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.

4 thoughts on “Revisiting Use of the Phrase “Definitive Agreement””

  1. It seems unobjectionable to use “Definitive Agreement” as a defined term to mean the binding agreement that covers the same subject as the letter of intent. By the way, I’ve seen (and drafted) other sorts of agreements that refer to a later “definitive agreement” (usually capitalized), such as teaming and co-marketing agreements in which the parties enter into detailed contracts covering particular deals that result from the cooperation that the more general agreement describes. It’s usually stipulated that the later agreement, while it doesn’t abrogate the earlier one, supplements and supersedes it for the particular deal.

  2. Ken:

    I rather suspect that the term “definitive agreement” started off life as a defined term, meaning something binding that fully describes the transactions to be consummated. Then something happened where people started using that defined term as if everyone knew that’s what it meant. And then that informality made its way into contracts as if “definitive agreement” meant something in addition to being an agreement that is definite.

    And, most likely, there is a commonly held understanding about at least many of the characteristics of a definitive agreement that could prevent the agreements excerpted above from being considered unenforceable for vagueness.

    Still, “binding agreement” would have been better in all three excerpts. If they meant something beyond binding, that’s probably not made its way into the agreement.


  3. (1) A ‘contract’ is usually defined as an ‘enforceable agreement’, implying that a mere ‘agreement’ is unenforceable. So a drafter who follows the convention of referring to the instrument being drafted as an ‘agreement’ rather than a ‘contract’ may feel an occasional urge to fortify ‘agreement’ with an adjective like ‘binding’, ‘definitive’, or ‘final’.

    (2) Often a later instrument follows an earlier on the same subject. But such situations vary so much that it’s hard to settle on generic names for the two instruments. For the earlier one, the names ‘binder’, ‘letter of intent’, ‘memorandum of understanding’, and ‘term sheet’ are common, but such instruments vary so much in binding force and level of detail that corresponding names for their later counterparts aren’t obvious. Vance’s suggestions of ‘supplemental’ and ‘superseding’ are helpful for the situations to which they apply.

    (3) As for the EDGAR specimens, to avoid the whiff of redundancy that comes from referring to a later agreement as binding, definitive, or final, a drafter could either (a) reject adjectives and say just ‘agreement’, or (b) replace the two-word phrases with just ‘contract’.

    (4) It’s good to sweat the small stuff, but my sense is that the likelier area for disputes is how binding the earlier instrument is and how the earlier and later ones interact. If the drafter addresses these points directly, how she names or refers to either instrument becomes moot.


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