bank accounts;
a share purchase agreement may contain such a large number of sellers or acquired entities that separating the details of these parties will reduce the size of the contracting parties’ block or the definitions section by moving those details to a schedule;
a credit facility agreement (such as the LMA) contains the required notice letter formats to be used by the borrower in case of a drawdown, a prepayment or an event of default;
a joint venture agreement will typically contain a description of the joint venture’s business; because sharpening the scope of the business does not require a full document to be circulated each time, separating this in a one page schedule may support the discussions;
similarly, a joint venture agreement will normally contain a business plan for the joint venture. The business plan may be a Powerpoint presentation or an Excel spreadsheet (depending on the kind of persons who are responsible for preparing the business case). A contract should not contain spreadsheets or presentations;
a trade mark licence agreement will identify (and display) the licenced trade marks in the schedule; a patent licence agreement or a deed of patent transfer may identify the registration numbers and jurisdictions of filing (or pending registrations) in an annex.
Updateable documents attached. Several schedules will be updated from time to time:
the products or services provided from time to time;
list prices, rebate structures and purchase commitments for the products sold under the master sales agreement;
ordering procedures reflected in supply chain and logistical manuals and guidelines of the purchasing enterprise;
statements of work: the initial projects are probably well-defined but future projects and services will probably be subject to the principles in the main agreement;
in an M&A transaction, the agreements that are in an agreed form but to be signed on the day of completion of the transfer formalities.
a share or asset purchase agreement contains a schedule with all the seller’s warranties; whereas such a warranties schedule will contain factual details and lists of assets, intellectual property rights and material contracts in annexes attached to the warranties schedule;
the same applies to the disclosure schedule, which is usually a schedule to the share or asset purchase agreement, and which will itself have annexes in which the disclosed court proceedings, claims, intellectual property infringement claims, disputed patent registrations or building renewal plans are attached;
a joint venture agreement may have a business contribution agreement as a schedule, such contribution will take the form of a share or asset transfer agreement and, accordingly, any warranties will be addressed in an attachment to the contribution agreement.
Where to place (in or out)? Also the policy for including matters into a schedule varies. English law firms tend to move elaborate clauses or case-specific clauses to schedules (and place the signature block on the last page of the contract but before any schedules). The background to this is probably that standardised parts of a transaction should be separated from customised parts, especially if the annexed clauses are operational rather than subject to negotiation; it also reflects the modular nature of modern contracting, also visible in automated contract assembly (see paragraph 9.1). Obviously, moving such provisions to a schedule improves the readability of what remains. U.S. legal practice tends to keep as much as possible in the main agreement (i.e. resulting in bulky articles containing warranties).
Schedules to schedules (annexes to schedules). If a transaction becomes complex (and hence the master or umbrella agreement contains several sub-agreements), those sub-agreements will likely contain schedules as well. Although there is no limit of the number of schedules which can be contained within scheduled documents; a document structure with more than three levels is not usual. Common examples of multi-layered transaction documents are:
Naming of schedules to schedules. Embedding schedules into schedules raises the naming question again. It is a good idea to use a different naming convention for these embedded schedules. For example, it is a good idea to refer to the schedules to the main agreement as schedule and to call the attachments to those schedules an annex (or exhibit).
Where to place (sequential order)? The sequence of schedules is normally in the order in which they appear in the agreement. It might be a good idea to re-arrange the order. Typically, the list of products and prices is made the first schedule (even though the definition of General Terms and Conditions precedes the definition of Products in which those schedules are referred to). As another example, the list of acquired companies in a schedule to a share purchase agreement should probably precede all other schedules (except maybe for a list of the selling entities).
Division of schedules in parts. In some cases, an overload of schedules would be created if the above ideas were followed consistently. This can be prevented by dividing a schedule into several parts. For example, the business of a joint venture can be described in part 1, the scope of the non-compete provisions in part 2 and territorial arrangements (e.g. level of exclusivity) in part 3. As another example, a schedule related to the transfer of a business may address owned real estate in part 1 and leased buildings in part 2; a schedule identifying intellectual property rights may list owned registered IP in part 1; IP that is subject to licences to third parties may list those licences in part 2, and IP that is available pursuant to a licence from third parties could be listed in part 3.
Numbering. Schedules should be identified by a number or letter. In the agreement, the number serves as the identifier (and both the chosen reference word (schedule, annex etc.) and the number should be marked). Also the numbering style can be chosen freely, although it is a good idea to establish the numbering style as part of the company’s or firm’s contract drafting conventions (or the house style). The numbering can be in numerals (Schedule 1, 2, 3), in Roman numbering (Exhibit I, II, III) or in capitals (Annex A, B, C).
A regularly adopted alternative style for numbering schedules is to use the number of the section in which the schedule is first referred to. This would mean that if for instance Section 8.1 refers to a schedule with the seller’s warranties, such schedule would be numbered Schedule 8.1 (and in subsequent sections referring to the same schedule, the 8.1 number would be maintained). Accordingly, annexes embedded into a schedule would refer to the number of the clause in the annex. Schedules that are referred to in the definitions (whereas definitions should not be numbered) are assigned a number that corresponds to its sequential appearance (i.e. such that the first schedule would be Schedule1.1(a), a schedule referred to in a subsequent definition Schedule1.1(b), etc.). If a section first refers to two different schedules (e.g. both the warranties schedule and the disclosure letter), the numbering style of schedules requires a choice, because a sub-paragraph of the section might also contain first-called-upon schedules, in which case the reference Schedule 8.1(a) in section 8.1 might conflict with the first-reference in subparagraph 8.1(a).
Closing documents. In M&A transactions and financing transactions, it is appropriate to include the closing documentation as the last ‘schedule’ of the transaction binders. (I put schedule between quotation marks because these documents are often not mentioned in the agreement itself but are inevitably a part of the transaction. Such ‘schedule’ would contain the powers of attorney, approving corporate resolutions, copies of the executed deeds of transfer, resignation letters, director appointments and side letters.
How to refer. It is good practice to establish a standard phrase to refer to a schedule, as part of the company’s or firm’s contract drafting conventions. However, do not also include the ‘suffix’ hereto or to this Agreement. For example:
…the agreement attached as Schedule 3. …in the form of Annex I. …is listed in Schedule 8.1(a).
If there are several schedules, and in any event if the transaction documentation is rather voluminous, it is a good idea to include a list of schedules in the main agreement. M&A transactions tend to include the list underneath the table of contents (or on a separate page after the table of contents); ordinary course contracts often list the annexes underneath the signature block.
Formatting schedules. It is good practice to use a cover sheet for each schedule (consistently). However, if the contents of all the schedules allow, as is the case in most ordinary course contracts, it is appropriate to start the contents immediately underneath the schedule title. It is a good idea to use different headers and footers for the schedules (i.e. in which the schedule title and the agreement to which it relates are identified).
In large transactions, where the documents may fill one or more binders, it is useful to insert a tab page.
Post-closing replacements. When a transaction is closed, it is a good practice to replace the schedules that contain non-signed (agreed form) agreements that were to be signed on closing (and have been signed) with copies of the final signed ones.