Rule 10b-5 and Related Considerations in Aquisition Agreements

Rule 10b-5 under the Securities and Exchange Act of 1934 generally makes it unlawful, in connection with the purchase or sale of any security, for a person to (i) make any untrue statement of a material fact or (ii) omit to state a material fact necessary to prevent the statements made from being misleading. Rule 10b-5 applies to purchases and sales of securities in M&A transactions as well as to more routine purchases and sales of securities.

In the United States, buyers in M&A transactions frequently request that the acquisition agreement include a representation modeled on Rule 10b-5. Sellers almost universally resist these requests. This article addresses certain matters that should be considered when negotiating the inclusion or exclusion of a so-called "10b-5" representation in an agreement for an M&A transaction that is subject to Rule 10b-5 (i.e., a transaction involving the purchase and sale of securities using jurisdictional means). This article also addresses the need to