TLDR:
A Disclosure Letter (also called Disclosure Schedule or Schedule of Exceptions) is a document accompanying an M&A purchase agreement where the seller discloses specific exceptions to the representations and warranties given in the main agreement. Disclosed matters are carved out of the warranty—the buyer cannot claim indemnification for issues properly disclosed in the disclosure letter.
Why Disclosure Letters Exist
Purchase agreement warranties are typically drafted as absolute statements (“the Company has no pending litigation”; “all material contracts are valid and binding”). The disclosure letter then qualifies these absolute statements with reality (“except for the cases listed in Schedule 3.4”; “except as set forth in Schedule 3.7”). This structure provides protection to both parties: the buyer gets a clear statement of warranties as a baseline; the seller protects itself against indemnification for known matters that the buyer agrees to accept by signing.
General vs. Specific Disclosure
Disclosure letters distinguish: general disclosure (a body of documents—the data room, public filings—qualifying all warranties to the extent the information is “fairly disclosed” in those documents) and specific disclosure (specific exceptions to specific warranties, listed by warranty number). Modern best practice favors specific disclosure because it’s clearer for both parties; general disclosure relying on “fair disclosure” of data room contents creates ambiguity about what was actually disclosed. UK-style W&I insurance often requires specific disclosure.
Bring-Down and Updates
Disclosure letters typically have two versions: signed at execution and “brought down” at closing. The bring-down mechanism handles disclosure of new matters arising between signing and closing—but creates a tension: if the seller can disclose new adverse matters at closing, that effectively eliminates buyer indemnification for those matters. Modern practice typically requires that bring-down disclosure cannot eliminate buyer protection for matters that would constitute breaches of warranties given at signing—only for forward-looking warranties (those given as of closing). Drafting bring-down provisions correctly is one of the most-litigated areas of M&A documentation.