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Definitive Agreement




The definitive agreement is a legally binding contract between a buyer and seller detailing the terms and conditions of the sale transaction.

In an auction, the first draft is prepared by the seller's legal counsel in collaboration with the seller and its bankers. It is distributed to prospective buyers (and their legal counsel) during the second round-often toward the end of the diligence process. The buyer's counsel then provides specific comments on the draft document (largely informed by the buyer's second round diligence efforts) and submits it as part of the final bid package.

Ideally, the buyer is required to submit a form of revised definitive agreement that it would be willing to sign immediately if the bid is accepted. Often, the buyer's and seller's legal counsel pre-negotiate certain terms in an effort to obtain the most definitive, least conditional revised definitive agreement possible prior to submission to the seller. This aids the seller in evaluating the competing contract terms. Sometimes, however, a prospective buyer refuses to devote legal resources to a specific markup of the definitive agreement until it is informed it has won the auction, instead simply providing an "issues list" in the interim. This can be risky for the seller because it may encourage re-trading on contract terms or tougher negotiations on the agreement after a prospective buyer is identified as the leading or "winning bidder."

Definitive agreements involving public and private companies differ in terms of content, although the basic format of the document is the same, containing an overview of the transaction structure/deal mechanics, representations and warranties, pre-closing commitments (including covenants), closing conditions, termination provisions, and indemnities (if applicable), as well as associated disclosure schedules and exhibits.

Related Terms:

Confidentiality Agreement
A confidentiality agreement (CA) is a legally binding contract between the target and each prospective buyer ...

Futures Contracts
Agreement to buy or sell an underlying security at a predetermined date at an agreed price. ...

Contract
A unit of trading for a financial or commodity future; the actual bilateral agreement between the ...





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