11.4.2. The Definitive Agreement
Meanwhile, the parties’ legal counsel work out the exact language of the definitive agreement, which is provided to both boards to vote on. If a board requested a fairness opinion, it will complete its review of the fairness opinion before it votes on the definitive agreement. If both boards vote to approve, the definitive agreement is signed.
Remember: Do not confuse the signing of a definitive agreement with the closing of the deal governed by that definitive agreement. Signing and closing are two distinct events, and quite a lot of work remains to be done after signing. Depending on how long the steps described below take, there may be a significant time gap between signing and closing.
Much of the content of a definitive agreement is what you’d expect based on what we’ve already discussed. The agreement describes the transaction structure, purchase price, form of consideration, and the conditions that must be met for closing to occur. However, there are a couple parts of the definitive agreement needing additional discussion. One is the representations and warranties section, which is basically a commitment from both parties that certain statements they’ve made during the sale process are truthful. For example, the representations and warranties will definitely include assurances that any financial statements provided have been truthful, and that both parties are legally able to enter into the agreement. In an M&A transaction, bring-down due diligence occurs shortly before closing, not signing, and a major reason for this is the need to compare the representations and warranties to the actual state of the target at the time of closing.
If any of the information in the representations and warranties turns out to have been untrue at signing (or was true at signing and changed between signing and closing) and the untrue