Eliminating Incidental Information from the Introductory Clause

Last year I drafted the following introductory clause to a merger agreement:

This merger agreement is dated March 23, 2006, and is between DARIUS TECHNOLOGIES, INC., a California corporation (“Parent”), SWORDFISH ACQUISITION, INC., a California corporation and a wholly-owned subsidiary of Parent (“Sub”), TROMBONE SOFTWARE, INC., a Delaware corporation (“Target”), and the stockholders of Target, namely XYLER XAVIER, an individual (“Xavier”), YOLANTA YOUNG, an individual (“Young”), and ZENEDINE ZELIG, an individual (“Zelig” and, together with Xavier and Young, the “Stockholders”).

The strikethrough text constitutes incidental information. Once you start including incidental information in the introductory clause, such as information regarding relationships among the parties and what role a party has in a given transaction, it’s hard to know when to stop, and the introductory clause can quickly become cluttered.

Also, putting all such information in one place—namely in the recitals—should as a general matter make life easier for the reader.

So in this case, I’d delete the strikethrough text and include in the recitals the following sentence: “Sub is a wholly owned subsidiary of Parent, and the Stockholders own all outstanding capital stock of Target.” I acknowledge that this arrangement is not necessarily any clearer or more economical, but that’s less imporant to me than the predictability offered by a bright-line rule.

But I’m still mulling this over. [And note that it’s not what I say in MSCD; see Steve’s comment below.] Any thoughts?

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.

8 thoughts on “Eliminating Incidental Information from the Introductory Clause”

  1. Ken: I strongly prefer the approach you outline here for the introductory clause. In fact, I long wondered why in paragraph 2.28 of MSCD you recommend “if a legal-entity party is an affiliate of another legal-entity party described previously in the introductory clause, state as much: ACME ENTERTAINMENT, INC., a Delaware corporation and a wholly owned subsidiary of Acme.” I felt uncomfortable with that recommendation because I believe that legal relationship is best described elsewhere in the contract. I like my introductory clause to be as concise as possible.

    I am hoping that there will soon be an MSCD2 and that you will revisit paragraph 2.28.

    Keep up the great work!

  2. Steve: I’d, um, forgotten about MSCD 2.28; thanks for reminding me. One of these days I’ll have to read that book again! Ken

  3. I tend to prefer the original way. Yes, striking out the incidental language makes the introductory paragraph quicker to read, but you’re simply just moving words from the intro paragraph to the recitals, making the recitals longer. I tend to believe a reader would rather know the relationship of the parties in the first instance, rather than waiting for the recitals to discover why these seemingly unrelated parties are coming together.

  4. I go with Mr Adams new view in this one. The introductory clause has long been a dumping ground for many things, some of which have been more than incidental. I might even put things like this (and also the typical definition of ‘Effective Date’ trick, which may turn out to have some huge substantive effect later on in the agreement) in the category of ‘hidden in plain sight.’

    I think our eyes tend to skip over the intro paragraph, and we should be putting things that actually make a difference (beyond naming the parties) down in the part of the document where we expect to find them.

    Speaking of things we find in the introductory clause — How about some research and commentary into the British drafting habit (or is it a requirement???) of including the ‘company number’ as part of the name of the corporate party (e.g., “Top Hat, Ltd., a United Kingdom corporation, company number LXQ493821”). I came across it once in a deal, thought it superfluous and struck it — I’m still smarting from the wounds inflicted by the opposing counsel.

  5. I’m with JHK. Mostly. Some information is more important than other. For example, in a stock purchase agreement, if I just saw individuals’ names, I’d like to know right up front if the individuals are selling stockholders, stockholders’ representatives, trustees, etc. Trustees being a good example, because if you go too far with your proposal, you’d just have “John Smith” as the party, since, technically, that’s all he is, but you’d later say something like “John Smith, as trustee for the Jane Doe 2007 Irrevocable Lifetime Trust.” What can I say, I’m too impatient to wait for the recitals to find out certain information!

    I do agree that corporate relationships like subsidiaries and affiliates can wait for later. But if I can’t figure out who the group is from the caption, I’m not happy. At least in your example, the definition tells me who the people are, but I wouldn’t want to go too far where I couldn’t figure it out without going to the recitals.

  6. If the relationships are not important to understanding the transaction or if that information could be better conveyed somewhere else then, yes, I think it’s probably good practice to move it. That is, it seems to me that whether this is appropriate is a question of whether the value of the information to the reader is greater than the enhanced readability of the introduction (something that I’d have to imagine is pretty low).

    Also, you’re selective removal of some incidental information (but not all) says that the relationship of the parties less important or more easily conveyed elsewhere to your reader than other incidental information like entity types or state of incorporation. Frankly, I think one could easily strike state of incorporation and entity type in certain situations with a similar argument and you could simplify the introduction to:

    “This merger agreement is dated March 23, 2006, and is between DARIUS TECHNOLOGIES, INC. (“Parent”), SWORDFISH ACQUISITION, INC. (“Sub”), TROMBONE SOFTWARE, INC. (“Target”), XYLER XAVIER (“Xavier”), YOLANTA YOUNG (“Young”), and ZENEDINE ZELIG (“Zelig” and, together with Xavier and Young, the “Stockholders”).”

    The thing that’s interesting about stripping the incidental information from the introduction in this example is that much of that extra information is implicit from your election of definitions. So, you can easily tell the “parent”, “sub”, “target” and “stockholders” without cluttering the introduction with extra commas and words. In general, however, I doubt that that’s always the case.

    The real downside is that contract readers are somewhat trained to look to the introduction for that sort of information. So moving that information might incur the wrath of folks like 10803 who “would not be happy”. You’re also likely to find another reviewing lawyer that is simply going to reintroduce that information anyway because it makes them feel better.

  7. From an English (real property) lawyer …

    … we include the company number because companies have a nasty habit of swapping names after an asset sale. So when you are e.g. reading lease, you can’t be sure who (usually) the tenant is unless you know the company number and can cross-check it at Companies House.

    What you call an introductory clause seems for us to be where we state who are the parties to the contract. We wouldn’t put any extraneous information there and would put e.g. corporate relations elsewhere (probably in recitals).


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