Disclosure Schedules Guide
Master the art of disclosure schedules—the most critical operational document for sellers in M&A transactions. Learn standard sections, best practices, and common pitfalls to avoid.
What Disclosure Schedules Do
Disclosure schedules serve two critical functions in every M&A transaction:
Disclosing Information
Listing specific items like contracts, employees, IP assets, and real property that the purchase agreement references.
Qualifying Representations
Listing exceptions to the promises (reps) made in the purchase agreement to avoid being in breach at closing.
Key Insight: Section numbers (e.g., 3.12, 3.14) correspond directly to the section numbers in the Purchase Agreement. If Section 3.12 of the SPA covers "Material Contracts," then Schedule 3.12 lists those contracts.
Standard Schedule Sections
While numbering varies by agreement, these are the industry-standard sections and what they must contain:
Section 3.12: Material Contracts
Most Labor-IntensiveContracts exceeding a dollar threshold (e.g., $25k/year) or with specific restrictive terms.
What to Include:
- • Top 10-20 customers and suppliers by revenue/spend
- • Agreements with Change of Control or anti-assignment clauses
- • Restrictive covenants (non-competes, exclusivity)
- • Credit agreements, loans, and guarantees
- • Joint venture or partnership agreements
Section 3.14: Intellectual Property
- • Registered IP: All patents, trademarks, copyrights, domains with registration numbers
- • Inbound Licenses: Software/IP licensed from others (excluding off-the-shelf)
- • Outbound Licenses: IP licensed to others (e.g., SaaS agreements)
- • IP Litigation: Past or pending infringement claims
Section 3.16: Real Property
- • Owned: Legal descriptions and addresses of land/buildings
- • Leased: All leases with landlord name, rent, expiration, security deposit
Other Common Sections
3.10: Litigation
Pending/threatened lawsuits, arbitrations, government investigations
3.18: Employees & Benefits
Employee census, salaries, benefit plans (401k, health)
3.15: Taxes
Filing jurisdictions, open audits, tax elections
3.20: Insurance
Active policies (GL, D&O, Cyber) and claims history
3.21: Permits & Licenses
Required permits, environmental compliance
Mapping Diligence Findings to Schedules
Mage helps you translate due diligence findings into the correct disclosure schedule sections using this three-step process:
The "Against" Review
Read every Representation in the agreement and ask: "Is this statement 100% true?"
Data Room Cross-Check
Every document in the VDR likely belongs on a schedule. Map systematically:
Lease in folder 4.1
→ Schedule 3.16
Patent in folder 5.2
→ Schedule 3.14
Interview Key Management
Diligence reports miss things that exist only in people's heads:
- • Ask Sales VP: "Any customers threatening to leave?" → Material Changes schedule
- • Ask HR Director: "Any informal harassment settlements?" → Litigation schedule
Best Practices
Mirror the Agreement
If Reps are in Article 3, your schedules should be "Schedule 3." Don't create schedules without corresponding representations.
Include a General Section
Add a preamble stating that disclosure in one section applies to all others where relevance is apparent—avoids duplicate listings.
Reference, Don't Describe
Instead of summarizing contract terms (which invites error), list the contract and state "a copy has been made available in the Data Room at index #1.2.3."
Use Sub-headings
In complex sections like Material Contracts, break the list by category (Customer Contracts, Vendor Contracts, Leases) for readability.
Common Mistakes to Avoid
"Kitchen Sinking" (Over-disclosure)
Dumping every single email or invoice into the schedules. This annoys the buyer and can actually hurt the seller by burying material risks in noise. Stick to the materiality threshold.
The "Knowledge" Trap (Under-disclosure)
Fatal error: Not listing items because "the buyer already knows from diligence." If it's not on the schedule, it's not disclosed—buyer can sue for breach even if they knew.
Missing Cross-References
Listing a lawsuit in "Litigation" but failing to list the settlement agreement for that lawsuit in "Material Contracts."
Forgetting COC Consents
Failing to identify which contracts require the customer's permission to sell the company. Buyer may inherit contracts they legally cannot use.