Enhanced Prompt: List of Excluded Assets and Liabilities

You are tasked with drafting a comprehensive List of Excluded Assets and Liabilities, a critical transactional document that serves as a schedule or exhibit to a primary acquisition agreement. This document delineates with precision which assets and liabilities are being carved out from the transaction scope, thereby protecting both parties from unintended transfers and assumptions.

Document Purpose and Context

Begin by understanding that this document functions as a definitive inventory that prevents disputes post-closing. It must be drafted with meticulous attention to detail, as any ambiguity regarding excluded items can lead to costly litigation or breach of contract claims. The document should complement and reference the main transaction agreement (such as an Asset Purchase Agreement, Stock Purchase Agreement, or Merger Agreement) while maintaining internal consistency with all transaction documents.

Preamble Section

Draft an opening section that establishes the foundational framework for the exclusions. This preamble must clearly identify all parties to the transaction using their full legal names and jurisdictions of organization. Reference the principal agreement by its complete title, execution date, and the specific section that contemplates this schedule of exclusions. Articulate the purpose statement with precision, explaining that this document serves to enumerate those assets and liabilities that, notwithstanding any general language in the main agreement, shall be explicitly retained by the seller or excluded from the buyer's assumption. The tone should be formal and unambiguous, establishing that this list is exhaustive and controlling for purposes of determining what is not being transferred or assumed.

Definitions Section

Provide clear definitional parameters for terms central to the exclusions, particularly if the main agreement lacks comprehensive definitions or if transaction-specific meanings are required. At minimum, define "Excluded Assets" and "Excluded Liabilities" with sufficient specificity to eliminate interpretive disputes. Consider whether terms such as "Affiliate," "Subsidiary," "Intellectual Property," "Contracts," "Real Property," and "Permitted Encumbrances" require definition or cross-reference to the main agreement. Each definition should be crafted to align with industry-standard usage in mergers and acquisitions practice while accommodating the unique characteristics of the transaction at hand. Where definitions are incorporated by reference from the main agreement, state this explicitly to avoid redundancy while ensuring clarity.

Excluded Assets Section

Construct a comprehensive, categorized inventory of all assets that the seller is retaining and that will not transfer to the buyer. Organize this section by asset class to enhance clarity and ensure nothing is overlooked. Categories should typically include:

Cash and Cash Equivalents: Specify all bank accounts, petty cash, certificates of deposit, money market accounts, and similar liquid assets being retained, including account numbers where appropriate and the approximate balances as of a specified date.

Accounts Receivable: Identify any receivables that remain with the seller, whether all pre-closing receivables, specific customer accounts, or receivables related to excluded contracts, and specify the cut-off methodology.

Intellectual Property: Detail with particularity any patents, trademarks, service marks, trade names, copyrights, domain names, trade secrets, or proprietary technology being retained, including registration numbers and jurisdictions where applicable.

Real Property and Leaseholds: Describe any real estate, facilities, or leasehold interests not being transferred, using legal descriptions or street addresses, and specify whether this includes associated improvements and fixtures.

Personal Property and Equipment: Enumerate specific items of tangible personal property, machinery, equipment, vehicles, furniture, or fixtures being excluded, with sufficient detail to permit identification (such as serial numbers, VIN numbers, or detailed descriptions).

Contracts and Agreements: List specific contracts, customer agreements, supplier arrangements, employment agreements, benefit plans, insurance policies, or other contractual rights that the seller is retaining, identifying each by party name, date, and subject matter.

Corporate Records and Non-Transferable Permits: Identify organizational documents, minute books, stock ledgers, tax records, and any licenses or permits that by law or contract cannot be transferred or that relate to excluded assets or the seller's continuing operations.

Intercompany Assets: Specify any receivables from, equity interests in, or other assets related to affiliates of the seller that are not part of the transaction.

For each category, provide sufficient detail to permit unambiguous identification of the excluded item. Where appropriate, reference attached exhibits or schedules that contain more extensive listings. Ensure that the level of specificity matches the materiality and complexity of the assets involved.

Excluded Liabilities Section

Develop a parallel categorized inventory of all liabilities that the buyer is not assuming and that will remain the seller's responsibility post-closing. Structure this section to mirror the asset categories where logical, while recognizing that liability categories may differ. Typical categories include:

Indebtedness: Enumerate all debt obligations, loans, credit facilities, notes payable, capital leases, and similar financial obligations being retained by the seller, identifying each by lender, principal amount, and agreement date.

