“Definitive Agreement”

[Updated 11:30 a.m. EDT, May 6: Getting rid of “definitive transaction” in the language I offered in the previous post caused me to get carried away, and Chris’s comment below has caused me to reverse course. A letter of intent that contains binding confidentiality provisions but is otherwise not binding could conceivably be described as “providing for” a transaction. I can’t offhand think of any better way to address that potential confusion than by using “definitive agreement.” Thanks, Chris.]

I’ll now state more generally something that came to me when writing this comment to my immediately preceding post: the phrase definitive agreement is pointless. The only question is whether a written agreement provides for the transaction in question.

Consider these examples:

If: … (iii) within 12 months after the date of any such termination, an Acquisition Transaction is consummated or a definitive agreement providing for an Acquisition Transaction is executed [read the Company and the Parent enter into a written agreement providing for an Acquisition Transaction] …

… then Granite shall pay to FNB a termination fee of $450,000 (the ” Termination Fee “) (A) in the case of clause (i) above, one Business Day after the earlier of execution of a definitive agreement with respect to [read entry into a written agreement providing for], and consummation of, any Acquisition Proposal referred to in sub-clause (i)(z) above …

But I’m prepared to have someone correct me.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

3 thoughts on ““Definitive Agreement””

  1. I was under the impression that this language is used to distinguish between the full agreement and a term sheet. Term sheets can, after all, be written agreements and can have binding provisions, but aren’t the full agreement.

    • I expect that Chris is correct, though I would still say that “definitive agreement” seems a loose term that is feeling for a concept, rather than a precise expression of the intended effect. After all, any agreement is “definitive ” in respect of its subject matter, and if it isn’t definitive on any point then it isn’t an agreement in respect of it.

      I think it would be better to focus on the phrase describing the contents of the agreement (i.e., in the first example, “providing for an Acquisition Transaction” and, in the second example, “with respect to… any Acqusition Proposal…”). I would feel happier with “an agreement to execute an Acquisition Transaction/Proposal” – I don’t think a term sheet would fall within it. (I use “execute” rather than consummate, as in the UK “consummate” is now generally only used for marriages…)

      • W: I feel your pain, but “an agreement to execute [consummate] an Acquisition Transaction” might be understood to mean a contract providing for simultaneous signing and closing and not one providing for a delayed closing.

        I thought of saying “a written agreement obligating Acme to acquire Widgetco,” or some such, but presumably Acme’s counsel would insist on adding something about how it’s subject to conditions contained in the agreement, etc., etc.Ken


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