Terms Defined but Never Used
When a term is defined but never mentioned again, that constitutes an “unused definition.” The definition can and should be removed, unless the definition is referred to in a separate document. Importing definitions from other documents is a topic for another day, so I’m not going to address that issue here.
Does it really matter if a term is defined but not used? In most cases probably not, especially if the definition is something generic like “Exchange Act” or “IRS”. However, at a minimum,
- It looks unpolished.
- It’s evidence of a reliance on forms or copy-and-paste drafting.
- It makes long documents even longer.
There are two flavors of unused definitions. First is the in-line definition (aka “appositive” or “integrated”):
From Article III (Representations and Warranties of the Company) of the Microsoft / Activision Merger Agreement dated January 18, 2022:
With respect to any Section of this Article III, except (a) as disclosed in the reports, statements and other documents filed by the Company with the SEC or furnished by the Company to the SEC, in each case pursuant to the Exchange Act on or after January 1, 2021, and at least twenty-four (24) hours prior to the date of this Agreement (other than any disclosures contained or referenced therein under the captions “Risk Factors,” “Cautionary Statement,” “Quantitative and Qualitative Disclosures About Market Risk” and any other disclosures contained or referenced therein of information, factors or risks that are predictive, cautionary or forward-looking in nature) (the “Company Recent SEC Reports”)…
“Company Recent SEC Reports” is not mentioned again in the document. However, Article IV defines “Parent Recent SEC Reports” in a provision that is almost identical to the foregoing, except that “Parent Recent SEC Reports” is used again in the same paragraph. This could be the result of copy-and-pasting from Article IV to Article III, or a later revision that removed the references but not the definition. In either event, this is a minor blemish.
The second kind of unused definition is the definition found in an index or appendix of terms, where the definition is separated from its initial use. This kind of definition is especially susceptible to being left unused because it’s defined out of context. When an index of terms is copied from one contract to another, it’s easy to leave in irrelevant definitions. In the worst case scenario, such a definition might disclose confidential information about another transaction.