Revisiting Use of the Phrase “Definitive Agreement”

Here from EDGAR are instances of use of the phrase definitive agreement in a contract:

The Company shall have ten (10) Business Days from the expiration of the Offer Period above (A) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Investor Buyer (the “Refused Securities”) pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”) …

… by Lpath, at any time prior to the approval of the issuance of Lpath Common Stock in the Contemplated Transactions by the stockholders of Lpath by the Required Lpath Stockholder Vote and following compliance with all of the requirements set forth in the proviso to this Section 9.1(i), upon Lpath entering into a definitive agreement that provides for the consummation of a transaction that satisfies the requirements of clause (b) of the definition of a Superior Offer (a “Permitted Alternative Agreement”) …

Preliminary Change of Control means, with respect to the Company , the earlier of (i) the public disclosure of a Change of Control and (ii) (A) the execution of a definitive agreement for a transaction or (B) the recommendation that the Company ’s stockholders tender in response to a tender or exchange offer, in the case of both (A) and (B), that would reasonably be expected to result in a Change of Control.

It’s conventional to use definitive agreement to distinguish a binding acquisition agreement from a nonbinding letter of intent that preceded it. But definitive isn’t, well, the definitive word in this context. Yes, it connotes completion and finality, but a nonbinding letter of intent is, considered separately, also complete and final.

Furthermore, saying that something is a definitive version suggests that it’s the same as what it’s being compared with, just more advanced. By contrast, a letter of intent and the contract used to effect an acquisition are two different things.

So binding agreement would be a more apt term.

(Yes, I know that I wrote about this in an unedifying 2011 post, here.)

Categories M&A

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.