Accounts Payable and Accrued Expenses: Specify whether all pre-closing payables remain with the seller or identify specific categories or vendors whose obligations are excluded, and address how cut-off will be determined.

Litigation and Claims: Detail any pending or threatened lawsuits, arbitrations, governmental investigations, or claims that the buyer is not assuming, including case names, court or forum, and case numbers where available.

Tax Liabilities: Identify all tax obligations relating to pre-closing periods, excluded assets, or the seller's operations generally, including income taxes, sales and use taxes, property taxes, payroll taxes, and any tax deficiencies or assessments.

Environmental Liabilities: Specify any environmental contamination, remediation obligations, or compliance liabilities associated with excluded properties or arising from pre-closing operations.

Employee and Benefit Liabilities: Enumerate obligations under benefit plans, pension liabilities, severance obligations, workers' compensation claims, or employment-related liabilities that remain with the seller.

Contract Liabilities: Identify liabilities arising under excluded contracts or specific obligations under transferred contracts that the seller is retaining (such as warranty claims for pre-closing sales or indemnification obligations).

Intercompany Liabilities: Specify any payables to, guarantees of, or other obligations to affiliates of the seller.

Contingent and Unknown Liabilities: Address the treatment of liabilities that are unknown as of closing or that are contingent, specifying which party bears the risk of such liabilities and under what circumstances.

Each excluded liability should be described with sufficient particularity to permit identification and to prevent disputes about whether a specific obligation was or was not assumed. Where the universe of excluded liabilities within a category is extensive, consider using representative examples coupled with general descriptive language that captures all items within the category.

Representations and Warranties Section

Include targeted representations that reinforce the exclusions and allocate risk appropriately. The seller should represent and warrant that the List of Excluded Assets constitutes all assets being retained and not transferred to the buyer, and that all assets not listed are being transferred (subject to any separate schedules of transferred assets). Similarly, the seller should confirm that the List of Excluded Liabilities constitutes all liabilities not being assumed, and that the buyer is assuming all liabilities not listed (subject to the terms of the main agreement). Consider including representations that:

• The excluded assets are owned by the seller free and clear of any obligations to transfer them to the buyer
• The seller has the right to retain the excluded assets without violating any agreement or law
• No excluded assets are necessary for the buyer's operation of the acquired business as currently conducted
• The excluded liabilities are valid obligations of the seller and the seller has the financial capacity to satisfy them

These representations should be carefully calibrated to the overall risk allocation in the transaction and should be consistent with the representations in the main agreement. Consider whether these representations should survive closing and for what period, and whether they should be subject to the general indemnification provisions of the main agreement.

Miscellaneous Provisions Section

Address essential administrative and interpretive provisions that govern this schedule. Specify that this document is governed by the same governing law clause as the main agreement, ensuring consistency in interpretation. Include an amendment provision stating that any modifications to this List of Excluded Assets and Liabilities must be made in writing and signed by both parties, or that amendments may be made in accordance with the amendment procedures set forth in the main agreement. Incorporate an integration clause confirming that this schedule, together with the main agreement and other transaction documents, constitutes the entire agreement regarding excluded assets and liabilities and supersedes all prior understandings. Address the relationship between this schedule and the main agreement, specifying that in the event of any conflict, the terms of this schedule shall control with respect to the identification of excluded items. Consider including a severability provision and confirming that this schedule may be executed in counterparts.

Drafting Standards and Quality Control

Throughout the document, maintain absolute consistency in terminology, using the same defined terms as the main agreement. Employ parallel structure in listing assets and liabilities to facilitate review and comparison. Use precise, unambiguous language that minimizes the potential for interpretive disputes. Avoid general catch-all phrases unless absolutely necessary, and when used, ensure they are carefully circumscribed. Cross-reference specific sections of the main agreement where appropriate to ensure integration of the documents. Verify that every material asset being retained and every material liability not being assumed is explicitly identified. Consider the tax implications of how items are characterized and excluded. Ensure that the document can withstand scrutiny in due diligence and potential litigation by maintaining a high standard of accuracy and completeness.

The final document should be professionally formatted with clear headings, appropriate numbering or lettering for listed items, and sufficient white space for readability. It should be suitable for attachment as a schedule or exhibit to the main transaction agreement and should be prepared in a form ready for execution by the parties.