Terms Defined More Than Once
A term should only be defined once in a document. If a term is defined more than once, any variation between the definitions can lead to serious problems. This error was found in 69.8% of EDGAR documents analyzed.
For example, these two definitions of “Trust Agreement” appear in the DraftKings / DEAC Merger Agreement dated December 22, 2019.
In Section 1.8(b)(i):
… the SBT Earnout Shares owned by any Israeli member of the SBT Earnout Group shall be deposited with the 104H Trustee pursuant to a trust agreement to be entered with the 104H Trustee (the “Trust Agreement”)…
In Section 7.10:
… such monies being invested in United States Government securities or money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended, and held in trust pursuant to that certain Investment Management Trust Agreement, dated as of March 27, 2019, between DEAC and Continental Stock Transfer & Trust Company (the “Trust Agreement”) …
“Trust Agreement” is referred to 11 times in the contract. In most cases it is unclear which Trust Agreement is intended.
There are exceptions to the general rule that a term should only be defined once, the most common of which is a Definitions section that is a combination of actual definitions and cross-references, such as:
“Letters of Credit”: as defined in Subsection 2.6(a)(i).
“Cash” has the meaning set forth in Section 2.8(i)(v).
CrossCheck 365 treats these as duplicate definitions so that they can be readily located, but it does not flag them as issues. Similarly, entries in an Index of Defined Terms are marked as duplicates for ease of review, but they are not flagged as issues.
Another common practice is the use of what we call “conditional” definitions: definitions that mean one thing most of the time but something else within certain provisions of the contract.
Here’s an example from the Biomed Realty / BRE Edison Merger Agreement dated October 7, 2015 (edited for brevity):
From Section 8.12(i):
(i) “Company Acquisition Proposal” means any inquiry, offer or proposal regarding any of the following[…] (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition, directly or indirectly, by merger, consolidation, sale of equity interests, share exchange, joint venture, business combination or otherwise, of 15% or more of the consolidated assets of the Company […]; (iii) any issue, sale or other disposition [of …] securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing 15% or more of the voting power of the Company [… etc.];
But 15% doesn’t always mean 15%.
From Section 7.3(b):
[… If] the Company enters into a definitive agreement relating to, or consummates, any Company Acquisition Proposal (with, for purposes of this clause (y), the references to “15%” in the definition of “Company Acquisition Proposal” being deemed to be references to “50%”), then the Company shall pay as directed by Parent an amount equal to one hundred sixty million dollars ($160,000,000) (the “Company Termination Fee”) […]
and from 8.2(ww):
(ww) “Superior Proposal” means a bona fide written Company Acquisition Proposal (except that, for purposes of this definition, the references in the definition of “Company Acquisition Proposal” to “15%” shall be replaced by “50%”) made by a third party […]
The term “Company Acquisition Proposal” is then used 36 times in the contract and the reader must decide whether “15%” or “50%” applies in each case, assuming that the reader even knows that the definition is fluid. One related issue that often arises is when the index of defined terms states that a term is defined in a given section. A hypothetical example:
“Company Acquisition Proposal” shall have the meaning given it in Section 8.12(i).
Rarely if ever does the index entry also mention the sections that contain the conditional modifications. Fortunately, the Biomed Realty agreement does not include such an index entry.