Cite as: 513 U. S. 561 (1995)
Opinion of the Court
KPMG. Alloyd's practice was to take inventory at year's end, so Wind Point and KPMG considered taking an earlier inventory to use in determining the purchase price. In the end they did not do so, relying instead on certain estimates and including provisions for adjustments after the transaction closed.
On December 20, 1989, Gustafson and Alloyd Holdings executed a contract of sale. Alloyd Holdings agreed to pay Gustafson and his coshareholders $18,709,000 for the sale of the stock plus a payment of $2,122,219, which reflected the estimated increase in Alloyd's net worth from the end of the previous year, the last period for which hard financial data were available. Article IV of the purchase agreement, entitled "Representations and Warranties of the Sellers," included assurances that the company's financial statements "present fairly . . . the Company's financial condition" and that between the date of the latest balance sheet and the date the agreement was executed "there ha[d] been no material adverse change in . . . [Alloyd's] financial condition." App. 115, 117. The contract also provided that if the year-end audit and financial statements revealed a variance between estimated and actual increased value, the disappointed party would receive an adjustment.
The year-end audit of Alloyd revealed that Alloyd's actual earnings for 1989 were lower than the estimates relied upon by the parties in negotiating the adjustment amount of $2,122,219. Under the contract, the buyers had a right to recover an adjustment amount of $815,000 from the sellers. Nevertheless, on February 11, 1991, the newly formed company (now called Alloyd Co., the same as the original company) and Wind Point brought suit in the United States District Court for the Northern District of Illinois, seeking outright rescission of the contract under § 12(2) of the Securities Act of 1933 (1933 Act or Act). Alloyd (the new company) claimed that statements made by Gustafson and his coshareholders regarding the financial data of their company
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