When the 10b-5 Representation Goes Walkabout

You know 10b-5 representations, right? (Because 10b-5 representation is a term of art, I’ll let slide use of the word representation.) Here’s one from an underwriting agreement, with the relevant language highlighted:

The audiovisual presentation made available to the public by the Company at [URL] is a “bona fide electronic roadshow” for purposes of Rule 433(d)(8)(ii) of the 1933 Act, and such presentation, together with the Prospectus, does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements in or omissions from such presentation or the Prospectus made in reliance upon and in strict conformity with information furnished to the Company in writing by any Underwriter through the Representative expressly for use therein.

Here’s what a 2004 Jones Day newsletter (here) says about 10b-5 representations:

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.

You see such representations not only in M&A contracts, but also in other contracts relating to purchase of securities. (Hence the example from the underwriting agreement.)

The Jones Day newsletter describes why sellers in M&A transactions are reluctant to give 10b-5 representations, but I have a more basic issue. You see 10b-5 representations in contracts that have nothing to do with purchase of securities. For example, I’ve seen them in credit agreements. What are they doing there? I wouldn’t be surprised if they’ve even made their way into international contracts unrelated to securities.

Have you seen 10b-5 provisions outside their normal habitat? What do you think of such expansive use of 10b-5 representations?

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

2 thoughts on “When the 10b-5 Representation Goes Walkabout”

  1. Good newsletter article. My takeaway is this:

    1/ Don’t ask your counterparty to make 10b-5 representations in non-security transactions. If you have needs, use another approach.

    2/ If your counterparty asks your side to make 10b-5 representations in a non-security transaction, resist the request. The counterparty may not be aware of the Pandora’s Jar they are opening and may be willing upon being shown the complexities of that messy approach to agree other language that gives adequate protection to the interest at stake.

    3/ If the counterparty is adamant in demanding 10b-5 language from your side, they’re probably not the shiniest penny in the piggy bank, and you can probably get enough “softeners” into the contract to make the 10b-5 stuff endurable. The Day Jones article is a good checklist for that purpose. You can start by making the 10b-5 provision “subject to the integration provision,” for example, which would take extra-contractual representations out of the danger zone.

  2. It’s common in debt transactions; it’s a representation that practitioners are familiar with. In many instances, you might be doing a bank loan transaction concurrently with a debt securities offering, to reach as many diverse group of investors as possible. In that case, since the issuer has to make the 10b-5 representation in the securities offering, it’s best to simply repeat the representation in the loan deal (kill two birds with one stone), rather than negotiate a different “i’m telling the truth” representation. The language is also standard language in committed deals – see this commitment letter for example:


    And since you’ve made that representation in the commitment letter, making pretty much the same representation in the loan deal is generally a non-issue.


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